UNITED	STATES	DEPARTMENT	OF	TRANSPORTATION	

FEDERAL	AVIATION	ADMINISTRATION	

WASHINGTON,	D.C.	

SCOTT	MEYER	

	 	 Complainant,	

v.	 	 	 	 	 	 	 FAA	Docket	No.	16‐12‐10	

CITY	OF	CINCINNATI,	OHIO	

	 	 Respondent.	

COMPLAINANT SCOTT MEYER’S RESPONSE TO RESPONDENT CITY OF

CINCINNATI, OHIO’S ANSWER TO COMPLAINANT’S		

14 C.F.R. PART 16 COMPLAINT

	 Scott	Meyer	(“Complainant”)	hereby	responds	to	the	City	of	Cincinnati’s	

(“Respondent”)	admissions	and	denials	as	put	forth	in	its	Answer	to	Complainant’s	

14	C.F.R.	Part	16	Complaint.	(A	copy	of	the	Revised	Complaint	is	attached	as	Exhibit	

A	and	a	copy	of	the	Respondent’s	Answer	is	attached	as	Exhibit	B.)	

	 1.		 Complainant	does	not	counter	the	Respondent’s	admission	or	denials	

in	¶1	of	Respondent’s	Answer.		

	 2.	 In	response	to	the	statements	in	¶	2	of	the	Respondent’s	Answer,	

Complainant	will	agree	with	the	statement	that	the	FAA’s	Policy and Procedures

Concerning the Use of Airport Revenue,	64	Fed.	Reg.	7696,	is	not	a	regulation,	but	

rather	a	policy	(See 64	Fed.	Reg.	7696,	7715,	“The	FAA	will	publish	policy	guidance	

on	airport	revenue	use	and	enforcement	as	a	policy	rather	than	as	a	regulation”),	

but	only	in	so	far	as	the	designation	as	a	policy	in	no	way	diminishes	the	

enforcement	authority	of	the	policies	contained	therein	and	their	implementation	

and	enforcement	of	the	revenue	restrictions	put	forth	under	49	U.S.C.	§	47133.	See

64	Fed.	Reg.	7696,	7715	(“Section	112	of	the	1994	FAA	Authorization	Act	directs	the	
Secretary	to	‘establish	policies	and	procedures’	to	assure	‘prompt	and	effective	

enforcement’	of	the	revenue	retention	grant	assurances....”.)	The	FAA	continues,	“...	

a	regulation	is	not	required	to	obtain	compliance	with	the	revenue‐use	requirement.	

Airports	are	obligated	by	the	statutory	assurance	in	AIP	grant	agreements	pursuant	

to	§	47101(b)(2),	or	directly	under	§	47133,	and	rulemaking	is	not	required	to	

implement	those	statutes.”	64	Fed.	Reg.	7696,	7715.			

In	response	to	the	bulleted	points	contained	in	¶	2	of	the	

Respondent’s	Answer,	Complainant	responds	as	follows:	

 Bulleted	Point	1:	While	the	Complainant	admits	to	the	language	of	Paragraph	

13	of	the	2006	Purchase	and	Sale	Agreement	(“2006	Agreement”)	quoted	by	

the	Respondent,	at	no	point	has	the	Respondent	demonstrated	that	the	

reconfiguration	of	the	airport	would	have	not	been	“operationally	and	

economically	feasible.”	(See the	2006	Purchase	and	Sale	Agreement	attached	

as	Exhibit	C.)	The	Respondent	has	not	demonstrated	that	the	“costs	to	

reconfigure	the	Blue	Ash	Airport	prove[d]	to	be	prohibitive.”	Id.	Lastly,	the	

Respondent	has	not	demonstrated	that	“adequate	financing	assistance	[was]	

not	available.”	Id. It	is	only	under	one	of	these	exceptions	that	the	

Respondent	could	halt	any	attempt	to	reconfigure	the	Blue	Ash	Airport	

(“Airport”).		Nothing	in	the	2006	Agreement	allows	the	Respondent	to	close	

the	Airport	simply	because	it	wishes	to	use	the	revenue	received	from	the	

sale	for	purposes	other	than	aviation‐related	expenses.		

 Bulleted	Point	2:	Complainant	does	not	counter	the	Respondent’s	admission	

in	this	bulleted	point.	

 Bulleted	Point	3:	While	the	Complainant	agrees	that	an	Airport	Layout	Plan	

(“ALP”)	was	designed	and	delivered	to	the	FAA	for	approval	for	a	potential	

reconfiguration	of	the	Airport,	Complainant	counters	the	argument	that	the	

Respondent	aggressively	pursued	grants	from	the	FAA	in	order	to	finance	

this	ALP.	Respondent	submitted	an	initial	request	for	funding	in	an	amount	

(approximately	$9	million)	that	far	exceeded	the	requirements	of	the	airport.	

The	FAA	requested	that	Respondent	resubmit	with	a	more	reasonable	price.	
Respondent	did	resubmit	with	a	cost	of	approximately	$3.2	million.	The	FAA	

began	processing	this	request	and	found	it	required	additional	information	

to	implement	the	grant.	Respondent	did	not	give	the	FAA	the	additional	

information	needed,	thus	allowing	AIP	funds	to	expire.	Letter	from	the	FAA	

to	Cincinnati	Mayor	Mark	Mallory,	Dec.	13,	2010	(“Letter	to	Mallory	

12/13/10”).	(A	copy	of	the	letter	is	attached	as	Exhibit	D.)		

 Bulleted	Point	4:	Complainant	counters	Respondent’s	denial	of	Respondent’s	

lack	of	communication	regarding	the	use	of	Airport	revenue.	In	early	2010,	

the	FAA	began	its	own	investigation	into	the	possible	misallocation	of	funds	

from	the	sale	of	the	Airport.	Because	of	this	informal	investigation,	the	FAA	

was	prohibited	from	completing	the	grant	request	until	the	investigation	was	

completed.	See Factors Affecting Award of Airport Improvement Program

(AIP) Discretionary Funding, 64	Fed.	Reg.	31031.	(“It	is	the	intent	of	the	FAA	

to	generally	withhold	AIP	discretionary	funding	to	those	airports	requesting	

such	funding	that	are	being	investigated	by	the	FAA	for	misuse	of	airport	

generated	revenue.”)	If	the	Respondent	had	cooperated	with	the	FAA	at	this	

time,	the	funding	request	could	have	been	completed	and	financing	made	

available	for	the	Airport	reconfiguration.	However,	it	was	at	this	time	that	the	

Respondent,	via	a	March,	2010	phone	call	from	the	FAA,	learned	that	the	

revenue	from	the	Airport	was	restricted.		Respondent	admits	that	from	2006	

until	2010,	it	believed	the	money	received	from	the	sale	of	the	Airport	was	

unrestricted	revenue	and	thus	earmarked	it	for	other	expenditures.	Affidavit	

of	Fred	Anderton	(“Anderton	Aff.”)	at	¶	13.	(A	copy	of	the	Anderton	Aff.	is	

attached	as	Exhibit	E.)	Having	learned	of	the	statutory	restriction,	

Respondent	began	exploring	the	possibility	of	closing	the	Airport	in	order	to	

“unrestrict”	the	restricted	money	it	had	already	spent.	See Anderton	Aff.	at	¶	

12.	(“During	those	discussions	in	early	2010,	the	City	made	clear	its	desire	to	

use	the	sales	proceeds	for	uses	other	than	aviation,	and	also	indicated	that	is	

was	considering	closing	the	Airport.)	See also	the	Letter	to	Mallory	12/13/10.	

(“During	our	March,	2010,	telephone	call,	we	learned	that	the	City	of	Blue	

Ash	has	already	paid	the	City	of	Cincinnati	approximately	$1	million	of	the	
$37.5	million	transaction.	We	were	told	that	these	funds	were	being	used	for	

environmental	cleanup	associated	with	the	airport.”)	Complainant	notes	that	

prior	to	selling	the	Airport	property,	the	Respondent	should	have	known	as	

an	airport	owner	for	many	years,	that	the	money	would	be	restricted	and	

treated	it	as	such.		

 Bulleted	Point	5:	Complainant	counters	Respondent’s	denial	concerning	

revenue	diversion:		“At	all	times	since learning of FAA’s revenue diversion

concerns in 2010,	the	City	has	taken	steps	to	assure	that	the	full	total	

payments	received	under	the	2006	Agreement	was	available	to	be	

appropriated	for	Airport	purposes.”	(Emphasis	added.)	Thus,	from	2007‐

2010,	the	money	was	considered	unrestricted	by	the	Respondent	and	was	

spent	on	non‐aviation	projects.	See Letter	to	Mallory	12/13/10.	See also

Affidavit	of	David	Holmes	(“Holmes	Aff.”)	at	¶	¶	4‐5.	(A	copy	of	the	Holmes	

Aff.	is	attached	as	Exhibit	F.)	By	the	Respondent’s	own	admission,	it	did	not	

quarantine	the	money	to	prevent	accidental	expenditures,	but	instead	

comingled	the	money	in	the	“Miscellaneous	Permanent	Improvement	Fund”,	

Fund	757,	and	began	spending	the	money	on	other	expenses.	Respondent	

may	have	backfilled	the	Fund	once	finding	out	that	the	money	was	restricted,	

but	that	does	not	discount	the	fact	that	the	City	spent	the	aviation‐related	

revenue	for	non‐aviation	purposes.	

	 3.	 In	response	to	the	statements	in	¶	3	of	the	Respondent’s	Answer,	

Complainant	disagrees	with	the	assertion	that	the	Complainant	now	lacks	standing	

since	Respondent	closed	the	Airport	in	order	to	free	the	revenue	from	restriction.	

Although	the	Complainant	is	no	longer	a	user	of	the	Airport,	it	does	not	change	the	

fact	that	the	Complainant	was	a	user	of	the	Airport	during	its	operation	when	the	

revenue	diversion	occurred.	The	fact	that	the	Airport	is	now	closed	does	not	change	

Respondent’s	past	illegal	acts.		

	 4.	 In	response	to	the	statements	in	¶	4	of	the	Respondent’s	Answer,	

Complainant	counters	that	he	did	make	a	substantial	and	good	faith	effort	to	
informally	resolve	the	allegations.	As	Respondent	admits,	Complainant	engaged	in	

several	email	exchanges	and	personal	meetings	with	City	officials	in	order	to	resolve	

the	issues	surrounding	the	sale	of	the	Airport.	Complainant	did	raise	the	revenue	

restrictions	with	the	Respondent,	but	was	met	with	only	silence.	Complainant	

affirms	that	he	did	all	he	could	feasible	do	to	get	the	Respondent’s	attention	to	

handle	the	matter	informally.	This	formal	request	for	investigation	was	filed	as	a	last	

resort.	

	 5.	 In	response	to	the	repetitive	statements	in	¶¶	5‐12	of	the	

Respondent’s	Answer	that	the	allegation	of	revenue	diversion	is	moot	since	the	

2006	Agreement	was	rescinded	and	the	money	repaid,	Complainant	counters	that	

the	Respondent	is	under	a	misconception	that	the	money	must	have	been	spent	on	

non‐aviation	related	expenses	to	be	considered	diversion	under	the	statute.	In	Air

Transport Association of America and Aircraft Owners and Pilots Association v. City of

Los Angeles,	2009	FAA	Lexis	212	(FAA	2009),	the	FAA	Director,	Office	of	Airport,	

Compliance	and	Field	Operations,	determined	that	the	mere	act	of	transferring	

aviation	revenue	from	a	restricted	aviation	fund	to	a	general	fund	is	diversion	under	

49	U.S.C.	§	47133.	(A	copy	of	Air Transport Association of America and Aircraft

Owners and Pilots Association v. City of Los Angeles,	2009	FAA	Lexis	212	(FAA	2009)	

is	attached	as	Exhibit	G).	In	that	case,	the	City	of	Los	Angeles	was	required	not	only	

to	return	the	money	it	had	transferred	from	its	aviation	fund	to	its	general	fund,	it	

was	also	assessed	an	interest	penalty	for	the	period	of	time	that	it	remained	in	the	

general	fund.		Id at	*43.	In	this	case,	Respondent	did	not	even	place	the	Airport

revenue	in	a	restricted	fund	when	it	first	began	to	receive	the	payments.	The	money	

went	into	the	comingled	Miscellaneous	Permanent	Improvement	Fund,	Fund	757.	

Thus	from	2007,	when	the	first	payment	was	made,	until	2012	when	the	Airport	

was	closed,	Respondent	illegally	diverted	airport	revenue	as	defined	by	federal	law	

and	policy.	In	addition,	the	Respondent	ignores	the	fact	that	from	2006	to	2010,	it	

illegally	spent	a	portion	of	the	Airport	revenue	money	for	environmental	cleanup,	

which	is	not	made	moot	merely	by	rescinding	the	2006	Agreement.	Under	its	own	

admission,	Respondent	was	spending	Airport	money	for	environmental	cleanup	on	
non‐airport	land.	Holmes	Aff.	at	¶	¶	4‐5.		Lastly,	Respondent’s	argument	would	

render	the	penalty	portion	of	FAA’s	Policy and Procedures Concerning the Use of

Airport Revenue	(64	Fed.	Reg.	7696)	practically	superfluous.	An	Airport	owner,	who	

for	a	period	of	years,	illegally	diverts	restricted	airport	monies	and,	after	getting	

caught,	pays	the	money	back,	cannot	be	allowed	to	walk	away	with	no	consequence	

for	its	action.	Such	an	interpretation	of	49	U.S.C.	§	47133	and	the	FAA’s	Policy and

Procedures Concerning the Use of Airport Revenue	(64	Fed.	Reg.	7696)	would	

encourage	governments,	who	want	to	use	the	money	as	they	see	fit,	to	skirt	the	law.	

If	they	should	get	caught,	all	they	would	have	to	do	is	pay	the	money	back.	Since	the	

law	was	broken	when	the	Airport	revenue	was	placed	in	Fund	757	and	also	when	

spent	on	environmental	cleanup,	there	must	be	consequences	to	these	illegal	

actions.	

	 5A.	 In	response	to	the	repetitive	statements	in	¶¶	5,	6,	9,	10,	and	12	of	the	

Respondent’s	Answer	that	none	of	the	payments	received	under	the	2006	

Agreement	“are	or	were”	Airport	revenue	because	it	rescinded	the	2006	Agreement	

and	returned	the	payments	back	to	Blue	Ash,	Complainant	counters	that	this	

statement	is	not	correct.	The	payments	were	Airport	revenue	as	defined	by	49	U.S.C.	

§	47133,	the	FAA’s	Policy and Procedures Concerning the Use of Airport Revenue	(64	

Fed.	Reg.	7696)	and	numerous	FAA	decisions	interpreting	the	same.	The	moment	

the	first	payment	was	made,	the	money	became	Airport	revenue.	Returning	the	

money	does	not	change	its	character	when	received.		

	 6.	 In	response	to	the	statement	in	¶	6	of	the	Respondent’s	Answer	that	

the	Respondent	maintained	Fund	757,	the	“Miscellaneous	Permanent	Improvement	

Fund”,	with	a	sufficient	“unappropriated	surplus	of	funds”	to	pay	for	expenditures	

without	using	the	proceeds	of	the	2006	Agreement,	Complainant	counters	that	the	

Respondent	kept	the	Airport	revenue	comingled	and	thus	cannot	be	certain	that	the	

funds	received	were	not	spent	on	non‐aviation	expenses.	Since	the	Respondent	

claims	it	did	not	know	that	the	Airport	money	received	was	restricted	by	statute,	the	

money	would	not	have	been	monitored	and	certainly	was	not	restricted	within	the	
fund.	As	the	budget	documents,	ordinances	and	motions	referenced	in	either	the	

Amended	Complaint,	Respondent’s	Answer,	or	both	demonstrate,	that	money	was	

allocated	to	pay	for	apartments,	environmental	clean‐ups	and	streetcars,	which	are	

all	non‐aviation	related	expenses.	See	Exhibits	4,	5,	6,	7,	8,	9,	10,	12,	13,	14,	15,	and	

16	of	the	Amended	Complaint.	

	 7.	 In	response	to	the	statement	in	¶	7	of	the	Respondent’s	Answer	that	

under	Ohio	law,	Respondent	was	required	to	place	the	money	in	the	account	that	

was	used	to	purchase	that	property	or,	if	closed,	a	permanent	improvement	fund,	

Complainant	would	direct	the	FAA	and	the	Respondent	to	the	Supremacy	Clause.	

U.S.	Const.	Art.	VI.	The	Supremacy	Clause	requires	that	federal	law	supercede	a	state	

law	that	either	directly	or	by	implication	conflicts	with	federal	law.	The	federal	law	

in	question	here,	49	U.S.C.	§	47133,	requires	all	money	received	from	the	sale	of	

airport	land	to	be	used	only	for	aviation	related	activities.	As	such,	the	money	must	

be	kept	separate	from	general	funds	to	prevent	the	possibility	of	illegal	revenue	

diversion.	See Air Transport Association of America and Aircraft Owners and Pilots

Association v. City of Los Angeles,	2009	FAA	Lexis	212	(FAA	2009).	While	Respondent	

cites	to	the	Ohio	law	requiring	it	to	place	the	money	in	this	permanent	improvement	

fund,	Fund	757,	(since	the	account	that	was	used	to	purchase	the	land	was	closed),	

the	Supremacy	Clause	would	require	that	the	federal	statute	supercede	this	state	

law	as	it	and	the	federal	statute	are	in	conflict.	Indeed,	Title	49	of	the	United	States	

Codes	gives	the	FAA	broad	responsibilities	over	all	air	safety	and	efficiency.	As	

stated	by	the	Director	in	Air Transport Association of America and Aircraft Owners

and Pilots Association v. City of Los Angeles,	2009	FAA	Lexis	212	(FAA	2009),	“The	

Federal	Government	has	preempted	the	areas	of	airspace	use	and	management,	air	

traffic	control,	safety	and	the	regulation	of	aircraft	noise	at	it	source”	Id at	*49.	

Under	49	USC	§	40103,	the	U.S.	Government	also	has	exclusive	sovereignty	over	the	

airspace	of	the	United	States.	Once	an	airport	owner	receives	federal	financial	

assistance,	it	becomes	subject	to	the	FAA’s	ultimate	authority	over	its	aviation	

activities	and	the	federal	government	has	issued	the	governing	statutory	mandates	

to	ensure	compliance.	Lastly,	in	the	Affidavit	of	Kathleen	Creager	(“Creager	Aff.”)	at	
¶	7,	she	states	that	the	Complainant	misidentified	the	Lunken	Airport	Fund	104	in	

the	Complaint	as	the	General	Aviation	Fund.	(A	copy	of	the	Creager	Aff.	is	attached	

as	Exhibit	H.)Complainant	corrects	Creager’s	statement	in	that	the	City’s	Lunken	

Airport	Fund	104	was,	when	the	Airport	property	was	sold	in	2006,	known	as	the	

General	Aviation	Fund.	See	City	of	Cincinnati	Approved	2007/2008	Biennial	Budget.	

(The	necessary	portion	of	the	City	of	Cincinnati	Approved	2007/2008	Biennial	

Budget	is	attached	as	Exhibit	I.)	According	to	this	approved	budget,	the	Division	of	

General	Aviation	operates	not	only	the	Lunken	Airport,	but	also	the	Blue	Ash	

Airport.		

	 8.		 In	response	to	the	statement	in	¶	8	of	the	Respondent’s	Answer	that	

Ordinance	354‐2008	authorized	the	payment	of	$200,000	for	lead	remediation	

“from	the	unappropriated	surplus	of	Fund	757”,	Complainant	agrees	that	the	

Ordinance	quote	is	accurate,	however,	this	does	not	mean	that	the	money	did	not	

come	from	the	Airport	proceeds.	Fund	757	contained	proceeds	from	the	sale	of	the	

Airport	comingled	with	other	revenue.	In	2008,	when	this	ordinance	was	enacted,	

Respondent	claims	to	have	not	known	that	the	Airport	revenue	was	restricted.	Thus,	

to	the	Respondent,	the	Airport	money	could	have	also	been	considered	

“unapproriated	funds”	and	indeed,	in	the	Letter	to	Mallory,	12/13/10,	the	FAA	

states	that	Respondent	told	them	that	a	portion	of	the	Airport	proceeds	was	going	to	

pay	for	environmental	cleanup.	Complainant	also	states	that	since	the	revenue	was	

placed	in	a	comingled	account	rather	than	a	restricted	airport	account,	the	money	

was	illegally	diverted	at	that	moment	regardless	of	whether	any	money	was	actually	

spent.	See Air Transport Association of America and Aircraft Owners and Pilots

Association v. City of Los Angeles,	2009	FAA	Lexis	212	(FAA	2009).	

	 9.		 In	response	to	the	statement	in	¶	9	of	the	Respondent’s	Answer	that	

all	of	the	proceeds	from	the	2006	Agreement	sale	“were	preserved	and	were	not	

spent	for	any	purpose”,	Complainant	counters	that	Airport	revenue	was	placed	into	

a	comingled	fund,	Fund	757,	and	thus	was	not	preserved	in	a	restricted	fund	as	

required	by	the	standards	set	forth	by	the	FAA	in	Air Transport Association of
America and Aircraft Owners and Pilots Association v. City of Los Angeles,	2009	FAA	

Lexis	212	(FAA	2009).	Complainant	agrees	that	Ordinance	7‐2011	states	that	money	

necessary	to	meet	Ohio’s	Clean	Ohio	Revitalization	Fund	matching	fund	requirement	

(for	lead	remediation)	was	“available	in	the	unappropriated	surplus	of	

Miscellaneous	Permanent	Improvement	Fund	757”,	however,	this	does	not	mean	

that	the	Airport	revenue	placed	in	Fund	757	was	not	illegally	diverted.	Since	the	

revenue	was	placed	in	a	comingled	account	rather	than	a	restricted	airport	account,	

the	money	was	illegally	diverted	at	that	moment	regardless	of	whether	any	money	

was	actually	spent.	See Air Transport Association of America and Aircraft Owners and

Pilots Association v. City of Los Angeles,	2009	FAA	Lexis	212	(FAA	2009).	

	 10.	 In	response	to	the	statement	in	¶	10	of	the	Respondent’s	Answer	that	

all	of	the	proceeds	from	the	2006	Agreement	sale	“were	preserved	and	were	not	

spent	for	any	purpose”,	Complainant	counters	that	Airport	revenue	was	placed	into	

a	comingled	fund,	Fund	757,	and	thus	was	not	preserved	in	a	restricted	fund	as	

required	by	the	standards	set	forth	by	the	FAA	in	Air Transport Association of

America and Aircraft Owners and Pilots Association v. City of Los Angeles,	2009	FAA	

Lexis	212	(FAA	2009).	Complainant	agrees	that	Ordinance	292‐2012	authorized	the	

transfer	of	$170,000	from	the	“unappropriated	surplus	of	Miscellaneous	Permanent	

Improvement	Fund	757”	to	pay	for	the	removal	of	contaminated	soil	and	

underground	storage	tanks,	however,	this	does	not	mean	that	the	Airport	revenue	

placed	in	Fund	757	was	not	illegally	diverted.	Since	the	revenue	was	placed	in	a	

comingled	account	rather	than	a	restricted	airport	account,	the	money	was	illegal	

diverted	at	that	moment	regardless	of	whether	any	money	was	actually	spent.	See

Air Transport Association of America and Aircraft Owners and Pilots Association v.

City of Los Angeles,	2009	FAA	Lexis	212	(FAA	2009).	

	 11.	 In	response	to	the	statement	in	¶	11	of	the	Respondent’s	Answer	that	

all	of	the	proceeds	from	the	2006	Agreement	sale	“were	preserved	and	were	not	

spent	for	any	purpose”,	Complainant	counters	that	Airport	revenue	was	placed	into	

a	comingled	fund,	Fund	757,	and	thus	was	not	preserved	in	a	restricted	fund	as	
required	by	the	standards	set	forth	by	the	FAA	in	Air Transport Association of

America and Aircraft Owners and Pilots Association v. City of Los Angeles,	2009	FAA	

Lexis	212	(FAA	2009).	Complainant	agrees	that	two	transfers	of	$250,000	were	

made	from	Fund	757	in	2009	and	2010	respectively,	however,	this	does	not	mean	

that	the	money	did	not	come	from	the	Airport	proceeds.	Fund	757	contained	

proceeds	from	the	sale	of	Airport	property	comingled	with	other	revenue	and	in	

2009	and	2010,	when	these	transfers	were	made,	Respondent	claims	to	have	not	

known	that	the	Airport	revenue	was	restricted.	Thus,	to	the	Respondent,	the	Airport	

money	could	have	also	been	considered	“unapproriated	funds”	and	indeed,	in	the	

Letter	to	Mallory,	12/13/10,	the	FAA	states	that	Respondent	told	them	that	a	

portion	of	the	Airport	proceeds	was	going	to	pay	for	environmental	cleanup.	

Complainant	also	states	that	since	the	revenue	was	placed	in	a	comingled	account	

rather	than	a	restricted	airport	account,	the	money	was	illegal	diverted	at	that	

moment	regardless	of	whether	any	money	was	actually	spent.	See Air Transport

Association of America and Aircraft Owners and Pilots Association v. City of Los

Angeles,	2009	FAA	Lexis	212	(FAA	2009).	 	 	

	 12.	 In	response	to	the	statement	in	¶	12	of	the	Respondent’s	Answer	that	

all	of	the	proceeds	from	the	2006	Agreement	sale	“were	preserved	and	were	not	

spent	for	any	purpose”,	Complainant	counters	that	Airport	revenue	was	placed	into	

a	comingled	fund,	Fund	757,	and	thus	was	not	preserved	in	a	restricted	fund	as	

required	by	the	standards	set	forth	by	the	FAA	in	Air Transport Association of

America and Aircraft Owners and Pilots Association v. City of Los Angeles,	2009	FAA	

Lexis	212	(FAA	2009).	Complainant	agrees	that	Fund	757	is	“used	for	numerous	

expenditures	and	purposes	that	are	unrelated	to	the	2006	Agreement.”	It	is	these	

expenditures	that	compromise	the	Airport	revenue.	From	2007‐2012,	Fund	757	

contained	proceeds	from	the	sale	of	Airport	comingled	with	other	revenue.	

Respondent	claims	to	have	not	known	that	the	Airport	revenue	was	restricted	until	

2010.	Thus,	to	the	Respondent,	the	Airport	money	could	have	also	been	considered	

“unapproriated	funds”	and	spent	illegally	on	these	numerous	expenditures	and	

purposes.	Complainant	also	states	that	since	the	revenue	was	placed	in	a	comingled	
account	rather	than	a	restricted	airport	account,	the	money	was	illegal	diverted	at	

that	moment	regardless	of	whether	any	money	was	actually	spent. See Air Transport

Association of America and Aircraft Owners and Pilots Association v. City of Los

Angeles,	2009	FAA	Lexis	212	(FAA	2009).	 	

	 13.	 Complainant	does	not	counter	the	Respondent’s	admission	or	denials	

in	¶	13	of	Respondent’s	Answer.	

	 WHEREFORE,	Complainant	reaffirms	his	allegations	that	Respondent	

violated	49	USC	§	47133	by	illegally	diverting	airport	revenue	received	from	the	

2006	sale	of	Blue	Ash	Airport	property	and	respectfully	requests	a	formal	

investigation.		

	 Respectfully	submitted	this	17th	day	of	January,	2013:	

	 __________________________________________________	

	 Scott	Meyer	

	 7107	Overton	Way	

	 Maineville,	OH		45039	

Scott@ScottMeyer.com

	 Telephone:	(513)	708‐6199	
CERTIFICATE OF SERVICE

I	hereby	certify	that	I	have	this	day	served	the	foregoing	Complainant Scott

Meyer’s Response to Respondent City of Cincinnati, Ohio’s Answer to

Complainant’s 14 C.F.R. Part 16 Complaint on	the	following	parties	at	the	

following	addresses:	

Office	of	the	Chief	Counsel	

Attn:	FAA	Part	16	Airport	Proceedings	Docket,	AGC‐610	

Federal	Aviation	Administration	

800	Independent	Avenue,	S.W.	

Washington,	D.C.	20592	

Randall.Fiertz@FAA.gov

Original and 3 copies delivered U.S. mail

John	P.	Curp	

Andrew	W.	Garth	

Office	of	the	City	Solicitor,	City	of	Cincinnati	

801	Plum	Street,	Suite	234	

Cincinnati,	OH		45202	

Andrew.Garth@Cincinnati‐Oh.gov

John.Curp@Cincinnati‐Oh.gov

W.	Eric	Pilsk	

Peter	J.	Kirsch	

Kaplan	Kirsch	&	Rockwell	LLP	

1001	Connecticut	Ave.,	NW,	Suite	800	

Washington,	D.C.	20036	

EPilsk@KaplanKirsch.com

PKirsch@KaplanKirsch.com

Copy delivered via email. Original delivered U.S. mail

Dated	this	17th	day	of	January,	2013	

___________________________________________	

Scott	Meyer	
Exhibit A

Amended Complaint    
Scott Meyer 

7107 Overton Way 

Maineville, OH 45039 

513-708-6199 

S_c;gtt.@ $cof!M@_yg r. CQ m 

AMENDED COMPLAINT 

Attention: FAA Part 16 Airport Proceedings Docket 

AGC-610 

Federal Aviation Administration 

800 Independence Ave , SW 

Washington, DC 20591 

RE: Scott Meyer v. City of Cincinnati, Ohio: Alleging 

Violations by the City of Cincinnati under 49 U.S.C. § 47133, 

Restriction on Use of Revenues 

1 The complainant files this Amended Complaint to correct deficiencies in the 

orig1nal Formal Complaint, filed August 21, 2012, FAA Docket No. 16-12-1 0. 

which was dismissed without prejudice as incomplete under 14 CFR § 16.27. 

2 Under this Amended Complaint, the complainant requests an official investigation 

as provided under 14 CFR Part 16 of the City of Cincinnati ("Cincinnati"), 801 

Plum Street, Cincinnati, OH 45202, for violations under 49 US C. § 47133 

("Statute") and the regulations enacted there under, specifically 64 FR 7696, the 

FAA's Policy and Procedures Concerning the Use of Airport Revenue ("Policy"). 

On November 8, 2006, under an Agreement of Purchase and Sale ("Agreement") 

Cincinnati sold the City of Blue Ash ("Blue Ash") approximately 130 acres of 

a1rport property for $37.5M payable over 30 years. [See Attached, Exhibit 1 

Agreement of Purchase and Sale, November 8, 2006.] The initial payments were 

to begin in 2007, with $1M installments being paid from 2007-2017. The 

installments would then increase to $1.25M from 2017-2027 and then $1.5M 

from 2027-2037. As a result of the sale of this portion of the airport property, 

Cincinnati committed to pursue a reconfiguration of Blue Ash Airport on the 

remain1ng 98 acres of airport property using the proceeds from the sale. Blue 

Ash did indeed begin making payments in 2007 and has continued to make $1M 

payments to Cincinnati for a total of $6M having been paid toward the purchase 

price. Cincinnati, however, did not move forward with the reconfiguration of the 

airport as expected pursuant to the 2006 Agreement. Instead, I have evidence 

that a substantial portion of the money received was used for illegal 

expenditures--that Cincinnati used the revenue from the sale of airport property 

for non-aviation related expenses in violation of the Statute and Policy. When 

private citizens and aviation-related organizations, including the FAA, began 

1 
questioning Cincinnati about the location and use of the airport sale revenue, 

Cincinnati did not respond and instead, initiated plans to rescind the Agreement 

with Blue Ash, close the airport, and enter into a new Conveyance Agreement so 

that Cincinnati could avoid the requirements of the Statute and use the money for 

other purposes than aviation. [See Attached, Exhibit 2 Blue Ash Airport Remedial 

Agreement and Conveyance Agreement] I believe that Cincinnati had already 

been using the money illegally and part of the reasoning behind the rescission 

and new Conveyance Agreement was to hide the fact that it had already 

knowingly misappropriated funds. 

3 The complainant is directly and substantially affected by Cincinnati's 

noncompliance. Scott Meyer is a Cincinnati based pilot who rents airplanes, 

receives aeronautical training and purchases aviation fuel from businesses on 

the Blue Ash Airport field. As a business customer and frequent user of the 

airport. he is directly affected by the lack of maintenance and care given to the 

airport by Cincinnati ancl the reconfiguration that should have been done using 

the airport sale proceeds as dictated by the Statute and agreed to in the 2006 

contract. 

4 As required by 14 CFR §16.21, the complainant certifies that several substantial 

and good faith efforts to informally resolve the disputed matter have been made 

prior to the filing of this complaint. Also as required under 14 CFR §16.21 and 14 

CFR §16.23(b)(2), I have provided the FAA with a listing and brief explanation of 

these attempts as well as the required documents to support my statements. 

[See Attached, Exhibit 3 Outline of Informal Attempts at Resolution with Attached 

Documentation] 

LIST OF VIOLATIONS AS PERCEIVED BY THE COMPLAINANT: 

5 Violation 1: According to the 2009/2010 Approved Biennial Budget of Cincinnati, 

Budget Policy ltem14, pages 11-12, $300,000 was paid toward the Mt. Auburn 

Place Condos Project, the funds being repaid in 2009 from the Blue Ash Airport 

Fund. This payment is clearly a violation of the Statute in that proceeds from the 

sale of airport property was being used to pay for condominiums unrelated to the 

airport. [See Attached, Exhibit 4 200912010 Approved Biennial Budget of 

Cincinnati, Budget Policy Item 14, pages 11-12.] 

6 Violation 2: According to the 200912010 Approved Biennial Budget of Cincinnati, 

Budget Policy Item 14, pages 11-12, $11M was earmarked for the construction of 

Cincinnati's streetcar system. The streetcar system will be debt financed for 

approximately 10 years and proceeds from the sale of Blue Ash Airport property 

will be used to pay the debt service for 10 years. [See Attached, Exhibit 5 

200912010 Approved Biennial Budget of Cincinnati, Budget Policy Item 14, pages 

11-12] The use of this money for the streetcar was clearly still on the Council 

members' minds well into 2010. A Motion was made by Chris Monzel, Cincinnati 

City Council, on April19, 2010 to suspend all activity regarding the streetcar and 

2 
to put "all proceeds from the sale of the Blue Ash Airport (both past and future 

sales) ... for capital improvement projects in the City's 52 neighborhoods. [See 

Attached, Exhibit 6 Motion by Chris Monzel, Cincinnati City Councilman, April 19, 

2012.] A Motion was then made by Charlie Winburn, Cincinnati City Council, on 

Oct. 6, 2010 asking, "Should the $11M from the Blue Ash Airport capital 

revenues originally set aside for the streetcar be redirected as promised to fund 

future economic development with a view toward neighborhood revitalization and 

job creation?" [See Attached. Exhibit 7 Motion by Charlie Winburn, Cincinnati 

City Councilman, October 6, 2010] This Motion appears to confirm the statement 

in the 2009/2010 Budget that $11M from the sale was earmarked for the 

streetcar. I can find no further action on these Motions; however, the fact that 

they were made leads one to conclude that if Cincinnati believed it could spend 

the airport revenue on items such as condo refurbishment and streetcars, then it 

possibly was spending this money on other items at the same time. 

7 Violation 3: On November 28, 2007, Cincinnati passed Ordinance 416-2007 

which amended Ordinance No. 569-1952, "which directed that revenues received 

from rental or sale of any City property purchased for any purpose other than 

expressways, Blue Ash Airport, Park Board or Recreation Commission purposes, 

be deposited into Fund 757, Miscellaneous Permanent Improvement Fund, for 

the purpose of allowing the proceeds from the sale of the Blue Ash Airport 

property to be deposited into Fund 757." [See Attached, Exhibit 8 Cincinnati 

Ordinance 416-2007] Tl1us, Cincinnati now allows money from the sale of the 

Blue Ash Airport property to be deposited into this Miscellaneous Fund. As a 

result, the revenue from the sale of the airport property is being coming led with 

other types of revenue. This clearly is illegal airport revenue diversion 

considering that money from the airport sale now cannot be separately 

accounted for and could be going to pay for non-aviation related expenses. In 

addition, Cincinnati knew at that time that airport revenue should be kept 

restricted in that it had a restricted fund, General Aviation Fund 104, specifically 

for aviation related revenues and expenditures. [See Attached, Exhibit 9 City of 

Cincinnati Approved 2006 Budget Update page 10 and Appendix A 2006 

Restricted Funds Capital Budget Update Summary; and City of Cincinnati 

Approved 2007/2008 Biennial Budget pages 51, 98.] Cincinnati then abruptly 

allows for the coming ling of the money after the Blue Ash Airport property sale. 

would question whether Cincinnati knew, or should have known, as far back as 

2007, that comingling airport revenue and using it on other expenses was wrong. 

8 Violation 4: On October 22, 2008, Cincinnati passed Ordinance 354-2008 

authorizing the transfer of $200,000 from the Miscellaneous Permanent 

Improvement Fund 757 to develop a lead remediation work plan at the Blue Ash 

Airport. [See Attached, Exhibit 10 Cincinnati Ordinance 354-2008.] According to 

correspondence from the FAA, the FAA stopped considering the property sold to 

Blue Ash an airport after title was transmitted. [See Attached, Exhibit 11 Email 

from Oeandra Brooks, Airport Compliance Specialist, FAA, to Scott Meyer. 

August 20, 2012] As Cincinnati conveyed title to Blue Ash in June, 2007, the 

:J 
property requiring the lead remediation was no longer an airport. Since it was no 

longer an airport, Cincinnati could not spend revenue from the sale of airport land 

on lead remediation on that property. Since the money from the lead remediation 

was coming from Fund 757, which now includes revenues from the Blue Ash 

Airport sale, Cincinnati illegally spent $200,000 of airport revenue on non-aviation 

related expenses. 

9 Violation 5: On January 26, 2011, Cincinnati passed Ordinance 7-2011 

authorizing the City Manager to accept and appropriate a grant for $1,087,500 

from the Ohio's Clean Oh1o Revitalization Fund (CORF) to provide resources to 

remediate lead contaminated soil at the Blue Ash Airport (meaning the land sold 

to Blue Ash which is no longer an airport) and authorizing the "transfer and 

appropriation of $375,000 for the purpose of providing the 25% local match 

funding requirement for the grant." [See Attached, Exhibit 12 Cincinnati 

Ordinance 7 -2011.] The Ordinance allowed the matching funds to be transferred 

from the Miscellaneous Permanent Improvement Fund 757. Thus, Cincinnati 

illegally spent $375,000 of airport revenue on non-aviation related expenses. 

10 Violation 6 On August 1, 2012. Cincinnati passed Ordinance 294-2012 

authorizing the transfer of $170,000 from the Miscellaneous Permanent 

Improvement Fund 757 to provide resources to "complete the removal of 

contaminated soil and underground storage tanks from Blue Ash Airport property 

to be transferred to the City of Blue Ash and for costs associated with final 

reporting to the City of Blue Ash." [See Attached, Exhibit 13 Cincinnati Ordinance 

294-2012] As with Violation 5, the environmental clean-up was for the Blue Ash 

Airport property sold to Blue Ash, land which is no longer an airport. Thus, 

Cincinnati illegally spent $170,000 of airport revenue on non-aviation related 

expenses. 

11 Violation 7: According to the Cincinnati 2011-2016 Capital Investment Program 

Volume II, Exhibit 2. page 13, in 2010, $250,000 from the Blue Ash Airport Sale 

was placed in the General Capital Investment Program. [See Attached, Exhibit 

14 Cincinnati 2011-2018 Capital Investment Program Volume II, Exhibit 2, page 

13.] Therefore, it was coming led with other Cincinnati funds, which could be 

considered as revenue diversion under the Policy if an accounting cannot be 

made as to how those mon1es were spent. According to the 2009/2010 Approved 

Biennial Budget of Cincinnati Financial Summaries, page 132, $250,000 of the 

Blue Ash Airport Sale Proceeds was placed in the General Capital Fund for 

2009. [See Attached, Exhibit 15 Cincinnati 2009/2010 Approved Biennial Budget 

of Cincinnati Financial Summaries, page 132.] Again, the money was not 

restricted. In addition, since this money was placed in the General Capital Fund, 

it raises the question of whether this $500,000 was also illegally spent. At the 

very least, the disposition of that money is questionable. 

12 Violations 8-19: According to the Searchable Expenditure Database provided on 

the City of Cincinnati'S website, Cmcinnati has spent over $2.8M from the 
Miscellaneous Permanent Improvement Fund from 2009-2012. [See Attached, 

Exhibit 16 Cinc1nnati Searchable Expenditure Database] (According to the same 

website, no expenditures were made from this fund in 2007 or 2008, the years 

just after the Blue Ash sale and prior to the proceeds inclusion in Cincinnali 

budgets.) These expenses are for taxes, fees and court costs coming from either 

the Finance, Accounts & Audits Department or the Transportation and 

Engineering Departments. While it is possible some of this money was spent on 

Lunken or the remaining ninety-eight acres of the Blue Ash Airport, it 1s also 

extremely likely that this money was spent on purposes other than for airport 

related expenses. Since this money is coming from the fund that we know holds 

proceeds from the sale of the Blue Ash Airport property, it is airport revenue 

money that Cincmnat1 is spending illegally on non-aviation related expenses. 

13 Based on the above violations, I request a formal investigation into Cincinnati's 

use of the revenue received from the 2006 sale of Blue Ash Airport property. As 

the Blue Ash Airport is now closed as of August 29, 2012, I rescind my request 

for an inJunction against the closure of the airport. 

Submitted this day, September 24, 2012. 

r ·' 
I hereby certify that I have this day served the foregoing Amended Complaint on 

the following persons at the following addresses· 

John P Curp, Esq., City Solicitor 

City of Cincinnati 

801 Plum Street 

Cincinnati, OH 45202 

W Eric Pilsk, Esq. 

Kaplan Kirsch & Rockwell LLP 

1001 Connecticut Ave., N.W, Suite 800 

Washington, D.C. 20036 

Dated this day, September 24, 2012. 

6 
Index to Exhibits 

Exhibit 1 Agreement of Purchase and Sale, November 8. 2006 

Exhibit 2 Blue Ash Airport Remedial Agreement and Conveyance Agreement 

Exhibit 3 Outline of Informal Attempts at Resolution with Attached Documentation 

Exhibit 4 2009/2010 Approved llicnniallludgct of' Cincinnati, Budget Policy Item 14, pages 11-

12 

Exhibit 5 2009/2010 Approved Biennial Budget of Cincinnati, Budget Policy Item 14, pages 11-

12 

I•:xhibit 6 Motion by Chris Monzcl, Cincinnati City Councilman, April 19, 2012. 

I<:xhibit 7 Motion by Charlie Winburn, Cincinnati City Councilman. October 6. 2010 

Exhibit 8 Cincinnati Ordinance 416-2007 

Exhibit 9 City oi"Cineinnati Approved 2006 Budget Update page I 0 and Appendix A 2006 

Restricted Funds Capital Budget Update Summary; and City of' Cincinnati Approved 2007/2008 

Biennial Budget pages 51, 98 

Exhibit 10 Cincinnati Ordinance 354-2008 

Exhibit 11 Email from Deandra Brooks, Airport Compliance Specialist, FAA, to Scott Meyer, 

August 20, 2012 

Exhibit 12 Cincinnati Ordinance 7-20 II 

Exhibit 13 Cincinnati Ordinance 294-2012 

Exhibit 14 Cincinnati 2011-2018 Capital Investment Program Volume II, Exhibit 2, page 13 

Exhibit 15 Cincinnati 2009/2010 Approved Biennial Budget of Cincinnati Financial Summaries, 

page 132 

Exhibit 16 Cincinnati Searchable Expenditure Database 

Exhibit 17 September II. 2012 Letter ll·om Scott Meyer Re: September 5, 2012 Letter 

Submitted by W. Eric Pilsk, Kaplan Kirsch Rockwell, for Dismissal of Part 16 Complaint 

Submitted by Scott Meyer on August 22. 2012 Regarding the City of Cincinnati 
Exhibit B

Respondent’s Answer    
UNITED STATES DEPARTMENT OF TRANSPORTATION 

FEDERAL AVIATION ADMINISTRATION 

WASHINGTON, D.C. 

SCOTT MEYER 

Complainant, 

v. FAA Docket No. 16-12-10 

CITY OF CINCINNATI. OHIO 

Respondent. 

RESPONDENT CITY OF CINCINNATI, OHIO'S ANSWER TO 

COMPLAINANT'S 14 C.F.R. PART 16 COMPLAINT 

Designation of persons to receive service for the City of Cincinnati, Ohio: 

John P. Curp 

Andrew W. Garth 

Office of the City Solicitor 

City of Cincinnati 

80 l Plum Street, Suite 234 

Cincinnati. OH 45202 

andrew.garth@cincinnati-oh.gov 

john.curp@cincinnati-oh.gov 

Telephone: (513) 352-3345 

Facsimile: (513) 352-1515 

W. Eric Pi1sk 

Peter .I. Kirsch 

Kaplan Kirsch & Rockwell LLP 

1001 Connecticut Ave., NW, 

Suite 800 

Washington, D.C. 20036 

epilsk@kaplankirsch.com 

pkirsch@kaplankirsch.com 

Telephone: (202) 955-5600 

Facsimile: (202) 955-5616 
ANSWER OF THE CITY OF CINCINNATI 

The City of Cincinnati. Ohio ("Respondent" or "City"), by its undersigned counseL 

hereby answers and responds, upon its best information and belie[ to the Complaint filed by 

Scott Meyer (''Complainant") as set forth below. Respondent denies all allegations contained in 

the Complaint except to the extent such allegations are specifically admitted in this Answer. 

Respondent fUI1her incorporates by reference the declarations of Fred Anderton, Kathleen 

Creager, and David Holmes. the Memorandum in Support of Respondent's Answer, and 

accompanying exhibits. all of which are tiled concurrently herewith. 

Complainant failed to provide numbered paragraphs or otherwise ditTerentiate the 

allegations in the Complaint. For the Director's benefit. Respondent has provided an annotated 

version of the Complaint that adds numbers to each paragraph as Attachment A hereto, and 

drafted the Answer to correspond to the numbered paragraphs provided in the annotated 

Complaint. 

I. Respondent admits that FAA dismissed Complainant's original complaint, Docket 

Number 16-11-10. without prejudice. Respondent neither admits nor denies the remainder of 

Paragraph I. 

2. In response to the allegations of Paragraph 2 of the Amended Complaint. the City 

admits the allegations of the tirst four sentences, except that the City denies that FAA's Policy 

and Procedures Concerning the Use oj'Airport Revenue, 64 Fed. Reg. 7696 (Feb. 16 I999) is a 

regulation enacted under 49 U.S.C § 47133. See 64 Fed. Reg. 7696, 7715 ("The FAA will 

publish policy guidance on airport revenue use and enforcement as a policy rather than as a 

regulation.") In response to the remaining allegations of Paragraph 1, the City states as follows: 
• Respondent denies that the City "committed to pursue a reconfiguration" of Blue Ash Airport 

("Airport") using the proceeds from the sale. As Paragraph 13 of the 2006 Purchase and Sale 

Agreement ("2006 Agreement") between the City and Blue Ash clearly states, the City 

agreed to "provide for the reconfiguration" of the Airport only ''to the extent that it is 

operationally and economically feasible." (/\ copy of the 2006 Agreement is attached as 

Exhibit C to the Anderton Affidavit.) Paragraph 13 also states that ""[i]f at any time between 

the Effective Date and the Possession Date. Seller's estimated costs to reconfigure the Blue 

Ash Airport prove to be prohibitive. or if adequate grant financing assistance is not available. 

then Seller reserves the right to close the Blue Ash Airport.'" I d. 

• Respondent admits that Blue Ash began making payments pursuant to the 2006 Agreement 

in 2007. and that. as of August 2012. Blue Ash had made payments totaling $6 million. 

• Respondent denies that it did not move forward with the reconfiguration of the Airport. 

Beginning after the execution of the 2006 Agreement. the City began to plan for 

reconfiguration of the Airport in order to keep it open. Beginning in late 2006. in connection 

with its efforts to find a way to keep the Airport open alier transfer of the 130 acres to Blue 

Ash. the City held informal discussions with F !\A staff about obtaining grants for 

reconfiguring the Airport. Affidavit of Fred Anderton ("Anderton Aff.") at~~ 12-13. FAA 

staff ultimately told the City that it would not provide the grants requested by the City. Jd. at 

~ 12. Subsequently, the City explored alternative means to reconfigure the Airport in order 

to keep it open but was ultimately not successful. The Airport closed on August 29, 2012. 

Jd.at~5.13, 16. 

• Respondent denies that it did not respond to FA!\· s communications regarding the use of the 

payments received pursuant to the 2006 Agreement. The FAA did not provide any 

2 
communications concerning revenue use restrictions nor was the City aware of any such 

restrictions prior to 2010. Anderton Aff. at~~ 8, 12-13; Aflidavit of David Holmes ("Holmes 

All.") at ~~ 4, 5. The City responded clearly and directly to FAA's concerns, and 

communicated regularly with FAA !rom 2010 through August 2012 regarding FAA's 

concerns regarding the use of the proceeds trom the 2006 Agreement and resolution of 

FAA's revenue diversion concerns. Holmes AlT. at~~ 5-7; Anderton Aff. at ~~13-14, Ex. D 

(Letter to John L. Mayfield, Jr .. Manager. Detroit ADO. trom Fred H. Anderton, Airport 

Manager (Jan. 14, 2011)) . 

• Respondent admits that the City and Blue Ash rescinded the 2006 Agreement, and admits 

that the City subsequently closed the Airport. Respondent denies the remaining allegations 

in Paragraph 2. At all times since learning of FAA's revenue diversion concerns in 2010, the 

City has taken steps to assure that the full total of payments received under the 2006 

Agreement was available to be appropriated for Airport purposes. Affidavit of Kathleen 

Creager ("Creager Aff.") at~ 10; Holmes AtT. at 'II 5. At no time between the City's receipt 

of the first payment under the Agreement (received in 2007) and the rescission of the 2006 

Agreement in 2012 did the unappropriated surplus in Fund 757 drop below the cumulative 

amount of payments received under the 2006 Agreement. The City refunded the entire $6 

million to Blue Ash from Fund 757 pursuant to the mutual rescission of the 2006 Agreement 

on August 28, 2012. Creager AtT. at~ 1 L Holmes Aff. at~ 9, 10. Subsequently, the City 

closed Airport permanently. The rescission and refund removed the $6 million from Airport 

funds and made moot any concern over alleged diversion of those funds. 

3. Respondent denies the allegations in Paragraph 3. Respondent ts without 

knowledge or suflicient information to admit or deny Scott Meyer's status as a pilot or his 

3 
aeronautical activities. However. because the Airport is closed, Complainant is not currently 

affected by any level of maintenance and care at the now-closed Airport, nor does he pay any 

fees or charges at the now-closed Airport. Accordingly, Complainant lacks standing to maintain 

this action. 

4. In response to the allegations of Paragraph 4, Respondent denies that Complainant 

made substantial and good faith effurts to inturmally resolve the allegations that furm the basis 

of the Complaint. The emails and notes attached as Exhibit 3 to the Complaint do not 

demonstrate that Complainant raised the revenue diversion issues he asserts in the Complaint 

with the appropriate City staff. Rather. it appears that his contacts were limited to emails to 

individual City Council members, cmails to Ohio state officials. and requests for a meeting with 

Mayor Mallory. None of the emails or other documents suggests that he provided any of the 

specific infurmation alleged in the Complaint. At a meeting between Mr. Meyer, Assistant City 

Manager David Holmes and City Solicitor John Curp on March 28, 2012, the discussion 

primarily focused on keeping the Airport open, not about whether the City had improperly spent 

the prior Blue Ash proceeds. Holmes AfT. at~ 9. 

5. In response to the allegations of Paragraph 5 of the Amended Complaint, labeled 

as "Violation 1," Respondent admits only that Exhibit 4 is a correct copy of 2009/2010 

Approved Biennial Budget of Cincinnati, Budget Policy Item 14, pages 11-12 and otherwise 

denies the allegations of Paragraph 5. As a general response, the City states that none of the 

payments received under the 2006 Agreement are or were "Airport revenue'' because on August 

28, 2012, full owing months of consultation with FAA regarding revenue diversion concerns, the 

City and Blue Ash rescinded the 2006 Agreement and the City returned to Blue Ash all payments 

received by the City under that Agreement, totaling $6 million. Anderton Atf. at~ 15; Creager 

4 
Af1~ at ~ 1 1. The rescission and refund made moot any concern over alleged diversion of the 

proceeds from the 2006 Agreement. The City further states that Exhibit 4 only authorizes the 

use of $300.000 from the ''Blue Ash Airport Fund:· but does not commit the City to that 

expenditure. A thorough review of the City's account records indicates. however. that no such 

payment was ever made from the fund containing proceeds from the 2006 Agreement (Fund 

757). nor was any payment of a lesser sum made from that account to repay funds previously 

paid toward the Mt. Auburn Place Condos Project. Creager AlT. at~ 13. Furthermore. the 

Approved Biennial Budget of Cincinnati is a forward-looking planning document. but does not 

itself authorize an expenditure or the transfer of funds from one account to another for any 

purpose; the City Council must specifically authorize all transfers and expenditures. /d. at ~I 8. 

A review of City records indicate that no City Council action authorized the expenditure of 

$300.000. or any lesser sum. from the "Blue Ash Airport Fund" to repay sums paid toward the 

Mt. Auburn Place Condos Project. /d. at~ 13. The $300.000 was paid out of Fund 758 (Income 

Tax Permanent Improvement Fund). which did not contain any of the proceeds from the 2006 

Agreement or any other Airport revenue. !d. 

6. In response to the allegations of Paragraph 6 of the Amended Complaint. labeled 

as "Violation 2." Respondent admits only that Exhibits 5. 6. and 7 are correct copies of those 

documents. that the terms of those documents speak for themselves. but otherwise denies the 

allegations of Paragraph 6. As a general response, the City states that none of the proceeds from 

the 2006 Agreement are or were ''Airport revenue" because on August 28. 2012, following 

months of consultation with FAA regarding revenue diversion concerns, the City and Blue Ash 

rescinded the 2006 Agreement and the City returned to Blue Ash all payments under that 

Agreement it had received. totaling $6 million. Subsequently, the City closed Airport 

5 
pem1anently. The rescission and refund made moot any concern over alleged diversion of the 

proceeds from the 2006 Agreement. Respondent specifically denies Complainant's speculative 

assertions that any portion of the proceeds from the 2006 Agreement was spent for any nonAirport purpose. Respondent states that the Approved Biennial Budget of Cincinnati is a 

forward looking planning document, but does not itself authorize the expenditure of funds for 

any purpose or from any account; the City Council must specifically authorize all expenditures 

and transfers. !d. at ~ 8. Respondent further states that all proceeds trom the 2006 Agreement 

were deposited and maintained in a special account, entitled "Miscellaneous Permanent 

Improvement Fund" and known as the "Fund 757" account. !d. at~~ 5-7. All proceeds from the 

2006 Agreement were kept in Fund 757 account until August 28. 2012, when the $6 million was 

wire transferred back to Blue Ash from Fund 757 pursuant to the Rescission Agreement. !d. at 

~ II. At all times between 2007. when the first payment trom Blue Ash was received, through 

August 28, 2012, when the $6 million was returned to Blue Ash. Fund 757 contained a sufficient 

unappropriated surplus of funds to pay for all expenditures without having to use the proceeds 

trom the 2006 Agreement. !d. at~ I 0. In response to FAA concerns. City staff managed Fund 

757 in a manner to assure that all of the proceeds from the 2006 Agreement were preserved and 

were not spent for any purpose pending resolution of FAA ·s concerns. Creager Aff. at ~ I 0; 

Holmes Aff. at ,I 5. The City admits that Ordinance No. 142-2010 identified the proceeds from 

the 2006 Agreement as one polenlial source of security for issuance of streetcar bonds. Creager 

Aff. at~ 14. The ordinance did not, however. commit or require the City to use the proceeds 

from the 2006 Agreement for the bonds or any other purposes; it merely authorized the issuance 

of the streetcar bonds and identified potential sources of security to back the bonds. !d. None of 

6 
the proceeds from the 2006 Agreement were used in any way for the streetcar project at any time 

prior to rescission of the 2006 Agreement. I d. 

7. In response to the allegations of Paragraph 7 of the Amended Complaint, labeled 

as "Violation 3," Respondent admits only that Exhibits 8, 9, and 10 are correct copies of those 

documents, that the terms of those documents speak for themselves, but otherwise denies the 

allegations of Paragraph 7. The City further states that on August 28, 2012, following months of 

consultation with FAA regarding revenue diversion concerns, the City and Blue Ash rescinded 

the 2006 Agreement and the City returned to Blue Ash all payments it had received under that 

Agreement, totaling $6 million. Subsequently, the City closed Airport permanently. The 

rescission and refund made moot any concern over alleged diversion of the proceeds from the 

2006 Agreement. The City further states that at all times between 2007, when the first payment 

from Blue Ash was received. through August 28, 2012, when the $6 million was returned to Blue 

Ash, Fund 757 contained a su!Ttcient unappropriated surplus of funds to pay for all expenditures 

without having to use the proceeds from the 2006 Agreement. I d. at 'Ill 0. In response to FAA 

concerns, City staff managed Fund 757 in a manner to assure that all of the proceeds from the 

2006 Agreement were preserved and were not spent for any purpose pending resolution of 

FAA's concerns. I d. at 'II 1 0; Holmes Aff. at 'II 5. The City specifically denies that its use and 

management of Fund 757 was illegal revenue diversion. With respect to the allegations 

regarding the designation of Fund 757 to receive the payments from Blue Ash, the City states 

that under Ohio law, the City was required to place payments received from the sale of real 

property into the account that was used to purchase that property. Creager Aff. at '1!'115-7. In 

2007, when the City began to receive payments from Blue Ash, it was discovered that the 

account used to acquire the property had been closed at some point in the intervening years. Jd. 

7 
at ~ 7. The City elected to place the proceeds in Fund 757. consistent with City policy for 

handling similar payments, and City took steps to assure that the full total of proceeds from the 

2006 Agreement was available to be appropriated for Airport purposes (or to be returned to the 

City of Blue Ash). !d. at~ I 0. 

8. In response to the allegations of Paragraph 8 of the Amended Complaint, labeled 

as "Violation 4.'' Respondent admits only that Exhibits I 0 and I I are correct copies of those 

documents. that the terms of those documents speak for themselves, but otherwise denies the 

allegations of Paragraph 8. As a general response, the City states that on August 28, 2012. 

following months of consultation with FAA regarding revenue diversion concerns. the City and 

Blue Ash rescinded the 2006 Agreement and the City returned to Blue Ash all payments it had 

received under that Agreement. totaling $6 million. Subsequently, the City closed Airport 

permanently. The rescission and refund made moot any concern over alleged diversion of the 

proceeds from the 2006 Agreement. The City specifically denies that any portion of the 

proceeds from the 2006 Agreement was used for lead remediation work or any non-Airport 

purpose. All proceeds from the 2006 Agreement were kept in Fund 757 account until August 28. 

2012, when the $6 million was returned to Blue Ash pursuant to the Rescission Agreement. /d. 

at~ II. At all times between 2007. when the first payment from Blue Ash was received, through 

August 28, 2012, when the $6 million was returned to Blue Ash, Fund 757 contained a sufficient 

unappropriated surplus of funds to pay for all expenditures without having to use the proceeds 

from the 2006 Agreement. /d. at ~ 10. In response to FAA concerns, City staff managed Fund 

757 in a manner to assure that all of the proceeds from the 2006 Agreement were preserved and 

were not spent for any purpose pending resolution of FAA's concerns. !d. at~ 10; Holmes AlT. 

at ~ 5. Ordinance 354-2008 authorized the payment of $200,000 from the "unappropriated 

8 
surplus of Fund 757," not from the Airport proceeds. Creager Aff. at ~ 16. At the time that 

payment was made, the unappropriated balance of Fund 757, less payments then received 

pursuant to the 2006 Agreement, was greater than $200,000. /d. Thus, the $200,000 payment 

was made from the unappropriated surplus of Fund 757 and not with proceeds from the 2006 

Agreement or other Airport revenue. The City states that under the tem1s of the 2006 

Agreement, the City retained full possession and control over the entire Airport property, 

including the portion that had been sold to Blue Ash; at no time did Blue Ash have possession or 

control of any portion of the Airport under the 2006 Agreement. Anderton Aff. at~ I 0. 

9. In response to the allegations of Paragraph 9 of the Amended Complaint, labeled 

as "Violation 5." Respondent admits only that Exhibit 12 is a correct copy of Ordinance 7-201 I, 

that the terms of that document speak for themselves, but otherwise denies the allegations of 

Paragraph 9. As a general response, the City states that none of the payments received under the 

2006 Agreement are or were "'Airport revenue" because on August 29. 2012. following months 

of consultation with FAA regarding revenue diversion concems, the City and Blue Ash rescinded 

the 2006 Agreement and the City retumed to Blue Ash all payments under that Agreement it had 

received, totaling $6 million. Subsequently, the City closed Airport permanently. The rescission 

and refund made moot any concern over alleged diversion of the proceeds from the 2006 

Agreement. The City specifically denies that any portion of the proceeds from the 2006 

Agreement was used for lead remediation work or any non-Airport purpose. All proceeds from 

the 2006 Agreement were kept in Fund 757 account until August 28, 2012, when the $6 million 

was returned to Blue Ash pursuant to the Rescission Agreement. Creager Aff at ~ l I. At all 

times between 2007, when the first payment from Blue Ash was received. through August 2012, 

when the $6 million was returned to Blue Ash, Fund 757 contained a sufficient unappropriated 

9 
surplus of funds to pay for all expenditures without having to use the proceeds from the 2006 

Agreement. I d. at~ I 0. In response to FAA concerns, City staff managed Fund 757 in a manner 

to assure that all of the proceeds from the 2006 Agreement were preserved and were not spent 

for any purpose pending resolution of FAA's concerns. I d. at ~ I 0; Holmes Aff. at ~ 5. 

Ordinance 7-20 II authorized the transfer of $3 75.000 from the "unappropriated surplus " of 

Fund 757. Creager Aff at ~ 17. At the time that payment was made, there was a sufficient 

unappropriated surplus of funds in Fund 757. less proceeds from the 2006 Agreement, was 

greater than $375,000. Jd. Thus, the $375,000 expenditure for lead remediation was not made 

with proceeds from the 2006 Agreement or any Airport revenue. I d. at~ 17. 

I 0. In response to the allegations of Paragraph I 0 of the Amended Complaint, labeled 

as "Violation 6," Respondent admits only that Exhibit 13 is a correct copy of Ordinance 294-

2012, that the terms of that document speak for themselves. but otherwise denies the allegations 

of Paragraph I 0. As a general response, the City states that none of the payments received under 

the 2006 Agreement are or were "Airport revenue" because on August 29, 2012, following 

months of consultation with FAA regarding revenue diversion concerns, the City and Blue Ash 

rescinded the 2006 Agreement and the City returned to Blue Ash all payments under that 

Agreement it had received, totaling $6 million. Subsequently, the City closed Airport 

permanently. The rescission and refund made moot any concern over alleged diversion of the 

proceeds from the 2006 Agreement. The City specifically denies that any portion of the 

proceeds from the 2006 Agreement was used to complete the removal of contaminated soil and 

underground storage tanks or any non-Airport purpose. All proceeds from the 2006 Agreement 

were kept in Fund 757 account until August 28. 2012, when the $6 million was returned to Blue 

Ash pursuant to the Rescission Agreement. !d. at ~ II. At all times between 2007, when the 

10 
first payment from Blue Ash was received, through August, 2012, when the $6 million was 

returned to Blue Ash, Fund 757 contained a sufficient unappropriated surplus of funds to pay for 

all expenditures without having to use the proceeds from the 2006 Agreement. I d. at ~ I 0. In 

response to FAA concerns, City staff managed Fund 757 in a manner to assure that all of the 

proceeds from the 2006 Agreement were preserved and were not spent for any purpose pending 

resolution of FAA's concerns. Jd. at~ 10; Holmes Aff. at ,15. Ordinance 294-2012 authorized 

the payment of $170,000 from the "unappropriated surplus" of Fund 757. At the time that 

payment was made, the unencumbered balance of Fund 757, less proceeds from the 2006 

Agreement, was greater than $170,000. Creager Aff at~ 18. Thus. the $170,000 payment was 

made from the unappropriated surplus of Fund 757 and not with proceeds from the 2006 

Agreement or other Airport revenue. 

II. In response to the allegations of Paragraph II of the Amended Complaint, labeled 

as "Violation 7," Respondent admits only that Exhibits 14 and 15 are correct copies of those 

documents, and that the terms of those documents speak for themselves, but otherwise denies the 

allegations of Paragraph II. As a general response. the City states that on August 28, 2012, 

following months of consultation with FAA regarding revenue diversion concerns, the City and 

Blue Ash rescinded the 2006 Agreement and the City returned to Blue Ash all payments under 

that Agreement it had received. totaling $6 million. Subsequently, the City closed Airport 

permanently. The rescission and refund made moot any concern over alleged diversion of the 

proceeds from the 2006 Agreement. Respondent specifically denies Complainant's speculative 

assertions that any portion of the proceeds from the 2006 Agreement was spent for capital 

programs or any non-Airport purpose. Respondent states that the Capital Investment Program 

and the Approved Biennial Budget of Cincinnati are forward looking planning documents, but do 

II 
not themselves authorize the expenditure of funds for any purpose or from any account; the City 

Council must first authorize the expenditure or transfer by enacting an appropriation ordinance 

or by approval of the monthly financial report. !d. at ~ 8. All proceeds from the 2006 

Agreement were kept in fund 757 account until August 28, 2012, when the $6 million was 

returned to Blue Ash pursuant to the Rescission Agreement. !d. at ~ II. At all times between 

2007, when the first payment from Blue Ash was received, through August 2012, when the $6 

million was returned to Blue Ash. Fund 757 contained a sufficient unappropriated surplus of 

funds to pay for all expenditures without having to use the proceeds from the 2006 Agreement. 

/d. at~ I 0. In response to FAA concerns, City staff managed Fund 757 in a manner to assure 

that all of the proceeds from the 2006 Agreement were preserved and were not spent for any 

purpose pending resolution of FAA ·s concerns. /d. at~ I 0; Holmes Aff. at~ 5. The City further 

states that two transfers of $250.000 each were made from Fund 757 to the City's Capital 

Improvement Program in 2009 and 20 I 0, respectively, as indicated on Exhibit E to the Creager 

Affidavit. At the time each transfer occurred, the unappropriated surplus of Fund 757, less 

proceeds from the 2006 Agreement, was greater than $250,000. Creager Aff at~~ 19-20. The 

authorizing general budget appropriation ordinance did not specify that the transfers were to be 

made with proceeds from the 2006 Agreement or any Airport revenue. /d. Thus, the two 

$250,000 transfers were made from the unappropriated balance of Fund 757 and not with 

proceeds from the 2006 Agreement. 

12. In response to the allegations of Paragraph 12 of the Amended Complaint, labeled 

as "Violations 8-19." Respondent states that it is without sufficient information to respond to the 

accuracy of Exhibit 16 because it does not know what search terms Complainant used to 

generate that document, but otherwise denies the allegations of Paragraph 12. As a general 

12 
response, the City states that none of the payments received under the 2006 Agreement are or 

were "Airport revenue" because on August 29, 2012, following months of consultation with 

FAA regarding revenue diversion concerns, the City and Blue Ash rescinded the 2006 

Agreement and the City returned to Blue Ash all payments under that Agreement it had received, 

totaling $6 million. Subsequently, the City closed Airport permanently. The rescission and 

refund made moot any concern over alleged diversion of the proceeds from the 2006 Agreement. 

Respondent specifically denies Complainant's speculative assertions that any portion of the 

proceeds from the 2006 Agreement was spent for any non-Airport purpose. In response to the 

allegations of Paragraph 12, the City states that the searchable database cited by Complainant 

was created in 20 I 0 and did not include data from 2007 or 2008 expenditures. !d. at ~ 21. The 

City further states that at all times between 2007, when the first payment from Blue Ash was 

received, through August 28. 2012, when the $6 million was returned to Blue Ash, Fund 757 

contained a sufficient unappropriated surplus of funds to pay for all expenditures without having 

to use the Blue Ash proceeds. !d. at 'I] I 0. In response to FAA concerns, City staff managed 

Fund 757 in a manner to assure that all of the proceeds from the 2006 Agreement were preserved 

and were not spent for any purpose pending resolution ofF A A's concerns. !d. at ~ I 0; Holmes 

AlT. at~ 5. In response to Complainant's allegations regarding expenditures from Fund 757, the 

City states that Fund 757 is used for numerous expenditures and purposes that are unrelated to 

the 2006 Agreement. City Finance Department staff have reviewed all activity in Fund 757 from 

2007 through 2012 and have identified nearly $18 million in expenditures/transfers out from 

Fund 757 between December 2007 and August 2012. Creager Aff. at '1]6. Revenue/transfers in 

for Fund 757 during the same time period totaled approximately $ 24.7 million. !d. City 

Finance Department staff have also confirmed that at all times the unappropriated balance of 

13 
Fund 757, less payments then received under the 2006 Agreement, was greater than the amount 

of expenditures and transfers out. !d. at ~ l 0. At all times between 2007, when the first payment 

from Blue Ash was received, through August 2012, when the $6 million was returned to Blue 

Ash, Fund 757 contained a sufficient unappropriated surplus of funds to pay for all expenditures 

without having to use the proceeds from the 2006 Agreement. !d. at~ I 0. 

13. In response to the allegations of Paragraph 13. the City admits only that the 

Airport is now closed and that Complainant has rescinded his request for an injunction against 

the closure of the Airport. but denies all other allegations of Paragraph 13. 

WHEREFORE. Respondent respectfully requests that the Director determine that 

Respondent has not violated 49 U.S.C. § 47133 or any other federal obligation regarding the use 

of Airport revenue, and reject Complainant's request for a formal investigation into use of 

proceeds from the 2006 Agreement. 

Respectfully submitted this 131

h day of December. 2012: 

John P. Curp 

Andrew W. Garth 

Office of the City Solicitor 

City of Cincinnati 

801 Plum Street, Suite 234 

Cincinnati, OH 45202 

andrew.garth@cincinnati-oh.gov 

john.curp@cincinnati-oh.gov 

Telephone: (513) 352-3345 

Facsimile: (513) 352-1515 

W. Eric Pilsk 

Peter J. Kirsch 

Kaplan Kirsch & Rockwell LLP 

1001 Connecticut Ave .. NW. 

Suite 800 

Washington, D.C. 20036 

epilsk@kaplankirsch.com 

pkirsch@kaplankirsch.com 

Telephone: (202) 955-5600 

Facsimile: (202) 955-5616 

14 
CERTIFICATE OF SERVICE 

I hereby certify that I have this day served the foregoing Answer of Respondent City of 

Cincinnati, Ohio on the following parties at the following addresses by the following means: 

Otlice of the Chief Counsel 

Attn: FAA Part 16 Airport Proceedings Docket, AGC-610 

Federal Aviation Administration 

800 Independence Avenue, S.W. 

Washington, DC 20591 

Original and 3 copies by Hand Delivery 

Dated this 13th day of December, 2012: 

W. Eric Pilsk 

15 
CERTIFICATE OF SERVICE 

I hereby certify that I have this day served the foregoing Answer of Respondent City of 

Cincinnati, Ohio on the following parties at the following addresses by the following means: 

Office of the Chief Counsel 

Attn: FAA Part 16 Airport Proceedings Docket, AGC-610 

Federal Aviation Administration 

800 Independence Avenue, S.W. 

Washington, DC 20591 

Original and 3 copies by Hand Delivery 

Dated this 13th day of December, 2012: 

W. Eric Pilsk 

15 
Exhibit C

2006 Purchase and Sale

Agreement    













Exhibit D

Letter to Mallory

12/13/2010    


Exhibit E

Anderton Affidavit    
UNITED STATES DEPARTMENT OF TRANSPORTATION 

FEDERAL AVIATION ADMINISTRATION 

WASHINGTON, D.C. 

SCOTT MEYER 

Complainant, 

v. FAA Docket No. 16-12-10 

CITY OF CINCINNATI, OHIO 

Respondent. 

AFFIDAVIT OF FRED ANDERTON 

IN SUPORT OF CITY OF CINCINNATI ANSWER 

I, Fred Anderton, being first duly cautioned and sworn, depose and state that: 

1. I am the Airport Manager for the Aviation Division of the Department ofTranspmtation 

and Engineering for the City of Cincinnati (the "City") and have held this position since 2005. 

2. In my capacity as Airport Manager, I manage the City's airport staff and oversee a wide 

range of airpmt-related activities and operations, including the day-to-day operation of 

Lunken Airport and the operation of Blue Ash Airport (the "Airport" or "ISZ'') prior to its 

closure. 

3. As Airport Manager, I have served and continue to serve as the City's primary contact 

with the Federal Aviation Administration ("FAA") and, in particular, with the Area District 

Office ("ADO") and regional office for Region 5. 

4. Based on my review of City records and general understanding, the history of the 

Airport is as follows. The Airport is located in the City of Blue Ash, Ohio, and was founded 

in approximately 1921 by private aviators, and it remained a privately-owned airport until 

approximately 1950 when Cincinnati purchased the Airport and renamed it "Blue Ash 

Aitvort." The Airport was a general aviation aitvort serving non-commercial civil aviation 

1 
users, primarily recreational pilots. The Airpmt consisted of a single runway, 3,500 feet long 

and 75 feet wide, and associated taxiways and aprons. The City did not incur any federal 

grant obligations in connection with the purchase of the Airport. Over the years, Cincinnati 

had accepted a number of AlP Grants to help fund projects at Blue Ash Airport. Cincinnati 

accepted its last AlP Grant for the Airport on September 27, 1983 (the "1983 Grant"), a 

copy of which is attached as Exhibit A hereto. The 1983 Grant expired by its own tenns in 

2003. 

5. Prior to its permanent closure by Cincinnati on August 29, 2012, the Airpmt operated on 

approximately 228 acres in Blue Ash, Ohio. The Airport was owned and operated by 

Cincinnati. Cincinnati also owns Cincinnati Municipal Lunken Airport, located 

approximately nine nautical miles southeast of the Airport. 

6. Based upon my knowledge of City records, by the late 1990s, clue to declining aviation 

demand at the Airport, the cost of maintaining the Airport exceeded its revenue and the City 

had to subsidize Airport operational costs from revenue generated at Lunken Airport. 

Accordingly, the City began to explore options to dispose of or close the Airport. 

7. One set of options the City explored was to sell the Airport to the City of Blue Ash 

("Blue Ash"). As discussions with Blue Ash became focused in the 1999-2000 time period, 

Cincinnati realized that its options for disposing of the Airport and making use of the sale 

proceeds were limited by the 1983 Grant obligations. To address this problem, local officials 

worked with the regional Congressional delegation to secure federal legislation that would 

facilitate the sale of the Airport to Blue Ash. As a result of those efforts, Congress adopted 

legislation in 2000 that would have released Cincinnati from the obligations of the 1983 Grant 

provided that Cincinnati sold the Airpmt to Blue Ash and that Blue Ash continue to operate 

2 
the Airp011. Under that legislation, Cincinnati could have treated the proceeds of the sale as 

non-airport revenue. 49 U.S.C. § 47106 note, P.L. 106-181, § 739, 114 Stat. 172 (AprilS, 

2000) ("2000 Legislation"). A copy of the 2000 Legislation is attached as Exhibit B. 

Subsequently, however, the City of Blue Ash indicated that it did not want to acquire and 

operate the Airport as contemplated in the 2000 Legislation. Discussions regarding the 

Airport slowed for some time, as the economy slumped in the early 2000s. 

8. Based on my review of City records and knowledge, after the 1983 Grant expired in 

2003, Cincinnati began again to consider options for disposing of the Airpm1, including 

selling all or part of the Airport to Blue Ash. Cincitmati and Blue Ash restarted discussions 

regarding the sale of a portion of the Airport property. Between 2004 and 2006, Cincitmati 

and Blue Ash discussed a number of potential uses of the Airport propet1y, including several 

economic development projects, airport closure, and other options. See, for example, the May 

2005 City Manager FYI (attached as Exhibit C hereto) in which the City Manager briefs City 

Council on plans for Blue Ash Airport. 

9. Those discussions culminated in the execution of the Agreement of Purchase and Sale 

dated November 8, 2006 (the "2006 Agreement"). A copy of the 2006 Agreement is 

attached as Exhibit D hereto. Pursuant to the 2006 Agreement, Cincinnati agreed to sell to 

!31ue Ash approximately 130 acres of the Airport on which Blue Ash intended to build a 

municipal park (the "Park Property"). The 2006 Agreement provided that the purchase price 

was to be paid in annual installments in varying amounts as follows: $1 million per year for 

10 years starting at closing of the agreement; $1.25 million for 10 years beginning in 2017; 

and $1.5 million for I 0 years beginning in 2027. 2006 Agreement at§ 2. 

3 
10. Many of the Airport's facilities, including taxiways, aprons and hangars, were located 

on the Park Property and would have to be relocated onto the remaining 100 acres of the 

Airport. To allow ongoing Airport operations, the 2006 Agreement provided that Cincinnati 

would transfer title to the Park Property to Blue Ash at the real estate closing, which occurred 

on June 30, 2007, but the City would retain possession and control of the entire Airport, 

including the Park Propetty, until it reconfigured the Airport to fit onto the I 00 acres not sold 

or until the Airport closed. See 2006 Agreement at § 12. The 2006 Agreement provided that 

Cincinnati would seek funding from FAA to help pay for the reconfiguration but also could 

close the Airport if the cost of reconfiguration were too great. 2006 Agreement at § 13. 

Accordingly, the City retained full possession and control over the entire Airport after the 

2006 Agreement, including the Park Property; at no time prior to closure of the Airport in 

August 2012 did Blue Ash have possession or control ofthe Airport. 

11. Although I was not personally involved in the negotiations leading up to the 2006 

Agreement between the City m1d Blue Ash, I understand that the pmties negotiated the 2006 

Agreement with the mutual understanding that the restrictions and commitments set forth in 

the 1983 Grmt had expired in 2003 and would not apply to the proceeds from the 2006 

Agreement. See Exhibit C hereto at page 1 (City Manager expresses understmding that "[t]he 

City's grmt assurances to the FAA expired on September 23, 2003."). 

12. After the 2006 Agreement, the City engaged FAA in discussions in m1 effort to obtain 

grant funding for reconfiguration of the Airport on the remaining 100 acres. I was directly 

involved in discussions with FAA staff in the ADO, Region, and Headquarters. FAA did not 

agree to the City's initial requests for grant funds and as a result the reconfiguration did not 

occur. At that time, the City began exploring options for closing the Airport in case 

4 
rcconfiguration became infeasible. Consequently, the City engaged consultants to identify 

altemative reconfiguration plans for the Airport and began to consider other options. 

Discussions regarding possible grants continued into 2010. During those discussions in early 

2010, the City made clear its desire to use the sales proceeds for uses other than aviation, and 

also indicated that it was considering closing the Airpmt. Ultimately, FAA staff told 

Cincinnati that it would not provide the grants requested by Cincinnati. 

13. During discussions with the FAA about grant availability and potential for 

reconfiguration of the Airport, I kept FAA staff in the ADO, Region 5, and Headquarters 

offices informed of relevant City actions through frequent communications with FAA staff. 

See, e.g., Letter to John L. Mayfield, Jr., Manager, Detroit ADO, from Fred H. Anderton, 

Airport Manager (Jan. 14, 2011) attached as Exhibit E hereto. In the course of those 

discussions FAA expressed its position that the payments under the 2006 Agreement were 

airport revenue and were subject to revenue diversion rules. Based upon my experience and 

review of City records, I understand that City staff had no prior knowledge of the FAA's 

position and, in fact, City staff believed the proceeds from the 2006 Agreement were not 

Airport revenue because the 1983 Grant assurances expired in 2003. Upon leaming of the 

FAA's position, I kept in contact with FAA staff regarding the City's commitment to refrain 

from actions that could risk FAA penalties or violate law, regulation, or policy. 

14. Subsequently, FAA staff reiterated its view that all of the proceeds from the 2006 

Agreement would be considered Airport revenue that must be spent on the Airpmt, Lunken 

Airport, or some other airport in the region. With the assistance of specialized aviation 

counsel retained by the City, the City and FAA commenced informal discussions of possible 

5 
solutions to the various issues surrounding the continued operation of the Airport and the use 

of the payments from the 2006 Agreement. 

15. At the time of its closure, the Airport operated far below its capacity. Due to declining 

aviation demand at the Airport, the cost of maintaining the Airport exceeded its revenue and 

the City had to subsidize Airport costs from revenue generated at Lunken Airport. There were 

approximately 50 aircraft based at the Airpmt in the months prior to its closure. 

16. I supervised the closing of the Airport and maintained constant communication with 

FAA staff at the ADO and Region 5 in the months leading up to closure process. On July 30, 

2012, Cincinnati sent the FAA formal notice pursuant to pursuant to 49 U.S.C. § 46319 

and, to the extent applicable, 14 C.F.R.§ 157.5(b)(2), of its intention to permanently close 

the Airport on August 29, 2012. A copy of the July 30, 2012 letter is attached hereto as 

Exhibit F. The Airport was closed effective 8:00 Eastern Time (12:00 UTC) on August 29, 

2012, at which point the Airport was removed from the National Plan of Integrated Airport 

Systems and measures were taken to physically close the Airport consistently with FAA 

requirements. A copy of the NOT AM noticing the closure of the Airpmt is attached as 

Exhibit G hereto. A copy of the FAA Final Notice of Closure in the Federal Register is 

attached as Exhibit H hereto. 

STATE OF OHIO ) 

) ss: 

COUNTY OF HAMILTON ) 

~~,ug~rib<'d in my presence this ~day of December 2012. 

SEAN STEWART SUDER 

Attorney at Law 

Notary Public, State of Ohio 

My~ Hu No E.ocpirallon 

Data. Soctlon 147.03 O.R.C. 

6 
Exhibit F

Holmes Affidavit

   
UNITED STATES DEPARTMENT OF TRANSPORTATION 

FEDERAL AVIATION ADMINISTRATION 

WASHINGTON, D.C. 

SCOTT MEYER 

Complainant, 

v. FAA Docket No. 16-12-10 

CITY OF CINCINNATI, OHIO 

Respondent. 

AFFIDAVIT OF DAVID HOLMES 

IN SUPORT OF CITY OF CINCINNATI ANSWER 

I, David Holmes, being first duly cautioned and sworn, depose and state that: 

1. I have been an Assistant City Manager for the City of Cincinnati (the "City") since November 

2007. 

2. In my capacity as Assistant City Manager, I assist City Manager Milton Dohoney in the 

oversight of a wide range of city functions and departments, including matters within the 

Department of Transportation and Engineering's Aviation Division, which oversees the City's 

airport operations at Lunken Airport and at the fmmer Blue Ash Airport (the "Airport"). 

3. My oversight and administrative duties have regularly included serving as the representative for 

the City Manager in matters relating to the Airport. I am familiar with 2006 Purchase and Sale 

Agreement between the City and the City of Blue Ash (the "2006 Agreement"), a copy of which is 

attached as Exhibit D to the Affidavit of Fred Anderton in Support of City's Answer. I am familiar 

with the general tenns of the Remedial Agreement executed by the City and the City of Blue Ash 

("Blue Ash") to rescind the 2006 Agreement on August 28, 2012, a copy of which is attached as 
Exhibit A hereto ("Rescission Agreement"). I am also familiar with the events leading up to and the 

implementation of the closure of the Airport on August 29, 2012. 

4. Based on my review and understanding of City records, when the City entered into the 2006 

Agreement, the City believed it could use the sale proceeds for non-Airport purposes because the 

requirements set forth in the last federal grant the City accepted for the Airport, the 1983 Grant 

attached as Exhibit A to the Affidavit of Fred Anderton, had expired in 2003. It was not until 2010 

that the City administration first learned about FAA's revenue diversion concerns regarding the use 

of proceeds from the 2006 Agreement. In the course of the 2010 discussions, FAA made clear its 

position that the proceeds from the 2006 Agreement were Airport revenue and were subject to 

revenue diversion rules, as stated in the letter from FAA to Mayor Mallory regarding Blue Ash 

Airport (Dec. 13, 2010), a copy of which is attached as Exhibit B hereto. The City and FAA 

then began informal discussions of possible solutions to the various issues surrounding the 

continued operation of the Airport and the use of the proceeds from the 2006 Agreement. 

5. Upon learning that FAA considered the proceeds from the 2006 Agreement to be Airport 

revenue, the City administration enlisted the assistance of outside aviation counsel to work with 

FAA to understand the issues and to avoid improper diversion of airport revenue. The City 

administration voluntarily took measures to ensure that the City maintained the full balance of the 

proceeds in Fund 757 and would continue to maintain that balance pending resolution of the matter 

with FAA. I have been in regular contact with the FAA through legal counsel starting in 2010. 

6. By letter dated Ap1il 19,2011, FAA provided the City with an informal memorandum or "white 

paper" summarizing its position that the payments under the 2006 Agreement were airport revenue 

subject to revenue diversion rules (a copy of the memorandum and associated FAA correspondence 

is attached as Exhibit C hereto). The memorandum indicated that the City could sell the Airport 

2 
without the revenue diversion rules applying if the City were to rescind the 2006 Agreement and 

restmcture the original deal to be consistent with provisions in Section 739 of the Wendell H. Ford 

Aviation Investment and Refmm Act for the 21" Century (the "2000 Legislation"). In order to be 

consistent with the 2000 Legislation, Blue Ash would have to commit to own and operate the 

Airport for 20 years. 

7. When it became apparent that Blue Ash was not willing to acquire and operate the Airport in the 

manner contemplated in the 2000 Legislation, the City and FAA staff continued to discuss possible 

solutions in order to address FAA's revenue diversion concerns and to allow the City to use the 

proceeds from the 2006 Agreement for non-Airport purposes. When it became clear that Cincinnati 

intended to close the Airport pennanently, the City and FAA discussed, among other options, the 

concept that if Cincinnati and Blue Ash were to rescind the 2006 Agreement before the Airport 

closed, the payments under the 2006 Agreement would be returned to Blue Ash and therefore no 

longer be Airpmt revenue. Specifically, rescission would remove the proceeds of the 2006 

Agreement from the Airport system, and thus address any potential revenue diversion concerns. If 

the City were to enter into an entirely new transaction after the Airport had closed, any future 

proceeds from the sale of the former Blue Ash Airport property would not be considered to be 

Airport revenue subject to revenue diversion rules. 

8. Following those discussions, the City engaged in protracted negotiations with Blue Ash to 

pursue the rescission/closure option. The City also continued to explore other options with FAA, 

and kept FAA apprised of its progress and the City's plans for the Airport, primarily through 

communications from Airport Manager Fred Anderton and through legal counsel. 

9. On March 28, 2012, I attended a meeting with the Complainant and City Solicitor John Curp to 

discuss the proposed closure of the Airport. The meeting primarily focused on whether it was 

3 
feasible to keep the Airport open; it was not about whether the City had improperly spent the prior 

Blue Ash proceeds. If Mr. Meyer raised the subject of revenue diversion - and I do not recall that 

he did- the City would have refuted any such allegation;. 

10. In late July 2012, Blue Ash and Cincim1ati agreed to rescind the 2006 Agreement, take all steps 

necessary to unwind the 2006 transaction, and retum the parties to the status quo ante. On July 30, 

2012, the City gave the FAA notice of its intent to close the Airport on August 29, 2012 (a copy of 

the notice is attached as Exhibit F to the Affidavit of Fred Anderton). On August 1, 2012, and 

August 9, 2012, respectively, the City and Blue Ash enacted ordinances authorizing the rescission 

of the 2006 Agreement and related actions. The parties took all necessary steps to rescind and 

unwind the 2006 Agreement on August 28, 2012, including the refund of the $6 million payments 

the City had already received under the 2006 Agreement, and the transfer of title to the property 

back to the City on that day. The City kept FAA apprised of stages of the rescission and closure 

through communications with Airport Manager Fred Anderton and with counsel. 

DAVID 

art:~ HbLMES 

STATEOFOHIO ) 

) ss: 

COUNTY OF HAMILTON ) 

Swom to and subscribed in my presence this ,6.1~ of December 2012. 

4 
Exhibit G

City of Los Angeles case

2009 FAA Lexis 212    
Air Transport Association of America and Aircraft Owners and Pilots Association,

Complainants v. City of Los Angeles, California, Respondent

Docket No. 13-95-05

UNITED STATES DEPARTMENT OF TRANSPORTATION

FEDERAL AVIATION ADMINISTRATION

2009 FAA LEXIS 212

June 1, 2009

ACTION: [*1] FINAL DECISION AND ORDER

ISSUEDBY: Randall Fiertz, Director, Office of Airport, Compliance and Filed Operations

OPINION:

I. INTRODUCTION

This matter is before the Federal Aviation Administration (FAA) based on a formal complaints filed by the Air

Transport Association of America (ATA) and the Aircraft Owners and Pilots Association (AOPA) against the City of

Los Angeles, California (City), sponsor of Los Angeles World Airports (Airport or LAX), in accordance with the

agency's Investigative and Enforcement Procedures, 14 C.F.R. Part 13. n1

n1 At the time the complaint was filed, the agency had not yet promulgated its current procedures, "Rules of

Practice for Federally-Assisted Airport Enforcement Proceedings," 14 C.F.R. Part 16. In 1995, the FAA utilized

the adjudicatory procedures in 14 C.F.R. Part 13. See discussion of the transition from Part 13 to Part 16, 61

Fed. Reg. 53998-01 (Oct. 16, 1996).

This matter involves the disposition of approximately $ 58 million in proceeds from the involuntary [*2]

condemnation of property that the City of Los Angeles had acquired using local funds for Los Angeles International

Airport. It was condemned for an interstate highway known as "Century Freeway. n2" From 1968 to the early 1980s,

the FAA approved the City's requests to amend the airport layout plan to depict the proposed highway project. In 1978,

the U.S. Department of Transportation/Federal Highway Administration, with the FAA as a cooperating agency,

completed a final environmental impact statement and approved the Century Freeway project. n3 In 1982 the Airport

and Airway Improvement was enacted. That same year, the City received grants under the Airport Improvement

Program ("AIP"). Under these grants, like those of the previous program, the City was obligated to use revenues from

the sale of airport land acquired with federal support for airport purposes. n4 It was, however, for the first time,

generally obligated to spend "airport revenue" only for airport purposes. n5 In 1985 the State began a judicial

condemnation proceeding to acquire the airport land and took possession of it. The condemnation concluded in 1988. In

1989, the State paid the City approximately $ 58 million for [*3] land in fee and air rights as well as construction

Page 1
easements and severance damages. The FAA subsequently issued interim and final policies and procedures clarifying

that the term "revenues generated by the airport" for purposes of AIP grant obligations extends to involuntary sales of

land acquired with local funds.

n2 The Century Freeway is known today as "Interstate 105" or "I-105." See California Department of

Transportation (Caltrans) newsletter, Feb. 24, 2009, at

http://www.dot.ca.gov/dist07/Publications/Inside7/story.php?id=213#

n3 The FAA adopted the Final EIS and unconditionally approved revision of the City's ALP to depict the

Century Freeway on April 11, 1983. The FAA conditionally approved ALPs depicting the Century Freeway in

1968, 1969, 1974, and 1978.

n4 This interpretation was set forth in FAA compliance policy. FAA Order 5190.6A, paragraph 7-18 stated

"Where the action involves the deletion of land not acquired with Federal financial assistance, there is no

required disposition of net revenues from sale or disposal." FAA Order 5100.38A, paragraph 630, similarly

defined airport revenue, stating, among other things: "Airport revenue does not include proceeds from the sale of

real land owned by the sponsor."

[*4]

n5 FAA issued AIP grants to the City on September 30, 1982, and on July 14, 1983. The FAA

unconditionally approved an updated version of the ALP depicting the Century Freeway on April 11, 1983.

The major issue is whether the Director of Airport Safety and Standards n6 ("Director") properly characterized the

proceeds derived from the State's condemnation of airport land in fee and air rights as not airport revenue, in accordance

with published FAA policy in effect in 1988, when the legal obligation for payment arose. The Air Transport

Association (ATA) and Aircraft Owners and Pilots Association (AOPA) argue that the Director was bound to

characterize these proceeds as airport revenue under section 511(a)(12) of the Airport and Airway Improvement Act),

49 USC §47107(b), and to apply retroactively the compliance policy first announced in 1995, and subsequently

finalized in 1999. Another issue is whether the Director used an appropriate methodology for analyzing the components

of the compensation paid for the condemnation.

n6 At the time the FAA's Office of Airports issued the SCO, the signing official was the "Director of

Airport Safety and Standards." As a result of office reorganization in 2007, airport compliance matters are now

handled within the Office of Airport Compliance and Field Operations. Thus, the signing official for this final

decision and order is the "Director of Airport Compliance and Field Operations." To avoid confusion, the

Director of Airport Safety and Standards is referred to as the "Director," and the Director of Airport Compliance

and Field Operations is referred to as the "Director of Airport Compliance and Field Operations."

[*5]

There are two key sub-issues relating to the condemnation proceeds. The first is whether the Director should have

determined that FAA's approvals of the City's airport layout plans n7 (ALPs) constituted releases even though the City

did not request deletion of the land from the ALP under paragraphs 137 of 5190.6 and 7-18 of 5190.6A. The second is

whether the Director should have concluded that the revenue use assurance did not apply because the US Department of

Transportation/Federal Highways Administration (FHWA) authorized the State to purchase the land from the City for

highway purposes in 1978 and the FAA approved the ALP change four times before the City accepted its first AIP

grant.

Page 2

2009 FAA LEXIS 212, *3
n7 An ALP identifies all existing and future runways, runway extensions, terminal buildings and other

airfield facilities, and the descriptions of the development needed to support them. The ALP is for planning

purposes only. It does not commit the airport sponsor to building any depicted airport facilities. Also, the Office

of Airports' approval of an ALP does not commit ARP to contribute Federal financial support to the facilities the

ALP depicts. See Index of Administrative Record, item 60.

[*6]

In February 1994, the City requested an opinion from DOT and FAA on whether the City could lawfully transfer

the condemnation proceeds to the City's general fund. In a February 28, 1995 letter (Advisory Opinion); FAA advised

the City that use of proceeds from an involuntary condemnation presented a novel question. The opinion noted that (as

distinct from voluntary sale) there were no FAA procedures for review and approval to delete land from the airport

layout plan in such circumstances. The FAA further advised the City that due to "differing policy views" in the past, a

"lack of clear guidance," and policy provisions that "at the very least created ambiguity about how the FAA interprets

the term 'revenues generated by the airport,'" the agency did not presently intend to initiate action to prevent or reverse

the transfer to the City's general fund. The FAA cautioned the City that the FAA would review the transfer if affected

parties filed formal complaints. n8 ATA and AOPA filed formal complaints on March 21, 1995, and May 4, 1995,

respectively. On December 24, 1996, the FAA consolidated the two complaints into a single docket. The FAA issued a

preliminary determination ("PD") on [*7] June 19, 2000. The PD determined, and it is undisputed, that the construction

easement and severance damages portion of the condemnation proceeds constitutes airport revenue. On July 21, 2005,

because several years had passed since the PD issued, the FAA issued tentative findings and conclusions in an Order to

Show Cause (SCO), to permit the parties to provide any additional information, documentation, and argument on the

issues in this matter.

n8 Index of Administrative Record, item 63, p. 10.

The FAA's role in this Final Decision and Order is to determine only the narrow issue of whether the Director of

Airport Safety and Standards erred or should finalize his tentative findings and conclusions made in the SCO. In a

decision and order such as this, the Director of Airport Compliance and Field Operations must determine whether (a)

the findings of fact made by the Director in the SCO are supported by a preponderance of reliable, probative, and

substantial evidence, and (b) each conclusion of law in the SCO is made in [*8] accordance with applicable law,

precedent, and public policy. See e.g. Airborne Flying Service, Inc. v. City of Hot Springs, FAA Docket No. 16-07-06

(May 2, 2008)(Final Agency Decision and Order); Ricks v. Millington Municipal Airport, FAA Docket No. 16-98-19

(Dec. 30, 1999) (Final Decision and Order), p. 21, and 14 C.F.R. § 16.227 ("Standard of Proor"). n9

n9 Although this proceeding has been conducted under the rules of 14 C.F.R. Part 13, it has been an atypical

proceeding since there have been two preliminary decisions issued prior to a final decision and order.

Customarily under Part 13, airport grant compliance complaints were disposed of with the issuance of a single

decision document -- a "Record of Decision" -- a final agency order directly appealable to the courts of appeals.

Here, the PD and SCO are akin to a preliminary and final director's determination, respectively, issued under the

FAA's current administrative complaint process, 14 C.F.R. Part 16. This Final Decision and Order is akin to a

final agency decision (FAD) issued under Part 16. As a result, the SCO is subject to the same standard of review

as that of a FAD.

[*9]

In arriving at a final decision in this matter, the FAA has examined the record, including the PD, the SCO, the

Administrative Record supporting these preliminary decision documents, and the objections submitted by the parties in

Page 3

2009 FAA LEXIS 212, *5
response to the SCO, in light of applicable law and policy. Based on this reexamination, the Director of Airport

Compliance and Field Operations concludes that the SCO is supported by a preponderance of reliable, probative, and

substantial evidence, and is consistent with applicable law, precedent, and FAA policy. The parties' have not made any

arguments or identified any evidence sufficient to reverse any of the central analyses and tentative findings in the SCO.

The Director of Airport Compliance and Field Operations affirms and makes final the findings in the SCO, with

some clarifications, corrections, and additional findings.

The bases for the Director of Airport Compliance and Field Operations' conclusions are set forth herein.

II. SUMMARIES OF THE PRIOR DECISIONS IN THIS MATTER

A. Preliminary Decision (June 19, 2000)

The FAA found that certain proceeds from the State's condemnation of airport land in 1988 should be considered

airport revenue. [*10] The PD directed the City to file a Corrective Action Plan for the return of $ 20,131,459 plus

interest (34.432% of $ 58,467,296) from March 8, 1995, the date the City transferred the funds from its airport to its

general account. The 34.432% was for severance damages and construction easements. n10 In contrast, the PD did not

require the City to return the other 65.568% of the revenue because it was from land and air rights. The revenue from

the condemnation of the land in fee simple and air rights were not subject to the assurance on revenue use. Those fell

within the scope of paragraph 7-18 of FAA Order 5190.6A, Airport Compliance Requirements (Oct. 2, 1989), n11 and §

630 of FAA Order 5100.38A, Airport Improvement Program Handbook (Oct. 24, 1989). n12

n10 Severance damages compensated the City for a reduction in value of property that remained part of the

airport. Temporary construction easements were payments for temporary use of airport land.

n11 Index of Administrative Record, item 55.

n12 Index of Administrative Record, item 56.

[*11]

The FAA noted that the policy in paragraph 630, "Airport revenue does not include proceeds from the sale of real

land owned by the sponsor," addressed proceeds from the sale of land purchased with Federal funding. The Director

noted that the 1995 Advisory Opinion "made clear that the above policy on proceeds of sale (in italics) n13 was not to

be read to permit the proceeds of the sale of airport property to be used for non-airport purposes," and that the interim

and final revenue use policies "clarified that the proceeds of sale of airport property are airport revenue." n14 However,

as discussed, the Advisory Opinion stated that "in consideration of all the circumstances surrounding this particular

condemnation action, and after review of the previous agency policy statements that may bear on the issues in this case,

we are not in a position to initiate action [to] compel the City to use the proceeds of the condemnation on the airport,

pursuant to section 511(a)(12)" of the AAIA. n15

n13 The "above policy" refers to the statement in paragraph 630, "Airport revenue does not include

proceeds from the sale of real land owned by the sponsor (emphasis added)." PD at 16.

[*12]

n14 Index of Administrative Record, item 39, p. 16.

n15 Index of Administrative Record, item 63, p. 9.

Page 4

2009 FAA LEXIS 212, *9
At the time the State court issued its judgment rendering the State financially liable for the taking -- on December

14, 1988 -- FAA compliance policy interpreted grant assurances to allow an airport owner to keep revenue from the sale

and deletion of land provided it did not obtain the land with Federal financial support.

B. Order to Show Cause (July 21, 2005)

Because several years had passed since the PD was issued, the FAA in 2005 issued tentative findings and

conclusions in the SCO, to permit the parties to provide any additional information, documentation, and argument on

the issues in this case. In the SCO, the FAA accepted the City's offer to restore to the airport account $ 1,986,718.72

plus interest from March 8, 1995 and to pay 3.98% n16 of additional revenue that the California Department of

Transportation (CalTrans) may pay the City as the result of a pending lawsuit. The FAA tentatively concluded that

. It was reasonable for the FAA to address a request for a determination [*13] on the use of airport

revenue in accordance with the applicable handbook provisions in effect at the time the matter arose, on

the basis that the FAA is bound by its own current orders.

. The PD is not in conflict with the statutory language of Section 511 of the Airport and Airway

Improvement Act of 1982 or FAA policy.

. The existence and nature of the Century Freeway make the air rights effectively permanent for the

purposes of transfer notwithstanding the low potential for reverter, the long-term future use (here) is akin

to a permanent transfer of rights.

. The PD correctly determined that the proceeds from the fee simple taking and conveyance of the air

rights are not subject to the grant assurance for airport revenue.

. The PD's methodology is fair and in accord with FAA policy.

. The CalTrans Assessment is a valid representation of the valuation used in the condemnation.

. The City's Proposed Corrective Action Plan as submitted is sufficient to resolve the compliance issues

raised in the Part 13 complaints.

n16 As noted by the parties in their filings in response to the SCO, it appears that the SCO mistakenly used

the figure of 3.98% rather than the figure of 3.398% set forth in the City's Proposed Corrective Action Plan. The

correct figure is 3.398%.

[*14]

The FAA noted that "[paragraph] 7-18 applies to the deletion of land from an Airport Layout Plan and is no longer

an issue in this case. The land in this case was not deleted from the ALP, [paragraph] 7-18 was included previously

because it is indicative of the (then) FAA policy and treatment of land not acquired from Federal sources or with

Federal financial assistance." n17

n17 Index of Administrative Record, item 51, pp. 17-18, n. 61.

The FAA stated that based upon the record, there appeared to be good cause for issuing an order making final the

tentative findings and conclusions set forth in the SCO. However, taking into account the public interest for fair review

and decision, the rights of the parties to be heard, and the passage of time since material was last properly submitted to

the record, the Director concluded that the parties should be provided with an opportunity to show cause why the FAA

should not issue an order making final the tentative findings and conclusions as set forth in the SCO. The FAA invited

[*15] the parties to file objections within 45 days after the date of issuance of the SCO, and to file a response to those

Page 5

2009 FAA LEXIS 212, *12
objections within 20 days thereafter. Finally, the FAA denied all outstanding motions and requests not expressly granted

in the SCO.

III. THE PARTIES

Airport Sponsor

The City of Los Angeles is a municipal corporation and political subdivision of the State of California. The City of

Los Angeles World Airports (LAWA), formerly the Department of Airports, is a department of the City. LAWA owns

and operates four airports: Los Angeles International (LAX), LA/Ontario International (ONT), Van Nuys (VNY), and

LA/Palmdale Regional (PMD). A seven-member Board of Airport Commissioners governs Los Angeles World

Airports. By the Charter of the City of Los Angeles, the Board is responsible for the formulation of airport policy.

Complainants

Air Transport Association (ATA)

The ATA is an association of 17 U.S. and three foreign airlines. The ATA's U.S. members operate within the

United States and in the U.S. foreign commerce. Its foreign members also participate in the U.S. foreign commerce and

are subject to suit in the United States. A principal purpose of the [*16] ATA is to support its member airlines by

promoting airline safety and advocating common industry positions on important policy and legal issues. Since its

inception in 1936, the ATA has been involved in the development of international law governing international air

transportation.

Aircraft Owners and Pilots Association (AOPA)

AOPA is a nationwide, non-profit membership organization dedicated to issues involving what is known as

"general aviation." "General aviation" is a broad term for aviation operations other than scheduled air service or military

aviation. In terms of hours flown, general aviation accounts for more than half of civil flying in the United States

airspace, and general aviation utilizes all of the almost 20,000 airports in the United States.

AOPA was formed in 1939 and now represents more than 416,000 aircraft owners and pilots from every state. The

members of AOPA are individuals and comprise the bulk of the Nation's active pilots.

IV. THE AIRPORT

The Los Angeles International Airport is a public-use airport located in Los Angeles, California. The Airport is

owned and operated by the City of Los Angeles. It is a commercial service airport. In 2008, [*17] the Airport had

approximately 453,232 air carrier operations and 150,561 commuter operations each year. n18

n18 Index of Administrative Record, item 54.

FAA records indicate that the planning and development of the airport has been financed, in part, with funds

provided by the FAA under the AIP, authorized by 49 U.S.C. § 47101 et seq. (formerly known as the Airport and

Airway Improvement Act, Pub. L. No. 97-248, 96 Stat. 671 (1982)). Since 1982, the Airport has received a total of $

571,569,573 in FAA airport development grant assistance. n19

n19 Index of Administrative Record, item 53.

Page 6

2009 FAA LEXIS 212, *15
V. BACKGROUND

A. Factual History

In 1958 the California Department of Public Works, Division of Highways, designated the Century Freeway project

as Route 105. In 1965, the California Highway [*18] Commission officially specified the western portion of Route 105,

including the portion west of Aviation Boulevard for the proposed Century Freeway. In 1968 the FHWA added Route

105 to the Interstate Highway System, and designated the route as the Century Freeway. n20

n20 Index of Administrative Record, item 2.

In 1968 the FAA conditionally approved the City's request to amend the ALP to depict portions of the future

Century Freeway along a narrow strip of land running on the northern boundary of Imperial Highway to the west of

Aviation Boulevard, essentially encompassing land later condemned by California State Department of Transportation

(CalTrans) in 1985. The on-airport portion of the Century Freeway extends from Aviation Blvd. to Sepulveda Blvd. The

FAA conditionally approved Airport Layout Plans (ALPS) from 1968 through the early 1980s which continued to

depict the Century Freeway as a possible future highway project through the area of the condemned land. n21

n21 Index of Administrative Record, item 2.

[*19]

The condemned land is part of six separate parcels that the City acquired with funds from the City's permanent

improvement fund and municipal airport bonds between 1938 and 1947 for the purpose of expanding the airport. The

condemned land represents 1.5 million square feet, which is approximately 4.6 percent of the original six parcels.

By 1972, CalTrans had acquired 71 percent of the parcels necessary for the freeway right-of-way, and the City had

negotiated "Freeway Agreements" with CalTrans, which were necessary to connect City streets to the freeway. n22

n22 Index of Administrative Record, item 2.

In 1972, the City of Hawthorne and interested citizens successfully obtained a preliminary injunction prohibiting

further work on the freeway until Federal and State officials complied with environmental and relocation assistance

statutes, including completion of the environmental impact statement. Keith v. Volpe, 352 F. Supp. 1324, 1330-36 (C.D.

Cal. 1972), aff'd en banc sub nom, Keith v. Cal. Highway Commission, 506 F.2d 696 (9th Cir. 1974), [*20] cert denied,

420 U.S. 908 (1975). The injunction interrupted the planned start of the LAX portion of the project. The project was to

have started in February 1973 and to have been completed in September 1975. The injunction remained in effect until

October 1979. n23

n23 Index of Administrative Record, item 2.

In December 1974, FHWA and CalTrans issued the draft environmental impact statement. FAA was a cooperating

agency. The route proposed was substantially similar to the route originally planned including the LAX portion. Both

the City and FAA concurred in the route. n24

Page 7

2009 FAA LEXIS 212, *17
n24 Index of Administrative Record, item 2.

On July 21, 1977, the final environmental impact statement was issued. The route proposed differed from that

depicted in the draft statement only slightly. n25

n25 Index of Administrative Record, item 2.

[*21]

On October 17, 1978, the U.S. Secretary of Transportation issued a decision formally approving the project based

on the final environmental impact statement. n26

n26 Index of Administrative Record, item 2.

In 1979, in contemplation of condemnation proceedings, the City began to insert a standard form "condemnation

clause" in its lease agreements at the airport, beginning with agreements affecting land within the condemned land. The

Imperial Cargo Complex at LAX took into account the approved location of the Century Freeway. In considering other

developments in the area, the City required structures to be redesigned or relocated to avoid interference with the

anticipated freeway project. n27

n27 Index of Administrative Record item 2, exhibit U.

On January 12, 1981, the City Council approved the "Interim Plan for Los Angeles International Airport." The

[*22] plan showed the area of the condemned land as dedicated to the Century Freeway. The Freeway Agreement, then

under negotiation between the City and CalTrans, recognized this as well. n28

n28 Index of Administrative Record item 2, exhibit R. The FAA appears to have adopted the

FHIATA/CalTrans Final EIS for purposes of making this decision pursuant to 40 C.F.R. § 1506.3.

On May 1, 1982, construction began in the City of Lynwood, which was about nine miles east of LAX. A CalTrans

"Right of Way" map dated June 16, 1982, indicates that the alignment of the freeway remained consistent with the final

environmental impact statement. From this map in 1982, the State still intended to acquire the condemned land for use

in the freeway project. Because construction began in Lynwood, however, there was no immediate need to acquire the

condemned land. n29

n29 Index of Administrative Record item 2.

[*23]

On April 11, 1983, the FAA unconditionally approved revision of the ALP to depict the Century Freeway. n30

n30 Index of Administrative Record, item 2, exhibit P.

Page 8

2009 FAA LEXIS 212, *20
In 1985, the State of California commenced, and in 1988 concluded, a judicial condemnation of the airport land.

n31 The State condemned a portion in fee simple, and for a portion took air rights. The land consists of 1,461,720

square feet -- including 610,443 square feet in fee simple and 851,277 square feet in air rights. n32

n31 Index of Administrative Record item 1, exhibit D.

n32 Index of Administrative Record item 1.

In December 1989, the State of California, pursuant to the state court judgment, electronically transferred the

principal, $ 31,418,697.26, to the City's general fund account at Security Pacific National Bank. In November 1990, the

State electronically transferred [*24] the interest in the amount of $ 11,500,000 to the same City general fund account.

The City then transferred the combined proceeds to the LAX Airport revenue fund. n33 Based on the appraisals

discussed below and undertaken on behalf of the City, the total principal amount of the compensation included not only

the value of fee simple title and air rights but also payment for temporary construction easements and severance

damages. n34

n33 Index of Administrative Record item 1.

n34 Index of Administrative Record item 20.

B. Procedural History

By letter dated February 25, 1994, the President of the Board of Airport Commissioners asked the Secretary of

Transportation to agree that the transfer of approximately $ 58 million from the airport revenue fund to the City general

fund would be consistent with the Airport and Airway Improvement Act of 1982 (AAIA), and with grant agreements

between the City and FAA. The Commissioners stated the proceeds were incorrectly transferred to the airport revenue

fund and transferring [*25] the proceeds to the City general fund would correct that previous mistake. n35

n35 Index of Administrative Record item 18, attachment E.

On May 13, 1994, the Special Counsel for the City of Los Angeles, Department of Airports, responded by letter to

information requests from the Chief Counsel of the Federal Aviation Administration. n36

n36 Index of Administrative Record, item 1.

The Special Counsel for the City responded to information requests from the General Counsel of the U.S.

Department of Transportation, by letters dated January 9, 1995, n37 February 13, 1995, n38 and February 23, 1995. n39

n37 Index of Administrative Record, item 2.

n38 Index of Administrative Record, item 3.

n39 Index of Administrative Record, item 4.

[*26]

Page 9

2009 FAA LEXIS 212, *23
On February 28, 1995, the FAA Associate Administrator for Airports responded, on the Secretary of

Transportation's behalf, to the City's February 25, 1994, request for guidance on the disposition of the condemnation

proceeds with the issuance of a letter (Advisory Opinion). The FAA advised that its practice in regional and district

offices, in response to requests for deletion and release of airport land, had been to seek to retain the proceeds of

voluntary sale for airport use. The FAA further advised that the agency "had not developed guidance on the appropriate

handling of an involuntary disposition of airport property, e.g., condemnation by the state government." Advisory

Opinion at 10. The Advisory Opinion also stated that the FAA's forthcoming revenue use policy "will make clear

proceeds from the sale of a parcel of real property on the airport, owned by the airport sponsor, constitute airport

revenue, within the meaning of the statutory grant assurance. Advisory Opinion at 3 (emphasis original). However, the

Advisory Opinion further stated that due to "differing policy views" on this issue in the past, "lack of clear guidance,"

and handbook provisions that "at the very [*27] least created ambiguity about how the FAA interprets the term

"revenues generated by the airport," the agency did not presently intend to initiate action to prevent or reverse the

transfer to the City's general fund. The Opinion noted that paragraph 7-18 of the Airport Compliance Manual indicated

that past agency policy was that sale proceeds are not airport revenue. The Associate Administrator cautioned that the

views expressed in the letter were advisory, and that the FAA would initiate an investigation if air carriers or other

airport users filed administrative complaints seeking to prevent the transfer. The Associate Administrator advised that a

final determination regarding the legality would be made only after investigating the issues raised and evidence

presented in such complaints. n40

n40 Index of Administrative Record, item 8, exhibit 3.

On March 3, 1995, ATA requested the DOT Office of Inspector General to investigate the transfer to determine if it

constituted revenue diversion. n41

n41 Index of Administrative Record, item 5.

[*28]

On March 7, 1995, the Board of Airport Commissioners, pursuant to resolution, authorized the transfer of the

condemnation proceeds plus interest from the airport revenue fund to the City general fund. n42

n42 Index of Administrative Record item 18, unnumbered exhibit, Resolution No. 1.

On March 21, 1995, ATA filed a formal complaint pursuant to FAA Investigative and Enforcement Procedures, 14

CFR Part 13, alleging the transfer violated the statutory revenue use assurance. ATA requested that the FAA issue an

order to prevent the City from using the proceeds for any non-airport purposes, and requested that the FAA conduct a

formal investigation into the transfer. n43 The FAA assigned the complaint Docket No. 13-95-05.

n43 Index of Administrative Record, item 8.

On March 31, 1995, FAA served the complaint on the City. n44

n44 Index of Administrative Record, item T-3.

[*29]

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On April 4, 1995, the Special Counsel for the City responded to the ATA complaint filed on March 21, 1995. n45

n45 Index of Administrative Record, item 9.

On May 4, 1995, AOPA filed a formal complaint, alleging that the transfer constituted unlawful revenue diversion.

AOPA stated its members at LAX are directly impacted and all its members are indirectly impacted if the transfer

stands as a precedent for other airports. AOPA believes that fees charged for general aviation at LAX and other airports

should remain reasonable. AOPA states general aviation airport users should not be required to subsidize City general

revenue activities. n46

n46 Index of Administrative Record, item 12.

On May 24, 1995, the City answered ATA's complaint. The City urged the FAA to find the complaint does not

state facts which warrant an investigation or enforcement action. [*30] The City requested the complaint be dismissed

without a hearing and for FAA to consolidate ATA's and AOPA's complaints into a single investigation. n47 The City

argued that the proceeds are not subject to restriction. The City asserted that prior to 1982, when the revenue restriction

was enacted, the state and the U.S. Department of Transportation committed, in 1968, to build the Century Freeway

using a route, which encompassed the condemned airport land. The City argued that the FAA subsequently released the

land when it approved airport layout plans which demarcated the land as belonging to the Century Freeway project, and

the state, through condemnation, acquired title in fee as opposed to merely use of the land. n48

n47 Index of Administrative Record, item 13.

n48 Id.

On July 11, 1995, the City filed its answer to AOPA's complaint, incorporating by reference its answer to ATA's

complaint and repeating its request for consolidation of the two complaints. The City urged the FAA to dismiss the

complaint on [*31] the grounds that it does not state facts sufficient to warrant an investigation. n49

n49 Index of Administrative Record, item 15.

On August 31, 1995, the City filed a motion to dismiss ATA's complaint, repeating its contention that ATA did not

identify a ground for any investigation or enforcement action. n50

n50 Index of Administrative Record, item 16.

On September 15, 1995, ATA responded to the City's request to dismiss the complaint. ATA argued that FAA's

advisory letter of February 28, 1995, did not render a final decision on the legality of the transfer, as purported by the

City. In fact, ATA stated, the advisory letter anticipated that complaints would be filed to challenge the transfer. n51

n51 Index of Administrative Record, item 18.

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2009 FAA LEXIS 212, *29
[*32]

On September 15, 1995, the ATA also filed a response in opposition to the City's renewed motion to dismiss. ATA

objected to the City's filing on the grounds of timeliness, efficiency and burden. ATA also complained the City's motion

contained no new information or arguments supporting the revenue diversion. ATA requested that FAA deny the City's

request to file its motion. Alternatively, ATA requested that FAA accept ATA's filing and proceed promptly to a ruling.

n52

n52 Index of Administrative Record, item 17.

On November 29, 1995, the FAA issued Order No. 9505-2, which denied the City's motion to dismiss. The City in

its answer to ATA's complaint requested that the complaint be dismissed in its entirety for failure to state facts that

warrant investigation. n53

n53 Index of Administrative Record, item 19.

On May 17, 1996, the DOT Office of Inspector [*33] General (DOT OIG) provided an advisory memorandum to

the FAA, in which it reported that the City had commissioned an independent appraisal of the land, the Robert Steele

Appraisal. The memorandum stated the appraisal valued the land as follows: $ 13.4 million for land; $ 7 million for air

rights; $ 0.3 million for temporary construction easements; and $ 10.3 million for severance damages. n54

n54 Index of Administrative Record, item 21.

On December 24, 1996, the FAA consolidated the ATA and AOPA Complaints. The FAA stated the two

complaints were consolidated into Docket No. 13-95-05 and the proceeding would henceforth be designated

"Investigation into the Transfer of Los Angeles International Airport Condemnation Proceeds." n55

n55 Index of Administrative Record, item 22.

On December 26, 1996, the FAA asked ATA and the City to provide further information. [*34] ATA was asked to

provide information on issues raised in its complaint. The FAA requested from ATA legal briefs on the State of

California's taking of air rights and the State's payment of damages to airport tenants. The FAA also requested a brief on

the issue of whether condemnation proceeds are revenue subject to third party obligations (contracts between air carriers

and LAX) and grants assurances. n56

n56 Index of Administrative Record, item 23.

The FAA requested the City to provide information on issues pertaining to the ATA/AOPA complaint, the

condemnation proceeding, and the transfer of the proceeds. First, the FAA requested a brief responding to the legal

issues raised in the ATA's complaint. Second, the FAA requested copies of title documents the State received as a result

of the condemnation proceeding. Third, the FAA requested an accounting of and documents supporting amounts the

State paid for each parcel, appraisals of each parcel, and amounts paid for goodwill and damages. Fourth the FAA

requested a brief [*35] describing the nature of the interest the State received. Fifth, the FAA requested an accounting

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2009 FAA LEXIS 212, *32
of and supporting documents for the amounts, dates and interest earnings of the proceeds received. n57 Sixth, the FAA

requested the City provide copies of any appraisals it had for the land.

n57 Index of Administrative Record, item 24.

On January 9, 1997, ATA submitted its brief pursuant to the FAA's request of December 26, 1996, regarding the

issues of taking of air rights; the State's payment of damages to airport tenants; and whether condemnation proceeds are

revenue subject to third party obligations (contracts between air carriers and LAX) and grants assurances. The ATA

claimed that carriers are entitled to a portion of the condemnation proceeds. ATA stated the FAA has a responsibility to

assure the revenue is transferred to the airport and to assure the airport puts the revenue to appropriate use, or to pass the

revenue to the airport users by reducing landing fees. n58

n58 Index of Administrative Record, item 25.

[*36]

On January 15, 1997, the City responded to the FAA's request for information about the transfer of the proceeds.

The City responded that the condemnation settlement amount was $ 31,481,400 plus interest accruing from June 25,

1985. In January 1990 the City received $ 31,418,697.26 which is the settlement amount less $ 62,702.74 paid in

damages to three airport tenants. On November 14, 1990, the City received $ 11,500,000 interest on the settlement

amount. On March 8, 1995, the City transferred $ 58,467,296.48 from the airport revenue fund to the City general fund.

n59

n59 Index of Administrative Record, item 26.

In response to the FAA's request for copies of title documents that the State received as the result of the

condemnation, the City stated that there were no title documents per se. The transfer was solely within the confines of

the Condemnation Action. No other title documents resulted from the condemnation. n60

n60 Index of Administrative Record, item 29.

[*37]

In response to the FAA's request to account for proceeds by parcel and type of interest taken, the City stated the

proceeds were paid in a lump sum. No allocation of proceeds to particular parcels, air rights, or for taking the land was

offered to the FAA. The City stated it did not posses any non-privileged appraisals, but conceded there was one

appraisal prepared at the direction of the City Attorney, which the City considered privileged and would not be made

part of this proceeding. The City stated to date damages paid to three tenants totaled $ 62,702.74. n61

n61 Index of Administrative Record, item 28.

On January 21, 1997, the City filed its brief on the air carrier's right to a portion of the condemnation proceeds. The

City responded by quoting 61 Fed. Reg. 31994, 32018, "The role in investigating an airport user complaint is to

determine whether the airport sponsor is in compliance with its grant obligations, not to adjudicate the rights of the

parties under its lease, as explained [*38] in the DOT Policy Statement Regarding Airport Rates and Charges." In

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2009 FAA LEXIS 212, *35
addition the City reaffirmed its position that the proceeds from the condemnation do not constitute revenue as defined in

the Compliance Handbook, FAA Order 5190.6A, and that the proceeds belong to the City. n62

n62 Index of Administrative Record, item 27.

On January 27, 1997, the Special Counsel for the City filed a brief pursuant to paragraph 3(d) of the FAA's

December 26, 1996 letter, on the issue of whether any amounts received by the City from the State to compensate it for

loss of business goodwill or damages constitute airport revenue, for purposes of the revenue-use grant assurance. n63

n63 Index of Administrative Record, item 28.

On January 27, 1997, the Special Counsel for the City filed a brief pursuant to paragraph 3(d) of the FAA's

December 26, 1996 letter, on the nature [*39] of the interest the State received in the air rights portion of the

condemned land. n64 The brief stated that the proceeds came to the City as a lump sum and interlocutory judgment did

not apportion damages or goodwill. According to the brief, the portion of the judgment that does discuss goodwill

addresses the damages to the airport's businesses that were occupying the portion of the airport that was condemned.

The brief states the City subsequently paid these three tenants a total of $ 62,702.74 in damages. The brief does not

address the issue of the airport being a tenant of the condemned land, nor the damage to the airport stemming from

construction of the freeway on this portion of the airport. n65

n64 Index of Administrative Record, item 29.

n65 Id.

On January 29, 1997, ATA filed its brief on air rights, damages, and goodwill. ATA stated the air rights were an

easement that provided the State with a right to use airport land. Since the land still belonged to the airport, the revenue

associated with air rights [*40] should remain with the airport. ATA stated the legal descriptions of the air rights

parcels are readily ascertainable from the condemnation documents, and that those descriptions belie the City's previous

assertion that the air rights were not an easement. n66 ATA further stated, "there is no remaining issue as to whether

payments received by the City to compensate it for loss of business goodwill or damages constitute airport revenue."

n67

n66 Index of Administrative Record, item 30.

n67 Id.

Over the years, the Department of Transportation's Office of the Inspector General (DOT OIG or OIG) has

conducted several audits of the Airport. As noted above, concurrent with an ongoing OIG investigation, the FAA was

made aware of the Robert Steele Appraisal. In May 1996, an OIG auditor turned a portion of that appraisal over to the

FAA. n68

n68 Index of Administrative Record, item 20.

[*41]

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2009 FAA LEXIS 212, *38
By letter to DOT dated March 17, 1997, the City asserted that a City employee improperly released the information

to the OIG. Consequently, the City requested that DOT return all copies of the memorandum and enclosures pertaining

to the Robert Steele Appraisal and requested that DOT destroy all related documents. The City claimed the appraisal

was protected by the attorney work-product doctrine and the attorney-client privilege. n69 On August 4, 1997, the City

sent to the FAA a second letter, which re-stated the claim of privilege and again requested the DOT return all copies of

the privileged documents. n70

n69 Index of Administrative Record, item 32.

n70 Index of Administrative Record, item 33.

The DOT informed the City on December 24, 1997, that it was not self-evident that the documents were privileged

and provided the City an opportunity to provide additional comment on the issue of privilege. n71 When the City failed

to respond to the DOT's request for comment, the DOT on July 20, 1998, denied the City's [*42] claim that the

documents were protected by either the attorney-work product doctrine or the attorney-client privilege doctrine. The

DOT denied the claim because Congress granted the OIG broad authority for gathering information and the appraisal

fell within the OIG's authority to gather information. Also, the DOT found the appraisal was not protected by privilege.

It was not protected because the appraisal was performed in the ordinary course of business, and there was no showing

that the appraisal was requested by or prepared for an attorney, or that the appraisal was otherwise prepared in

contemplation of litigation. n72

n71 Index of Administrative Record, item 34.

n72 Index of Administrative Record, item 36.

On June 19, 2000, the FAA Office of Airport Safety and Standards issued its Preliminary Determination. It directed

the City to file a Corrective Action Plan for the return of $ 20,131,459 plus interest (34.432% of $ 58,467,296). The

34.432% is for severance damages and construction easements. The Preliminary [*43] Determination did not require

the City to return the other 65.568% of the revenue because it was from land and air rights. With one exception, the

FAA found the entire amount to be subject to the grant assurances. The revenue from land taking and air rights were not

subject to the assurance on revenue use. Those fell within the scope of paragraph 7-18 of FAA Order 5190.6A and §

630 of FAA Order 5100.38A (Airport Improvement Program Handbook - 1989). At that time, the Orders allowed an

airport owner to keep revenue from the sale of land provided it did not obtain the land with Federal financial support.

n73 Concerning paragraph 630, the PD noted:

Paragraph 630 of the AIP Handbook discusses airport revenue. This paragraph states, "airport revenue is

revenue generated by facilities and activities on or off airport. Examples of airport revenue include

revenue from service fees, landing fees, lease or rental fees, usage fees, sale of commodities such as

agricultural or forest products, proceeds from mineral sales, or other net revenue produced from real

land. It also includes local fuel taxes on aviation fuel enacted after December 30, 1987. As used here, the

term "net revenue," means [*44] gross revenue, less any usual and customary administrative or

maintenance expenses associated with land management. Airport revenue does not include proceeds

from the sale of real land owned by the sponsor (emphasis added)."

Note: The February 28, 1995, FAA letter to the Board of Airport Commissioners made clear that the

above policy on proceeds of sale (in italics) was not to be read to permit the proceeds of the sale of

airport property to be used for non-airport purposes. The FAA Policy and Procedures on Use of Airport

Revenue issued as an interim policy in February 1996 and final policy in February 1999 clarified that the

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2009 FAA LEXIS 212, *41
proceeds of sale of airport property are airport revenue. However, the express provisions of Order

5100.38A were in effect in February 1994, when the Board of Airport Commissioners made its request to

the Secretary. n74

n73 Index of Administrative Record, item 39.

n74 Index of Administrative Record, item 39, p. 16.

On August 11, 2000, the FAA granted City's request to extend the due [*45] date for the corrective plan until

October 17, 2000.

On October 16, 2000, the ATA filed a motion for reconsideration of the Preliminary Determination. It stated the

FAA should reconsider the Preliminary Determination and order the City to refund the entire $ 58,467,296, plus

interest. The ATA did not agree with the FAA's use of paragraph 7-18. n75

n75 Index of Administrative Record, item 40.

On October 31, 2000, the City filed its Proposed Corrective Action Plan and a request for confidential treatment of

supporting exhibits obtained from CalTrans. n76 That plan proposed the use of the same formula the FAA used in its

Preliminary Determination, however, it substituted the data from the State/CalTrans appraisal, which reflected different

land, easement, air rights, and damage valuations. The City asserts that for accuracy, the FAA should apply the

CalTrans Appraisal rather than the Robert Steele Appraisal. In support of the CalTrans appraisal is a signed declaration

by CalTrans's representative. The CalTrans appraisal [*46] found the severance damages to be $ 528,483 and

construction easements to be $ 539,010 for a combined 3.398% of the $ 58,467,296 or $ 1,986,718.72, with interest.

n77 The City advised that CalTrans considered the information it provided that was included in the City's submission to

be privileged and confidential. As a result, the City requested the FAA to treat the submission as confidential and file it

under seal.

n76 These exhibits consist of an appraisal made by CalTrans (CalTrans Appraisal) for the condemnation

proceeding, a supporting declaration by Daniel Dunn, a CalTrans employee (Dunn Declaration) and the

declaration of James Spitzer (Spitzer Declaration). City requested confidential treatment only for the CalTrans

appraisal and Dunn Declaration.

n77 Index of Administrative Record, item 41.

The FAA accepted the submission under advisement and withheld a determination. The City and Complainant

submitted a written argument as to why the City's Corrective Action Plan should or should not be withheld from public

[*47] disclosure.

Because the FAA believed that inclusion of these additional exhibits and affidavits would allow it to perform a fair

and complete investigation of the matter, on July 22, 2005, the agency denied the City's Request for Confidential

Treatment of the City's Proposed Corrective Action Plan and served it in its entirety to the Complainants. n78

n78 Index of Administrative Record, item 50.

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2009 FAA LEXIS 212, *44
Using the CalTrans Appraisal, the City proposed to restore $ 1,986,718 plus interest to the airport for severance

damages and construction easements.

On July 21, 2005, because several years had passed since the PD issued, the FAA issued tentative findings and

conclusions in the SCO, to permit the parties to provide any additional information, documentation, and argument on

the issues in this case. In the SCO, the FAA accepted the City's offer restore to the airport account $ 1,986,718.72 plus

interest from March 8, 1995 and to pay 3.98% n79 of additional revenue that the CalTrans may pay the City as the

result of a pending [*48] lawsuit. The FAA tentatively concluded that

. It was reasonable for the FAA to address a request for a determination on the use of airport revenue in

accordance with the applicable handbook provisions in effect at the time the matter arose, on the basis

that the FAA is bound by its own current orders.

. The PD is not in conflict with the statutory language of Section 511 of the AAIA or FAA policy.

. The existence and nature of the Century Freeway makes the air rights effectively permanent for the

purposes of transfer notwithstanding the low potential for reverter, the long-term future use (here) is akin

to a permanent transfer of rights.

. The PD correctly determined that the proceeds from the condemnation and conveyance of the air rights

are not subject to the grant assurance for airport revenue.

. The PD's methodology is fair and in accord with FAA policy.

. The CalTrans Assessment is a valid representation of the valuation used in the condemnation.

. The City's Proposed Corrective Action Plan as submitted is sufficient to resolve the compliance issues

raised in the Part 13 complaints.

n79 As indicated above, the SCO mistakenly used the figure of 3.98% rather than the figure of 3.398% set

forth in the City's Proposed Corrective Action Plan. The correct figure is 3.398%.

[*49]

The FAA stated that based upon the record, there appeared to be good cause for issuing an order making final the

tentative findings and conclusions set forth in the SCO. However, taking into account the public interest for a fair

review and decision, the rights of the parties to be heard, and the passage of time since material was last properly

submitted to the record, the Director concluded that the parties should be provided with an opportunity to show cause

why the FAA should not issue an order making final the tentative findings and conclusions as set forth in the SCO. The

FAA invited the parties to file objections within 45 days after the date of issuance of the SCO, and to file a response to

those objections within 20 days thereafter. Finally, the FAA denied all outstanding motions and requests not expressly

granted in the SCO.

VI. LEGAL AND POLICY GUIDANCE

Title 49 of the United States Code assigns the FAA Administrator broad responsibilities for the regulation of air

commerce in the interests of safety and efficiency. The Federal Government has preempted the areas of airspace use and

management, air traffic control, safety and the regulation of aircraft noise at its [*50] source. The Federal government

also has substantial power to influence airport development through its administration of the Airport Improvement

Program Under these broad powers, the FAA seeks to achieve safety and efficiency of the total airspace system through

direct regulation of airman, aircraft, and airspace. 49 U.S.C. §§ 40103, 44702-44705. n80

n80 In addition and with limited exceptions for military concerns, the FAA shall make long-range plans and

policy for the orderly development and use of the navigable airspace and air navigation facilities that will best

meet the needs and serve the interests of civil aeronautics and national defense. 49 U.S.C. § 44501(a). The U.S.

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2009 FAA LEXIS 212, *47
Government has exclusive sovereignty of airspace of the United States. 49 U.S.C. § 40103. Moreover, the FAA

Administrator prescribes air traffic regulations on the flight of aircraft for navigating, protecting, and identifying

aircraft; protecting individuals and property on the ground; using the navigable airspace efficiently; and

preventing collision between aircraft, between aircraft and land or water vehicles, and between aircraft and

airborne objects. 49 U.S.C. § 40103(b) (2).

[*51]

The Federal role in civil aviation has been augmented by legislation authorizing programs for federal financial and

other assistance to local communities for the development of airport facilities. In each such program, the airport sponsor

assumes certain obligations, either by contract or by restrictive covenants in property deeds and conveyance

instruments, to maintain and operate its airport facilities safely and efficiently and in accordance with specified

conditions. Commitments assumed by airport sponsors in property conveyance or grant agreements are important

factors in maintaining a high degree of safety and efficiency in airport design, construction, operation and maintenance

as well as ensuring the public fair and reasonable access to the airport.

The planning and development of Los Angeles World Airport has been financed, in part, with funds provided by

the FAA and the U.S. Department of Transportation under the Airport Development Aid Program, authorized by the

Airport and Airway Development Act of 1970, and the AIP, authorized by the AAIA. These programs provide financial

assistance to an airport sponsor for airport development in exchange for binding commitments designed [*52] to assure

that the public interest in civil aviation will be served. These commitments are set forth in the sponsor's applications for

Federal assistance and in the grant agreement as sponsor assurances, i.e. a list of applicable Federal laws, regulations,

executive orders, statute-based assurances, and other requirements, binding the sponsor upon acceptance of the Federal

assistance.

The FAA has a statutory mandate to ensure that airport owners comply with these sponsor assurances. See 49

U.S.C. §§ 40103(e), 40113, 40114, 46104, 47122, 46101, 46105, 47107(a), (b), (g), 47106(e), 47111(d), and 47122.

A. Federal Statutes Relating to the Use of Airport Revenue

Section 511(a)(12) of the AAIA, part of Title V of the Tax Equity and Fiscal Responsibility Act, Public Law

97-248, (now codified at 49 U.S.C. 47107(b)) established the general requirement for use of airport revenue. As

originally enacted, the revenue-use requirement directed public airport owners and operators to "use all revenues

generated by the airport ... for the capital or operating costs of the airport, the local airport system, or [*53] other local

facilities which are owned or operated by the owner or operator of the airport and directly related to the actual

transportation of passengers or property." The original revenue-use requirement also contained an exception, or

"grandfather" provision, permitting certain uses of airport revenue for non-airport purposes that predate the AAIA. This

was in effect when the City received its first AIP grants from the FAA on September 30, 1982, and July 14, 1983.

When the City sought advice from the FAA (February 1994), and when the FAA responded with its Advisory

Opinion (February 1995), the revenue use provision read:

As a condition precedent to approval of an airport development project contained in a project grant

application submitted under this chapter, the Secretary shall receive assurances, in writing, satisfactory to

the Secretary, that

* * *

(12) all revenues generated by the airport, if it is a public airport, and any local taxes on aviation fuel

(other than taxes in effect on December 30, 1987,) will be expended 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 [*54] of the airport and directly and substantially related to the actual air transportation of

passengers or property; except that if covenants or assurances in debt obligations issued before

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2009 FAA LEXIS 212, *50
September 3, 1982, by the owner or operator of the airport, or provisions enacted before September 3,

1982, in the governing statutes controlling the owner or operator's financing, provide for the use of the

revenues from any of the airport owner or operator's facilities, including the airport, to support not only

the airport but also the airport owner or operator's general debt obligations or other facilities, then this

limitation on the use of all other revenues generated by the airport (and, in the case of a public airport,

local taxes on aviation fuel) shall not apply.

Section 511(a)(12) of the AAIA, 49 U.S.C. App. §2210(a)(12).

Today, the statutory provision reads:

(b) Written assurances on use of revenue.--(1) The Secretary of Transportation may approve a project

grant application under this subchapter for an airport development project only if the Secretary receives

written assurances, satisfactory to the Secretary, that local taxes on aviation fuel [*55] (except taxes in

effect on December 30, 1987) and 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

owned or operated by the airport owner or operator and directly and substantially related to the air

transportation of passengers or property.

(2) Paragraph (1) of this subsection does not apply if a provision enacted not later than September 2,

1982, in a law controlling financing by the airport owner or operator, or a covenant or assurance in a debt

obligation issued not later than September 2, 1982, by the owner or operator, provides that the revenues,

including local taxes on aviation fuel at public airports, from any of the facilities of the owner or

operator, including the airport, be used to support not only the airport but also the general debt

obligations or other facilities of the owner or operator.

(3) This subsection does not prevent the use of a State tax on aviation fuel to support a State aviation

program or the use of airport revenue on or off the airport for a noise mitigation purpose.

49 U.S.C. § 47107 [*56] (b).

The FAA Authorization Act of 1994 included new revenue use provisions, including a requirement for the

Secretary to establish policies and procedures that will assure the prompt and effective enforcement of the revenue-use

requirement and the requirement that airports be as self-sustaining as possible (including four specific prohibitions on

the use of airport revenue); a new sponsor assurance requiring airports to submit annual reports relating to revenue use;

and authority for the Secretary to impose civil penalties on airport sponsors for violations of the revenue use

requirement.

The FAA Reauthorization Act of 1996 included new provisions on the use of airport revenue as well. For example,

the new law expanded the application of the existing revenue-use restriction to include any airport that is the subject of

Federal assistance. The provision, now codified at 49 U.S.C. § 47133, applies to all "airports receiving Federal

assistance," not just "public" airports. The broader revenue use provision also has no expiration date. Further provisions

include a statute of limitations that prevents the recovery of funds illegally diverted more [*57] than six years after the

illegal diversion occurs; a statute of limitation of six years after the date on which the expense is incurred for repayment

of sponsor claims for reimbursement of past expenditures and contributions on behalf of the airport; and authorization

for the Secretary to recover civil penalties in the amount of three times the unlawfully diverted airport revenue.

B. Federal Regulations Relating to Proceeds from the Disposition of Land

The FAA implemented the Airport and Airway Development Act of 1970 through 14 C.F.R. Parts 151 and 152.

n81 Title 14 of the C.F.R., § 152.207, "Proceeds from the disposition of land," states:

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2009 FAA LEXIS 212, *54
Unless otherwise authorized by the Administrator, when a release has been granted authorizing the

sponsor to dispose of land acquired with assistance under Part 151 of this chapter or this part, or through

conveyances under the Surplus Property Act, the proceeds realized from the disposal may not be used as

matching funds for any airport development project or airport planning grant, but may be used for any

other airport purpose.

n81 These regulations apply only to grants issued under the 1970 grant statute. They do not apply to grants

issued under the current grant statute, the AAIA, as amended and recodified, 49 U.S.C. 47101 et seq.

[*58] C. The Grant Assurances

As a condition of providing airport development assistance under the AAIA, the Secretary of Transportation must

receive certain assurances from the airport sponsor. Title 49 of the United States Code, § 47107, sets forth assurances to

which an airport sponsor receiving Federal financial assistance must agree as a condition precedent to receipt of such

assistance. The AAIA authorizes the Secretary to prescribe project sponsorship requirements to insure compliance with

the grant assurances. 49 U.S.C. §47107(g).

Two of these assurances are at issue in this proceeding.

1. Written Assurance on Use of Revenue

FAA Grant Assurance No. 25, Airport Revenues, implements the provisions of the AAIA regarding the use of

airport revenue. The sponsor must assure and certify, with respect to this grant that:

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

[*59] directly and substantially related to the actual air transportation of passengers or property; or for

noise mitigation purposes on or off the airport. Provided, however, that if covenants or assurances in debt

obligations issued before September 3, 1982, by the owner or operator of the airport, or provisions

enacted before September 3, 1982, in governing statutes controlling the owner or operator's financing,

provide for the use of the revenues from any of the airport owner or operator's facilities, including the

airport, to support not only the airport but also the airport owner or operator's general debt obligations or

other facilities, then this limitation on the use of all revenues generated by the airport (and, in the case of

a public airport, local taxes on aviation fuel) shall not apply.

2. Written Assurance on Self-Sustainability

Title 49 U.S.C. § 47107(a)(13), formerly section 511(a)(9) of the Airport and Airway Improvement Act, 96 Stat.

686, 687-688 (1982) requires the FAA to receive written assurances with the City that the airport will remain as

self-sustaining as possible. Federal Grant Assurance [*60] No. 24 implements this provision, and states that the

sponsor must assure and certify that:

It will maintain a fee and rental structure for the facilities and services at the airport which will make the

airport as self-sustaining as possible under the circumstances existing at the particular airport, taking into

account such factors as the volume of traffic and economy of collection. No part of the Federal share of

an airport development, airport planning or noise compatibility project for which a grant is made under

Title 49, United States Code, the Airport and Airway Improvement Act of 1982, the Federal Airport Act

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2009 FAA LEXIS 212, *57
or the Airport and Airway Development Act of 1970 shall be included in the rate basis in establishing

fees, rates, and charges for users of that airport.

If the proceeds were airport revenue, then using the proceeds for non-airport purposes affects the airport's

self-sustainability.

D. The FAA Airport Compliance Program and Order

The FAA discharges its responsibility for ensuring airport owners' compliance with their Federal obligations

through its Airport Compliance Program. The FAA's airport compliance efforts are based on the contractual obligations

discussed [*61] above which an airport owner accepted when receiving Federal grant funds or the transfer of Federal

property for airport purposes. These contractual obligations were levied on airport owners in an effort to protect the

public's interest in civil aviation and to achieve compliance with Federal laws.

The Airport Compliance Program is designed to ensure the availability of a national system of safe and properly

maintained public-use airports operated in a manner consistent with the airport owners' Federal obligations and the

public's investment in civil aviation.

FAA Order 5190.6A, Airport Compliance Requirements, n82 issued October 2, 1989, sets forth policies and

procedures for the FAA Airport Compliance Program. It provides basic guidance for FAA personnel in interpreting and

administering the various continuing commitments made to the United States by airport owners as a condition for the

grant of Federal funds or the conveyance of Federal property for airport purposes. The Compliance Handbook, inter

alia, analyzes the various obligations set forth in the standard airport sponsor assurances, addresses the nature of those

assurances, addresses the application of these assurances [*62] in the operation of public-use airports, and facilitates

interpretation of the assurances by FAA personnel.

n82 The Airport Compliance Handbook is currently being updated. A new version is expected to be

finalized in Fall 2009.

The following sections of the Compliance and ALP Handbook Order are relevant to this proceeding:

1. FAA Order 5190.6, paragraph 137, "Total Release to Permit Sale and Disposal"

FAA Order 5190.6, in effect from November 1, 1977 to October 1, 1989, states in paragraph 137:

All land described in a project application and shown on an Exhibit A constitutes the airport property

obligated for compliance under the terms and covenants of a grant agreement. A sponsor is obligated to

obtain FAA consent to delete any land so described and shown. FAA consent shall be granted only if is

determined that the property is not needed for present or foreseeable airport purposes. When obligated

land is so deleted, the Exhibit A and the approved airport layout plan should be revised as appropriate.

Where the [*63] action involves the deletion of land not acquired from Federal sources or with Federal

financial assistance, there is no required disposition of net revenues from sale or disposal. However, in

view of the ADAP requirement that airports become as financially self-sustaining as possible, the agency

should encourage the owner to use any net revenues for needed airport development and to consider an

exchange of released property for needed property. n83

n83 Index of Administrative Record, item 58.

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2009 FAA LEXIS 212, *60
2. FAA Order 5190.6 paragraph 138, "Sale or Other Disposal of Airport Land Acquired with FAAP/ADAP Funds"

Paragraph 138 states:

a. This paragraph is applicable to any request for release of part of all of an airport which would permit

the sale or other disposal of any airport land acquired with FAAP/ADAP funds. It also applies to any

ADAP programming request which may commit the FAA to a subsequent release A sponsor's request in

either case must assure that:

(1) the Government shall be reimbursed (see paragraph (b) [*64] below); or

(2) the total net proceeds will be reinvested in the airport, in a replacement airport, or in

another operating public airport (see paragraph (c) below).

b. The requirement for reimbursement shall apply only where there is no replacement or operating public

airport owned or to be owned by the sponsor....

c. Reinvestment of the total net proceeds (Federal and sponsor share) is required if the sponsor continues

to own or control in part of in whole, a replacement or an operating public airport....

3. FAA Order 5190.6A, paragraph 7-18, "Total Release to Permit Sale and Disposal"

FAA Order 5190.6A, in effect from October 1, 1989 to the present, states in virtually identical language in

paragraph 7-18:

All land described in a project application and shown on an Exhibit A constitutes the airport land

obligated for compliance under the terms and covenants of a grant agreement. A sponsor is obligated to

obtain FAA consent to delete any land so described and shown. The FAA consent shall be granted only

if is determined that the land is not needed for present or foreseeable public airport purposes. When

obligated land is deleted, the Exhibit A and the approved ALP should [*65] be revised as appropriate.

Where the action involves the deletion of land not acquired with Federal financial assistance, there is no

required disposition of net revenues from sale or disposal. However, in view of the ADAP/AIP

requirement that airports become as financially self-sustaining as possible, the FAA should encourage

the owner to use any net revenues for needed airport development and to consider an exchange of

released land for needed land.

4. Appendix 5 - Definitions, Airport Compliance Requirements, Order 5190.6A.

Appendix 5 of the Compliance Order provides definitions of relevant terms including "aeronautical activity." The

definition states that aeronautical activity is any activity which involves, makes possible, or is required for the operation

of aircraft, or contributes to or is required for the safety of such operations. For example, the following are aeronautical

activities air taxi and charter operations, scheduled or nonscheduled air carrier services, pilot training, aircraft rental and

sightseeing, aerial photography, crop dusting, aerial advertising and surveying, aircraft sales and service, aircraft

storage, sale of aviation petroleum products, repair [*66] and maintenance of aircraft, sale of aircraft parts, parachute

activities and ultra light activities.

E. Airport Improvement Program and Orders

The Airport Improvement Program (AIP) provides grants to public agencies -- and, in some cases, to private

owners and entities -- for the planning and development of public-use airports that are included in the National Plan of

Integrated Airport Systems (NPIAS).

1. Airport Improvement Program Handbook (AIP) 5100.38

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2009 FAA LEXIS 212, *63
Paragraph 630, "Airport Revenue," of FAA Order 5100.38, which was in effect from February 1, 1985 to October

23, 1989, states:

Airport revenue is revenue generated by facilities and activities on airport property. Examples of airport

revenue include revenue from service fees, landing fees, lease or rental fees, usage fees, sale of

commodities such as agricultural or forest products, proceeds from mineral sales, or other net revenue

produced from real property. As used here, the term "net revenue," means gross revenue, less any usual

and customary administrative or maintenance expenses associated with property management. Airport

revenue does not include proceeds from the sale of real property owned by the sponsor. n84

[*67]

n84 Index of Administrative Record, item 59.

2. Airport Improvement Program Handbook (AIP) 5100.38A

Paragraph 630, "Airport Revenue," of FAA Order 5100.38A, which was in effect from October 24, 1989 to May

31, 2002, states similarly:

Airport revenue is revenue generated by facilities and activities on or off airport. Examples of airport

revenue include revenue from service fees, landing fees, lease or rental fees, usage fees, sale of

commodities such as agricultural or forest products, proceeds from mineral sales, or other net revenue

produced from real land. It also includes local fuel taxes on aviation fuel enacted after December 30,

1987. As used here, the term "net revenue," means gross revenue, less any usual and customary

administrative or maintenance expenses associated with land management. Airport revenue does not

include proceeds from the sale of real land owned by the sponsor. n85

The FAA's interim and final revenue use policies, issued in February 1996 and February 1999, respectively, clarify

that [*68] the proceeds of sale from airport property are airport revenue. The Policy prospectively takes precedence

over the conflicting sections in internal orders noted above, which no longer apply. See FAA Policy and Procedures

Concerning the Use of Airport Revenue, 64 Fed. Reg. 7696, 7702 (Feb. 16, 1999).

n85 Index of Administrative Record, item 56.

3. Airport Improvement Program Handbook (AIP) 5100.38C

FAA Order 5100.38A was superseded by FAA Order 5100.38B, which in turn was superseded by FAA Order

5100.38C (June 28, 2005). In FAA Order 5100.38C, paragraph 630 has been renumbered as paragraph 730, and tracks

the FAA's 1999 Revenue Use Policy. FAA Order 5100.38C, paragraph 730, "Disposal of Land," reads:

Land that initially had an aeronautical purpose, but is no longer needed for such purpose, shall be

disposed of in accordance with Order 5190.6A and such proceeds shall be handled in accordance with

Assurance 31, Disposal of Land. That portion of the proceeds retained by the airport [*69] is considered

airport revenue, subject to the requirements of Title 49 U.S.C., Sections 47107(b) and 47133. n86

n86 Index of Administrative Record, item 57.

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VII. ANALYSIS AND FINDINGS

In the SCO, the FAA tentatively found the City to be in violation of its Federal obligations relating to the use of

airport revenue by diverting certain proceeds derived from the State's involuntary condemnation of airport land for the

Century Freeway. The Director noted that in response to the PD, the City submitted a Corrective Action Plan dated

October 31, 2000, to restore to the airport revenue fund the share of the Century Freeway proceeds attributable to

severance damages and temporary construction easements, plus interest. The City used the same formula the FAA used

in its PD to calculate what share of the condemnation proceeds should be deemed to be airport revenue and restored to

the airport revenue fund. The City's plan utilized the State's CalTrans appraisal and stated that the City proposed to

restore to the airport [*70] revenue fund the amount of $ 1,986,718.72, plus interest. City Corrective Action Plan at 3.

In the SCO, the Director accepted the City's Corrective Action Plan as "sufficient to resolve the compliance issues

raised in the Part 13 complaints." n87

n87 Index of Administrative Record, item 51, p. 22.

As already noted, the FAA's role in this Final Decision and Order is to determine whether the Director's tentative

findings and conclusions made in the SCO should be finalized. Therefore, the issues on appeal are as follows:

A. Whether the Director properly characterized the revenue derived from the State's condemnation of the

airport land in accordance with the policy in effect in 1988 when the judicial condemnation of the airport

land was concluded and the legal obligation arose to pay the City.

B. Whether the Director was correct in viewing the air rights in this matter to be akin to a permanent

transfer of rights rather than a temporary use.

C. Whether the Director was correct in relying upon the State's CalTrans [*71] appraisal instead of the

City's Robert Steele Appraisal.

D. Whether the FAA properly investigated the complaints and whether a hearing should have been held.

A. Whether the Director properly characterized the revenue derived from the State's condemnation of the

airport land in accordance with the policy in effect in 1988 when the judicial condemnation of the airport land

was concluded and the legal obligation arose to pay the City.

In his analysis in the SCO of whether all revenue derived from the condemnation should be considered "revenues

generated by the airport" within the meaning of the statutory revenue use provision, the Director first found that the

AAIA offered no statutory definition of "revenue" or "airport revenue." As a result, he indicated that FAA had the

discretion -- as the agency responsible for administering the AAIA -- to reasonably interpret the meaning of the statute.

In response to ATA's argument that the current interpretation of 49 U.S.C. 47107(b) should apply, notwithstanding the

FAA guidance in effect before 1996 (when FAA issued its proposed revenue use policy), he noted that in the FAA's

February 28, 1995 Advisory [*72] Opinion, the agency made clear that it fully supported the retention of all airport

revenues for use in the airport system but that unusual circumstances and the ambiguous nature of past agency policy

statements that bear on the issue at hand prevented the agency from applying this policy. He further noted that the PD

had found that in view of paragraphs 7-18 n88 of FAA Order 5190.6A and 630 of FAA Order 5100.38A, the FAA could

not enforce the current interpretation of sales proceeds constituting airport revenue. He further indicated that both

provisions were derived from paragraph 137 of FAA Order 5190.6 (August 24, 1973) which pre-dated enactment of the

prohibition on diversion of airport revenue. The Director reasoned that the agency has discretion to define airport

revenue in a manner consistent with the purposes of Section 511(a)(12) and the AAIA. The Director noted that

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2009 FAA LEXIS 212, *69
discretion is warranted where the statute is unclear and that the FAA may change its interpretation from past

interpretations, provided the basis for the change is adequately explained.

n88 In a footnote the Director indicated that paragraph 7-18 applies to the deletion of land from an airport

layout plan and "is no longer an issue in this case. The land in this case was not deleted from the ALP, §7-18

was included previously because it is indicative of the (then) FAA policy and treatment of land not acquired

from Federal sources or with Federal financial assistance." SCO at 17-18, n. 61. The Director appears to have

based this statement upon the PD, which found that the ALPs showed the land as being part of the airport from

its acquisition until its condemnation. PD at 19. The PD rejected the City's argument that the FAA's approval of

the City's requests between 1968 and 1983 to revise its airport layout plan to depict Century Freeway deleted the

land from the airport. The Director reasoned in the PD that removal of land from Federally funded airports

requires more than designation, it requires specific consent to release. He found that the time the City should

recognize the land being committed to the project was at the time of the eminent domain proceeding, when the

precise metes and bounds of the land were known. "The eminent domain and the Interlocutory Judgment of

December 14, 1988, created the State's obligation to pay the airport and the State's right to occupy the land, and

the eminent domain proceeding did not take place until June 25, 1985, two years after the grant assurance

requirement went into effect." PD at 21.

[*73]

The Director found that at the time of the condemnation, FAA's practice seems to have conflicted with its policies,

however the FAA's policy permitted the City to transfer a portion of the proceeds (those from land taken in fee and air

rights) into its general account. He further found that given that the agency had the authority and discretion under the

law to issue that prior interpretation, the guidance issued in those orders was lawful and in effect at that time.

The Director noted the Complainants were technically correct that the City was not bound by the terms of an FAA

internal order and discussed certain conditions that could have created reasonable reliance by the City on the prior

interpretation (i.e., that airport revenue does not include proceeds from the sale of real property owned by the sponsor):

(1) usual circumstances existing in this specific Case; (2) the ambiguous nature of past agency policy statements (i.e.,

paragraphs 7-18 and 630); and (3) FAA's February 28, 1995 Advisory Opinion. In addition, the Director determined that

the FAA itself was bound by the terms in the FAA orders and could not have taken action to compel the City to comply

with new policy [*74] adopted after the City's request for a legal opinion in February 1994. As a result, the Director

concluded that "the City's use of revenue is analyzed in accordance with the terms of the FAA policy in effect at the

time the complaint was filed." n89

n89 Index of Administrative Record, item 51, p. 19.

Analysis

The Proceeds from Land Taken in Fee and Air Rights

The Director correctly found that the proceeds from the land taken in fee and air rights were not airport revenue and

that as a result, the amount of the proceeds attributable to these categories could be transferred from the airport fund to

the City's general fund.

The Complainants argue that the revenue use statute and grant assurance apply to the proceeds of the involuntary

condemnation in their entirety. For the proceeds resulting from the land taken in fee and air rights, this argument is not

correct. In the SCO, the Director reasoned that the operative date for determining the City's grant obligations was the

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2009 FAA LEXIS 212, *72
date the matter arose. He found [*75] that the legal obligation for the State to pay the City arose in 1988 when the

judicial condemnation of the airport land was concluded. Accordingly he analyzed the City's obligations regarding use

of revenue in accordance with FAA law and policy in effect in 1988. n90 However he did not distinguish between the

land and air rights and the severance damages and the construction easements in terms of operative dates.

n90 The SCO can be read to identify dates other than 1988 as applicable. As explained in detail in the

remainder of this section concerning changes to grant assurance obligations, since the same FAA policy was in

effect prior to 1995, the various dates cited by the Director support the same legal conclusion regarding the

characterization of the revenue.

While the Director's finding relative to 1988 is reasonable, the Director of Airport Compliance and Field

Operations herein additionally finds, in the alternative, that the matter arose well before the City accepted its first AIP

grant and the City's grant [*76] obligations should be evaluated on that basis. FHWA approved the State project to

construct Century Freeway and the FAA approved necessary amendments of the airport layout plan to depict it in 1968,

1969, 1974, 1978, and 1983. We agree with the Director that the operative date for determining applicable grant

obligations is the date that the matter arose. However we believe it would be even more consistent with the involuntary

nature of this sale to view it as arising when FHWA gave the prerequisite authorizations to the State and the FAA

concurred for the fourth time in corollary ALP changes by the City. The key to the analysis of the proceeds from the

land taken in fee and air rights is when the State was authorized by the Federal Government to acquire airport land from

the City, not when the State ultimately acquired the land. The State was authorized to acquire airport land in fee and air

rights from the City for the highway project arguably a decade before it was required to pay compensation.

The Federal Government essentially approved the federal actions needed for the State to acquire airport land and

build Century Freeway in 1978, four years before Congress enacted [*77] the AAIA and the City accepted grants

conditioned upon the new AAIA revenue use grant assurance. Although the City did not seek permission to delete the

property from the ALP, neither did the FAA condition its four approvals to amend the airport layout plan to depict

Century Freeway upon future FAA consent pursuant to paragraph 7-18. Arguably, the City could have reasonably relied

upon the series of FAA ALP approvals between 1968 and 1983 as indicating that the FAA condoned in the City's

retention of the condemnation proceeds without the formality of having to file a formal request seeking to delete the

land from the ALP. For these reasons, we agree with the Director's conclusion that the FAA could not have prevailed in

requiring the City to treat the compensation for land and air rights as airport revenue. At the time the City sought

advice, revenue use obligations in this area were ambiguous. In response to the City, the FAA issued its first clear

written guidance on the treatment of the involuntary sale of locally funded airport land in 1995.

We conclude that the City's legal rights concerning transfer of the land in fee and air rights were either fixed in

1988, when the state became [*78] legally obligated to compensate the City, or in 1978, when the FHWA approved the

state project to construct Century Freeway and the FAA approved revision of the airport layout plan. n91 n92

n91 The City's rights could also be viewed as having been fixed by the series of approvals given by FAA

between 1968 and April 1983, when the FAA unconditionally approved the City's airport layout plan to depict

the portion of Century Freeway within airport boundaries. Although the City had already accepted grants under

the AIP by then, FAA had not put the public or airport sponsors like the City on notice that receipt of such

grants would obligate them in the future to treat the proceeds at issue here as airport revenue.

n92 It is undisputed that the severance damages and construction easement proceeds are airport revenue.

They are treated as payments for "use of property" (akin to rental and lease payments) rather than a sale or

disposal under "other net revenue produced from real property" in Order 5100.38A § 630. Paragraph 630 states

that "Airport revenue is revenue generated by facilities and activities on airport property. Examples of airport

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2009 FAA LEXIS 212, *74
revenue include revenue from service fees, landing fees, lease or rental fees, usage fees, sale of commodities

such as agricultural or forest products, proceeds from mineral sales, or other net revenue produced from real

property." This treatment speaks to the temporary nature of both construction easements and severance

payments. Temporary construction easements allowed the State temporary access to portions of the airport land

for purposes of constructing the Century Freeway. The State paid severance damages for the economic damage

afflicted on the airport when it separated the condemned land from the airport.

[*79]

As noted in the factual background, the planning of the Century Freeway dates back to at least 1958. In that year,

the California Department of Public Works, Division of Highways, first designated what was to become the Century

Freeway as "Route 105." DOT added Route 105 to the Federal Interstate Highway System in 1968, and then approved

land acquisition for the right-of-way no later than 1971. The FAA-approved ALP for LAX in 1968 depicts the intended

use of the area of the condemned property for the Century Freeway. By 1972, the route of the Century Freeway and

plans for its construction were well established.

In 1974, DOT, through the FHWA and CalTrans, began the lengthy environmental review process. In December

1974, FHWA and CalTrans issued the Draft Environmental Impact Statement for the Century Freeway. Both the FAA

and the City concurred in the route proposed by the DEIS CalTrans issued the Final Environmental Impact Statement on

July 21, 1977. In August 1978, U.S. Secretary of Transportation Brock Adams toured the site of the proposed Century

Freeway as part of his review of the Final EIS. On October 17, 1978, Secretary Adams formally approved construction

of the Century Freeway [*80] in accordance with the Final EIS. In 1979, in contemplation of condemnation

proceedings, the City began to insert a standard form "condemnation clause" in its lease agreements at the airport,

beginning with agreements affecting land within the condemned land. The City began to require structures to be

redesigned or relocated to avoid interference with the anticipated freeway project. n93 On January 12, 1981, the City

Council approved the "Interim Plan for Los Angeles International Airport," depicting the area of the condemned land as

dedicated to the Century Freeway. On May 1, 1982, construction of the Century Freeway began in the City of

Lynwood, about nine miles east of LAX. Because construction began in Lynwood, there was no immediate need for the

State to acquire the condemned property at LAX. However, when the path of construction neared LAX in 1985, the

State then filed its condemnation action for the airport property.

n93 Index of Administrative Record, item 2, exhibit U.

As noted, on October 17, 1978, the DOT [*81] Secretary approved the location of the Century Freeway project,

based upon a Final EIS prepared by DOT, FHWA, and Caltrans, as joint lead agencies, with the FAA as a cooperating

agency. The FAA had been aware of the Century Freeway project and the contemplated condemnation as early as 1968,

when it conditionally approved the City's request to amend the ALP to depict portions of the future Century Freeway

along a narrow strip of land running on the northern boundary of Imperial Highway to the west of Aviation Boulevard,

essentially encompassing land later condemned by Caltrans in 1985. FAA subsequently conditionally approved the

City's 1969, 1974, and 1978 ALPs. In 1983, based upon the Final EIS, the FAA made unconditional its prior approval

for the City to revise the City's ALP to depict the Century Freeway.

As of October 17, 1978, for all practical purposes, a final decision on the Century Freeway project had been made

and the project proceeded to be implemented. Subsequent to the 1978 FHWA and FAA approvals, the City's remaining

duties relating to the Century Freeway were purely ministerial in nature. As the Director noted in the Advisory Opinion,

"in many ways the City treated [*82] the property as dedicated freeway property well in advance of 1983 when the

City executed its first AIP grant," n94 thus taking on the revenue use grant assurance. As a result, for purposes of

analyzing the proceeds resulting from land and air rights, the FAA laws and policies in effect in 1978 are pertinent.

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2009 FAA LEXIS 212, *78
n94 Index of Administrative Record, item 63, February 28, 1995 letter from Cynthia Rich, FAA Associate

Administrator for Airports, to the Honorable Theodore O. Stein, President, Board of Airport Commissioners, p.

10.

At that time, in 1978, Congress had not yet enacted the revenue use requirement nor clarified this requirement in a

policy on the use of airport revenue. Other than land acquired from Federal sources or with Federal financial assistance,

airport sponsors were not required to utilize such proceeds for airport purposes. The FAA policy in effect at that time

relating to release and sale of airport land, paragraph 137 of FAA Order 5190.6 (Aug. 24, 1973), reflected the state of

the law: "[w]here the action [*83] involves the deletion of land not acquired from Federal sources or with Federal

financial assistance, there is no required disposition of net revenues from sale or disposal." n95 As a result, while

proceeds from the sale of land acquired through a Surplus Property Act conveyance or an ADAP grant were

conditioned, proceeds from the sale of airport land acquired with local money was not conditioned. At that time, there

was no express FAA policy addressing the use of sales proceeds from an involuntary condemnation process. Neither

was there any express guidance on deletion of land that had been subject to involuntary condemnation. Since the City

acquired the land with its own money, it would have had a reasonable expectation that use of the forthcoming proceeds

would not be restricted by any FAA requirement or policy other than the self-sustaining assurance. Under paragraph

137, the FAA would have "encouraged" -- but not required -- the City to use any net revenues received for needed

airport development. n96

n95 Index of Administrative Record, item 58.

n96 Index of Administrative Record, item 58.

[*84]

It was not until approximately one year after the City had requested the legal opinion from the Secretary that the

FAA, in its February 28, 1995 Advisory Opinion, developed an affirmative policy on how proceeds from an involuntary

condemnation would be handled. The FAA stated that it was "making clear in this letter, and will reaffirm in our

anticipated policy statement on revenue use, that we consider "revenues generated by the airport" to include the

proceeds from the sale of that property, including proceeds generated by a condemnation." n97 The Director noted that

the revenue use statutory provision, section 511(a)(12) of the AAIA, "must be read in the overall context of the statute

and underlying Federal policy...." n98 However, as the Director noted in the SCO, due to unusual circumstances, the

ambiguous nature of paragraphs 7-18 and 630, and the Advisory Opinion, the FAA "could not have taken action to

compel the City to comply with new policy adopted after the City's request." n99

n97 Index of Administrative Record, item 63, February 28, 1995 letter from Cynthia Rich, FAA Associate

Administrator for Airports, to the Honorable Theodore O. Stein, President, Board of Airport Commissioners, p.

8.

[*85]

n98 Id.

n99 Index of Administrative Record, item 51, pp. 18-19.

The Director of Airport Compliance and Field Operations concurs with the Director that retroactive n100

application of a newly-announced policy, that was not published until February 26, 1996 (in the FAA's Notice of

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2009 FAA LEXIS 212, *82
Proposed Policy), and was not finalized until February 16, 1999 (in the FAA's final policy), would have been improper.

According to the Supreme Court, "the presumption against retroactive legislation is deeply rooted in our jurisprudence,

and embodies a legal doctrine centuries older than our Republic." Landgraf v. USI Film Products, 511 U.S. 244, 265

(1994). The retroactivity principle finds expression in several provisions of the Constitution, including the Ex Post

Facto, Takings, and Due Process Clauses. Landgraf, 511 U.S. at 266.

n100 "A law is retrospective [or retroactive] if it 'changes the legal consequences of acts completed before

its effective date.'" Miller v. Florida, 482 U.S. 423, 430 (1987)(internal citations omitted); see also Landgraf,

511 U.S. at 269.

[*86]

This is because

[e]lementary considerations of fairness dictate that individuals should have an opportunity to know what

the law is and to conform their conduct accordingly; settled expectations should not be lightly disrupted.

For that reason, the "principle that the legal effect of conduct should ordinarily be assessed under the law

that existed when the conduct took place has timeless and universal appeal." In a free, dynamic society,

creativity in both commercial and artistic endeavors is fostered by a rule of law that gives people

confidence about the legal consequences of their actions.

Landgraf v. USI Film Products, 511 U.S. 244, 265-266 (1994).

As a result, there is a "rule of general application" that a statute shall not be given retroactive effect "unless such

construction is required by explicit language or by necessary implication." Fernandez-Vargas v. Gonzales, 548 U.S. 30,

37 (2006). Here, there is no indication that Congress intended for the statutory revenue use provision to have retroactive

effect. In fact, most cases in which the Supreme Court has applied the presumption against statutory retroactivity [*87]

"has involved new provisions affecting contractual or property rights, matters in which predictability and stability are of

prime importance." Landgraf v. USI Film Products, 511 U.S. 244, 271 (1994). Courts have also recognized that

legislative rules (i.e., adopted by an agency pursuant to notice and comment), such as the FAA's revenue use policy, are

to be given future effect only. Georgetown University Hospital v. Bowen, 821 F.2d, 750, 757 (D.C. Cir. 1987), aff'd,

488 U.S. 204 (1988).

Similarly, in the context of agency policy statements, agencies

may not retroactively change the rules at will. Indeed, that "[e]lementary considerations of fairness

dictate that individuals should have an opportunity to know what the law is and to conform their conduct

accordingly" has been well-established for "centuries" [citing Landgraf]. Anything less ought not to be

dignified with the title of law. These "[t]raditional concepts of due process incorporated into

administrative law preclude an agency from penalizing a private party for violating a rule without first

providing adequate notice of [*88] the substance of the rule.

Networking LLC v. FCC, 548 F.3d 116, 122-123 (D.C. Cir. 2008)(internal citations omitted).

The D.C. Circuit commented in a footnote that "[t]he contrary notion of unknowable law is literally Orwellian. See,

e.g., GEORGE ORWELL, ANIMAL FARM 102-03 (1946) (describing Squealer's ex post efforts to repaint the Seven

Commandments to the pigs' whisky-bibbing benefit)." Networking, 548 F.3d at 123, n. 5. The court added that

"[r]udimentary justice requires that those subject to the law must have the means of knowing what it prescribes. It is

said that one of Emperor Nero's nasty practices was to post his edicts high on the columns so that they would be harder

to read and easier to transgress" (citing a law review article authored by Justice Antonin Scalia). Networking, 548 F.3d

at 123. See also Smith v. Metropolitan School District Perry Township, 128 F.3d 1014, 1039-1040 (7th Cir. 1997), cert.

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2009 FAA LEXIS 212, *85
denied, 524 U.S. 971 (1998)(as a court "must be extremely cautious before giving statutory language [*89] retroactive

effect, we must likewise refrain from giving retroactive effect to agency policy guidelines," where the pertinent facts of

the case pre-dated the Department of Education's Office of Civil Rights' issuance of policy guidance "by more than five

years.")(emphasis original); and N.L.R.B. v. Guy F. Atkinson Co., 195 F.2d 141, 149 (9th Cir. 1952)(retroactive policy

making "the sort of thing our system of law abhors.").

It was also appropriate for the Director to have prospectively applied his interpretation of "revenues" to include

involuntary condemnation proceeds because FAA was required to notify the City before modifying its grant assurance

obligations. Traditional concepts of due process incorporated into administrative law and the AAIA both preclude

agencies from reversing a well-established rule and penalizing a private party for violating it without first providing

adequate notice of the substance of the rule and an opportunity to comment upon it. Networking, 548 F.3d 116, 122-123

(D.C. Cir. 2008).

In 1994, when the City sought guidance concerning disposition of the proceeds from the State's condemnation

[*90] of the airport land, section 511(f) of the AAIA required the FAA to provide notice in the Federal Register and an

opportunity for the public to comment upon proposals to add to or modify grant assurances. Congress amended the

AAIA to add this requirement in 1987. Section 109(k) of the Airport and Airway Safety and Capacity Expansion Act of

1987, Pub. L. No. 100-223, 101 Stat. 1486 (Dec. 30, 1987), codified at 49 U.S.C. 47107(h), stated:

If the Secretary proposes to modify any assurance required of a person receiving a grant under this Act

and in effect on or after the date of the enactment of this subsection or proposes to require compliance

with any additional assurance from such person, the Secretary shall first (1) publish notice of such

proposal in the Federal Register, and (2) provide an opportunity for comment on such proposal.

Section 47107(h) clarified that airport sponsors are entitled to advance notice so that they can voluntarily agree

with the terms of receipt of AIP grants. This provision applies to substantive changes in interpretations of the scope and

nature of federal grant assurance obligations. [*91] In light of FAA's obligations under section 47107(h), the Director

properly concluded that the agency itself was "bound" by the terms of its orders, in the sense that the agency could not

compel the City to comply with new policy expanding its grant obligations adopted after it requested advice.

As discussed above, the Director properly concluded that 1988 is the date when the City's legal rights were fixed

and that the City reasonably could have expected that its grant obligations did not require it to treat the proceeds from

the land taken in fee and air rights as airport revenue. Alternatively, the Director could have concluded that the City's

legal rights concerning transfer of the land in fee and air rights were fixed in 1978, when the FHWA approved the state

project to construct Century Freeway and FAA approved an amendment of the ALP to depict the portion of Century

Freeway within airport boundaries for the fourth time. If 1978 is the date when the City's legal rights were fixed, then

the FAA reaches the same legal conclusion: that the proceeds from the land taken in fee and air rights do not constitute

airport revenue and need not be returned to the airport fund.

Where, as [*92] here, the FAA issued conditional ALP approvals in 1968, 1969, 1974, and 1978, the

environmental review process was completed in 1978 and the Secretary of Transportation approved the project for

FHWA, the FAA's final unconditional ALP approval in April 1983 was clearly ministerial and clerical in nature,

involving no special discretion of judgment. The FAA's conditional approval of an ALP signals that the proposed ALP

depicts features that are "safe and efficient for airport operations and airport use" and that the "features are ripe for

Federal decision." The unconditional approval further indicates that the FAA has completed the environmental review

process FAA Order 5050.4B requires for the near-term and immediate-term development that is ripe for decision and

"the approving FAA official has authorized the airport sponsor or project proponent to begin building the facilities or

equipment depicted on the unconditionally approved ALP." n101 (Emphasis original). It was merely fortuitous that the

FAA did not both adopt the 1978 Final EIS and unconditionally approve the ALP until April 11, 1983. This should not

alter the conclusion that the City's rights and obligations concerning [*93] the land in fee and air easements for the

highway could be considered fixed well before the City received its first AIP grant.

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2009 FAA LEXIS 212, *88
n101 Index of Administrative Record, item 60, chapter 2, paragraph 202, p. 2-3.

When the City made its inquiry to the Secretary in February 1994, FAA had no specific policy guidance on the

treatment of proceeds from involuntary condemnation. As a result, the Director was able to state: "the application of

agency policy in the case of a condemnation of airport property, as opposed to a voluntary sale, is novel." Advisory

Opinion at 10. And as noted above, the FAA was required by statute to provide notice in the Federal Register and an

opportunity for the public to comment upon proposals to add to or modify grant assurances. Section 47107(h) clarified

that airport sponsors are entitled to advance notice so that they can voluntarily agree with the terms of receipt of ALP

grants. As a result, the agency could not have compelled the City to comply with new policy expanding its grant

obligations [*94] adopted after it requested advice.

Because there was no explicit guidance available on the use of proceeds from involuntary condemnation, the City

therefore cited to the Secretary the guidance available -- paragraphs 630 and 7-18. These provisions stated, "[a]irport

revenue does not include proceeds from the sale of real land owned by the sponsor," and "[w]here the action involves

the deletion of land not acquired with Federal financial assistance, there is no required disposition of net revenues from

sale or disposal," respectively. The Director found that due to "unusual circumstances," "the ambiguous nature of past

agency policy statements," "differing policy views ... expressed on this issue in the past," and a "lack of clear guidance"

on the appropriate handling of an involuntary disposition of airport property, the policy provisions could have been

reasonably interpreted to permit the City to transfer a portion of the proceeds into its general account.

The Director properly determined that there were unusual circumstances at play here. First, the condemnation was

involuntary. The transfer of the condemnation proceeds was not a calculated effort by the City to sell off part of [*95]

the airport to finance local city expense unrelated to the airport or to burden airport users with "'hidden taxation' for

unrelated municipal services." H.R. Conf. Rep. No. 97-760, 97th Cong., 2d Sess. pt. 3, 697, 712 (1982). Nor was the

City participating in a "shell game [that] results in the misuse of the underlying grant." On June 15, 2000, in debate on a

Senate provision that would have conditioned the use by the FAA Airports Office of non-safety related funds on the

FAA's completion of its investigation in this matter, Senator John McCain discussed generally the concerns behind

unlawful revenue diversion:

We cannot allow airports to receive federal grant dollars on the one hand, and spend other airport

revenues for non-aviation purposes. This type of shell game results in the misuse of the underlying grant.

That is one of the principal reasons there are laws against diversions of airport revenues. Unfortunately,

many cities that control airports see them as sources of cash that can be tapped for popular purposes ...

If airports are used to generate cash for local jurisdictions, the airport itself will suffer from the loss of

resources. Even worse, air travelers will be effectively [*96] double taxed - once through federal

aviation excise taxes, and a second time through the higher air fares that airlines will charge when their

costs of maintaining the airport go up.

146 Cong. Rec. S5188-01, 2000 WL 770379 (June 15, 2000).

The sale at issue was completely involuntary because it was accomplished through inverse condemnation. The land

sale was not initiated by the City to provide a windfall for the City's general fund. Nor did the sale require action by the

City in its capacity as proprietor of LAX. This is particularly the case because the public interests favoring

self-sustainability were apparently not jeopardized and there were competing public interests favoring this interstate

highway project. Instead of air travelers and airport users being double taxed, under the circumstances of this case, if the

condemnation proceeds were required to be used for airport purposes, airport users would potentially receive a windfall

at the expense of the City that originally acquired the land with City funds. The proceeds would have the potential to

benefit commercial users of the airport, which neither directly nor indirectly contributed to the [*97] acquisition of the

property.

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2009 FAA LEXIS 212, *93
Second, as already noted, the condemnation was for a major federal/state highway transportation project, for which

construction was formally approved by the Secretary of Transportation in accordance with a Final EIS. The FHWA was

the lead agency and FAA was a cooperating agency.

Third, the FAA had known about the Century Freeway project for decades before the City requested the legal

opinion from the Secretary in 1994. The FAA conditionally approved the ALP depicting Century Freeway in 1968,

1969, 1974, and 1978 and gave unconditional approval in 1983. Fourth, differing policy views had been expressed in

the past concerning whether airport revenue includes proceeds from the sale of real property owned by the sponsor;

while FAA's practice was to encourage use of sale proceeds for airport purposes, the agency's policy at the time of the

condemnation permitted the City to transfer a portion of the proceeds to its general account. Fifth, there was a lack of

clear guidance on the appropriate handling of an involuntary disposition of airport property; the policy provisions could

have been reasonably interpreted to permit the City to transfer a portion of the [*98] proceeds into its general account.

Sixth, the policy statements created ambiguity. Seventh (not mentioned by the Director), as noted, Congress in 1987

amended the AAIA to add a provision preventing the Secretary from proposing to modify any grant assurance, or

proposing an additional grant assurance, unless the Secretary first published notice of such a proposal in the Federal

Register and provided an opportunity for comment on such proposal. Section 109(k) of the Airport and Airway Safety

and Capacity Expansion Act of 1987, Pub. L. No. 100-223, 101 Stat. 1486 (Dec. 30, 1987), codified at 49 U.S.C.

47107(h).

The Proceeds from Temporary Construction Easements and Severance Damages

The Director correctly found that the proceeds from the temporary construction easements and severance damages

constituted airport revenue -- since these proceeds resulted from a use of the airport -- and that these proceeds would

therefore have to be returned to the airport fund.

For purposes of analyzing whether the condemnation proceeds flowing from the temporary construction easements

and severance damages appropriately constituted [*99] airport revenue, the laws and policies in effect should be

analyzed as of the time of the State's actual condemnation of the airport land. The State of California on November 4,

1985 commenced, and on December 14, 1988 concluded, a judicial condemnation of the airport land for the Century

Freeway. The law and policy in effect between 1985 and 1988 is relevant for a determination on the use of the

condemnation proceeds resulting from the temporary construction easements and severance damages. This timeframe is

after the 1982 enactment of the revenue use requirement and the City's acceptance of the revenue use grant assurance.

Temporary construction easements and severance payments are treated as payments for "use of property" (akin to

rental and lease payments) rather than a sale or disposal under "other net revenue produced from real property" in Order

5100.38A § 630. This treatment speaks to the temporary nature of both construction easements and severance payments.

Temporary construction easements allowed the State temporary access to portions of the airport land for purposes of

constructing the Century Freeway. The State paid severance damages for the economic damage afflicted [*100] on the

airport when it separated the condemned land from the airport. The payments for the temporary construction easements

and severance damages were not required until at least 1985 when the State took possession of the property. In other

words, these payments were not due and owed until the State began to physically take possession of the land, which did

not occur until 1985 at the earliest, well after the City became bound by the revenue use requirement under the AAIA.

The Director of Airport Compliance and Field Operations concurs in the analysis of the Director in the SCO that

construction easements and severance damages are appropriately treated as payments for "use of property" rather than a

sale or disposal under FAA Order 5100.38A, paragraph 630. SCO at p. 19. This paragraph defines airport revenue to

include "lease or rental fees," "usage fees," and "other net revenue produced from real land." The Director of Airport

Compliance and Field Operations also concurs with the PD's finding that it would not have been reasonable for the City

to have concluded that temporary construction easements and severance damages would have been included within

paragraph 7-18. This is because, [*101] as noted, these types of damages neither pertain to sale or disposal of land, but

pertain to the use of land.

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In addition, the legislative history of Section 511(a)(12) clearly indicated that payments for the use of airport

property were defined as airport revenue. Conf. Rep. Pub. L. No. 97-248, USCCAN 1982, vol. 2, p. 1474. The City was

on notice when it received its first AIP grant in 1982 that proceeds like construction easements and severance damages

were airport revenue.

Conclusion

For the reasons stated above, the Director of Airport Compliance and Field Operations concurs in the legal

conclusions made by the Director in the SCO that (1) the proceeds from the land taken in fee and air rights are not

subject to the revenue use requirement, and (2) because the proceeds from temporary construction rights and severance

damages are treated as payments for "use of property" rather than a sale or disposal, the proceeds must be considered to

be subject to the revenue use requirement.

Alternative Findings and Revisions to Two of the Director's Findings in the PD

Finally, two of the findings in the PD could reasonably be modified. First on pages 18-19 of the PD, the Director

[*102] addresses whether the various airport layout plans in the record indicate the land subject to the condemnation

was part of the airport. The Complainants ATA/AOPA had contended that the land was, from its acquisition until

condemnation, depicted on ALPs as being part of the airport. Since the land was on the ALPs, the land remained airport

land and was subject to the revenue use restrictions in 49 U.S.C. 47107(b). The City disagreed, arguing that since the

ALPs showed that the City had set aside land for the Century Freeway Project, and the FAA approved the set aside for

ALPs it submitted for the years 1968, 1969, 1974, 1978, and 1983, the land for the Project had been deleted from the

ALP and was therefore not subject to the revenue use requirement.

The Director agreed with the Complainants that the ALPs showed the land as being part of the airport, but

disagreed with the City that the placement of the proposed project on the ALP constituted a deletion of the land from

the airport. The Director stated that FAA's approval of the ALPs indicated FAA concurrence with the use of the land for

the project, not the removal of the land from the airport. [*103] The Director noted that in effect, the City was

requesting the FAA to retroactively ratify a decision that allegedly occurred in 1968.

In determining that the City's legal rights did not arise before 1982, the Director did not take into account the

involuntary nature of the disposal noted in the Advisory Opinion. Advisory Opinion, page 10. The distinction between

concurrence with the use of land that is being involuntarily taken (i.e., release from grant obligations) and concurrence

with deletion of the land from the airport could reasonably be considered a distinction without a difference as it relates

to the City's retention of the proceeds. As noted above, the FAA had been aware of the Century Freeway project and the

contemplated condemnation as early as 1968, when it conditionally approved the City's request to amend the ALP to

depict portions of the future Century Freeway. The FAA subsequently conditionally approved the City's 1969, 1974,

and 1978 ALPs. Then on April 11, 1983, the FAA made unconditional its prior approval for the City to revise the City's

ALP to depict the Century Freeway, based upon the Final EIS.

As the FAA was aware of the State's intent to condemn the [*104] airport land when it approved the ALPs to

depict the highway project over time, the City could reasonably have believed the land was released from any grant

obligations and could have expected to retain the condemnation proceeds regardless of when the land was actually

deleted from the ALP. Determining that the City's rights and obligations arose after the condemnation was completed is

also somewhat at odds with the portion of the SCO relating to the transfer of air rights. In the SCO, the Director

concluded that the transfer of air rights was permanent based upon the intent of the City, CalTrans, and the FAA, as

evidenced by the ALP approvals over time. Order to Show Cause, page 20. This same intent existed with respect to the

transfer of the land in fee. This is particularly true since the FHWA approved the project and authorized the State to

condemn the land in 1978. In these circumstances, it would be reasonable to consider the City's obligation to transfer

the land in fee and air rights to have arisen, and release of any applicable grant obligation regarding the proceeds from

the transfer to have occurred, before the City received its first AIP grant in 1982. Given the substantial [*105] federal

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2009 FAA LEXIS 212, *101
involvement prior to enactment of the AAIA, the City could have had a reasonable expectation of retaining the proceeds

from the involuntary sale of the land in fee and associated air rights.

In the PD, the Director construed paragraph 7-18 to require FAA consent to delete all land shown on Exhibit A,

including land acquired with local funds. Thus, the Director determined that the City could not have reasonably

construed the ALP approvals to constitute consent to delete the land from the ALP under paragraph 7-18. Paragraph

7-18 states in relevant part:

All land...shown on Exhibit A constitutes the airport land obligated for compliance under the terms and

covenants of a grant agreement. A sponsor is obligated to obtain FAA consent to delete any land so

described and shown. The FAA consent shall be granted only if it is determined that the land is not

needed for present or foreseeable public airport purposes. When obligated land is deleted, the Exhibit A

and the approved ALP should be revised as appropriate. Where the action involves the deletion of land

not acquired with Federal financial assistance, there is no required disposition of net revenues from sale

or disposal....

[*106]

However, the Director could have reasonably given more weight to the ambiguity in paragraph 7-18 concerning the

need for FAA consent to delete land not acquired with Federal financial assistance. While paragraph 7-18 contemplated

that "the FAA should encourage the owner to use any net revenues for needed airport development and to consider an

exchange of released land for needed land," it was not clear that this applied to condemnation of land acquired by the

owner with its own funds, particularly for a federally-approved highway project. Since deletion of land not acquired

with Federal financial assistance required no disposition of net revenues for airport purposes, the City could have

considered the FAA's ALP approvals to embody the requisite FAA consent in such circumstances.

Moreover, even if paragraph 7-18 when read narrowly, technically required the City to request consent for deletion,

under a broader interpretation the City could reasonably have concluded that the ALP approvals reflected any required

FAA consent. These circumstances include the FAA's knowledge about the condemnation many years prior to the

transfer and approval of amendments of the ALP many times to depict [*107] the proposed project. Under this

alternative analysis, to the degree that FAA consent or release was needed, the FAA's conditional approvals and

unconditional approval of the ALP to depict the project should also be considered consent for the City to retain the

funds in the absence of clear agency guidance and procedures for FAA consent to involuntary condemnation.

Second, on pages 19-21 of the PD, the Director addresses whether the land subject to the condemnation was

separated from the airport prior to enactment of the AAIA and therefore exempt from the grant assurances. In his

discussion, the Director states that "[t]he FAA finds that the time the City should recognize the land being committed to

the project was at the time of the eminent domain proceeding." PD at 21. For the reasons stated above, the grant

obligations regarding the necessary land (fee and air rights) could be considered determined when FHWA/FAA

approved the highway project.

FAA Responses to Specific Arguments Made by Complainants

The FAA now addresses some of the specific arguments made by ATA and AOPA in their objections to the SCO.

Complainants argue that the Advisory Opinion placed the City on notice [*108] that sales and condemnation

proceeds were considered to be airport revenue, and that therefore, any future transfer of the proceeds would be

unlawful.

ATA's argument has no merit and is misleading. ATA selectively quotes one part of the letter but omits the

Advisory Opinion's principal point -- that due to "unusual circumstances" existing in this case; "the ambiguous nature of

past agency policy statements;" "differing policy views ... expressed on this issue in the past;" and a "lack of clear

guidance" on the appropriate handling of an involuntary disposition of airport property, the FAA was not in a position to

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2009 FAA LEXIS 212, *105
initiate action to compel the City to use the condemnation proceeds on the airport, pursuant to the revenue use statute

and grant assurance. The Advisory Opinion did not state that it would be inconsistent with existing Federal

requirements for the City to divert the condemnation proceeds from the airport account to the City's general account.

The FAA stated that it was making clear in the Advisory Opinion -- and would affirm in its forthcoming policy on the

use of airport revenue -- that the agency now considers "revenues generated by the airport" to include proceeds from

[*109] the sale of that property, including condemnation proceeds. However, the agency believed that it could not

apply this new interpretation to the City due to the unusual circumstances noted above.

ATA also disregards traditional administrative due process requirements to provide notice and an opportunity to

comment on new policy that represents an abrupt departure from well-established prior policy and statutory

requirements for adopting new or modifying existing grant assurance obligations. See, Retail, Wholesale and

Department Store Union v. NLRB, 466 F.2d 380, 390 (D.C. Cir. 1972). Finally, ATA overlooks the tentative and

interlocutory nature of the Advisory Opinion. The Advisory Opinion stated "the views expressed in this letter are

advisory only. Under the AAIA, air carriers and other airport users may file administrative complaints...and a final

determination would be made only after a full airing of the issues and evidence in the appropriate proceeding."

Absent from both the SCO and PD is any explanation as to how the expansive statutory term "all revenues

generated by the airport" could reasonably be interpreted as excluding revenues from the [*110] sale or

condemnation of airport real property or non-possessory easement interests in that property.

Complainants mischaracterize the SCO and PD. Both explained that the phrase "all revenues generated by the

airport" in Section 511(a)(12) of the AAIA was ambiguous as to proceeds from involuntary condemnation of land not

acquired with federal funds, when viewed in the context of pre-existing agency compliance policy and derivative grant

assurance obligations. Both explained that due to "unusual circumstances," "the ambiguous nature of past agency policy

statements," "differing policy views ... expressed on this issue in the past," and a "lack of clear guidance" on the

appropriate handling of an involuntary disposition of airport property, agency policy (i.e., paragraphs 630 of FAA

Orders 5100.38 and 5100.38A; paragraph 7-18 of FAA Order 5190.6A; and paragraph 137 of 5190.6) could have been

reasonably interpreted to permit the City to transfer a portion of the proceeds into its general account. Other unusual

circumstances were the fact that the sale was involuntary (and not a calculated effort by the City to divert).; the

condemnation was for a major federal/state highway transportation [*111] project, for which construction was formally

approved by the Secretary of Transportation in accordance with a Final EIS, and that FAA conditionally approved the

City's ALP to depict Century Freeway many times before 1982. Traditional administrative due process principles and

statutory requirements to provide notice and an opportunity to comment when abruptly changing established

compliance policy and associated grant assurance obligations prevented the FAA from compelling the City to retain the

condemnation proceeds from the land and air rights for airport purposes. See Analysis, Proceeds From Land Taken In

Fee and Air Rights, above, for more detail.

In short, when viewed in the context of prior agency guidance concerning retention of proceeds from the sale of

land purchased with local funds, the plain language of the revenue use statute was ambiguous. As noted above, under

general principals of administrative law, agencies may not retroactively change the rules at will. Traditional concepts of

due process incorporated into administrative law preclude agencies from penalizing a private party for violating a rule

without first providing adequate notice of the substance of the rule. [*112] As noted, § 47106(h) required the agency to

provide notice and comment before making an abrupt change in grant assurance obligations and grant compliance

policy.

Alternatively, the statutory term, "all revenues generated by the airport," would not be relevant (as to the fee simple

land and air rights portions) because under this view, the key date is 1978, which is prior to the enactment of the

statutory revenue use provision. Based upon the substantial federal involvement in the Century Freeway highway

project, the Director of Airport Compliance and Field Operations could reasonably find that the City's rights concerning

transfer of land to the State for this federal interstate highway project were fixed as early as 1978 or well before 1982.

The FAA considers it reasonable to analyze the City's obligations regarding use of revenue in accordance with FAA law

Page 35

2009 FAA LEXIS 212, *108
and policy in effect as of the date when its legal rights were fixed. As discussed in detail above, under Alternative

Findings, we conclude in the alternative that the City's legal rights concerning transfer of the land in fee and air rights

were fixed in 1978, when the FHWA approved the state project to construct Century Freeway [*113] or in any event

before 1982, because the FAA conditionally approved the City's airport layout plan to depict the portion of Century

Freeway within airport boundaries several times before Congress enacted the revenue use assurance. When the FAA

conditionally approved the City's ALPs, the City was not under any statutory or contractual obligation to use the

condemnation proceeds for airport purposes. Concerning the proceeds from the temporary construction easements and

severance damages, as noted, these are appropriately analyzed as of the time of the State's condemnation of the airport

land, which commenced in 1985 and concluded in 1988. This is because these costs did not accrue until the State began

to take physical occupation of the airport land. During this timeframe, the statute was in effect and the City had

accepted the revenue use grant assurance. Because of this, and because the temporary construction easements and

severance damages constitute a use of the airport (as opposed to a sale or disposal), the proceeds resulting from these

costs constitute airport revenue and must be returned to the airport account.

Complainants argue that neither paragraph 630 nor 7-18 apply in [*114] this matter and it would be error for

the FAA to rely upon them. For example, paragraph 630 never applied to airport property not acquired with AIP funds,

and could not have been interpreted to apply to such property. The policy statement only applies to real property

acquired with AIP funds.

Complainants are correct that FAA intended the policy statement in paragraph 630 to be read only in the context of

the AIP Handbook. As such, the purpose of paragraph 630 was to clarify that proceeds from the sale of land purchased

with Federal funds (1) retained their Federal character, and (2) by definition, were not airport revenue. As explained in

detail above (pages 34, 35, and 39), after the AAIA was enacted, airport sponsors could reasonably have interpreted

paragraph 630, read together with paragraph 7-18 of FAA Order 5190.6A, to define airport revenue to exclude

condemnation proceeds.

The FAA agrees that the City was not directly, technically bound by the terms of the FAA internal orders (either

paragraphs 630 and 7-18 or their predecessor provisions, paragraphs 630 (from Order 5100.38) and 137 (from Order

5190.6)). The City was, however, indirectly bound by these orders because they [*115] interpreted the grant assurance

obligations that the City accepted when it applied for grants of federal financial assistance. Thus these policy provisions

provided the only interpretations of grant obligations concerning treatment of proceeds from the sale of land. As noted

above, FAA had no express written guidance addressing treatment of involuntary sale proceeds. Because these policy

provisions interpreted grant obligations, the Director properly concluded that the City could have had a reasonable

expectation when it accepted federal grants prior to 1995 that proceeds from an involuntary condemnation were not

airport revenue.

More importantly, however, under general principles of administrative law and 49 U.S.C. 47107(h), the City was

entitled to advance notice of any abrupt, substantive changes in interpretations of the scope and nature of federal grant

assurance obligations. As a result, the Director properly concluded that the agency itself was "bound" by the terms of

the its orders, in the sense that the agency could not compel the City to comply with new policy expanding its grant

obligations adopted after it requested advice. Moreover, [*116] as discussed, there is a presumption against retroactive

application of law or policy. Elementary considerations of fairness dictate that individuals should have an opportunity to

know what the law is and to conform their conduct accordingly. Accordingly, the principle that the legal effect of

conduct should ordinarily be assessed under the law that existed when the conduct took place has timeless and universal

appeal. Landgraf, 511 U.S. 244, 265-266 (1994). It would have been inappropriate and inconsistent with the law for the

Director to have retroactively applied a policy that was first published in the 1996 proposed policy and not finalized

until 1999, as the Complainants would have the agency do. There is no indication that Congress intended for the general

statutory revenue use provision to have retroactive effect, and courts recognize that legislative rules and agency policy

guidelines are to be given future effect only. Traditional concepts of due process incorporated into administrative law

preclude agencies from penalizing a private party for violating a rule without first providing adequate notice of the

substance of the rule. Networking, 548 F.3d 116, 122-123 (D.C. Cir. 2008). [*117]

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2009 FAA LEXIS 212, *112
Complainants argue that the FAA internal order policy provisions are irrelevant because the City never actually

relied upon them.

For the reasons discussed above, the issue is not whether the City actually took actions or placed the funds in the

proper account in express reliance upon these internal order policy provisions as a matter of fact before seeking advice

from the FAA. Rather, the issue is -- as a matter of law -- whether the City was entitled to rely upon these provisions to

characterize the condemnation proceeds as non-airport revenue. The City had a reasonable expectation that published

FAA policy provided adequate notice of its grant obligations under the ALP, and that its obligations would not be

abruptly changed without notice and an opportunity for public review and comment.

In the Order to Show Cause the Director noted, "the following could have created a reasonable reliance by the City

on the prior interpretation: 1) there are unusual circumstances that exist in this case; 2) the ambiguous nature of past

agency policy statements; and 3) the FAA's response to the City's request for guidance." SCO at 18.

ATA argues that the City did not undertake the diversion [*118] or any other action in reliance on FAA internal

order provisions because the FAA had already informed the City that the statutory grant assurances prohibited the

transfer of the funds prior to the diversion. This argument is based upon the doctrine of equitable estoppel. See, Office of

Personnel Management v. Richmond, 496 U.S. 414, 427 (1990)(equitable estoppel is an extraordinary remedy and does

not ordinarily lie against the government). However, the Director's statement above clearly referred not to detrimental

reliance under a doctrine of equitable estoppel, but rather to reasonable reliance under principles of administrative law

and due process. Unlike equitable estoppel, such principles normally do apply to government action.

As noted previously, under principles of administrative law and 49 U.S.C. 47107(h), the City and other affected

parties were entitled to advance notice of, and an opportunity to comment on, any abrupt and substantive changes in

interpretations of the scope and nature of federal grant assurance obligations. As a result, the Director properly

concluded that the agency itself was "bound" [*119] by the terms of the its orders (regardless of whether the City did

in fact rely upon them), in the sense that the agency could not compel the City to comply with new policy expanding its

grant obligations adopted after it requested advice. Moreover, as discussed, it would have been inappropriate and

inconsistent with the law for the Director to have retroactively applied an interpretation that was first published in the

1996 proposed policy and not finalized until 1999, as the Complainants would have the agency do. Because the FAA

had already announced the prospective change in policy when Complainants initiated this Part 13 proceeding, the

unique factors that sometimes warrant retroactive application of a new rule in an adjudication of a case of first

impression are absent here.

ATA also argues that the policy provision had no effect on the City's actions because the condemnation was

involuntary and would have gone forward regardless of how the City believed the proceeds would be characterized.

Because the issue is what the City could have reasonably understood to be required under its grant assurance

obligations, not whether there was detrimental reliance, the fact that the State [*120] would have undertaken the

condemnation regardless of how the City believed the proceeds should be treated is irrelevant.

The SCO states that one of the reasons why the City could have reasonably believed that the condemnation

proceeds were not airport revenue is that "there are unusual circumstances that exist in this case." At no time has the

FAA ever specified what, exactly, is an "unusual circumstance" in this case. If the FAA is to rely on "unusual

circumstances" as a basis for its departure from its policies and practices, it must specify what circumstances make this

case unusual.

As discussed above, the Director properly concluded that there were unusual circumstances at play here. First, the

condemnation was involuntary. The transfer of the condemnation proceeds was not a calculated effort by the City to sell

off part of the airport to finance local city expenses unrelated to the airport or to burden airport users with hidden

taxation for unrelated municipal services. The condemnation was initiated by the State for purposes of constructing a

major cross-city freeway that would become an interstate highway. The condemnation did not require action by the City

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2009 FAA LEXIS 212, *117
in its capacity [*121] as proprietor of LAX. Second, the condemnation was for a major federal/state highway

transportation project, for which construction was formally approved by the Secretary of Transportation in accordance

with a Final EIS. The Federal Highway Administration was the lead agency and FAA was a cooperating agency. As the

Director noted in the Advisory Opinion,

interested parties -- the State, the City, the Airport Commission, the Department [of Transportation] and

the FAA -- all recognized the condemned property as the site of the Century Freeway, and that in many

ways the City treated the property as dedicated freeway property well in advance of 1983 n102 when the

City executed its first AIP grant.

Advisory Opinion at pp. 9-10.

n102 The Advisory Opinion used an incorrect date here. The City executed its first AIP grant on September

30, 1982. Index of Administrative Record, item 61.

Third, the FAA had known about the Century Freeway project for decades before the City requested the legal

opinion from the Secretary [*122] in 1994, and had approved various ALPs depicting the Century Freeway. Fourth,

the FAA had no existing policy guidance on the treatment of proceeds from involuntary condemnation. As the Director

noted in the Advisory Opinion, "the application of agency policy in the case of a condemnation of airport property, as

opposed to a voluntary sale, is novel." Advisory Opinion at 10.

Fourth, as noted, Congress in 1987 amended the AAIA to add a provision preventing the Secretary from proposing

to modify any grant assurance, or proposing an additional grant assurance, unless the Secretary first published notice of

such a proposal in the Federal Register and provided an opportunity for comment on such proposal. Section 47107(h)

clarified that airport sponsors are entitled to advance notice so that they can voluntarily agree with the terms of receipt

of AIP grants. This provision applies to substantive changes in interpretations of the scope and nature of federal grant

assurance obligations. In light of FAA's obligations under section 47107(h), the Director properly concluded that the

agency itself was "bound" by the terms of the its orders, in the sense that the agency could not compel the City [*123]

to comply with new policy expanding its grant obligations adopted after it requested advice. Section 109(k) of the

Airport and Airway Safety and Capacity Expansion Act of 1987, Pub. L. No. 100-223, 101 Stat. 1486 (Dec. 30, 1987),

codified at 49 U.S.C. 47107(h).

Fifth, at about the same time that the City requested advice from the FAA concerning this matter, Congress directed

the FAA to establish a policy concerning use of airport revenues through public notice and comment in the Federal

Register.

The FAA has provided no authority for the proposition that reliance on nonbinding, ambiguous guidance can

excuse a person from a violation of an unambiguous statute. There can be no argument that 49 U.S.C. § 47107(b) is

anything other than binding upon an airport sponsor such as the City of Los Angeles. The guidance upon which the City

could have purportedly relied, however, was non-binding.

Reliance on "non-binding, arbitrary guidance" is not an issue in this matter. As discussed above, as the guidance

interprets grant assurance obligations, it makes no difference whether the City actually [*124] relied upon the policy

provisions. The key point here is that existing guidance indicated that proceeds from the sale of land purchased with

local funds did not have to be retained for airport purposes, Section 511(a)(12) did not expressly address the issue, and

the FAA had no existing guidance on the use of proceeds from involuntary condemnation. At the time the City made its

request to the Secretary for a legal opinion, it would have been inappropriate and inconsistent with the administrative

law and the AAIA for the Director to have retroactively applied a dramatically different policy to the City that was not

proposed until 1996 or finalized until 1999.

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2009 FAA LEXIS 212, *120
B. Whether the Director was correct in viewing the air rights in this matter to be akin to a permanent transfer of

rights rather than a temporary use.

In the SCO, the Director found that "the existence and nature of the Century Freeway make the air rights permanent

for the purposes of the transfer." n103 He dismissed the idea that air rights here were akin to a temporary use of the

airport. The Director further found that the PD properly concluded that the proceeds from the condemnation and

conveyance of the air rights [*125] were not subject to the revenue use requirement, and that the proceeds are

appropriately treated as a permanent conveyance like a sale or disposal and thus fall within the meaning of airport

revenue as interpreted by the FAA at the time of condemnation. As a result, those proceeds were properly transferable

to the general fund.

n103 Index of Administrative Record, item 51, p. 20.

In his analysis, the Director acknowledged that air rights are easements, and that as such, they are generally

non-possessory and convey only a right to use because the possibility of reverter remains. However, the Director

pointed out that easements may become permanent by agreement of the parties, and that both FAA and the State of

California (the Director cited two state court decisions) recognize the existence of such permanent easements. The

Director reasoned that under the circumstances here -- including the facts that both the City and the State knew for

many years of the impending construction of the Century Freeway; that as early as [*126] 1968, the Freeway appeared

on the City's ALP for LAX; and that the FAA approved the ALPs depicting the Century Freeway multiple times -- it

appeared that the parties intended that the transfer of rights be permanent. As indicated, the Director believed that the

very "existence and nature" of the Freeway made the air rights essentially permanent.

Complainants argue that the condemnation proceeds associated with air rights were payments for the use of

property rather than proceeds from the sale of property, because under California law, air rights easements are

non-possessory interests and allow only the use of property, not ownership of it. Complainants assert that the cases cited

by the Director do not stand for the proposition that parties may agree to make easements permanent. And because the

air rights proceeds are a use, Complainants argue that they should be returned to the Airport's account just as the

proceeds from temporary construction easements and severance damages would return.

The Director of Airport Compliance and Field Operations concludes that it was not unreasonable for the Director in

the SCO to have regarded air rights as permanent, for all practical purposes. At [*127] the time of the condemnation,

the parties were aware that the Century Freeway was going to become a significant, 17.2-mile addition to the Federal

interstate highway system spanning the City of Los Angeles. Clearly, the intended use here -- a hugely expensive,

multi-lane, elevated interstate highway -- was more permanent than temporary. It was thus appropriate and reasonable

that the Director viewed this substantial project as permanent for purposes of allocating the proceeds.

Concerning the California law cited by the Director, the Complainants do not disagree that the law recognizes the

existence of permanent easements. The Complainants instead attempt to argue that the cases cited by the Director --

Placer County Water Agency v. Hofinan, 165 Cal.App.3d 890, 211 Cal. Rptr. 894 (1985), and Department of Public

Works v. Lindskog, 195 Cal.App.2d 582, 16 Cal.Rptr. 58 (1961) -- are not relevant because "[n]either of the cases ...

holds that an actual easement is not subject to reverter if the contemplated uses no longer continues." ATA Objections at

16. However, these cases, cited by the Director [*128] for the proposition that California law recognizes the existence

of permanent easements, do not address the reverter issue. Moreover, the cases cited by Complainants -- People v.

Ocean Shore R.R., Inc., 196 P.2d 570 (Cal. 1948), Slater v. Shell Oil Co., 103 P.2d 1043 (Cal. 1940), and

Stoutenborough v. Board of Ed. of City and County of San Francisco, 104 Cal. 664, 665, 38 P. 449, 450 (Cal. 1894) --

do not appear to address nor have any relevance to permanent easements. Complainants attempt to discredit the cases

cited by the Director as acknowledging the existence of permanent easements by raising a technicality concerning

reverter. However, even if the land condemned by the State here was subject to reverter, the Director of Airport

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2009 FAA LEXIS 212, *124
Compliance and Field Operations concurs with the Director's finding that "the existence and nature of the Century

Freeway make the air rights permanent for the purposes of the transfer" and that "[o]nly under the most extreme

circumstances could the air rights revert to the City." n104 The Century Freeway, known as "Interstate 105," is, as

noted, [*129] a major, 17-mile long infrastructure addition to the Federal interstate highway system in the City of Los

Angeles. This is a far cry from the facts in the cases cited by Complainants, which involved a county road, a proprietary

pipeline, and an 1876 quiet title action involving a parcel of San Francisco land.

n104 Index of Administrative Record, item 5I, p. 20.

C. Whether the Director was correct in relying upon the CalTrans appraisal instead of the City's Robert Steele

Appraisal.

The underlying issue here is how much of the total compensation paid by the State for the condemnation of the

Century Freeway property should be allocated to reimbursement for severance damages and reimbursement for

temporary construction easements. In its Corrective Action Plan, the City provided documentation and support for

reliance on the State/CalTrans appraisal. According to the City, the Superior Court of the State of California utilized the

State appraisal and not the appraisal conducted by Robert Steele Associates. Relying [*130] upon the State appraisal,

the City found the severance damages to be $ 528,483 and construction easements to be $ 539,010 for a combined

3.398% of the $ 58,467,296 or $ 1,986,718.72.

In the SCO, the Director accepted as a valid representation of the valuation used in the condemnation the State's

CalTrans Assessment, because it was an official State record of the condemnation decision and proceeding; it

represented "the best and State record of the valuation of the components of the condemnation compensation;" n105 and

it "was made in the ordinary course of business and certified by CalTrans's representative as accurate." n106 As a result,

the Director indicated that he would not question the State/CalTrans assessment's veracity.

n105 Index of Administrative Record, item 51, p. 21.

n106 Index of Administrative Record, item 51, p. 21.

The Director noted that the City/Steele appraisal was apparently prepared by airport staff in connection with an

internal analysis of CalTrans's condemnation action, and that there was [*131] no evidence that it was used in the

determination of the amount paid by the State to the City.

Consequently, the Director accepted the State appraisal as a valid representation of the valuation used in the

condemnation. Relying on the State appraisal, the City agreed to restore to the airport account $ 1,986,718.72 plus

interest from March 8, 1995 and to pay 3.398% of additional revenue that the CalTrans may pay the City as the result of

a pending lawsuit.

The State appraisal is the same document used to determine what compensation it would provide to the City for the

Century Freeway condemnation. The State appraisal was made without any supervision or limitations by the City. The

Steele appraisal appears to have played no role in determining what the State paid. Under these circumstances, the

Director of Airport Compliance and Field Operations finds the Director's reliance upon the State appraisal document to

have been reasonable and appropriate.

FAA Responses to Specific Arguments Made by Complainants

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2009 FAA LEXIS 212, *128
The Complainants argue that since the premise of the SCO is that the City rather than CalDOT relied on the

distinction between payments for the sale of real property and other [*132] airport revenues, that therefore the City's

appraisal should be relied upon.

As noted above, the City/Steele appraisal was apparently prepared by airport staff in connection with an internal

analysis of CalTrans's condemnation action. There is no evidence that it was used in the determination of the amount

paid by the State to the City. FAA does not agree that simply because the City may have relied on distinctions made in

the Steele appraisal, the Steele appraisal must have been used to determine what compensation should be provided to

the City for the Century Freeway condemnation. The State's Appraisal Summary Statement and underlying report were

used to determine the amounts paid for severance damages and temporary construction easements that the State used to

determine the total amount of its compensation to the City.

Complainants argue that there are a number of inconsistencies in the documentation the City supplied in support of

its Appraisal Summary Statement. They assert that Mr. Dunn's declaration also does not indicate whether he was

involved with the condemnation of the airport property until his review of the documents at issue in this case in or

around 2000. They [*133] also argue that the Appraisal Summary Statement is not reliable because the Dunn

Declaration indicates that the state did not "have a copy of the approved appraisal report that underlies the Appraisal

Summary Statement."

For the reasons stated above, the FAA considers the State's Appraisal Summary Statement to be the most reliable

indicator -- the best evidence in the record -- of what compensation should be provided to the City for the Century

Freeway condemnation. The City has explained why the actual State appraisal is not available today. Mr Dunn need not

have been involved in the condemnation prior to 2000 to speak with authority about the appraisal. Mr. Dunn testifies

that the information he reviewed was "found in the regularly-kept business records of the Right of Way Department

concerning the Century Freeway Condemnation." n107 He summarizes the business practice of the Rights of Way

Department and how appraisal summary statements are customarily prepared and relied upon by the Department as a

working document. The FAA sees no reason to reject the Summary Statement because the underlying appraisal is not

available. Mr. Dunn notes that the State has a practice of only releasing [*134] a summary statement to the property

owner, and that the actual appraisal report is never released because CalTrans considers its appraisal reports to be

privileged and confidential. n108

n107 Index of Administrative Record, item 46, Dunn Declaration, p. 2.

n108 Index of Administrative Record, item 46, Dunn Declaration, pp. 2-3.

Complainants allege that because the Summary Statement is undated, it is impossible to discern whether it was the

document actually used in arriving at a final value for the condemnation proceeds.

The FAA has no reason to doubt the statements made by Mr. Dunn in his declaration. While Mr. Miller advises that

he once worked for CalTrans, that was over 40 years ago. He has no personal knowledge of the Century Freeway matter

from his employment with Caltrans.

Complainants assert that according to the Dunn Declaration, there were two different appraisals conducted in this

matter. They state that although Mr. Dunn states that the Appraisal Summary Statement submitted by the City is

indicative [*135] of the appraisal that was ultimately accepted, it does not appear he had any personal knowledge of

this. They argue that the discrepancies suggest that the submitted Appraisal Summary Statement represents the

appraisal that the State ultimately did not accept.

According to Mr. Dunn's testimony, the CalTrans did prepare two appraisals. The approved appraisal was labeled

"A." Mr Dunn states that the information in the Appraisal Summary Statement was drawn from the approved "A"

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2009 FAA LEXIS 212, *131
appraisal. n109 While Mr. Dunn does note some discrepancies between information found in the files of the Rights of

Way Department at CalTrans and the Appraisal Summary Statement, the FAA believes that the Summary Statement

remains the best evidence available in the record. Again, the State's Summary Statement and underlying appraisal were

prepared by a professional staff appraiser for CalTrans who was given no direction or limitation in the conduct of the

appraisal by the City. Mr. Dunn further testifies that the appraisal was conducted in good faith and in accordance with

professional standards applicable to commercial real estate appraisals. n110

n109 Index of Administrative Record, item 46, Dunn Declaration, pp. 1-3.

[*136]

n110 Index of Administrative Record, item 46, Dunn Declaration, p 2.

Complainants argue that the veracity of the Appraisal Summary Statement should be questioned in light of the

City's lengthy delay of over five years in bringing it to the FAA's attention.

In the City's October 31, 2000 Proposed Corrective Action Plan, it advised that the Appraisal Summary Statement

was "recently obtained by the City." The record does not appear to provide an explanation as to the timing of the City's

acquisition of the Summary Statement from CalTrans. The FAA sees no reason to doubt the veracity of the Summary

Statement based upon the length of time it took for the City to obtain the document.

Complainants argue that the FAA should accept the City's Robert Steele appraisal because the Steele appraisal

was commissioned by the City to determine the appropriate valuations in this matter at a time contemporaneous to the

condemnation action in state court. Complainants question why the Steele appraisal would have been necessary if the

City had already accepted the appraisal represented by the Appraisal Summary [*137] Statement.

The Appraisal Summary Statement is a working CalTrans document that was prepared from the underlying

appraisal report. n111 The Summary Statement, and not the City's Steele appraisal, was used by the State to determine

what compensation it would provide to the City for the Century Freeway condemnation. n112 The City/Steele appraisal

played no role in determining what the State paid to the City.

n111 See Dunn Declaration, Index of Administrative Record, item 46.

n112 Index of Administrative Record, item 46, p. 2.

D. Whether the FAA Properly Investigated the Complaints and Whether a Hearing Should have been Held

ATA and AOPA argue that the FAA failed to fulfill its statutory duty to properly investigate: (1) whether the City

actually relied on P 630 of the policy manual; (2) the proportion of condemnation proceeds that were not subject to

diversion; and (3) discrepancies in evidence provided by the City relating to the Appraisal Summary Statement. The

Complainants argue that the FAA should have [*138] held a hearing.

The City argues that neither ATA nor AOPA has raised any issue in their Objections which FAA has not previously

considered and rejected, and therefore FAA should issue an order making final its tentative findings and conclusions

and accepting the City's Proposed Corrective Action Plan. The City further argues that when the City transferred the

condemnation proceeds to its general fund, the issue of whether revenues from the sale of airport property constituted

airport revenues was unresolved. Finally, the City asserts that the FAA correctly concluded that a hearing is not

warranted.

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2009 FAA LEXIS 212, *135
Petitioners are in error when they contend that the case should be set for a hearing to investigate the numerous

unresolved factual issues. As is evident from the record, the FAA has extensively investigated this matter and already

has issued an Advisory Opinion, a Preliminary Decision, and a Show Cause Order. On several occasions, the FAA

requested further pleadings from the parties on key issues. Numerous agency resources have been devoted to this

important matter and Complainants' argument that FAA's extensive review "does not meet the investigatory role of the

agency in matters such [*139] as this as mandated by Congress" has no merit.

The 14 C.F.R. Part 13 regulations governing investigation of complaints provide, in pertinent part, that:

(h) If the Administrator determines that a complaint does not state facts which warrant an investigation

or action, the complaint may be dismissed without a hearing and the reason for the dismissal shall be

given, in writing, to the person who filed the complaint and the person named in the complaint.

(i) If the Administrator determines that reasonable grounds exist, an informal investigation may be

initiated or an order of investigation may be issued in accordance with Subpart F of this part, or both.

Each person named in the complaint shall be advised which official has been delegated the responsibility

under § 13.3(b) or (c) for conducting the investigation.

(j) If the investigation substantiates the allegations set forth in the complaint, a notice of proposed order

may be issued or other enforcement action taken in accordance with this part.

In this case, the FAA determined that the complaint stated facts warranting an investigation, and carried out an

appropriate investigation, requesting a great deal of additional information [*140] and legal briefs when needed. In the

context of an informal investigation as conducted here, no particular form of proceeding is per se required. The

investigation procedures under 14 C.F.R. Part 13 are analogous to the procedures under 14 C.F.R. Part 16 (Part 13's

successor regulation for airport-related disputes) and therefore court precedent upholding the Part 16 hearing rules are

applicable here and informative for this analysis.

Title 14 of the Code of Federal Regulations, §13.5, like 14 C.F.R. Part 16, its successor regulation, provides that a

complaint may be dismissed without a hearing if the complaint does not contain facts which warrant an investigation or

action. See 14 C.F.R. §13.5(h). There is no automatic right to a full evidentiary hearing under Part 13. Juarez v. FAA,

No. 97-70112 (9th Cir., August 22, 1998). n113 The hearing provisions under both Part 13 and Part 16 are not

applicable in cases where a complaint is dismissed after an investigation or when the sponsor files a corrective action

plan that is acceptable to the FAA.

n113 The Court concluded that the process afforded the plaintiff was sufficient; plaintiff had not lacked

notice or an opportunity to submit argument and supporting evidence. The Court noted the FAA was not

perfunctory; it clearly invested substantial effort investigating petitioner's complaint and that additional

procedures were not necessary or appropriate.

[*141]

In fact here, the City submitted a Corrective Action Plan on October 31, 2000 to restore to the airport revenue fund

the share of proceeds of the Century Freeway condemnation that is attributable to severance damages and temporary

construction easements, plus interest. There was no need for the FAA to issue a compliance order. There is no

requirement for the Director to hold an oral evidentiary hearing to challenge the veracity of the reasons offered by the

City for its actions.

This is true under Title 14 C.F.R. Part 16 which also does not provide for an evidentiary hearing during an

investigation or prior to the Director's Determination (i.e., the preliminary decision). A hearing is only provided if the

Director's Determination finds the respondent-airport in noncompliance and proposes the issuance of a compliance

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2009 FAA LEXIS 212, *138
order, neither of which occurred in this case. See 14 C.F.R. § 16.31(d). The FAA Rules of Practice, 14 C.F.R. Part 16,

apply the procedural structure of 49 U.S.C. § 46101(a) to complaints filed with the FAA against federally assisted

airports. The Courts of Appeals that have examined the issue have held that the Part 16 hearing [*142] rules are

consistent with 49 USC § 46101 (a). See, e.g., Penobscot Air Services LTD v. FAA, 164 F.3d, 713, 720 (1st Cir. 1999),

and Lange v. FAA, 208 F.3d 389, 391 (2nd Cir. 2000). Thus it is reasonable to conclude that the Part 13 hearing rules

are consistent.

Moreover, FAA's governing statute makes clear that the agency can dismiss a complaint that it determines does not

merit further investigation. See 49 U.S.C. § 46101(a)(3) (The agency "may dismiss a complaint without a hearing when

... the complaint does not state facts that warrant an investigation or action."). The Lange court stated that it "read

section 46101(a)(3), in context, as permitting the agency to dismiss the complaint without a hearing where the

complaint on its face fails to state facts that warrant any investigation, or when, after an investigation, no action is

warranted." Lange, 208 F.3d at 391 (quoting Penobscot, 164 F.3d 713, 720-21 (1st Cir. 1999), and Flight Engineers'

International Association v. Civil Aeronautics Board, 332 F.2d 312, 314 (D.C. Cir. 1964)). [*143]

Under Part 16, there is no right to a hearing unless the FAA finds against the airport sponsor at the preliminary

decision stage and the airport requests a hearing to challenge the order of compliance. See, e.g., Jimsair Aviation

Services, Inc., v. San Diego County Regional Airport Authority, FAA Docket No. 16-06-08 (Aug. 9, 2007), and Boston

Air Charter v. Norwood, FAA Docket No. 16-07-03 (Aug. 14, 2008).

The FAA's investigation of the possibility that an airport sponsor has violated the law, conducted with an eye to

initiating enforcement action against the sponsor, is not an adversarial proceeding. There is no requirement that the

investigation include an evidentiary hearing at the behest of a complainant. There is nothing in the FAA's regulations,

the Federal Aviation Act, or the U.S. Constitution that mandates an evidentiary hearing with the complainant's

participation.

The facts here are inapposite to the facts in Kemmons Wilson, Inc. v. FAA, 882 F.2d 1041, 1044-45, 1047 (6th Cir.

1989) and are easily distinguishable. In Kemmons Wilson, the Court found that the complainant was entitled to a hearing

because complainant's claim had been [*144] adjudicated under the informal procedure of 14 CFR § 13.1 in "a

perfunctory and conclusory fashion." The Sixth Circuit concluded that complainant had made out a "prima facie case."

Here, the FAA has a voluminous record which could not be described as cryptic or meager The FAA has made a

concerted effort to obtain evidence, make findings, and analyze the facts relevant to the issues at hand. On rare

occasions, the FAA has exercised its discretion to provide for an evidentiary hearing when not specifically required.

n114 However, here, the FAA has substantial evidence to support its findings and an evidentiary is neither required nor

necessary.

n114 As noted in Wilson v. FAA, 372 F.3d 807, 817 (6th Cir. 2004),

Although under the relevant statutory and regulatory framework the Administration had the

authority to require more procedural process in investigating and resolving this complaint, this

authority was at the Administration's discretion to exercise. See 14 C.F.R. §§ 16.11, 16.29.

Requiring the Administration to do more than it has done in this case would not only constrain

the Administration's discretion in resolving complaints brought pursuant to 14 C.F.R. Part 16, but

it would also "force the [Administration] to over-invest procedurally in claims that might be

assessed just as accurately without," requiring more procedural process. Wilson Air Center, LLC

v. F.A.A., 372 F.3d 807, 817 (6th Cir. 2004); see also Penobscot, 164 F.3d at 724.

[*145]

There has been a thorough investigation and a determination containing the factual and legal bases for the decision,

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2009 FAA LEXIS 212, *141
unlike Kemmons Wilson. In Executive Air Taxi Corporation v. FAA, the D.C. Circuit dismissed as "groundless" the

complainant's argument that it was entitled to a formal hearing under Part 13 once it made out a prima facie case that the

airport sponsor had violated the Federal Aviation Act. See Executive Air Taxi Corporation v. FAA, No. 93-1478 (D.C.

Cir., June 3, 1994).

All factual issues have been resolved herein and there is no need to have evidentiary hearing to investigate any further

matters. Moreover, the extensive record provided substantial evidence which the review, analyzed and made findings.

The Complainant's repeated criticisms that the FAA ignored evidence, failed to investigate or validate or to consider

contrary evidence is baseless. On the contrary, the FAA thoroughly reviewed the Complainant's exhibits and duly

considered and weighed the evidence and exceeded the Congressional mandates required for its investigatory function.

FAA Responses to Specific Arguments Made by Complainants

The Complainants argue that FAA failed to investigate [*146] "any pertinent facts of this case" and "never held a

single hearing."

As discussed above, in accordance with 14 C.F.R. §13.5(i), the FAA fully investigated the issues it thought relevant

and was not required under Federal law or regulation to provide a hearing to Complainants. A hearing is simply not

required when the sponsor comes into compliance by submitting an acceptable corrective action plan.

The Complainants argue that (1) the FAA did not investigate whether the City actually relied on the FAA order

provisions; (2) the SCO ignored testimony of Donald A. Miller and factual disputes concerning the proportion of the

condemnation proceeds that were not subject to diversion; and (3) the State appraisal document reveals discrepancies

that warrant further investigation.

First, it is not relevant whether the City in fact relied upon the FAA order provisions. Those policy provisions had

been published and gave notice to the world regarding how the FAA viewed sales proceeds in matters relating to the use

of airport revenue. In short, these policies were the 'law on the books' and the Director correctly found that it would

have been unreasonable to subject the City to an interpretation [*147] (adopted in the 1996 and 1999 revenue use

policies) that it had never yet agreed to.

Second, concerning the argument that the SCO ignored testimony of Donald A. Miller and factual disputes

concerning the proportion of the condemnation proceeds that were not subject to diversion, the Director of Airport

Compliance and Field Operations has reviewed the declaration of Donald A. Miller. His statement essentially offers the

opinion that the amount of $ 528,483 is "too low, given the value of the total transaction and the impacts to the

remaining property." n115 Mr. Miller bases this opinion on his "knowledge of this and similar transactions," but

acknowledged that he was not able to review the State appraisal report that the City relied upon in its Corrective Action

Plan. Mr. Miller further states that "[g]iven the size of the transaction, I believe that the value of the severance damages

should be more in line with the $ 10,344,617 severance damage determination found in the [City's] appraisal." n116 The

issue is whether Mr. Miller's opinion undermines the credibility of the State appraisal document. As noted above, the

State appraisal document was actually used to determine what compensation [*148] it would provide to the City for the

Century Freeway condemnation, and was made without any supervision or limitations by the City. On the other hand,

the City/Steele appraisal appears to have played no role in determining what the State paid. I find that that Mr. Miller's

assertion that the $ 528,483 amount is "too low, given the value of the total transaction and the impacts to the remaining

property" to be too vague to undermine the State appraisal document. And as the City argues, Mr. Miller offers no

reason why the State would have purposefully minimized the share of its total payment allocated to severance damages.

n117 In addition, ATA concedes that the State relied on its own appraisal summary, and not the City's appraisal, in

determining how much would be paid to the City. n118

n115 Index of Administrative Record, item 64, Miller Declaration, paragraph 13.

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2009 FAA LEXIS 212, *145
n116 Index of Administrative Record, item 64, Miller Declaration, paragraph 13.

n117 Index of Administrative Record, item 66, p. 8.

n118 Index of Administrative Record, item 66, p. 8.

[*149]

Third, the Complainants' argument that the State appraisal document reveals discrepancies that warrant further

investigation has been addressed above.

VIII. CONCLUSION

The FAA's role in this Final Decision and Order is to determine the narrow issue of whether the Director erred in

his tentative findings and conclusions made in the SCO, and whether these findings should be made final. In a decision

and order such as this, the Director of Airport Compliance and Field Operations must determine whether (a) the

findings of fact made by the Director in the SCO are supported by a preponderance of reliable, probative, and

substantial evidence, and (b) each conclusion of law in the SCO is made in accordance with applicable law, precedent,

and public policy. See, e.g.; Airborne Flying Service, Inc. v. City of Hot Springs, FAA Docket No. 16-07-06 (May 2,

2008)(Final Agency Decision and Order); Ricks v. Millington Municipal Airport, FAA Docket No. 16-98-19 (Dec. 30,

1999) (Final Decision and Order), p. 21, and 14 C.F.R. § 16.227 ("Standard of Proof").

In arriving at a final decision in this matter, the FAA has reexamined the entire record, including the Preliminary

Determination [*150] and the Order to Show Cause, the

Administrative Record supporting these preliminary decision documents, and the objections submitted by the

parties in response to the SCO, in light of applicable law and policy.

Based on this reexamination, the Director of Airport Compliance and Field Operations concludes that the SCO is

supported by a preponderance of reliable, probative, and substantial evidence, and is consistent with applicable law,

precedent, and FAA policy. The Director of Airport Compliance and Field Operations affirms and makes final the

findings in the SCO, with some clarifications, corrections, and additional findings. The parties' objections do not contain

persuasive arguments sufficient to reverse any portion of the analyses and tentative findings in the SCO. This decision

constitutes the final decision of the Director of Airport Compliance and Field Operations pursuant to 14 C.F.R. 13.5.

ACCORDINGLY, the Director of Airport Compliance and Field Operations dismisses the complaints filed by ATA

and AOPA.

These determinations are made under §§ 307, 308(a), 313(a), and 1006(a) of the Federal Aviation Act of 1958, as

amended and recodified, 49 U.S.C. §§ 40103 [*151] (b)(1), 44502, 44721, 40103(b)(2), 40103(e), 40113, 40114,

47122, 46104, and 46110, as amended, and §§ 511(a), 511(b), and 519 of the AMA, as amended and recodifed, 49

U.S.C. §§ 47107(a)((1)(5), 47107(a)(4), 47107(g)(1), 47111(d), 47122, as amended.

ORDER

ACCORDINGLY, it is hereby ORDERED that (1) the tentative conclusions of fact and law in the SCO are

affirmed and made final, with some clarifications, corrections, and additional findings, and (2) the complaints filed by

ATA and AOPA are dismissed.

The City is directed to return to the airport fund the sum of $ 1,986,718.72 plus simple interest of 3 percent

calculated from March 8, 1995 until the date the airport is reimbursed for the total amount of principal and interest due.

RIGHT OF APPEAL

Page 46

2009 FAA LEXIS 212, *148
A party to this decision disclosing a substantial interest in the final decision and order of the Federal Aviation

Administration may file a petition for review pursuant to 49 U.S.C. § 46110, in the United States Court of Appeals for

the District of Columbia Circuit or in the court of appeals of the United States for the Circuit in which the person [*152]

resides or has its principal place of business. The petition must be filed not later than 60 days after a Final Decision and

Order has been served on the party.

June 1, 2009

Date

FAA Exhibit 1

FINAL DECISION AND ORDER

INVESTIGATION INTO THE TRANSFER OF LOS ANGELES INTERNATIONAL AIRPORT

CONDEMNATION PROCEEDS

INDEX OF ADMINISTRATIVE RECORD

The following constitutes the administrative record in this proceeding:

1. Letter dated May 13, 1994, to Mark L. Gerchick, Esq., Chief Counsel, Federal Aviation Administration (FAA),

from Zane O. Gresham and Steven S. Rosenthal, Special Counsel for the City of Los Angeles Department of Airports;

includes attachments.

2. Letter dated January 9, 1995, to Stephen H. Kaplan, Esq., General Counsel, U.S. Department of Transportation

(DOT), from Zane O. Gresham and Steven S. Rosenthal, Special Counsel for the City of Los Angeles Department of

Airports; plus exhibits, including October 7, 1976 City Council Resolution concerning Century Freeway.

3. Letter dated February 13, 1995, to Stephen H. Kaplan, Esq., General Counsel, DOT, from Zane O. Gresham and

Steven S. Rosenthal, Special Counsel for the City of Los Angeles Department of Airports. [*153]

4. Letter dated February 23, 1995, to Stephen H. Kaplan, Esq., General Counsel, from Zane O. Gresham and Steven

S. Rosenthal, Special Counsel for the City of Los Angeles Department of Airports.

5. Letter dated March 3, 1995, to Honorable Mary Schiavo, Inspector General, DOT, from James E. Landry, Air

Transport Association.

6. Letter dated March 10, 1995, to Mr. James E. Landry, President, Air Transport Association of America (ATA),

from A. Mary Schiavo, Inspector General, DOT.

7. Letter dated March 10, 1995, from John J. Driscoll, Executive Director, City of Lo Angeles Department of

Airports, to Roger Mialocq, Vice President, Harvey Rose Accountancy Corporation; plus exhibits, including report

dated April 4, 1995, "Analysis of Original Funding Sources."

8. Formal Complaint and Request for Expedited Relief, dated March 21, 1995, Air Transport Association of

America v. City of Los Angeles, City of Los Angeles Department of Airports, and Los Angeles Board of Airport

Commissioners; plus exhibits, including:

. Excerpt from John F. Brown June 1992 Report.

. Letter dated January 29, 1993, to Burt Pines, Alschuler, Grossman and Pines Law Partnership from

Jerald K. Lee, Director of [*154] Administration, City of Los Angeles, Department of Airports.

Page 47

2009 FAA LEXIS 212, *151
. Letter dated February 21, 1995, to Steven H. Kaplan, Esq., General Counsel, U.S. Dept. of

Transportation, from James E. Landry, President, Air Transport Association.

. Letter dated February 28, 1995, to Honorable Theodore O. Stein, President, Board of Airport

Commissioners, from Cynthia Rich, Associate Administrator for Airports, FAA.

9. Letter dated April 4, 1995, to John H. Cassady Esq., Acting Chief Counsel, Federal Aviation Administration, to

Steven S. Rosenthal and Zane O. Gresham, Counsel for the City of Los Angeles Department of Airports; plus exhibits

10. Letter dated April 10, 1995, to John H. Cassady, Esq., Acting Chief Counsel, FAA, from Walter A. Smith, Jr.,

Counsel for the Air Transport Association of America.

11. Order No. 9505-1, issued April 24, 1995, Air Transport Association of America v. City of Los Angeles, City of

Los Angeles Department of Airports, and Los Angeles Board of Airport Commissioners, Docket 13-95-05, by John H.

Cassady, Acting Chief Counsel, FAA.

12. Formal Complaint dated May 4, 1995, Aircraft Owners and Pilots Association v. City of Los Angeles, City of

Los Angeles Department [*155] of Airports, and Los Angeles Board of Airport Commissioners.

13. Answer to Formal Complaint and Request for Relief, dated May 24, 1995, Air Transport Association of

America v. City of Los Angeles, City of Los Angeles Department of Airports, and Los Angeles Board of Airport

Commissioners, submitted by Laurie D. Zelon, Morrison and Foerster.

14. Complainant's Motion for Leave to File Unauthorized Document and Complainant's Reply to Respondents'

Answer and Request to Dismiss Complaint, dated June 12, 1995, submitted by Allen R. Snyder.

15. Answer to Formal Complaint, dated July 11, 1995, Aircraft Owners and Pilots Association v. City of Los

Angeles, City of Los Angeles Department of Airports, and Los Angeles Board of Airport Commissioners; plus exhibits.

16. Respondents' Motion to Dismiss and Surreply to Complainant's Reply to Respondents' Answer and Request to

Dismiss Complaint, dated August 31, 1995, by Laurie D. Zelon, Morrison and Foerster.

17. Complainant's Motion for Leave to File Unauthorized Document, Docket No. 13-95-05, dated September 15,

1995, submitted by Walter A. Smith, Jr.

18. Complainant's Opposition to Respondents' Renewed Motion to Dismiss, dated September [*156] 15, 1995, Air

Transport Association of America v. City of Los Angeles, City of Los Angeles Department of Airports, and Los

Angeles Board of Airport Commissioners, Docket 13-95-05; plus exhibits, including:

. Resolution No. 1, Board of Airport Commissioners, March 7, 1995.

. Letter dated February 25, 1994, to Honorable Federico F. Pena, Secretary of Transportation, DOT, from

Theodore O. Stein, Jr. President, Board of Airports Commissioners.

19. Order, No. 9505-2, issued November 29, 1995, Air Transport Association of America v. City of Los Angeles,

City of Los Angeles Department of Airports, and Los Angeles Board of Airport Commissioners, Docket 13-95-05, by

Nancy D. LoBue, Assistant Chief Counsel, FAA.

20. Office of Inspector General review of the Century Freeway Appraisal, dated May 2, 1996.

21. Management Advisory Memorandum, dated May 17, 1996, to Susan L. Kurland, Associate Administrator for

Airports, FAA, from Lawrence H. Weintrob, Deputy Assistant Inspector General for Auditing.

Page 48

2009 FAA LEXIS 212, *154
22. Notice issued December 24, 1996, "Investigation into the Transfer of Los Angeles International Airport

Condemnation Proceeds," Docket 13-95-05, by Nancy D. LoBue, Assistant Chief Counsel, FAA. [*157]

23. Letter dated December 26, 1996, to Allen R. Snyder, Walter A. Smith Jr. Janet Pitterle Holt, Jonathan S.

Franklin, Hogan & Hartson L.L.P., from Benedict D. Castellano, Manager, Airport, Safety and Compliance Branch,

AAS-310, FAA.

24. Letter dated December 26, 1996, to Laurie D. Zelon, Gregory B. Koltun, Lorie M. Alexander, Morrison &

Foerster, from Benedict D. Castellano, Manager Airport, Safety and Compliance Branch, AAS-310, FAA.

25. Complainant's Brief, dated January 9, 1997, pursuant to Item 3 of letter dated December 26, 1996, submitted by

Allen R. Snyder, Hogan and Hartson, L.L.P.

26. Letter dated January 15, 1997 to Benedict D. Castellano, Manager, Airports Safety and Compliance Branch,

FAA, from Laurie D. Zelon, Morrison & Foerster; plus exhibits.

27. Respondent's Brief, dated January 21, 1997, pursuant to item 4 of letter dated December 26, 1996, submitted by

Ronald N. Wilson.

28. Respondent's Brief, dated January 27, 1997, pursuant to paragraph 3(d) of letter dated December 26, 1996,

submitted by Laurie D. Zelon, Morrison and Foerster, L.L.P.

29. Respondent's Brief, dated January 27, 1997, pursuant to paragraph 2(c), of letter dated December 26, 1996; plus

exhibits. [*158]

30. Complainant's Brief, dated January 29, 1997, pursuant to items 1 and 2 of letter dated December 26, 1996,

submitted by Allen R. Snyder.

31. West's Annotated California Codes, Government Code, Section 7267.2.

32. Letter dated March 17, 1997, about unauthorized release of privileged information in the possession of the

DOT, to the Honorable Nancy E. McFadden, General Counsel, DOT, from Gregory B. Koltun, Morrison & Foerster,

Attorneys for the City of Los Angeles.

33. Letter dated August 4, 1997, about unauthorized release of privileged information in the possession of the DOT,

to John Cassidy, Esq., Deputy Chief Counsel, FAA, from Gregory B. Koltun, Morrison & Foerster, Attorneys for the

City of Los Angeles.

34. Letter dated December 24, 1997, about a document provided by the DOT, Office of Inspector General, to

Gregory B. Koltun, Morrison & Foerster, Attorneys for the City of Los Angeles, from Rosalind A. Knapp, Deputy

General Counsel, DOT.

35. Letter dated January 12, 1998, about unauthorized release of privileged information, Wilson & Becks,

Attorneys for the City of Los Angeles.

36. Letter dated July 20, 1998, about claim of privilege to Stanley A. Zamel, Esquire, Wilson & Becks, [*159]

Attorneys for the City of Los Angeles.

37. Letter dated April 14, 1997, about the request for return of privileged information in possession of the DOT, to

Gregory B. Koltun, Morrison & Foerster, from Nancy D. LoBue, Assistant General Counsel, FAA.

38. Letter dated August 20, 1997, follow-up to the request for return of privileged information in possession of the

DOT, to Gregory B. Koltun, Morrison & Foerster, from Nancy D. LoBue, Assistant General Counsel, FAA.

Page 49

2009 FAA LEXIS 212, *156
39. Preliminary Determination dated June 19, 2000, including grant history and airport master record.

40. Letter dated August 11, 2000, from Director, Airport Safety and Standards, FAA, to Scott P. Lewis, attorney for

Los Angeles World Airports, granting extension of due date for the corrective action plan.

41. Motion of Complainant, dated October 16, 2000, Air Transport Association of America for Reconsideration of

Preliminary Determination.

42. Unopposed Motion for Leave to File the City's Opposition to Air Transport Association's Motion for Leave to

File an Unauthorized Document, dated October 24, 2000.

43. Opposition of the City to the Motion of the Air Transport Association of America for Leave to File an

Unauthorized [*160] Document and for Leave to Participate in Further Proceedings in This Matter, dated October 24,

2000.

44. Unopposed Motion of Complainant, Air Transport Association of America, for Leave to File Unauthorized

Document, dated October 27, 2000.

45. Reply of Complainant, Air Transport Association of America, In Support of Motion for Leave to File

Unauthorized Document, dated October 27, 2000.

46. City of Los Angeles' Proposed Corrective Action Plan, dated October 31, 2000, filed under seal by the City of

Los Angeles; includes Declaration of Daniel Dunn, Summary of Land Values, and Declaration of James Spitser.

47. Letter to Herman Bliss, Director of Airports, AWP-600 Western-Pacific Regional Headquarters, FAA, dated

November 7, 2000, from Steven S. Rosenthal, attorney for Los Angeles World Airports.

48. Letter from David Bennett, dated November 27, 2000, Director, Airport Safety and Standards, FAA, to Steven

S. Rosenthal, attorney for Los Angeles World Airports.

49. Letter to David Bennett, Director, Airport Safety and Standards, FAA, dated December 12, 2000, from Steven

S. Rosenthal, attorney for Los Angeles World Airports.

50. Order dated July 21, 2005, from David Bennett, Director, [*161] Airport Safety and Standards denying the

Respondent's request for confidential treatment of supporting exhibits obtained from CalDOT.

51. Order to Show Cause dated July 21, 2005 from David Bennett, Director, Airport Safety and Standards, FAA.

52. AIP Grant Status Report Form 5100-107 (Feb. 24, 2009).

53. Grant History Report (Feb. 20, 2009).

54. Los Angeles World Airports Traffic Comparison (TCOM) for LAX (Dec. 2008).

55. FAA Order 5190.6A, Airport Compliance Requirements (Oct. 2, 1989).

56. FAA Order 5100.38A, Airport Improvement Program (AIP) Handbook (Oct. 24, 1989).

57. FAA Order 5100.38C, Airport Improvement Program (AIP) Handbook (June 28, 2005).

58. Excerpt from FAA Order 5190.6, Airport Compliance Requirements, paragraph 137.

59. Excerpt from FAA Order 5100.38, Airport Improvement Program (AIP) Handbook (Feb. 11, 1985), paragraph

630, p. 95.

Page 50

2009 FAA LEXIS 212, *159
60. Excerpt from FAA Order 5050.4B, National Environmental Policy Act (NEPA) Implementing Instructions for

Airport Actions (April 28, 2006), Chapter 2, pp. 2-1 to 2-6.

61. Excerpt from City of Los Angeles' September 30, 1982 AIP Grant Agreement with Assurance 19, "Airport

Revenue."

62. Excerpt from City of Los Angeles' [*162] July 14, 1983 AIP Grant Agreement with Assurance 19, "Airport

Revenue."

63. February 28, 1995 letter (Advisory Opinion) from Cynthia Rich, FAA Associate Administrator for Airports, to

the Honorable Theodore O. Stein, Board of Airport Commissioners, Los Angeles, responding to City's request for an

opinion on the disposition of proceeds from the condemnation of the Century Freeway.

64. October 3, 2005 Objections of Complainant Air Transport Association to Order to Show Cause, including

Declaration of Donald A. Miller.

65. October 4, 2005 Response of Complainants Aircraft Owners and Pilots Association to the Administrator's Order

to Show Cause.

66. November 7, 2005 Response of the City of Los Angeles to Objections Filed by ATA and AOPA to FAA's

Order to Show Cause.

Transmittals:

T-1 March 21, 1995, transmittal of ATA formal complaint from Jonathan S. Franklin, Hogan & Hartson to FAA

Office of Chief Counsel.

T-2 March 28, 1995, transmittal of reprints of photographs from Jonathan S. Franklin, Hogan and Hartson to Barry

L. Molar, FAA Office of the Chief Counsel

T-3 March 31, 1995, transmittal of ATA Formal Complaint from FAA Manager, Airports Law Branch, Office of

the Chief Counsel to [*163] Brenton K. Lobner, Esq., City Attorney, City of Los Angeles.

T-4 March 31, 1995, transmittal of ATA Formal Complaint from FAA Manager, Airports Law Branch, Office of

the Chief Counsel to Jonathan S. Franklin, Esq. Hogan and Hartson, L.L.P.

T-5 April 5, 1995, Transmittal bf Notice of Correction from FAA, Manager, Airports Law Branch, Office of the

Chief Counsel, to Jonathan S. Franklin, Esq., Hogan and Hartson, L.L.P.

T-6 June 15, 1995, transmittal of AOPA Formal Complaint, from Kathleen A. Connon, Attorney, Airports Law

Branch, FAA, to John S. Yodice.

T-7 April 24, 1995, Transmittal of ATA formal complaint from Kathleen A. Connon, Attorney, Airport Law

Branch, Office of Chief Counsel, FAA, to Steven S. Rosenthal, Morrison and Foerster.

T-8 June 15, 1995, notification of receipt of formal complaint, from Kathleen A. Connon, Attorney, Airports Law

Branch, Office of Chief Counsel, FAA, to John S. Yodice, Aircraft Owners and Pilots Association.

T-9 June 15, 1995, transmittal of AOPA Formal Complaint, from Kathleen A. Connon, Attorney, Airports Law

Branch, FAA, to Laurie Zelon.

T-10 June 15, 1995, transmittal of AOPA Formal Complaint, from Kathleen A. Connon, Attorney, Airports Law

Branch, [*164] FAA, to James K. Hahn, Breton Lobner, City Attorneys, City of Los Angeles, Department of Airports.

Page 51

2009 FAA LEXIS 212, *161
T-11 July 25, 1995, transmittal of ATA and AOPA Formal Complaints from Barry Molar, FAA Manager, Airports

Law Branch, to Manager, Airport Safety and Operations Division, AAS-300, FAA.

T-12 September 15, 1995, transmittal of Complainant's Motion for Leave to File Unauthorized Document and

Complainant's Opposition to Respondents' Renewed Motion to Dismiss to FAA Office of the Chief Counsel, from

Jonathan S. Franklin, Hogan and Hanson.

T-13 April 23, 1996, transmittal of ATA formal complaint, to Manager, Airports Safety and Operations Division,

FAA, from Kathleen A. Connon, FAA Office of the Chief Counsel.

T-14 May 24, 1996, transmittal of Office of Inspector General final report, to Associate Administrator for Airports,

FAA, from Chief Financial Officer.

T-15 January 13, 1997, transmittal of Service List to Nancy LoBue, Assistant Chief Counsel, Airports and

Environmental Law Division, FAA, from Stanley A. Zamel, Wilson and Becks.

T-16 January 27, 1997, transmittal of briefs on items 2(c) and 3(d) to Benedict D. Castellano, Manager, Airport

Safety and Compliance Branch, FAA, from Laurie [*165] D. Zelon, Morrison & Forester.

T-17 January 27, 1997 transmittal of Proof of Service Overnight Delivery to Allen R. Snyder, Hogan and Harston;

John S. Yodice, Yodice Associates; Benedict D. Castellano, Manager Airport Safety and Compliance Branch, FAA.

T-18 September 1, 1998 inquiry as to status of formal complaint, from Jonathan S. Franklin, Hogan & Hanson.

T-19 February 22, 1999 Letter from Barry Molar, Manager Airport Compliance Division, FAA, to Jonathan S.

Franklin, Hogan & Hanson.

Legal Topics:

For related research and practice materials, see the following legal topics:

Administrative LawJudicial ReviewAdministrative RecordGeneral OverviewTransportation LawAir

TransportationAirport & Airway Improvement ActTransportation LawAir TransportationAirportsGeneral Overview

Page 52

2009 FAA LEXIS 212, *164
Exhibit H

Creager Affidavit

   
UNITED STATES DEPARTMENT OF TRANSPORTATION 

FEDERAL AVIATION ADMINISTRATION 

WASHINGTON, D.C. 

SCOTT MEYER 

Complainant, 

V. FAA Docket No. 16-12-10 

CITY OF CINCINNA Tl, OHIO 

Respondent. 

AFFIDAVIT OF KATHLEEN CREAGER 

IN SUPORT OF CITY OF CINCINNATI ANSWER 

I, Kathleen Creager, being first duly cautioned and sworn, depose and state that: 

1. I am the Assistant Finance Director in the Department of Finance for the City of 

Cincinnati. 

2. In my capacity as Assistant Finance Director of the Department of Finance, I oversee a 

wide range of city functions and divisions. 

3. The Department of Finance manages and oversees the fiscal accounts of the city. 

4. My responsibilities include oversight and administration of policies and procedures of 

the Finance Department. My responsibilities include possessing an understanding and 

awareness of the City's accounting and revenue management practices, including the firsthand knowledge of the various funds used to track City revenues and expenditures. My 

responsibilities include management and oversight of account Fund 757, Miscellaneous 

Permanent Improvement Account. 

1 
5. Under Ohio law, City-owned property having a useful life of more than five years -

including real estate - is a "permanent improvement" for municipal accounting purposes. 

Ohio Revised Code Section 5705.10, Use of Revenue, subsection F, requires that revenue 

received from the sale of a permanent improvement (e.g., real estate) be paid into a 

"special fimd" that is used for the construction or acquisition of permanent 

improvements. (A copy of relevant portions of the Ohio Revised Code is attached as 

Exhibit A hereto.) 

6. Since its creation m 1952, the Miscellaneous Permanent Improvement Fund -

numbered as "Fund 7 57'' in 1969 - has served as the account for miscellaneous 

permanent improvement revenues and expenditures. Fund 757 is not limited to one 

particular source of funds and has been used for deposits and expenditures relating to 

numerous revenues, expenses, and transfers that are unrelated to the deposit of the Blue 

Ash payments. Between December 1, 2007, and August 31, 2012, Fund 757 accounted 

for approximately $24.7 million of revenues/transfers in and approximately $18 million 

in expenditures/transfers out. Generally speaking, Fund 757 revenue and expenditures 

relate to the disposition (e.g., sale and lease) of City real estate and other permanent 

improvements as defined under Ohio Revised Code. For example, in 2009, the City 

deposited into Fund 757 $4 million in revenue from the sale of City street lights to Duke 

Energy. 

7. Under Ohio law, the City is required to deposit payments received from the sale of 

real property into the account that was used to purchase that property or, in the absence of 

such an account, into a "special fund" for permanent improvements. In 2007, when the 

City began to receive payments from Blue Ash pursuant to the 2006 Purchase and Sale 

2 
Agreement ("2006 Agreement"), it was discovered that the account used to acquire the 

property had been closed at some point in the intervening years. City Council enacted 

Ordinance No. 416-2007 on November 28, 2007, directing the proceeds from the 2006 

Agreement be deposited into Fund 757. (A copy of Ordinance No. 416-2007 is attached 

as Exhibit 8 to the Complaint.) The City thereafter deposited the 2006 Agreement 

proceeds in Fund 757, consistent with Ohio Revised Code Section 5705.10. Fund 757 

was managed consistently with City policy for handling similar payments. There is no 

other "special fund" for Blue Ash Airport that would have complied with the Ohio law 

requirements for holding revenue from the sale of pem1anent improvements, which is 

why the proceeds were placed in Fund 757. The City's Lunken Airport Fund 104 

(mistakenly referred to as the "General Aviation Fund" in paragraph 7 of the Complaint) 

does not qualify as a special account for holding revenues from permanent improvements 

and could not have been used as the account for deposit of the Blue Ash payments. See 

Exhibit B hereto, a copy of the required use of Fund I 04 (i.e., to account for revenues 

received from the operation of Lunken Airport). 

8. In order to expend funds available in Fund 757 (or any City account) the City Council 

must first authorize the expenditure or transfer by enacting an appropriation ordinance or 

by approval of the monthly financial report. The City's capital investment and biennial 

budget documents are planning documents, not appropriations. A budget document may 

identify an account as the source for a particular expenditure or appropriation, but the 

budget document is merely a forward-looking planning document- not an appropriation. 

As a budget forecasting document, the biennial budget is subject to revision over the 

course of the budget period as the City reconciles its predicted revenue and expenditures 

3 
with actual conditions. The City appropriates funds through a budget appropriation 

ordinance, approval of the monthly financial report, or, in many cases, by means of a 

project-specific appropriation ordinance. Appropriation ordinances identify the accounts 

from which the expenditure or transfer will occur. Once funds have been appropriated, 

an authorized expenditure does not occur automatically and may not ever occur. Prior to 

expending appropriated funds, the Finance Department must certify available funds for 

the expenditure. In addition to direct expenditures from an account, transfers may be 

made from one City fund to another. Transfers are based on legislative authorization by 

City Council. 

9. I have reviewed all of the expenditures and revenues associated with Fund 757 since 

the City received its first payment from Blue Ash on December 14, 2007. The City has at 

all times maintained an unappropriated surplus in Fund 757 in excess of the proceeds 

received from the 2006 Agreement. I have compiled a table, attached as Exhibit C (Fund 

757 Balance Relative to Blue Ash Payments) hereto, showing the following Fund 757 

account information at the time of receipt of each Blue Ash payment: the total fund 

balance, total encumbered funds (i.e., funds specifically appropriated by City Council), 

the total of Blue Ash payments received pursuant to the 2006 Agreement, and the total 

unencumbered balance available in Fund 757 excluding the Blue Ash payments. Pages 2 

through 7 of Exhibit C are copies of the official account statements of balances 

supporting the contents of the tables. I have also attached copies of the monthly Fund 

757 repmts from December 2006 through August 2012 as Exhibit D (Monthly Financial 

Reports) hereto. The monthly financial reports provide a summary of all revenues, 

transfers, and expenditures associated with Fund 757 as well as starting and finishing 

4 
monthly balances. Fund 757 had a balance of more than $2 million after receiving the 

first $1 million payment from Blue Ash in December 2007. When the City received the 

sixth and final $1 million payment from Blue Ash just prior to rescission of the 2006 

Agreement, Fund 757 contained more than $7.8 mi11ion (a $1.8 million positive margin). 

10. As documented by Exhibits C and D hereto, at no time between the first Blue Ash 

payment in 2007 and the rescission of the 2006 Agreement in 2012 did the 

unappropriated surplus in Fund 757 drop below the cumulative amount of Blue Ash 

payments. Furthermore, at all times since learning ofF AA's revenue diversion concerns 

in 20 I 0, the City has taken steps to assure that the full total of Blue Ash payments 

received was available to be appropriated for airport purposes (or returned to the City of 

Blue Ash). 

11. The proceeds from the 2006 Blue Ash Airport Purchase and Sale Agreement (the 

"2006 Agreement") were held in Fund 757 (Permanent Improvement Fund) prior to 

rescission of the 2006 Agreement and the return of those revenues to the City of Blue 

Ash. The City refunded the entire $6 million to Blue Ash from Fund 757 pursuant to the 

mutual rescission of the 2006 Agreement on August 28, 2012. See Exhibit E hereto 

(receipt of wire transfer from City to Blue Ash on August 28, 2012). I personally 

oversaw the $6 million transfer of funds to Blue Ash. 

12. I have reviewed the Complaint and researched the allegations raised and have 

generally determined that Complainant's assertions lack merit. The results of my 

research are summarized in the following paragraphs. 

13. With respect to the allegation made in paragraph 5 of the Complaint regarding 

Violation I, the $300,000 alleged transfer from the "Blue Ash Airport Fund" referenced 

5 
in the Approved 2009/2010 Biennial was never made from Fund 757. As documented in 

Exhibit F hereto, the $300,000 was paid out of Fund 758 (Income Tax Permanent 

Improvement Fund) which did not contain any of the payments from the 2006 Agreement 

or any other airport revenue, as directed by City Ordinance No. 329-2008 (a copy of 

which is included in Exhibit F hereto). Thus, the transfer from Fund 757 in 

Complainant's alleged violation I did not occur. 

14. With respect to the allegation made in paragraph 6 of the Complaint regarding 

Violation 2, on May 12, 2010, the City enacted Ordinance No. 142-2010 authorizing the 

issuance of $11 million in urban redevelopment bonds for the purposes of financing the 

City streetcar project (Ordinance No. 142-2010 is attached as Exhibit G hereto). 

Ordinance No. 142-2010 identified the Blue Ash payments as one potential source of 

revenue to be pledged as security for issuance of such bonds. The ordinance did not 

commit the City to use Blue Ash payments for the bonds or any other purpose; it merely 

authorized the issuance of the bonds. The bond instruments - not the ordinance -

identify the source of the security and do so at the time of bond issuance, as provided in 

the authorizing ordinance: "The security for the Bonds or Note shall be determined by 

the Fiscal Officer, who is hereby authorized, in his or her discretion, to secure the Bonds 

or Notes with a pledge of the Issuer's full faith and credit, or with a pledge of Revenues 

[potentially including Blue Ash payments], or with a combination of the two sources of 

security." The City issued the bonds in December, 2012, after rescission of the 2006 

Agreement and closure of the airport. None of the Blue Ash payments were used in any 

way for the streetcar project at any time prior to rescission of the 2006 Agreement. 

6 
15. With respect to the allegation made in paragraph 7 of the Complaint regarding 

Violation 3, see paragraphs 5-7 of this affidavit, which explain that the 2006 Agreement 

proceeds were required to be deposited in Fund 757. I am not aware of any reason for the 

use of Fund 757 to hold the 2006 Agreement proceeds other than to comply with Ohio 

law. 

16. With respect to the allegation made in paragraph 8 of the Complaint regarding 

Violation 4, on October 22, 2008. City Council enacted Ordinance No. 354-2008 

authorizing a $200,000 transfer from "the unappropriated surplus of Fund 757" to a new 

account called "Blue Ash Airport Property Sale/Remediation." Beyond identifying Fund 

757, the transfer ordinance did not specify the origin of the funds for transfer. The 

receiving account held funds for Blue Ash Airport property environmental remediation. 

As shown in the financial report for the month of October 2008, attached as page I of 

Exhibit H (Monthly Statements Relevant to Alleged Violations) hereto, the balance of 

Fund 757 after the $200,000 transfer was over $2.7 million. At that time, Fund 757 held 

$2 million in Blue Ash payments. 

17. With respect to the allegation made in paragraph 9 of the Complaint regarding 

Violation 5, on January 26, 2011, City Council enacted Ordinance No. 7-2011 

authorizing a $375,000 transfer from "the unappropriated surplus of Fund 757" into the 

"Blue Ash Airport Property Sale/Remediation" account for remediation of contaminated 

soil on airpot1 property. Beyond identifying Fund 757, the transfer ordinance did not 

specify the origin of the funds for transfer. As shown in the financial report for the 

month of February 2011, attached as page 2 of Exhibit H hereto, the balance of Fund 757 

7 
after the $375,000 transfer was over $5.7 million. At that time, Fund 757 held $4 million 

in Blue Ash payments. 

18. With respect to the allegation made in paragraph I 0 of the Complaint regarding 

Violation 6, on August I, 2012, City Council enacted Ordinance No. 294-2012 

authorizing a $170,000 transfer from "the unappropriated surplus of Fund 757" into the 

"Blue Ash Airport Property Sale/Remediation" account for remediation of contaminated 

soil on airpo11 property. Beyond identifying Fund 757, the transfer ordinance did not 

specify the origin of the funds for transfer. As shown in the financial report for the 

month of July 2012, attached as page 3 of Exhibit H hereto, the balance of Fund 757 was 

over $7.8 million. At that time, Fund 757 held $6 million in Blue Ash payments. 

19. With respect to the allegation made in paragraph II of the Complaint regarding 

alleged Violation 7, on January 7, 2009, City Council enacted Ordinance No. 2-2009, 

authorizing a $250,000 transfer from Fund 757 to fund the City's comprehensive plan. 

Beyond identifying Fund 757, the transfer ordinance did not specify the origin of the 

funds for transfer. The transfer occun·ed on January II, 2009. As shown in the financial 

report for the month of January 2009, attached as page 4 of Exhibit H hereto, the balance 

of Fund 757 was over $2.6 million. At that time, Fund 757 held $2 million in Blue Ash 

payments. 

20. Also with respect to the allegation made in paragraph II of the Complaint regarding 

alleged Violation 7, on December 21, 2009, City Council enacted Ordinance No. 386-

2009, authorizing an additional $250,000 transfer from Fund 757 to fund the City's 

comprehensive plan. Beyond identifying Fund 757, the transfer ordinance did not specify 

the origin of the funds for transfer. The transfer occurred January 25,2010. As shown in 

8 
the financial report for the month of January 2010, attached as page 5 of Exhibit H 

hereto, the balance of Fund 757 was over $4 million. At that time, Fund 757 held $3 

million in Blue Ash payments. 

21. With respect to the allegation made in paragraph 12 of the Complaint regarding 

alleged Violations 8-19, the Complainant misunderstands the database as well as the 

nature of Fund 757. First, the online database used to generate Exhibit 16 to the 

Complaint was not active until late 2010 and only included data as of 2009. The 

searchable database did not include 2007 or 2008 expenditures for any City funds 

(including Fund 757). Furthermore, as described in paragraphs 6 and 7, above, and 

shown in the monthly reports provided as Exhibit D hereto, Fund 757 serves as an 

account for numerous sources of income, transfers in, expenditures, and transfers out that 

are unrelated to the former Blue Ash payments. The expenditures and general use of 

Fund 757 for other miscellaneous improvement projects does not, however, mean that the 

Blue Ash payments were expended. As discussed in paragraphs 12 and 13 above, the 

cumulative total of Blue Ash payments received was available to be appropriated for 

airport pmvoses (or returned to the City of Blue Ash) at all times since the 2006 

Agreement until the return of the funds on August 28,2012. 

STATE OF OHIO ) 

) ss: 

COUNTY OF HAMILTON ) 

Sworn to and subscribed in my presence this 12 -#1 

Chadrian Johnlon 

Notary Public, Sllll ol Olllo 

MyCammisSionEI!*II01·1ND17 9 
Exhibit I

Approved 2007/2008

Biennial Budget
Budget Basics

City of Cincinnati

47 Approved 2007/2008 Biennial Budget

expenditures are restricted to benefit only the water customers. The revenue that comes into the City

from customers paying their water bills can only be used by the City to operate and repair existing or

build new water facilities.

Most Restricted Funds receive other revenues, such as investment earnings from their cash balances

and other incidental amounts. The City's appropriated Restricted Funds are described as follows:

Water Works Fund 101. The Water Works Fund supports the Greater Cincinnati Water Works

operations, capital improvements, repairs, and debt service expenditures.

Parking System Facilities Fund 102. The Parking System Facilities Fund supports the operations of

the City's public garages and parking lots and the payment of debt service incurred for capital

improvements.

Convention Center Fund 103. The Convention Center Fund receives the fees charged for the use of

the Duke Energy Center and the Transient Occupancy Tax revenue in order to pay for its operation,

utilities, and maintenance.

General Aviation Fund 104. The General Aviation Fund supports maintenance and general

operation of the municipally-owned Lunken Airport. Capital improvements for the airport are

funded primarily from grants from the Federal Aviation Administration (FAA).

Municipal Golf Fund 105. The Municipal Golf Fund supports the operation of the City's privately

managed golf courses, using receipts from fees charged for the use of the golf courses, driving

ranges, golf carts, and concession purchases by golf patrons. The fund includes operations, capital

improvements, and debt service.

Stormwater Management Utility Fund 107. The Stormwater Management Utility Fund primarily

covers storm sewer capital improvements; storm water maintenance and repairs; and administrative

costs of master planning, billing, regulation, and enforcement.

Bond Retirement Fund 151. The Bond Retirement Fund pays the debt service on General Obligation

bonds issued to raise capital improvement funds.

Street Construction, Maintenance, and Repair Fund 301. The Street Construction, Maintenance,

and Repair Fund is used by the Public Services Department to supplement the maintenance and

repair of the City's street system and traffic control devices.

Income Tax-Infrastructure Fund 302. The Income Tax-Infrastructure Fund covers expenses for

repair, upkeep, and improvements of the City's infrastructure.

Parking Meter Fund 303. The Parking Meter Fund supports selected operations in the Community

Development Department, Police Department, and Transportation and Engineering Department, all

of which having a relationship to right-of-way maintenance.

Municipal Motor Vehicle License Tax Fund 306. The Municipal Motor Vehicle License Tax Fund

supports the repair, upkeep, and improvements to the City's right-of-way.
Financial Summaries

City of Cincinnati 

Approved 2007/2008 Biennial Budget 98

GENERAL AVIATION FUND 104

Description 

The Department of Transportation and 

Engineering manages the General Aviation Fund 

104, which accounts for revenues from hangar 

rental and other fees at Lunken Airport. 

Expenditures from this fund support maintenance 

and general operation of the municipally-owned 

Lunken Airport. The General Aviation Fund is 

self-supporting and does not receive resources 

from the General Fund. Capital improvements for 

the airport are funded primarily from Federal 

Aviation Administration (FAA) grants. 

Major Services 

x Lunken Airport operation 

x Facility development 

x Business aircraft support

x Leisure aircraft support 

Revenues

The revenue estimates for the General Aviation 

Fund 104 are $1,950,000 for 2007 and $1,980,000 

for 2008. The 2007 estimate is the same as the 

2006 budget, while the 2008 estimate is a 1.5% 

increase over the 2007 estimate. The revenue 

estimate is increased in 

2008 because treasury investment income is 

expected to rise. These estimates are based on 

current rates. 

Expenditures

The total 2007 operating budget for the General 

Aviation Fund of $1,713,540, including debt 

service, is a 3.5% increase over the 2006 budget 

and a 4.0% increase over the 2006 estimated 

actual. The increase in 2007 is primarily due to 

budgeted wage and inflation increases. 

The 2008 operating budget for the General 

Aviation Fund of $1,761,600, including debt 

service, is a 2.8% increase over 2007. The 2008 

operating budget changes primarily by the 

budgeted wage and inflation increases. 

The General Aviation Fund 104 provides local 

matching resources for capital projects financed by 

the Federal Aviation Administration (FAA). An 

amount of $170,000 is included in 2007 in the 

General Aviation Fund Capital Budget to provide 

matching resources for capital projects funded by 

the FAA. A total of $180,000 is included for 

2008. The General Aviation Fund 104 supports 

cash transfers for capital expenditures of $485,000 

in 2007 for four projects and $505,000 in 2008 for 

four projects. 

(In $000s) 2006 2006 2007 2008

Budget Estimated Budget Budget

Actual

General Aviation - Fund 104

Revenue 1,950 1,950 1,950 1,980

Transfers In 128

Prior Year Carryover 1,182 1,281 1,241 992

Resources 3,132 3,359 3,191 2,972

Operating Expenditures 1,595 1,587 1,653 1,701

Debt Service 61 61 61 61

Transfer to Capital 470 470 485 505

Expenditures 2,126 2,118 2,199 2,267

Fund Balance 1,006 1,241 992 705
Departmental Budget

City of Cincinnati

261 Approved 2007/2008 Biennial Budget

TRANSPORTATION & ENGINEERING

TELEPHONE #: 513.352.2366

MISSION

The mission of the Department of Transportation and Engineering is to manage the transportation system so

that it provides for the safe mobility of the traveling public. We accomplish this through effective

leadership in the planning, designing, and building of attractive, efficient, and diverse modes of

transportation, serving Cincinnati and the region.

FUNCTION AND DUTIES

x Office of the Director: The Office of the Director plays a leadership role in the development, delivery,

and management of the strategic vision necessary for a balanced regional transportation network and

right-of-way resource that responds to the needs of the City of Cincinnati and the region. This office

provides administration, accounting, and information technology support for the entire department.

x Engineering Division: The Engineering Division is responsible for transportation and other public

infrastructure of the City of Cincinnati. The division provides engineering, surveying, project

management, and asset management services; designs and oversees construction of transportation

improvements, delivering them on schedule and within budget; guides maintenance of public

infrastructure; and oversees private construction, including public and private utility work, in the right

of way. Through this work, the division is responsible for the structural integrity and stability of

bridges, viaducts, roadways, hillsides, sidewalks, and other property contained in the right of way,

ensuring the safety and convenience of the traveling public.

x General Aviation Division: The Aviation Division operates, maintains, and manages the Cincinnati

Municipal Lunken and Blue Ash airports to provide aviation access to the citizens of the region. Their

work ensures the facilities are safe and readily available to businesses and citizens who wish to use

them for air transportation. While both airports serve in a reliever role for Cincinnati/Northern

Kentucky International Airport, Lunken is focused on meeting general and corporate aviation needs and

Blue Ash primarily operates as a general aviation airport supporting private pilots. The City is

continually striving to balance the aviation needs of the region while respecting the adjacent

neighborhoods and communities.

x Traffic Engineering Division: The Traffic Engineering Division is responsible for providing for the

safe and efficient movement of vehicular and pedestrian traffic in the public right of way. This is

accomplished through the use of traffic control devices, control of curb space, pavement marking, and

Engineering General Aviation

Traffic Engineering Transportation Planning

OFFICE OF THE DIRECTOR