UNITED STATES DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION EXHIBIT

WASHINGTON, DC 

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IN THE MATTER OF COMPLIANCE WITH FEDERAL OBLIGATIONS BY THE CITY OF SANTA MONICA. CALIFORNIA FAA Docket No. 16-02-08

NOTICE OF INVESTIGATION
Notice is hereby given to the City ofSanta Monica (Santa Monica), the owner and operator ofthe Santa Monica Municipal Airport (SMO), Santa Monica, California, that the Federal Aviation Administration (FAA) is initiating an investigation into the legality ofSanta Monica Airport Commission's apparent decision torecommend that the Santa Monica City Council adopt and implement the Aircraft Conformance Program (ACP). The FAA issues this Notice ofInvestigation (NOI) in accordance with FAA Rules of Practice for Federally Assisted Airport Proceedings, 14C.F.R. Part 16, Subpart D.
In accordance with 14C.F.R. § 16.103, Santa Monica has 30 days from the date of service ofthis Notice to respond. The FAA strongly recommends that Santa Monica defer any further action regarding the ACP until this matter can be resolved. However, ifthis matter isnot resolved on orbefore the date the reply is due, and the FAA's investigation establishes violations ofSanta Monica's sponsor obligations and related Federal law, the FAA may issue adetermination that Santa Monica is in noncompliance with its Federal grant obligations in its operation ofSMO and the terms ofthe 1984 Settlement Agreement approved by the U.S. District Court. As aresult, Santa Monica could be found tobe ineligible to receive new FAA grants and payments under existing grants until this matter isresolved. Further sanctions, including ajudicial order ofenforcement, are also possible.
I. BACRGROUND A.TheAirport and Its Obligations The Santa Monica Municipal Airport is apublic-use airport owned and operated by the City ofSanta Monica, California.' The facility, classified as areliever airport,' isthe base ofoperations for447 aircraft and accounts for approximately 217,600 operations each year, more than 156,000 ofwhich are itinerant.'

1 FAA Form 5010 "Airport Master Record" for APF. Date: 10/11/2001. 2National Plan ofIntegrated Airport Systems (NPIAS), 1998-2002. SMO serves as an important reliever airport to Los Angeles International Airport (LAX). 3 FAA From 5010 "Airport Master Record" for APF. Date: 09/11/2001.FAA records indicate that the planning and development ofthe airport has been financed,

inpart, with funds provided by the FAA under the Airport Improvement Program (AlP), authorized by the Airport and Airway Improvement Act of 1982, as amended, 49 USC §47101, etseq. Between 1985 and 1994, the Airport has received atotal of$9.7 million inFederal airport development assistance.'
B. The 1984 Settlement Agreement
In 1981,the Santa Monica City Council enacted aresolution to close SMa. That action resulted in extensive litigation against the City by airport associations, the FAA, and the Department ofJustice (DOJ). The litigation resulted in anegotiated settlement memorialized onJanuary 31, 1984, referred to as the 1984Santa Monica Airport Agreement ("1984 Agreement"), which resolved aseries ofdisputes involving SMa. The City agreed to operate and maintain the Airport as aviable functioning facility without derogation ofits role as ageneral aviation reliever airport until July 1,2015.
As abasis forthe 1984Agreement approved by the U.S. District Court, the parties recognized several legal principals including

• the "Airport isto be open and available to and forpublic use as an airport on fair and reasonable terms, without unjust discrimination, and without granting any exclusive rights prohibited by law." [1984 Agreement, pages 2-3].

• "pursuant to the Federal Aviation Act of 1958, as amended, exclusive authority is vested inthe FAA forthe regulation ofall aspects ofair safety, the management and control ofthe safe and efficient use ofthe navigable airspace, and movement of aircraft through that airspace." [!d. at3].
In Section 8, the City committed to "operate and maintain the Airport as aviable functioning facility without derogation ofits role as ageneral aviation reliever as described in Section 2(b)(i) ofthis Agreement or its capacity in terms ofrunway length and width, taxiway system, and runway weight bearing strength until July 1,2015." [1984 Agreement, page 9]. The 1984Agreement also states that the "Airport will be capable ofaccommodating most kinds ofgeneral aviation aircraft, generally consistent with Group IIDesign Standards

.... "5[Id].
Section 9requires the City to maintain "continuously" the one designated runway (3/21) "which is 5,000 feet long and 150feet wide." [1984 Agreement, page 9]. The Airport Layout Plan (ALP) depicting the airport's existing runway and taxiway configuration was

4Airport Sponsor AlP Grant History dated July 22, 2002. 5 The Airport Reference Code (ARC) designations, including the B-II designation at issue, are acoding system used to relate airport design criteria to the operational and physical characteristics ofthe categories ofaircraft for which the airport was designed. We note, however, that this provision in the 1984 Agreement would not permit the City of Santa Monica toprohibit the use ofthe airport by other aircraft that can safely operate at SMO. As discussed more fully below, Design Standards may not be used to limit operations ofan airport. 2incorporated by reference into the 1984Agreement "and shall guide the development of

the Airport forthe duration ofthis Agreement." [Id. at 6]. Finally, the 1984Agreement highlights SMO's important role in the regional and national system ofair transportation and air commerce. SMO serves a "vital and critical role in its functions as ageneral aviation reliever forthe primary airports inthe area ... by diverting aircraft away from the air carrier airports and other heavily used airports located inthe Greater Los Angeles Area." [Id. at3-4].
In short, because the City ofSanta Monica assumed various Federal obligations including the grant assurances and those incorporated into the 1984 Settlement Agreement, the City is required to maintain and operate its airport facilities safely, efficiently, and in accordance with specified conditions. Thus, any actions taken by the airport sponsor that conflict with these obligations are ofconcern tothe FAA.
II. APPLICABLE LAW AND POLICY The FAA Airport Compliance Program The FAA discharges its responsibilities forensuring airport owners' compliance with their Federal obligations through its Airport Compliance Program. The FAA's airport compliance efforts are based on the contractual obligations, which an airport owner accepts when receiving Federal grant funds orthe transfer ofFederal property for airport purposes. These obligations are incorporated in grant agreements and instruments of conveyance in order to protect thepublic's interest incivil aviation and to ensure compliance with Federal laws.
The FAA Airport Compliance Program is designed to ensure the availability ofanational system ofsafe and properly maintained public-use airports operated in amanner consistent with the airport owners' Federal obligations and the public's investment in civil aviation. The Airport Compliance Program does not control ordirect the operation ofairports; rather itmonitors the administration ofthe valuable rights pledged by airport sponsors to the people ofthe United States in exchange formonetary grants and donations ofFederal property to ensure that thepublic interest isbeing served.
As ageneral rule, we note that the FAA Compliance Program is designed to achieve voluntary compliance with Federal obligations. In addressing allegations of noncompliance, the FAA will make adetermination asto whether an airport sponsor is currently in compliance with the applicable Federal obligations. FAA has to make a judgment ofwhether the sponsor isreasonably meeting the Federal obligations."
FAA may also take into consideration any action orprogram the sponsor has taken or implemented orproposed action orprogram the sponsor intends to take which, inFAA's judgment, is inadequate to reasonably carry out the obligations under the grant assurances.

6 See FAA Order 5190.6A, Sec. 5-6. 3The Airport Improvement Program and the Airport Sponsor Assurances

Title 49 ofthe United States Code, §47101, etseq., provides for Federal financial assistance for the development ofpublic-use airports under the Airport Improvement Program (AlP) established by the Airport and Airway Improvement Act of 1982, as amended. Section 47107, et seq., and the grant contract, set forth assurances to which an airport sponsor agrees as acondition ofreceiving Federal financial assistance. Upon acceptance ofan AlP grant, the assurances become abinding contractual obligation between the airport sponsor and the Federal government. The FAA has a statutory mandate to ensure that airport owners comply with these sponsor assurances. 7 FAA Order 5190.6A, "Airport Compliance Requirements," issued on October 2, 1989, provides thepolicies andprocedures tobe followed by the FAA in carrying out its legislatively mandated functions related to federally obligated airport owners' compliance with their sponsor assurances. The Congress mandated conditions such as these on grants to local airport proprietors inpart to ensure the maintenance of conditions essential to an efficient national airtransportation system. Grant agreements under the AAIA are not ordinary contracts, but part ofaprocedure mandated by Congress to assure federal funds are disbursed in accordance with Congress' will." The FAA considers itinappropriate toprovide Federal assistance for improvements to airports where the benefits ofsuch improvements will not be fully realized due to inherent restrictions on aeronautical activities. Economic Non-Discrimination
The owner ofany airport developed with Federal grant assistance isrequired to operate the airport for the use and benefit ofthe public andto make itavailable to all types, kinds, and classes ofaeronautical activity on fair and reasonable terms, and without unjust discrimination. Assurance 22, Economic Nondiscrimination, ofthe prescribed sponsor assurances implements the provisions of49 U.S.c. §47107(a)(1) through (6), and requires, inpertinent part, that the sponsor ofafederally obligated airport

"

...will make its airport available as an airport forpublic use on reasonable terms, and without unjust discrimination, to alltypes, kinds, and classes ofaeronautical activities, including commercial aeronautical activities offering services to the public atthe airport." Assurance 22(a)

"

...may establish such fair, equal, and notunjustly discriminatory conditions to be metby allusers ofthe airport as may be necessary for the safe and efficient operation ofthe airport." Assurance 22(h)
FAA Order 5190.6A, Chapter 4, describes the responsibilities under Assurance 22 assumed by the owners ofpublic use airports developed with Federal assistance. For

7See, e.g., the Federal Aviation Act of 1958, as amended and re-codified, 49 U.S.c. § 40101, 40113, 40114,46101,46104,46105,46106,46110, and the Airport and Airway Improvement Act of 1982, as amended and re-codified, 49 U.S.C. § 47105(d), 47106(d), 47107(k), 47107(1), 47111(d), 47122. 8City and County of San Francisco v. FAA, 942 F.2d at 1396 (9th Cir. 1991). 4example, the Order provides, inrelevant part, that "[i]n all cases [where an airport

sponsor restricts access for safety reasons] the FAA will make the final determination of the reasonableness ofthe

... restrictions."
Exclusive Rights
Title 49 ofthe United States Code, §40103(e), provides, inrelevant part, that "there shall be no exclusive right forthe use ofany landing area or airnavigation facility upon which Federal funds have been expended." 49 U.S.C. §47107(a)(4) similarly provides, in pertinent part, that "there will be no exclusive right forthe use ofthe airport by any person providing, or intending toprovide, aeronautical services to the public."
Assurance 23, "Exclusive Rights", oftheprescribed sponsor assurances requires, in pertinent part, that the sponsor ofa federally obligated airport "

...will permit no exclusive right forthe use ofthe airport by anypersons providing, or intending toprovide, aeronautical services tothe public

... and that itwill terminate any exclusive right to conduct an aeronautical activity now existing at such an airport before the grant ofany assistance under the Airport and Airway Improvement Act of 1982."
InFAA Order 5l90.1A, Exclusive Rights, the FAA published its exclusive rights policy and broadly identified aeronautical activities as subject to the statutory prohibition against exclusive rights. While public-use airports may impose qualifications and minimum standards upon those who engage in aeronautical activities, FAA has taken the position that the application ofany unreasonable requirement or standard that is applied in anunjustly discriminatory manner may constitute aconstructive grant ofan exclusive right.
Courts have found the grant ofan exclusive right where a significant burden has been placed on one competitor that isnotplaced on another. See ~ City ofPompano Beach v. Federal Aviation Administration, 774 F.2d 1529 (l1th Cir. 1985). FAA Order 5190.6A provides additional guidance on the application ofthe statutory prohibition concerning exclusive rights and FAA policy regarding exclusive rights atpublic-use airports."
Federal Preemption and the Proprietor Exception
The principal aviation responsibilities assigned to the FAA under the Federal Aviation Act of 1958, as amended, 49 U.S.c. 40101 etseq., concern promoting the safety and security ofair commerce. The basic national policies intended to guide FAA actions under the Federal Aviation Act are setforth at49 U.S.C. 401Ol(d) which provides public interest standards."

9 See FAA Order 5190.6A, Chapter 3.
10 These include: (I) Assigning, maintaining, and enhancing safety and security as the highest priorities in air commerce; (2) Regulating air commerce in away that best promotes safety and fulfills national defense requirements; (3) Encouraging and developing civil aeronautics, including new aviation technology; (4) Controlling the use ofthe navigable airspace and regulating civil and military operations in that airspace in the interest ofthe safety and efficiency ofboth ofthose operations; (5) Consolidating research and development for air navigation facilities and the installation and operation ofthose facilities; and (6) 5To achieve these statutory purposes, 49 U.S.C. 40103(b), 44502, and 44721 provide

extensive and plenary authority to the FAA concerning use and management ofthe navigable airspace, airtraffic control, and airnavigation facilities. The FAA has exercised this authority by promulgating wide-ranging and comprehensive Federal regulations on the use ofnavigable airspace and airtraffic control." Similarly the FAA has exercised its aviation safety authority, including the certification ofairmen, aircraft, air carriers, air agencies, and airports under Title VI ofthe Federal Aviation Act, section 601 et seq., 49 U.S.C. 44701, et seq. by extensive Federal regulatory action."
The Federal government, through this exercise ofits constitutional and statutory powers, has preempted the areas ofairspace use and management, airtraffic control, and aviation safety. Under the legal doctrine ofpreemption, which flows from the Supremacy Clause ofthe Constitution, state and local authorities do not have legal power to act in an area that already is subject to comprehensive Federal regulation.
Under Federal law, state and local aircraft noise restrictions are generally preempted. See City ofBurbank v. Lockheed Air Terminal, 411 U.S. 624 (1973). However, a limited exception to this preemption applies to municipal airport proprietors, which are "vested only with the power topromulgate reasonable, nonarbitrary and nondiscriminatory regulations that establish acceptable noise levels forthe airport and its immediate environs." British Airways Board v. Port Authority ofNew York andNew Jersey, 558 F.2d 75,84 (2d Cir. 1977); see also American Airlines, Inc. v. City ofDallas, 202 F.3d 788, 806 (5th Cir. 2000). Congress had made itclear that thepower delegated to airport proprietors to adopt noise control regulations"

... islimited toregulations that are not unjustly discriminatory." City and County ofSan Francisco v. FAA, 942 F.2d 1391, 1394 (9th Cir. 1991). This "proprietor exception," codified by the Congress aspart ofthe Airline Deregulation Act of 1978 (49 U.S.C. 41713), isbased on an airport proprietor's legitimate interest inprotecting itself from liability for damages resulting from excessive noise generated by aircraft using the airport. See Griggs v. Allegheny County, 369 U.S. 84 (1962). "Since airport proprietors bear monetary liability for excessive aircraft noise under [Griggs], fairness dictates that they must also have power to insulate themselves from that liability." San Diego Unified Port Dist. v. Gianturco, 651 F.2d 1306, 1316-17 (9th Cir. 1981), cert. denied, Dept. ofTransportation v. San Diego Unified Port Dist., 455 U.S. 1000 (1982) (citations omitted).
III. FACTS AND ANALYSIS
OnJuly 22, 2002, the Santa Monica Airport Commission passed amotion indicating that itwill recommend that the Santa Monica City Council implement, by ordinance, an Aircraft Conformance Program (ACP) at SMa. The ACP would restrict aircraft operations at SMa to aircraft that meet the standards for an airport with anAirport Reference Code (ARC) designation ofB-II.

Developing and operating acommon system ofair traffic control and navigation for military and civil aircraft.
II See 14CFR Parts 71, 73, 75, 91, 93, 95, and 97. 12 See 14CFR Parts 21-43,61-67,91, 121 through 149. 6The ARC is anFAA coding system used torelate airport design criteria to the operational

and physical characteristics ofthe aircraft types for which the airport was designed.':' The ARC code has two components, both relating to the "critical design aircraft" forthe airport. The critical design aircraft is defined as the category ofaircraft, which conducts 500 itinerant ormore operations per year atthe airport." The first component, depicted by the letters A-E, is the aircraft approach category and relates to aircraft approach speed. For example, aCategory A aircraft has an approach speed ofless than 91 knots while a Category B aircraft has an approach speed of 121knots ormore, but less than 141 knots. The second component, depicted by Roman numerals I-VI, is the airplane design group and relates to airplane wingspan. For example, aGroup I aircraft has awingspan ofup to but not including 49 feet, while aGroup II aircraft has awingspan of49 feet up tobut not including 79 feet.15 Thus, under Santa Monica's proposal, any aircraft faster or larger than aB-II aircraft (approach speed 121-140 knots, wingspan 49-78 feet) would be banned regardless ofwhether that aircraft would be safe to operate atthe airport in accordance with FAA safety standards. The practical effect ofthe ACP would be toban approximately 7,000jet aircraft operations per year from SMO, an airport that has a "vital and critical role in its functions as ageneral aviation reliever forthe primary airports inthe area ... by diverting aircraft away from the air carrier airports and other heavily used airports located inthe Greater Los Angeles Area." [Settlement Agreement, pp. 3-4].
On the same date the Airport Commission passed this motion, the FAA notified Santa Monica ofits concerns regarding the above-mentioned proposal. In its letter, the FAA stated that "restricting aircraft operations based on the design category of SMO would not be consistent with the City's Federal obligations to provide airport access tothe public on reasonable terms and without unjust discrimination, orwith the City's 1984 settlement agreement with the FAA and other parties." FAA also recommended that "the airport defer any further action regarding the ACP pending further review and comment by the FAA."
On October 1,FAA representatives from the Air Traffic, Flight Standards, Airports Divisions and the Regional Counsel met with Santa Monica to address the proposed ACP. FAA cautioned the Santa Monica representatives that the proposal was not consistent with the city's Federal obligations andFederal law. FAA commented that safety determinations involving flight ofaircraft are theresponsibility ofthe FAA and the Agency does not consider itinherently unsafe foran aircraft oflarger design category to use an airport designed to accommodate alesser category aircraft. Additionally, Air Traffic and Flight Standards representatives reiterated that design standards limitations do not translate into operational limitations and that FAA develops instrument approaches to permit safe aircraft operations. Finally, FAA told Santa Monica that the Agency holds the expectation that the city must comply with Section 9ofthe 1984 Agreement to maintain the existing runway length and width, and that any action taken by the city that conflicts with its federal obligations would be ofconcern tothe FAA.

13FAA Advisory Circular No. 150/5300-13, "Airport Design" (September 29, 1989), chapter 1,pA. 14National Plan ofIntegrated Airport Systems (NPIAS), 1998-2002, p. 38. 15Id., p. 1. 7The Airport Reference Code design category ofan airport isnot intended, and cannot be

used, to limit operations ofan airport. While the design category and geometry ofan airport are useful in airport planning, the FAA does not consider itinherently unsafe for an aircraft ofalarger design category toutilize an airport that has been designed to accommodate alesser design category ofaircraft. Itis incorrect to assume that aircraft operating at SMa that are larger or faster than B-II aircraft are not compatible with the airport's Airport Reference Code. For example, instrument approach charts published by the FAA for SMa provide instrument approach procedures for the airport up to Category D aircraft. Thus, FAA has already determined that at least some operations by Category C and D aircraft, which are larger and faster than B-II, can be safely operated at SMa. Such aircraft, however, would be banned under Santa Monica's ordinance. The critical design aircraft is not defined asthe only aircraft or largest aircraft that can safely conduct operations atthe airport. Additionally, under 14C.F.R. 

### § 91.3, the pilot in command ofan aircraft is directly responsible for, and is the final authority as to, the safe operation ofthe aircraft he or she commands. Ultimately, itis the responsibility ofthe FAA to determine the safety ofacategory offlight operations or an individual flight. The City ofSanta Monica has notprovided adequate documentation to the FAA to support its recommendation tothe City Council to adopt and implement the ACP. Restricting SMa to B-II aircraft will have aserious impact since itwould prevent other categories such as C-I, C-II, D-I and D-II from operating atthe airport. In fact, the City ofSanta Monica reports that 50percent ofjet operations atthe airport are other than B-II type. As aresult ofthe above, the FAA finds sufficient cause to initiate aformal investigation inthis matter. The issues involved inthis investigation include whether Santa Monica's implementation ofthe ACP would be consistent with its Federal grant obligations relating to economic discrimination and exclusive rights, Federal preemption law, and the terms ofthe 1984 Settlement Agreement. Under Federal law, use ofnoise control regulations by airport proprietors tobar aircraft on abasis other than noise, orwithout afactual basis, has been found tobe inconsistent with afair and efficient national airtransportation system and unlawful. City of San Francisco v. FAA, 942 F.2d 1391 (9th Cir. 1991).
IV. ISSUES UNDER INVESTIGATION The issues under investigation include, but are not limited to, the following:

• Whether Santa Monica's implementation ofthe ACP would be consistent with its statutory and grant obligation to make its airport available as an airport forpublic use onreasonable terms and without unjust discrimination to all types, kinds, and classes ofaeronautical activities.

• Whether Santa Monica's implementation ofthe ACP would be consistent with its statutory and grant assurance prohibition from granting orpermitting any person, firm, orcorporation, either directly orindirectly, the exclusive right atthe airport to conduct any aeronautical activities.

8• Whether Santa Monica's implementation ofthe ACP would bepreempted under Federal Law.

• Whether Santa Monica's implementation ofthe ACP would be consistent with the terms ofthe 1984 Settlement Agreement. 

### V. OTHER FEDERAL LAW
The City of Santa Monica should also be aware ofthe FAA's concerns regarding compliance with other applicable Federal law. Specifically, should the City decide to implement the ACP without (i) anFAA determination that the ACP is areasonable response to unsafe aircraft operations at SMa, or (ii) meeting the requirements setforth inthe Airport Noise and Capacity Act of 1990, 49 U.S.C. 49 USC §47521, etseq., as implemented by 14CFR Part 161,the FAA will undertake informal resolution in accordance with 14CFR 161.503. Ifinformal resolution isunsuccessful, then the FAA will initiate formal action to terminate grants and authority to impose or collect passenger facility charge under 14CFR Part 161, Subpart F, for failure to comply with ANCA. The procedures that apply to termination ofeligibility will then depend upon whether the City agrees to defer implementation orenforcement ofthe ACP until FAA completes the process under Subpart Fto determine compliance. 

### VI. OPPORTUNITY TO RESPOND
Pursuant to 14C.F.R. §16.103 and 16.17, the City ofSanta Monica may reply tothis Notice no later than 30 days from theNotice's date ofservice. In accordance with 14C.F.R. §§16.l03 and 16.105, during that timeframe, the FAA invites good faith efforts by the City of Santa Monica toresolve informally the matters that are addressed inthe Notice. Information provided by the City after the 30-day timeframe may not be considered by the FAA. Possible noncompliance with Federal requirements is aserious matter. Ifthe issues addressed inthis Notice are not resolved within the 30-day time period, and the FAA's investigation establishes violations ofFederal law and related sponsor obligations, the FAA may issue aDirector's Determination in accordance with 14C.F.R. §16.31 making findings on the above-identified issues.

David L. Bennett Director, Office ofAirport Safety and Standards



### OCT 8 2002

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