federal register

Tuesday

February 16, 1999

Part II

Department of

Transportation

Federal Aviation Administration

Policy and Procedures Concerning the

Use of Airport Revenue; Notice
7696 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

[Docket No. 28472]

Policy and Procedures Concerning the

Use of Airport Revenue

AGENCY: Federal Aviation

Administration (FAA) DoT

ACTION: Policy statement.

SUMMARY: This document announces the

final publication of the Federal Aviation

Administration policy on the use of

airport revenue and maintenance of a

self-sustaining rate structure by

Federally-assisted airports. This

statement of policy (‘‘Final Policy’’) was

required by the Federal Aviation

Administration Authorization Act of

1994, and incorporates provisions of the

Federal Aviation Administration

Reauthorization Act of 1996. The Final

Policy is also based on consideration of

comments received on two notices of

proposed policy issued by the FAA in

February 1996, and December 1996,

which were published in the Federal

Register for public comment. The Final

Policy describes the scope of airport

revenue that is subject to the Federal

requirements on airport revenue use and

lists those requirements. The Final

Policy also describes prohibited and

permitted uses of airport revenue and

outlines the FAA’s enforcement policies

and procedures. The Final Policy

includes an outline of applicable recordkeeping and reporting requirements for

the use of airport revenue. Finally, the

Final Policy includes the FAA’s

interpretation of the obligation of an

airport sponsor to maintain a selfsustaining rate structure to the extent

possible under the circumstances

existing at each airport.

DATES: This Final Policy is effective

February 16, 1999.

FOR FURTHER INFORMATION CONTACT: J.

Kevin Kennedy, Airport Compliance

Specialist, Airport Compliance Division,

AAS–400, Office of Airport Safety and

Standards, 800 Independence Avenue,

SW., Washington, DC 20591, telephone

(202) 267–8725; Barry L. Molar,

Manager, Airport Compliance Division,

AAS–400, Office of Airport Safety and

Standards, 800 Independence Avenue,

SW., Washington, DC 20591, telephone

(202) 267–3446.

SUPPLEMENTARY INFORMATION:

Outline of Final Policy

The Final Policy implements the

statutory requirements that pertain to

the use of airport revenue and the

maintenance of an airport rate structure

that makes the airport as self-sustaining

as possible. The Final Policy generally

represents a continuation of basic FAA

policy on airport revenue use that has

been in effect since enactment of the

Airport and Airway Improvement Act of

1982 (AAIA), currently codified at 49

U.S.C. § 47107(b). The FAA issued a

comprehensive statement of this policy

in the Notice of Proposed Policy dated

February 26, 1996 (Proposed Policy),

and addressed four particular issues in

more detail in the Supplemental Notice

of Proposed Policy dated December 18,

1996 (Supplemental Notice). The Final

Policy includes provisions required by

the Federal Aviation Administration

Authorization Act of 1994, Public Law

103–305 (August 23, 1994) (FAA

Authorization Act of 1994), and the

Airport Revenue Protection Act of 1996,

Title VIII of the Federal Aviation

Administration Reauthorization Act of

1996, Public Law 104–264 (October 9,

1996), 110 Stat. 3269 (FAA

Reauthorization Act of 1996). The Final

Policy also includes changes adopted in

response to comments on the Proposed

Policy and Supplemental Notice.

The Final Policy contains nine

sections. Section I is the Introduction,

which explains the purpose for issuing

the Final Policy and lists the statutory

authorities under which the FAA is

acting.

Section II, ‘‘Definitions,’’ defines

federal financial assistance, airport

revenue and unlawful revenue

diversion.

Section III, ‘‘Applicability of the

Policy,’’ describes the circumstances

that make an airport owner or operator

subject to this Final Policy.

Section IV, ‘‘Statutory Requirements

for the Use of Airport Revenue,’’

discusses the statutes that govern the

use of airport revenue.

Section V, ‘‘Permitted Uses of Airport

Revenue,’’ describes categories and

examples of uses of airport revenue that

are considered to be permitted under 49

U.S.C. 47107(b). The discussion is not

intended to be a complete list of all

permitted uses but is intended to

provide examples for practical

guidance.

Section VI, ‘‘Prohibited Uses of

Airport Revenue,’’ describes categories

and examples of uses of airport revenue

not considered to be permitted under 49

U.S.C. 47107(b). The discussion is not

intended to be a complete list of all

prohibited uses but is intended to

provide examples for practical

guidance.

Section VII, ‘‘Policies Regarding

Requirement for a Self-Sustaining

Airport Rate Structure,’’ describes

policies regarding the requirement that

an airport maintain a self-sustaining

airport rate structure. This is a new

section of the policy, which provides

more complete guidance on the subject

than appeared in either the Proposed

Policy or Supplemental Notice.

Section VIII, ‘‘Reporting and Audit

Requirements,’’ addresses the

requirement for the filing of annual

airport financial reports and the

requirement for a review and opinion on

airport revenue use in a single audit

conducted under the Single Audit Act,

31 U.S.C. §§ 7501–7505.

Section IX, ‘‘Monitoring and

Compliance,’’ describes the FAA’s

activities for monitoring airport sponsor

compliance with the revenue-use

requirements and the requirement for a

self-sustaining airport rate structure and

the range of actions that the FAA may

take to assure compliance with those

requirements. Section IX also describes

the sanctions available to FAA when a

sponsor has failed to take corrective

action to cure a violation of the revenueuse requirement.

Background

Governing Statutes

Four statutes govern the use of airport

revenue: the AAIA; the Airport and

Airway Safety and Capacity Expansion

Act of 1987; the FAA Authorization Act

of 1994; and the FAA Reauthorization

Act of 1996. These statutes are codified

at 49 USC 47101, et seq.

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 USC 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 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 nonairport purposes that predate the AAIA.

The Airport and Airway Safety and

Capacity Expansion Act of 1987, Public

Law 100–223 (December 30, 1987),

narrowed the permitted uses of airport

revenues to nonairport facilities that are

‘‘substantially’’ as well as directly

related to actual air transportation;

required local taxes on aviation fuel

enacted after December 30, 1987, to be
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7697

spent on the airport or, in the case of

state taxes on aviation fuel, state

aviation programs or noise mitigation on

or off the airport; and slightly modified

the grandfather provision.

The FAA Authorization Act of 1994

Act included three sections regarding

airport revenue.

Section 110 added a policy statement

to Title 49, Chapter 471, ‘‘Airport

Development,’’ concerning the

preexisting requirement that airports be

as self-sustaining as possible, 49 USC

§ 47101(a)(13).

Section 111 added a new sponsor

assurance requiring airport owners or

operators to submit to the Secretary and

to make available to the public an

annual report listing all amounts paid

by the airport to other units of

government, and the purposes for the

payments, and a listing of all services

and property provided to other units of

government and the amount of

compensation received. Section 111 also

requires an annual report to the

Secretary containing information on

airport finances, including the amount

of any revenue surplus and the amount

of concession-generated revenue.

Section 112(a) requires 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.

Section 112(b) amends 49 USC

§ 47111, ‘‘Payments under project grant

agreements,’’ to provide the Secretary,

with certain limitations, to withhold

approval of a grant application or a new

application to impose a Passenger

Facility Charge (PFC) for violation of the

revenue-use requirement. Section 112(c)

authorizes the Secretary to impose civil

penalties up to a maximum of $50,000

on airport sponsors for violations of the

revenue retention requirement. Section

112(d) requires the Secretary, in

administering the 1994 Authorization

Act’s revenue diversion provisions and

the AIP discretionary grants, to consider

the amount being lawfully diverted

pursuant to the grandfathering provision

by the sponsor compared to the amount

being sought in discretionary grants in

reviewing the grant application.

Consequently, in addition to the

prohibition against awarding grants to

airport sponsors that have illegally

diverted revenue, the FAA considers the

lawful diversion of airport revenues by

airport sponsors under the grandfather

provision as a factor militating against

the distribution of discretionary grants

to the airport, if the amounts being

lawfully diverted exceed the amounts so

lawfully diverted in the airport’s first

year after August 23, 1994.

Section 112(e), which amended the

Anti-Head Tax Act, 49 USC

§ 40116(d)(2)(A), prohibits a State,

political subdivision, or an authority

acting for a State or political subdivision

from collecting a new tax, fee, or charge

which is imposed exclusively upon any

business located at a commercial service

airport or operating as a permittee of the

airport, other than a tax, fee, or charge

utilized for airport or aeronautical

purposes.

Title VIII of the FAA Reauthorization

Act of 1996 included new provisions on

the use of airport revenue. Among other

things, section 804 codifies the

preexisting grant-assurance based

revenue-use requirement as 49 U.S.C.

§ 47133. Section 804 also expands the

application of the revenue-use

restriction to any airport that is the

subject of Federal assistance.

Section 805, codified as 49 U.S.C.

§ 47107(m) et seq., requires recipients of

Federal assistance for airports who are

subject to the Single Audit Act to

include a review and opinion on airport

revenue use in single audit reports.

Under section 47107(n), the Secretary,

acting through the Administrator of the

FAA, will perform fact finding and

conduct hearings in certain cases; may

withhold funds that would have

otherwise been made available under

Title 49 of the U.S. Code to a sponsor

including another public entity of

which the sponsor is a member entity,

and may initiate a civil action under

which the sponsor shall be liable for a

civil penalty, if the Secretary receives a

report disclosing unlawful use of airport

revenue. Section 47107(n) also includes

a statute of limitations that prevents the

recovery of funds illegally diverted

more than six years after the illegal

diversion occurs. The Secretary is also

authorized to recover civil penalties in

the amount of three times the

unlawfully diverted airport revenue

under 49 U.S.C. § 46301(n)(5).

Section 47107(o) requires the

Secretary to charge a minimum annual

rate of interest on the amount of any

illegal diversion of revenues. Interest is

due from the date of the illegal

diversion.

Section 47107(l)(5) imposes 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. A

sponsor may claim interest on the

amount due for reimbursement, but only

from the date the Secretary determines

that the airport owes a sponsor.

Procedural History

In response to provisions in the 1994

Authorization Act, the FAA issued the

Proposed Policy. (61 FR 7134, February

26, 1996) After reviewing all comments

received in response to the notice, the

FAA issued the Supplemental Notice on

December 11, 1996, and requested

further public comment. (61 FR 66735,

December 18, 1996) Although the FAA

published both documents as proposed

policies, both notices stated that the

FAA would apply the policies in

reviewing revenue-use issues pending

publication of a final policy.

The Department received 32

comments on the Proposed Policy and

received 50 comments on the

Supplemental Notice. Comments were

received from airport owners and

operators, airline organizations, transit

authorities, and affected businesses and

organizations. Most of the commenters

were airport owners and operators. The

Airport Council International-North

America and the American Association

of Airport Executives also provided

comments supporting the sponsor/

operator positions. Two major groups

commented on behalf of the airlines—

the Air Transport Association of

America and the International Air

Transport Association.

The Aircraft Owners and Pilots

Association and the National Air

Transportation Association commented

on behalf of the general aviation and

private aircraft owners. AOPA was

primarily concerned with sponsor/

airport accountability and the prompt

and effective enforcement of the

revenue diversion prohibitions.

Several port authorities, transit

authorities, environmental groups, other

public interest groups, trade

associations, private businesses and

individuals commented on a variety of

specific issues.

The following discussion of

comments is organized by issue rather

than by commenter. Issues are discussed

in the order they arise in the Final

Policy. Airport proprietors and their

representatives who took similar

positions on an issue are collectively

referred to as ‘‘airport operators.’’

Airlines and airline trade associations

are referred to as ‘‘air carriers’’ when the

organizations took common positions.

The summary of comments is intended

to represent the general divergence or

correspondence in commenters’ views

on various issues. It is not intended to

be an exhaustive restatement of the

comments received.

In addition, many comments on the

original notice of proposed policy were

addressed in the supplemental notice.
7698 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

Those comments are not addressed

again in this discussion.

The FAA considered all comments

received, even if they are not

specifically identified in this summary.

Discussion of Comments by Issue

1. Applicability

a. Applicability of Policy to Privately

Owned Airports

In accordance with the statutes in

effect at the time it was published, the

Proposed Policy applied only to public

agencies that had received AIP grants

for airport development. The Proposed

Policy included a specific statement that

it did not apply to privately owned

airports that had taken AIP grants while

under private ownership. The

Supplemental Notice did not modify

these provisions.

The Comments: A public interest

group concerned about reducing airport

noise and mitigating its impacts

recommended that the policy should

apply to operators of privately owned

airports.

Final Policy: The new statutory

provision added by the Reauthorization

Act of 1996, governing the restriction on

the use airport revenue, 49 U.S.C.

§ 47133, does not differentiate between

publicly or privately owned airports.

The statute applies to all airports that

have received Federal assistance. Under

the AAIA certain privately-owned

airports that are available for public use

are eligible to receive airport

development grants. As a result, any

privately owned airport that receives an

AIP grant after October 1, 1996, (the

effective date of the FAA

Reauthorization Act of 1996), is subject

to the revenue use requirements. The

applicability section of the Final Policy,

Section III, is modified to reflect the

expansion of the revenue-use

requirement to include privately-owned

airports.

b. Applicability of Policy to Publicly

and Privately Owned Airports Subject to

Federal Assistance

As a result of the same change in the

law, recipients of Federal assistance

provided after October 1, 1996, other

than AIP grants, are also subject to the

revenue-use restrictions. However, the

Reauthorization Act of 1996 did not

define Federal assistance, and the

legislative history does not provide

guidance on the meaning of this term.

In addition, it did not explicitly address

the status of airports that received

Federal assistance other than AIP

airport development grants before

October 1, 1996, and therefore were not

already bound by the revenue use

restrictions. These issues are addressed

in the Final Policy, based on the FAA’s

review of the statute, its legislative

history and relevant judicial decisions.

Applicability of the revenue-use

requirement under § 47133 depends on

the definition of the term ‘‘Federal

assistance.’’ In the absence of guidance

in the statute and legislative history, the

FAA has relied on the interpretation

given to the similar term ‘‘Federal

financial assistance’’ in Federal

regulations and court decisions. 28 CFR

part 41, ‘‘Implementation of Executive

Order 12250, Non-discrimination on the

Basis of Handicap in Federally Assisted

Programs,’’ section 41.4(e) establishes

the definition of ‘‘Federal financial

assistance’’ for all Federal agencies

implementing § 504 of the

Rehabilitation Act of 1973, 29 U.S.C.

§ 794. That definition is in turn subject

to the limitation of the Department of

Transportation v. Paralyzed Veterans,

477 U.S. 597 (1986) (Paralyzed

Veterans), which specifically addressed

the issue of whether certain facilities

and services provided by the FAA in

managing the national airspace system

constituted federal assistance. That

decision held that the provision of air

navigation services and facilities to

airlines by the FAA did not make the

commercial airline passenger service a

Federally assisted program within the

meaning of § 504.

The FAA’s interpretation of the term

‘‘Federal assistance’’ is included in

Section II of the Final Policy,

Definitions. The Final Policy’s

definition of ‘‘Federal assistance’’

adapts the generalized language of 28

CFR § 41.4(e) to the specific

circumstances of airports receiving

Federal support and reflects the holding

of the Paralyzed Veterans decision. The

definition lists as Federal Assistance the

following:

(1) Airport development and noise

mitigation grants;

(2) Transfers, under various statutory

provisions, of Federal property at no

cost to the airport sponsors; and

(3) Planning grants related to a

specific airport.

Under this definition, FAA

installation and operation of

navigational aids and FAA operation of

control towers are not considered

Federal assistance, based on the

Supreme Court decision in Paralyzed

Veterans. Similarly, the FAA does not

consider passenger facility charges

(PFCs) to be Federal assistance even

though PFCs may be collected only with

approval of the FAA.

Airport development and noise

mitigation grants are considered Federal

assistance because they apply to a

specific airport, and that airport is,

therefore, ‘‘subject to Federal

assistance’’ under the statute. Transfers

of Federal property to an airport are

considered Federal assistance because

they also apply to a specific airport.

Planning grants may apply to a specific

airport or may be more general in

nature. Under § 47133, the FAA

considers only planning grants related

to a specific airport to be Federal

assistance.

However, not all airports that are the

subject of Federal assistance are

necessarily bound to the revenue-use

assurance simply by the passage of

§ 47133. Established Federal grant law

prevents a statute from being construed

to modify unilaterally the terms of

preexisting grant agreements absent a

clear showing of legislative intent to do

so. Bennett v. New Jersey 470 U.S. 632

(1985), 84 L.Ed 2d 572, 105 S.Ct. 1555.

Neither the statutory language nor its

legislative history indicates an intent by

Congress to apply § 47133 to impose the

revenue-use requirement on airports

that were not already subject to it. By

contrast, a recent example of

Congressional intent to modify

preexisting grant agreements exists in

§ 511(a)(14) of the Airport and Airway

Improvement Act of 1982, 49 USC App.

2210(a)(14), which was recodified at 49

USC 47107(c)(2)(B). That subsection,

which was added to the AAIA in 1987,

established requirements for the

disposal of land acquired with Federal

grants that is no longer needed for

airport purposes. The statute by its

terms applied to an ‘‘airport owner or

operator [who] receives a grant before

on or after December 31, 1987’’ for the

purchase of land for airport

development purposes. This language

demonstrated a clear Congressional

intent to modify preexisting grant

agreements. The language of § 47133

and its legislative history lacks any such

express direction.

Therefore, the FAA does not interpret

§ 47133 to impose the revenue-use

requirements on an airport that was not

already subject to the revenue-use

assurance on October 1, 1996. An

airport that had accepted Surplus

Property from the Federal government,

but did not have an AIP grant in place

on October 1, 1996, would not be

subject to the revenue-use requirement

by operation of § 47133. If that airport

accepted additional Federal property or

accepted an AIP grant on or after

October 1, 1996, the airport would be

subject to the revenue-use requirement.

As discussed below, by operation of

§ 47133, the revenue-use requirement

would remain in effect as long as the

airport functioned as an airport.
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7699

For airports that were already subject

to the revenue-use requirement on

October 1, 1996, and those that become

subject to the requirement after that

date, the effect of § 47133 is to extend

the duration of the requirement

indefinitely. This application is not

explicit in the statute and reference to

the legislative history of the statute is

necessary to determine congressional

intent and the specific meaning and

application of the statutory language.

The legislative history of § 47133 makes

it clear that Congress enacted § 47133 to

extend the duration of the revenue-use

requirement for airports that are already

subject to it. In describing an earlier

version of § 47133, the Committee on

Transportation and Infrastructure of the

House of Representatives stated that the

reason for the change was because

‘‘revenue diversion burdens interstate

commerce even if the airport is no

longer receiving grants. In recognition of

this fact, the bill applies the exact same

revenue diversion prohibition to

airports that have a FAA certificate

[modified to airports that are subject to

Federal assistance in conference] as now

applied to airports that receive AIP

grants. For the most part, these will be

the same airports.’’ H.R. Rep. 104–714

(July 26, 1996) at 38, reprinted at 1996

US Code, Congressional and

Administrative News at 3675. The

report further stated that broadening the

prohibition would ‘‘make it clear that an

airport cannot escape this prohibition

[on revenue diversion] by refusing to

accept AIP grants[;]’’ remove ‘‘this

perverse incentive to refuse AIP grants

* * *[;].’’ and ‘‘once again [encourage]

all airports to use available Federal

money to increase safety, capacity, and

reduce noise.’’ Id.

Any airport that had an outstanding

AIP grant agreement in effect on October

1, 1996, was already bound to the same

revenue use assurance that is contained

in § 47133. Because § 47133 is extending

the duration of an existing obligation,

there is no conflict with the principle of

Federal grant law outlined above.

c. Relationship of Final Policy to

Airport Privatization

In the applicability and definition

section of the Proposed Policy, the FAA

stated that proceeds from the sale of the

entire airport as well as from individual

parcels of land would be considered as

airport revenue. The FAA also stated

that it did not intend ‘‘to effectively bar

airport privatization initiatives,’’ and

that the FAA would take into account

‘‘the special conditions and constraints

imposed by the fact of a change in

ownership of the airport.’’ 61 Fed. Reg.

at 7140. The FAA proposed to remain

‘‘open and flexible in specifying

conditions on the use of revenue that

will protect the public interest and

fulfill the requirements and objectives of

§ 47107(b) without unnecessarily

interfering with the appropriate

privatization of airport infrastructure.’’

Id.

Airport operators: A number of airport

operators expressed concern that the

guidance in the Proposed Policy was too

ambiguous to encourage privatization

and might discourage privatization

initiatives. One operator suggested that

the FAA should take a flexible approach

to the proceeds of a privatization

transaction when an airport’s

concession revenues are sufficient to

allow a public owner to use some sales

proceeds for nonairport purposes

without increasing fees charged to

aeronautical users and without

continuing a need for Federal subsidy.

Another airport operator suggested that

the financial terms of a transaction

would reflect the local circumstances in

which the transaction was negotiated

and recommended that the FAA account

for this fact in reviewing revenue

diversion claims.

Air carriers: ATA adamantly opposed

the sale or transfer of a public use

airport in a situation when such an

action would cause airport revenue to

be taken off the airport. ATA believes

that the FAA does not have the

flexibility or the statutory authority to

require anything less than 100%

compliance under 49 USC § 47107(b).

General aviation: The AOPA is

concerned that the policy gives the

impression that airport privatization is a

fully resolved issue. The AOPA believes

that the policy must avoid any

implication that the issue is resolved or

that the FAA endorses privatization.

Other commenters: Three public

interest organizations addressed the

issue of privatization from different

perspectives. A group concerned with

preventing and mitigating airport noise

suggests that the FAA must ensure that

adequate funds remain available to meet

current and future airport noise

mitigation needs. This group

recommended that, before approving a

transfer, the FAA should conduct a

thorough audit of the airport’s

compliance with noise compatibility

requirements, plans, and promises, and

that the FAA should assess the

adequacy of resources to address noise

compatibility problems. The FAA

should also require enforcement

mechanisms to ensure implementation

of noise compatibility and mitigation

measures as a condition of the sale or

transfer.

Two other groups supported a policy

that does not discourage airport

privatization. One of these suggested

that the FAA consider defederalization

of airports. The comments regarding

defederalization are beyond the scope of

this proceeding, because they would

require statutory changes.

Final Policy: The Final Policy adopts

the basic approach of the Proposed

Policy toward privatization, with some

language changes for clarity and

readability. In addition, the Final Policy

explicitly acknowledges the Airport

Privatization Pilot Program.

Guidance on the process for obtaining

FAA approval of the sale or lease of an

airport is contained in FAA Order

5190.6a, Airport Compliance

Requirements. The Final Policy is not

intended to modify the process in any

way. FAA approval is required for any

transfer, including those between

government entities. The Final Policy

makes clear, however, that in processing

an application for approval the FAA

will: (a) treat proceeds from the sale or

lease as airport revenue; and (b) apply

the revenue-use requirement flexibly,

taking into consideration the special

conditions and constraints imposed by

a change in ownership of the airport.

For example, as is noted in the Final

Policy, if the owner of a single airport

is selling the airport, it may be

inappropriate to require the seller to

simply return the proceeds to the

private buyer to use for operation of the

airport.

The FAA requires the transfer

document to bind the new operator to

all the terms and grant assurances in the

sponsor’s grant agreement. The FAA

retains sufficient authority and power

through its grant assurances to ensure

compliance by the new owner with all

of its obligations, including any grantbased obligations relating to mitigation

of environmental impacts of the airport;

to conduct sponsor audits and to take

other appropriate action to ensure that

the airport is self-sustaining.

The Final Policy’s approach to

privatization does not represent, as ATA

suggests, less than 100 percent

compliance with the revenue-use

requirement. The FAA agrees with the

ATA that we cannot waive that

requirement. Rather, the FAA has

committed to exercise its authority to

interpret the requirement in a flexible

way to account for the unique

circumstances presented by a change of

ownership.

The Final Policy is not an

endorsement of privatization and it does

not resolve the policy debate about

privatization. FAA will continue to

review the sale or lease of an airport on
7700 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

a case-by-case basis, including transfers

proposed under the Airport

Privatization Pilot Program, 49 U.S.C.

47134, created by § 149 of the FAA

Reauthorization Act of 1996. The

demonstration program authorizes the

FAA to exempt five airports from

Federal statutory and regulatory

requirements governing the use of

airport revenue. Under the program, the

FAA can exempt an airport sponsor

from its obligations to repay Federal

grants, to return property acquired with

Federal assistance, and to use the

proceeds of the sale or lease exclusively

for airport purposes. The latter

exemption is also subject to approval by

the air carriers serving the airport.

The FAA notes the concerns that the

revenue-use requirement may

discourage privatization. Congress

addressed this prospect by enacting the

Privatization Pilot Program, which

authorizes the FAA to grant exemptions

from sections 47107(b) and 47133 to

permit the sponsor to use sales or lease

proceeds for nonairport purposes, on

certain conditions. That exemption

would not be required unless sales or

lease proceeds were airport revenue. In

addition, the FAA will consider the

unique circumstances—financial and

otherwise—of individual transactions in

determining compliance with section

47107(b), and this should address to

some degree the commenters’ concerns

about privatization.

d. Effect of § 47133 on Return on

Investment for Private Airport Owners

or Operators That Accept Federal

Assistance

By extending the revenue-use

requirement to privately-owned

airports, § 47133 requires the FAA to

consider a new issue—the extent to

which a private owner that assumes the

revenue-use obligation may be

compensated from airport revenue for

the ownership of the airport. Section

47133 prohibits all such private airport

owners or operators from using airport

revenue for any purpose other than the

capital and operating costs of the

airport. However, the FAA does not

consider section 47133 to preclude

private owners or operators from being

paid or reimbursed reasonable

compensation for providing airport

management services. Private operators,

presently, provide airport management

services at a number of airports. In

many cases, these airports are publicly

owned and subject to the revenue-use

requirement. The private operator is

providing these services under some

form of contract with the public owner.

These services are considered part of the

operating cost of the airport owner, and

the fees can be paid from airport

revenue.

It is reasonable to equate private

operators managing publicly owned

airports with private owner/operators

managing privately owned or leased

airports. To avoid any confusion of the

issue, reasonable compensation for

management services provided by the

owner of a privately-owned airport is

identified as a permitted use of airport

revenue in the Final Policy.

Private airport owners may typically

expect a return on their capital

investment. Such investment could be

considered a capital cost of the airport.

In the case of private owners or

operators of airports who have assumed

the revenue-use obligation, that

obligation would limit the ability to use

the return on capital invested in the

airport for nonairport purposes. In

particular, the FAA expects private

owners to be subject to the same

requirements governing a self-sustaining

airport rate structure and the recovery of

unreimbursed capital contributions and

operating expenses from airport revenue

as public sponsors. Under section

47107(l)(5), private sponsors—like

public sponsors—may recover their

original investment within the six-year

statute of limitation. In addition, they

are entitled to claim interest from the

date the FAA determines that the

sponsor is entitled to reimbursement

under section 47107(p). Any other

profits generated by a privately-owned

airport subject to section 47133 (after

compensating the owner for reasonable

costs of providing management services)

must be applied to the capital and

operating costs of the airport.

This interpretation is required by

provisions of 49 U.S.C. 47134, the

airport privatization pilot program.

Section 47134 authorizes the FAA to

grant exemptions from the revenue-use

requirement to permit the private

operator to ‘‘earn compensation from

the operations of the airport.’’ This

exemption would not be necessary if

section 47133 did not restrict the

freedom of the private owner of a

Federally-assisted airport to use the

profits from the investment in the

airport for nonairport purposes. This

interpretation does not unreasonably

burden private owners, because they

receive a benefit (in the form of either

Federal property added to the airport or

Federal grant funds) in exchange for

assuming the restrictions on the use of

their profit.

e. Grandfather Provisions

The Proposed Policy included a

discussion of the grandfather provisions

of section 47107(b) in the section on

permitted uses of airport revenue. That

discussion included a list of examples

of financing obligations and statutory

provisions that had been previously

found by the Department of

Transportation to confer grandfather

status.

The Comments: Two airport operators

commented on this issue. One is an

airport operator whose status under the

grandfather provisions was under

consideration by the FAA when the

Proposed Policy was published. Its

concerns were addressed by the FAA’s

consideration of its individual situation.

The second commenter is airport

operator already established as a

grandfathered airport operator. This

commenter recommends that the Final

Policy continue to recognize the rights

of grandfathered airports.

Final Policy: The Final Policy

continues to recognize the rights of

grandfathered airport owners set forth at

title 49 U.S.C. 47107(b)(2) and 47133.

To qualify an airport for grandfathered

status, the statute requires that local

covenants, assurances or governing laws

pre-dating September 2, 1982, must

specifically pledge the use of airport

generated revenues to support not only

the airport but also the general debt

obligations or other facilities of the

owner or operator. However, the Final

Policy is modified to reflect the

requirement in the 1996 FAA

Reauthorization Act that the FAA

consider the increase in grandfathered

payments of airport revenue as a factor

militating against the award of

discretionary grants.

f. Applicability to Non-municipal

Airport Authorities

Lehigh-Northampton Airport

Authority (LNAA): LNAA asserted that

the airport revenue-use requirement

does not allow FAA to regulate airport

transactions with non-governmental

parties and does not empower FAA to

override state and local laws governing

the use of airport revenue for airport

marketing and promotional activities.

The commenter advanced a number of

arguments as to why FAA does not have

authority to restrict such transactions.

First, Congress has shaped the revenue

diversion statute to identify financial

irregularities in dealings between an

airport enterprise account and another

unit of government. The statute does not

contemplate FAA regulation of airport

financial relationships with nongovernment parties. Second, Congress

did not intend the ‘‘capital or operating

costs’’ language in the revenue diversion

statute to authorize a new Federal

regulatory scheme to narrow the types

or levels of airport expenditures beyond
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7701

what is legal under applicable state and

local law. Third, there is not a statutory

requirement for FAA to regulate airport

expenditures for community events or

charitable contributions in the absence

of facts suggesting that such

expenditures are the result of undue

influence by a governmental unit.

The LNAA currently has a case

pending before the FAA under FAR Part

13, in which certain expenditures that

LNAA characterizes as marketing and

promotional expenses are being

examined for consistency with the

revenue-use requirement. LNAA’s

assertions with respect to its own

promotional activities will be addressed

by the FAA in that proceeding. To the

extent that LNAA’s practices were

inconsistent with this Final Policy,

LNAA will have an opportunity to argue

that the Final Policy should not be

applied to its situation.

The general issues of the use of

airport revenue for marketing and

promotional expenses and charitable

donations are discussed separately

below.

The FAA is not modifying the

applicability of the Final Policy based

on LNAA’s other concerns. The

language of section 47107(b) explicitly

states that revenue generated by the

airport may only be expended for the

capital or operating costs of the airport

or local airport system; it contains no

limiting language concerning ‘‘financial

irregularities.’’ The statute further

defines expenditures for general

economic development and promotion

as unlawful use of airport revenue,

providing specific authority over

transactions that do not involve

transfers of airport revenue to other

governmental entities. See 49 U.S.C.

47107(l)(2). This provision grants

authority for regulation of expenditures

for charitable and community-use

purposes.

In addition, the Congressional

mandate to establish policies and

procedures to ‘‘assure the prompt and

effective enforcement’’ of the revenue

use and self-sustainability requirements

(49 U.S.C. 47107(l)(1)) provides

statutory authority to adopt more

detailed guidance on permitted and

prohibited uses of airport revenue.

Many airport operators have expressed

concern over the difficulty of

responding to OIG findings of unlawful

revenue use without clear and specific

FAA guidance on permitted and

prohibited practices.

Finally, the grandfathering provision

establishes Congressional intent to

prohibit certain airport revenue

practices authorized by state or local

law that do not satisfy the specific

requirements of the grandfather

provisions of the AAIA.

2. Definition of Airport Revenue

a. Proceeds From Sale of Airport

Property

The Proposed Policy included

proceeds from the sale of airport

property in the proposed definition of

airport revenue. No distinction was

made between property acquired with

airport revenue and property acquired

with other funds provided by the

sponsor. In the explanatory statement,

the FAA discussed alternatives it had

considered, including limiting the

definition to property acquired with

airport revenue. (61 FR 7138) The FAA

also stated that a sponsor would be able

to recoup any funds it contributed to

finance the acquisition of airport

property as an unreimbursed capital

contribution.

Airport operators: Airport operators

objected to defining proceeds from the

sale of airport property as airport

revenue. ACI/AAAE argued that the

definition would reduce incentives for

airport sponsors to pursue legitimate

airport endeavors. One airport operator

argued that the definition constitutes a

transfer of wealth from the taxpayers to

the airport users, and that cities would

be less willing to contribute to future

airport projects. Another individual

operator argued that the policy should

not apply to property acquired with the

sponsor’s own funds and to property

acquired with airport revenue before

1982. This airport operator further

argues that application of the policy to

property acquired before 1982 amounts

to a taking of airport property without

just compensation and without

Congressional authorization. Finally,

this operator argued that the proposed

definition appears to contradict a

portion of the FAA Compliance

Handbook, Order 5190.6A (October 2,

1989), Paragraph 7–18, that states there

is no required disposition of net

revenues from sale or disposal of land

not acquired with Federal assistance.

Air carriers: The ATA commented

that the use of airport revenue for

repayment of contributions from prior

years should be limited. According to

ATA, reimbursements should be

permitted only when the sponsor and

airport enter into a written agreement

concerning the terms of reimbursement

before the service or expenditure is

provided.

Other commenters: A public interest

organization opposed the treatment of

proceeds from the sale of airport

property as airport revenue. This

commenter argued that the sponsor, as

the principal provider of airport’s land

and capital, has a legitimate claim to

cash-out the value of its investments

and to use the proceeds for other

purposes.

The Final Policy: The Final Policy

does not modify the treatment of

proceeds from the sale, lease or other

disposal of airport property. Proceeds

from the sale lease or other disposal of

all airport property are considered

airport revenue subject to the revenueuse requirement and this policy, unless

the property was acquired with Federal

funds or donated by the Federal

government. While proceeds from

disposal of Federally-funded and

Federally-donated property are also

airport revenue, these proceeds are

subject to separate legal requirements

that are even more restrictive than the

revenue-use requirement.

As discussed in the Proposed Policy,

this definition is consistent with the

language of the original version of

section 47107(b), which applies to ‘‘all

revenues generated by the airport.’’

In addition, the Airport Privatization

Pilot Program, 49 U.S.C. 47134, permits

the FAA to grant exemptions from the

revenue-use requirements to permit a

sponsor to keep the proceeds from a sale

or lease transaction, but only to the

extent approved by 65 percent of the air

carriers. An exemption would not be

required unless the proceeds from the

sale or lease of the entire airport were

airport revenue within the meaning of

section 47107(b) and 47133. Since the

proceeds from the sale of an entire

airport are airport revenue, it follows

that the proceeds from the sale of

individual pieces of airport property are

also airport revenue.

Further, section 47107(l)(5)(A)

establishes a six-year period during

which sponsors may claim

reimbursement for their capital and

operating contributions. This limitation

on seeking reimbursement could be

avoided through the process of

disposing of airport property, if the

proceeds of sales were not themselves

considered airport revenue. Through

section 47107(l)(5)(A) Congress has

defined the rights of airport owners and

operators to recover their investments in

airport property for use for nonairport

purposes. Subject to the six-year statute

of limitations, the sponsor is entitled to

use airport revenues for reimbursement

of such contributions. Section 47107(p)

provides that a sponsor may also claim

interest if the FAA determines that a

sponsor is entitled to reimbursement,

but interest runs only from the date on

which the FAA makes the

determination. As discussed below, the

Final Policy provides flexibility to
7702 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

structure future contributions to permit

reimbursement over a longer period of

time in order to promote the financial

stability of the airport. The six-year

limitation, which is incorporated in the

Final Policy, also addresses ATA’s

request for a time limit on the airport

owner or operator’s ability to claim

recoupment for past unreimbursed

requests.

The FAA does not accept the

suggestion that the definition is an

unauthorized taking of sponsor property

without just compensation. First, as

noted, the definition is supported by the

1996 FAA Reauthorization Act, which

included an express provision for an

exemption from the revenue use

restriction for sale and lease proceeds.

Second, all airport sponsors, including

the airport commenters, voluntarily

agreed to their restrictions on the use of

airport revenue when they accepted

grants-in-aid under the AIP program.

Finally, the definition does not deprive

the commenter of its property. The

proceeds from the disposal will still

flow to the commenter sponsor to be

used for a legitimate local public

purpose—operation and development of

the commenter’s airport.

The FAA acknowledged in the

Proposed Policy that existing FAA

internal orders contain provisions on

the status of proceeds from the disposal

of airport property that are inconsistent

with this Final Policy. As stated in the

Proposed Policy, this inconsistency

does not preclude the FAA from

defining proceeds from the disposal of

airport property as airport revenue in

this Final Policy. Rather, ‘‘the Policy

takes precedence, and the orders will be

revised to reflect the policies in this

statement.’’ 61 FR 7138. In addition, the

provisions in the FAA internal orders

are in conflict with the 1996 FAA

Reauthorization Act. Because of this

statutory conflict, the FAA cannot

continue to apply them.

b. Revenue Generated by Off-airport

Property

The Proposed Policy defined as

airport revenue the revenue received for

the use of property owned and

controlled by a sponsor and used for

airport-related purposes, but not located

on the airport.

Airport operators: The ACI–NA/

AAAE and two individual airport

operators objected to this definition of

airport revenue. The ACI–NA/AAAE

stated that revenues received from offairport activities should ordinarily not

be counted as airport revenue. One

airport operator argued that this

definition is inconsistent with the

statutory definition of airport in the

AAIA. The other airport operator (the

State of Hawaii) is especially concerned

about revenue generated by off-airport

duty fee shops.

No other comments were received.

Final Policy: The Final Policy does

not modify the definition of airport

revenue as it pertains to off-airport

revenue. This definition is consistent

with FAA’s prior interpretation, which

has defined as airport revenue the

revenues received by the airport owner

or operator from remote airport parking

lots, downtown airport terminals, and

off-airport duty free shops.

After enactment of the original

revenue-use requirement, the FAA

initiated an administrative action to

require the State of Hawaii to use its

revenue from off-airport duty free sales

in a manner consistent with section

47107(b). In response, Congress

amended the revenue-use requirement

to provide a specific and limited

exemption to the State of Hawaii to

permit up to $250 million in off-airport

duty-free sales revenue to be used for

construction of highways that are part of

the Federal-Aid highway system and

that are located in the vicinity of an

airport. See, 49 U.S.C. § 47107(j). The

statutory exemption would only be

necessary if the revenue from off-airport

duty free shops is airport revenue

within the meaning of the statute.

c. Royalties From Mineral Extraction

The Proposed Policy included

royalties from mineral extraction on

airport property earned by a sponsor as

airport revenue.

Airport operators: One airport

operator objected to including revenue

from the sale of sponsor-owned mineral,

natural, or agricultural products or

water to be taken from the airport in the

definition of airport revenue. The

operator stated that the retention of

mineral rights as airport property would

represent a windfall to the airport at the

sponsor’s expense; that the Proposed

Policy is contrary to congressional

intent and that it would take, without

compensation, valuable property rights

from the sponsor. The operator also

cited a prior decision where FAA

concluded the production of natural gas

at Erie, Pennsylvania, does not serve

either the airport or any air

transportation purpose. The royalties

generated by such production were

determined to be outside the scope of

the revenue-use requirement.

Final Policy: The Final Policy retains

the proposed definition of airport

revenue to include the sale of sponsorowned mineral, natural, agricultural

products or water to be taken from the

airport. On further review of the Erie

interpretation in this proceeding, the

FAA no longer considers the analogy

drawn in that interpretation—between

mineral extraction and operation of a

convention center or water treatment

plant—to be appropriate. Rather,

mineral and water rights represent a

part of the airport property and its

value. Just as proceeds from the sale or

lease of airport property constitute

airport revenue, proceeds from the sale

or lease of a partial interest in the

property—i.e. water or mineral rights—

should also be considered airport

revenue. The FAA will not require an

airport owner or operator to reimburse

the airport for past mineral royalty

payments used for nonairport purposes

based on the Erie interpretation.

However, all airport owners and

operators will be required to treat these

payments as airport revenue

prospectively, starting on the

publication date of the Final Policy.

With respect to agricultural products,

the FAA has always treated lease

revenue from agricultural use of airport

property as airport revenue, even if that

revenue is calculated as a portion of the

revenue generated by the crops grown

on the airport property. The definition

in the Final Policy will assure that the

airport gets the full benefit of

agricultural leases of airport property,

regardless of the form of compensation

it receives for agricultural use of airport

property.

The FAA does not consider this

interpretation to create a taking of

airport owner or operator property. As

discussed in other contexts, the

limitation on the use of airport revenue

was voluntarily undertaken by the

airport operator upon receiving AIP

grants. In addition, the revenues

generated by these activities will still

flow to the sponsor for its use for a

legitimate local governmental activity,

the operation and development of its

airport.

d. Other Issues

The Final Policy includes a

discussion of the requirement of 49

U.S.C. § 40116(d)(2)(A). This provision

requires that taxes, fees or charges first

taking effect after August 23, 1994,

assessed by a governmental body

exclusively upon businesses at a

commercial service airport or upon

businesses operating as a permittee of

the airport be used for aeronautical, as

well as airport purposes. This addition

is included, at the suggestion of a

commenter, to comply with the

statutory provision, which was enacted

as section 112(d) of the 1994 FAA

Authorization Act.
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3. Permitted Uses of Airport Revenue

a. Promotion/marketing of the Airport

Congress, in the FAA Authorization

Act of 1994, permitted the use of airport

revenues for promotion of the airport by

expressly prohibiting ‘‘use of airport

revenues for general economic

development, marketing, and

promotional activities unrelated to

airports or airport systems.’’ The

Supplemental Proposed Policy cited

this law and recognized that many

airport sponsors engage in some form of

promotional effort, to encourage use of

the airport and increase the level of

service. Accordingly, the Supplemental

Notice provided that ‘‘[a]irport revenue

may be used for * * * [c]osts of

activities directed toward promoting

public and industry awareness of airport

facilities and services, and salary and

expenses of employees engaged in

efforts to promote air service at the

airport.’’ 61 FR 66470.

However, the preamble to the

Supplemental Notice stated that

promotional/marketing expenditures

directed toward regional economic

development, rather than specifically

toward promotion of the airport, would

not be considered a permitted use of

airport revenue. In addition, the FAA

proposed to prohibit the use of airport

revenue for a direct purchase of air

service or subsidy payment to air

carriers because the FAA does not

consider these payments to be capital or

operating costs of the airport.

Airport operators: In their comments

to the original proposed policy, ACI–

NA/AAAE requested that FAA establish

a ‘‘safe harbor,’’ or a maximum dollar

amount (perhaps based on a percentage

of airport costs), under which an airport

could spend airport revenue on certain

promotional and marketing activities.

Greater percentage amounts would be

allowed for the costs of airport-specific

activities, while lower amounts would

be allowed for joint efforts for

campaigns and organizations that have

broader, regional marketing missions.

Several airport operators supported

this ‘‘safe harbor’’ concept in their

comments to the docket for the original

Proposed Policy. One such commenter,

without reference to ACI/AAAE’s

remarks, suggested a cap of 5% of an

airport’s budget as a ‘‘safe harbor’’ for

marketing expenses that are not directly

related to the airport or airport system.

Furthermore, this commenter would

limit the use of airport revenue to a

maximum share of 20 percent of the

overall cost of any joint-project budget.

ACI/AAAE did not pursue the

concept of ‘‘safe harbor’’ in their

comments to the docket for the

Supplemental Policy, focusing instead

on the discretion of the airport operator

to use reasonable business judgment to

determine potential benefits to the

airport. Several airports concurred with

the ACI–NA/AAAE position, and one

airport operator added that jointmarketing expenses, if reasonable and

clearly related to aviation, should be

considered an operating cost of the

airport.

The ACI/AAAE and several

individual airport operators commented

that an airport cannot be distinguished

from the region served by the airport.

ACI/AAAE commented that the policy

should permit reasonable spending for

marketing of communities and regions

because airports are not ultimate

destinations of passengers. Therefore,

airport operators must be free to make

a reasonable attempt to increase

revenues by investing in the promotion

of their community as a destination.

Some airports specifically opposed

the ATA’s suggestion of a cap, described

below.

Air carriers: In its comments to the

Supplemental Notice, the ATA

mentioned the concept of a maximum or

‘‘cap’’ under which expenditures would

be considered reasonable, but would

apply it to efforts to promote the

services of the airport itself. The ATA

would have the policy prohibit entirely

the use of airport revenue for the

promotion of regional development,

because ‘‘expenditures by an airport to

promote local or regional economic

development—as opposed to the

services and functionality of an

airport—should not be considered

legitimate airport costs.’’ In regard to

cooperative or joint-marketing expenses,

the ATA focused on airport

participation in joint-marketing of new

airline services, suggesting that these

activities be limited to a 60-day

promotional period. ATA also warned

against abuses of cooperative marketing,

in particular programs that result in

promotion of a particular airline.

The ATA rejected the airport position

that use of airport revenue to fund

regional promotional activities is

acceptable, because airports themselves

are not destinations. They stated,

‘‘[l]ocal governments that are also

airport sponsors should not be

permitted to pass off local and regional

promotional activities in order to charge

such costs to an airport. Indeed, many

civic organizations and chambers of

commerce undertake such activities

directly, since continued economic

development directly benefits the local

businesses that constitute such

organizations.’’

The Final Policy: The FAA has

modified the provisions on permitted

uses of airport revenue in regard to

promotion and marketing in the Final

Policy. The FAA has applied the

sections 47107(b) and 47107(l) to

determine to what extent various kinds

and amounts of promotional and

marketing activities can be considered

legitimate operating costs of the airport.

The permitted uses of airport revenue

for marketing and promotion are split

into two paragraphs, V.A.2 and V.A.3.,

in the Final Policy—one addressing

costs that may be fully paid with airport

revenue, and one addressing costs that

may be shared. The issues of general

economic development, direct subsidies

of air carriers, the waiving of fees to

airport users and airport participation in

airline marketing and promotion is

further addressed in Section VI.

The Final Policy provides, under

V.A.2, that expenditures for the

promotion of an airport, promotion of

new air service and competition at the

airport, and marketing of airport

services are legitimate costs of an

airport’s operation. These expenditures

may be financed entirely with airport

revenue, and the expenditures may

include the costs of employees engaged

in the promotion of airport services. In

addition, cooperative airport-airline

advertising of air service at the airport

may be financed with airport revenue,

with or without matching funds. The

FAA is prepared to rely on airport

management to assure that the level of

expenditures for such purposes would

be reasonable in relation to the airport’s

specific financial situation. In addition,

cooperative airport-airline advertising of

air service must be conducted in

compliance with applicable grant

assurances prohibiting unjust

discrimination in providing access to

the airport.

For other advertising and promotional

activities, such as regional or

destination marketing, airport revenue

may be used to pay a share of the costs

only if the advertising or promotional

material includes a specific reference to

the airport. The share must be

reasonable, based on the benefits to the

airport of participation in the activity.

The FAA construes the prohibition on

‘‘use of airport revenues for general

economic development, marketing, and

promotional activities unrelated to

airports or airport systems’ to preclude

the reliance on airport management

judgment to support the use of airport

revenue for general destination

advertising containing no references to

the airport. Likewise, the prohibition

precludes adoption of a safe-harbor
7704 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

provision for general promotional

expenses.

Except as discussed above, the Final

Policy does not limit the amounts of

airport revenue that can be spent for all

permitted promotional marketing and

advertising activities. The FAA expects

that expenditure of airport revenues for

these purposes would be reasonable in

relation to the airport’s specific

financial situation. Disproportionately

high expenditures for these activities

may cause a review of the expenditures

on an ad hoc basis to verify that all

expenditures actually qualify as

legitimate airport costs. Examples of

permissible and prohibited

expenditures are included in the Final

Policy itself.

b. Reimbursement of Past Contributions

The Proposed Policy permitted airport

revenue to be used to reimburse a

sponsor for past unreimbursed capital or

operating costs of the airport. The

Proposed Policy did not include a limit

on how far back in time a sponsor could

go to claim reimbursement, in

accordance with the law in effect at the

time. In addition, the Preamble noted

that the FAA had not to date permitted

a sponsor to claim reimbursement for

more than the principal amount actually

contributed to the airport. The FAA

requested comment on whether the FAA

should permit recoupment of interest or

an inflationary adjustment or whether,

in the case of contributed land,

recoupment should be based on current

land values.

Airport operators: ACI–NA/AAAE

and a number of individual airport

operators supported recoupment of

interest or inflation adjustment on

previous contributions or subsidies to

the airport.

Air carriers: The ATA objected to the

Proposed Policy and commented that

recoupment should be subject to a

number of requirements to prevent

abuses.

The Final Policy: After the proposed

policy was issued, Congress enacted

legislation to limit the use of airport

revenue for reimbursement of past

contributions, and to limit claims for

interest on past contributions. 49 U.S.C.

§§ 47107(l)(5), 47107(p). The Final

Policy incorporates these statutory

provisions. Based on Congressional

intent evidenced by the legislative

history of these provisions, airport

revenue may be used to reimburse a

sponsor only for contributions or

expenditures for a claim made after

October 1, 1996, when the claim is

made within six years of the

contribution or expenditure. In

addition, a sponsor may claim interest

only from the date the FAA determines

that the sponsor is entitled to

reimbursement, pursuant to section

47107(p). The FAA interprets these

statutory provisions to apply to

contributions or expenditures made

before October 1, 1996, so long as the

claim is made after that date.

If an airport is unable to generate

sufficient funds to repay the airport

owner or operator within six years, the

Final Policy permits repayment over a

longer period, with interest, if the

contribution is structured and

documented as an interest bearing loan

to the airport when it is made. The

interest rate charged to the airport

should not exceed a rate that the

sponsor received for other investments

at the time of the contribution.

c. Donations of Airport Revenue to

Charitable/Community Service

Organizations

The Supplemental Proposed Policy

addressed the use of airport property for

public recreational purposes, and

addressed the use of airport funds to

support community activities and for

participation in community events. The

FAA proposed that the use of airport

revenue for such donations would not

be considered a cost of operating the

airport, unless the expenditure is

directly related to the operation of the

airport. For example, expenditures to

support participation in the airport’s

federally approved disadvantaged

business enterprise program would be

considered permissible as supporting a

use directly related to the operation of

the airport. In contrast, expenditures to

support a sponsor’s participation in a

community parade would not be

considered to be directly related to the

operation of the airport.

Airport operators: ACI–NA/AAAE

contended that the expenditure of

airport revenue for community or

charitable purposes is appropriate and

should be recognized as legitimate.

Airports, regardless of their size, type,

and certification or lack thereof, are

important members of their local

communities and, therefore, must be

able to maintain their prominent, highly

visible roles in their respective

communities. Airports are regarded by

their communities as local business

enterprises and, consequently, are

expected to contribute to local nonprofit charitable concerns in the same

manner as other local business

enterprises.

Individual airport operators generally

supported the position of ACI–NA/

AAAE, although some individual

operators acknowledged that some

limitation on the expenditures may be

appropriate. One suggested a de

minimis standard; another proposed a

‘‘safe harbor’’ based on a percentage of

the airport’s total budget. Another urged

that airport owners/operators be

allowed leeway to make contributions of

airport funds, in reasonable amounts

and consistent with the local

circumstances, and to use airport

property for charitable purposes on the

same basis.

Other airport operators commented

that the Final Policy should give

comparable treatment to the use of

airport funds and airport property for

community goodwill by recognizing the

limited use of airport revenue to support

charitable and community organizations

as a legitimate operating cost of the

airport.

Air carriers: Air carriers did not

comment specifically on charitable

contributions, although they

commented extensively on the use of

airport property for community or

charitable purposes. Generally the air

carriers suggested that use of airport

property should be subject to strict

conditions to avoid abuse.

Other commenters: An advocacy

group in support of a particular airport

commented that, in order for an airport

to be as self-sustaining as possible, the

use of each income dollar is critical, and

that federally assisted airports must be

fully responsive to the citizens of the

community by providing information on

the use of airport funds.

Final Policy: The Final Policy

generally follows the approach of the

Supplemental Notice. Airport funds

may be used to support community

activities, or community organizations,

if the expenditures are directly and

substantially related to the operation of

the airport. In addition, the policy

provides explicitly that where the

amount of the contribution is minimal,

the airport operator may consider the

‘‘directly and substantially related to air

transportation’’ standard to be met if the

contribution has the intangible benefit

of enhancing the airport’s acceptance in

local communities impacted by the

airport.

Expenditures that are directly and

substantially related to the operation of

the airport qualify inherently as

operating costs of the airport. The FAA

recognizes that contributions for

community or charitable purposes can

provide a direct benefit to the airport

through enhanced community

acceptance, but that benefit is intangible

and not quantifiable. Where the amount

of the contribution is minimal, the value

of the benefit will not be questioned as

long as there is a reasonable connection

between the recipient organization and
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7705

the benefit of community acceptance for

the airport.

However, if there is no clear

relationship between the charitable or

community expenditure and airport

operations, the use of airport revenue

may be an expenditure for the benefit of

the community, rather than an operating

cost of the airport. The different

treatment of the use of airport funds

(direct payments to charitable and

community organizations) and the use

of airport property (less than FMV

leases for charitable or community

purposes) is grounded in the applicable

laws: the revenue-use requirement

(section 47107(b)), which governs the

use of airport funds, provides far less

flexibility than the requirement for a

self-sustaining rate structure (section

47107(a)(13)), which applies to the use

of airport property.

Examples of permitted and prohibited

expenditures are included in the Final

Policy.

d. Use of Airport Revenue to Fund Mass

Transit Airport Access Projects

The Supplemental Proposed Policy

addressed in Part VII.C., the

circumstances in which an airport

sponsor could provide airport property

at less than fair market value to a transit

operator. The Supplemental Proposed

Policy did not address the use of airport

revenue to finance the construction of

transit facilities. That issue, however,

was raised in the comments.

Airport Operators: Two airport

operators supported the use of airport

revenue for the construction of transit

facilities. One commenter stated that an

airport should be permitted to use

airport revenues and assets to provide

mass transit service to on-airport

commercial uses. Another commenter

referred to the AIP Handbook, FAA

Order 5100.38A § 555, which provides

AIP project eligibility for rapid transit

facilities.

Air carriers: Air carriers did not

specifically discuss the use of airport

revenue to finance transit facilities.

However, as discussed below, they

objected to providing airport property

for transit facilities at nominal lease

rates.

Other Commenters: Two commenters

representing transit operator interests

supported the expenditure of airport

revenues to finance transit facilities. A

transit operator stated that in order to

create a better balance between transit

and highway interests, transit facilities

should be totally eligible expenses, paid

for in the same manner as other road

and parking enhancements. A transit

trade association urged the FAA to take

appropriate actions to ensure that

passenger fees and other airport

revenues are widely eligible to fund a

range of airport surface transportation

modes, including public transportation.

The FAA also received extensive

comments on providing airport property

for use by transit providers at less than

FMV rents. These comments are

addressed separately below.

Final Policy: The Final Policy has

been modified to provide guidance on

the use of airport revenues to finance

airport ground access projects. The

Final Policy states that airport revenue

may be used for the capital or operating

costs of such a project if it can be

considered an airport capital project, or

is part of a facility owned or operated

by the airport sponsor and directly and

substantially related to air

transportation of passengers or property,

relying directly on the statutory

language of § 47107(b).

As an example, the Final Policy

summarizes the FAA’s decision on the

use of airport revenue to finance

construction of the rail link between

San Francisco International Airport and

the Bay Area Rapid Transit (BART) rail

system extension running past the

airport. In that decision, the FAA

approved the use of airport revenues to

pay for the actual costs incurred for

structures and equipment associated

with an airport terminal building station

and a connector between the airport

station and the BART line. The

structures and equipment were located

entirely on airport property, and were

designed and intended exclusively for

use of airport passengers. The BART

extension was intended for the

exclusive use of people travelling to or

from the airport and included design

features to discourage use by through

passengers. Based on these

considerations, the FAA determined

that the possibility of incidental use by

nonairport passengers did not preclude

airport revenues from being used to

finance 100 percent of the otherwise

eligible cost items. For purposes of this

analysis, the FAA considered ‘‘airport

passengers’’ to include airport visitors

and employees working at the airport.

4. Accounting Issues

a. Principles for Allocation of Indirect

Costs

Based on the comments to the

Proposed Policy, the FAA addressed the

principles of indirect cost allocation in

its Supplemental Notice. The

Supplemental Notice made clear that

the allocation of indirect costs is

allowable under 49 USC § 47107(b), and

that no particular method of cost

allocation will be required, including

OMB Circular A–87. To ensure,

however, that indirect costs are limited

to allowable capital and operating costs,

the FAA proposed to apply certain

general principles and prohibitions to

the allocation of costs. The

Supplemental Notice did not limit

significantly the development of local

cost allocation methodologies, or

interfere with the application of

Generally Accepted Accounting

Principles (GAAP) and other accounting

industry recognized standards.

In the Supplemental Notice, the FAA

stated that it would expect that a

Federally approved cost allocation plan

that complied with OMB Circular A–87

or other Federal guidance and was

consistent with GAAP would be

reasonable and transparent, and would

generally meet the requirements of

section 47107(b). However, the use of a

Federally approved cost allocation plan

does not rule out the possibility that a

particular cost item allowable under

that guidance would be in violation of

the airport revenue retention

requirement if allocated to the airport.

The Supplemental Notice also

required specifically that indirect cost

allocations be applied consistently

across departments to the sponsoring

government agency, and not unfairly

burden the airport account. The general

sponsor cost allocation plan could not

result in an over-allocation to an

enterprise fund. In addition, the sponsor

would have to charge comparable users,

such as enterprise accounts, for indirect

costs on a comparable basis.

Lastly, the Supplemental Notice

proposed to prohibit the allocation of

general costs of the sponsoring

government to the airport. However, this

prohibition would not affect direct or

indirect billing for actual services

provided to the airport by local

government.

Airport Operators: Generally, airport

operators agreed with the proposal to

acknowledge that the allocation of

indirect costs as allowable under 49

USC § 47107(b), and to provide that no

particular allocation methodology,

including OMB Circular A–87, be

required.

One airport operator requested the

FAA to further clarify that it is not

imposing on airport sponsors all of the

specific elements of OMB CircularA–87.

The operator was concerned that the

statement in the Supplemental Notice

that the FAA ‘‘believe[s] the specific

principles identified by the OIG are an

appropriate construction of the revenue

retention requirement’’ may lead to

confusion over whether adherence to

OMB Circular A–87 is mandatory for
7706 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

allocating costs to be paid by airport

revenue.

Several airport operators were

concerned that the FAA would not

accept the allocation of costs in

accordance with a Federally-approved

cost allocation plan, but could review

the plan to ensure that allocation of

specific cost items meet the special

revenue retention requirements. For

example, one airport operator

commented that the FAA’s approach

would impose on airport sponsors

burdens and requirements in excess of

the detailed requirements of OMBCircular A–87, which are designed to

ensure a reasonable and consistent cost

allocation system. The airport proprietor

proposed that such compliance with a

federally-approved cost allocation plan

be considered sufficient to satisfy the

revenue retention requirement.

Another airport operator proposed

that the FAA revise the policy to clarify

that a specific cost, as opposed to a type

of cost, cannot be treated as both a

direct and an indirect cost. The airport

operator offered as an example a cityowned and operated airport at which

some police services are provided by

officers assigned exclusively to the

airport and other services are provided

by general duty police officers. The

commenter suggested that it should be

permissible to charge the airport for the

officers assigned exclusively to the

airport as a direct cost and to charge for

the general duty officers as an indirect

cost allocation.

Additionally, this commenter

proposed revising the policy to clarify

that costs that are chargeable to one city

department on a direct basis may be

charged to other city departments on an

indirect basis. The airport operator

offered an example in which police are

exclusively assigned to a city-owned

airport, but are not exclusively assigned

to other city departments. The

commenter argued that it would be

reasonable to charge the airport for

police services as a direct cost, and to

charge the other departments as an

indirect cost allocation.

Several airport operators were also

concerned that the supplemental policy

implied that a local cost allocation plan

must provide that all users for a service

be billed equally. For example, ACI-NA

and AAAE suggested that the

requirement for consistent application

should be interpreted to require the

local government to go through the

exercise of assessing indirect costs

against all governmental departments,

including those wholly funded by that

governmental entity. Likewise, an

airport operator requested that the FAA

clarify that the supplemental policy

does not mean that an airport sponsor

must actually bill all of its General Fund

agencies for certain municipal costs in

order to be able to charge such costs to

its airports. All of those airport

proprietors that expressed concern over

this proposed policy generally

commented that this issue was

considered and rejected by the

Department of Transportation in the

Second Los Angeles International

Airport Rates Proceeding, Docket OST–

95–474. According to the airport

proprietors, the DOT recognized that in

many cases sponsor agency operations

are paid from a common General Fund.

Under those circumstances, it is

illogical and unnecessary for one

General Fund agency to bill another

General Fund agency for municipal

services.

One airport operator proposed that

the word ‘‘equally’’ be removed from

VII.B.4 of the proposed policy. The

commenter urged that the FAA allow

airport sponsors the flexibility to

allocate costs to various users on a

reasonable, equitable basis relative to

the benefits received, even though

specific users may sometimes be treated

differently. Returning to its example of

police services, the commenter

suggested that if the sponsor chooses

not to charge a housing authority for

costs of a special police unit assigned to

that authority, it should be of no

concern to the FAA as long as those

costs are not then charged to the airport.

Another airport operator argued that

each of its proprietary departments are

unique and governed by different City

Charter provisions; that they make

different uses of city services; and have

different financial arrangements with

the sponsor’s general fund. This

commenter argued that treating the

departments the same for cost allocation

purposes because the departments are

enterprise funds would, therefore, serve

no valid purpose.

Several airport operators disagreed

with FAA’s proposed policy to prohibit

the indirect cost allocation of general

costs of government. Several

commenters stated that the proposed

policy would reverse longstanding

practice at many airports and could be

inconsistent with federally-approved

cost allocation plans, which provide for

the allocation of a share of indirect costs

of various local government functions.

One airport operator argued that there is

no statutory basis for prohibiting the

allocation of general costs of

government, other than costs for

particular identified services.

Finally, one airport operator

commented that the proposed policy

does not sufficiently clarify the

appropriate allocations for fire and

police stations that do not serve the

airport exclusively. The airport operator

proposed that policy explicitly permit a

sponsor to allocate costs based on the

intended purpose and value of the

station to the airport, not its actual use.

The airport operator argues that a more

flexible approach could better

implement the applicable statutory

provision that prohibits ‘‘direct

payments or indirect payments, other

than payments reflecting the value of

services and facilities provided to the

airport.’’

Airlines: ATA supports the proposed

policy clarification that no particular

cost allocation methodology for indirect

costs is preferred.

The Final Policy: The Final Policy

reflects a different and simplified

approach to indirect cost allocation that

is intended to facilitate development of

permissible cost allocation plans and

the review of those plans in the single

audit process. The Final Policy specifies

that the cost allocation plans must be

consistent with Attachment A of OMB

Circular A–87. Attachment A sets forth

general principles for developing cost

allocation plans. Those principles are

essentially a restatement of the

principles proposed in the

Supplemental Policy. By referring to

Attachment A, the Final Policy

establishes a standard that is well

understood by airport cost accountants

and by airport operators’ independent

auditors. The Final Policy does not

require compliance with the other

attachments to OMB Circular A–87,

which include more rigid requirements

and defines categories of grant recipient

costs that are eligible and ineligible for

reimbursement with Federal grant

funds.

The Final Policy continues to specify

that the costs allocated must themselves

be eligible for expenditure of airport

revenue under section 47107(b).

Attachment A to OMB Circular A–87

provides principles for cost allocation

methodologies. The cost items that may

be charged to airport revenue are

determined by the requirements of

section 47107(b). Therefore, sponsors,

and the FAA, cannot rely solely on

compliance with OMB Circular A–87 to

assure that the costs items charged to

the airport in a Federally approved cost

allocation plan are consistent with

section 47107(b).

The Final Policy continues to specify

that the airport must not be charged

directly and indirectly for the same

costs. The FAA is not persuaded that

the example of police services offered

by an airport sponsor requires a

modification of this requirement. This
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7707

provision is not intended to preclude

both the direct and indirect billing in

the situation cited by the commenter—

where police services are provided to

the airport on both an exclusive-use and

a shared-use basis. In the cited example,

it would be preferable to bill for police

exclusively assigned to the Airport on a

direct cost basis. It would be impossible,

however, to bill for the shared-use

police without engaging in some form of

indirect cost allocation. The FAA did

not intend the supplemental policy to

preclude treatment of police services as

both direct and indirect costs in these

circumstances, only to preclude double

billing on both a direct and indirect

basis, for the same police costs.

Similarly, with respect to the second

example of police services where the

airport receives exclusive-use police

services and other sponsor departments

receive shared-use police services, the

FAA did not intend the Supplemental

Notice to preclude disparate billing

methodologies. Inherent in Attachment

A is that comparable units of a

sponsoring government making

comparable uses of the sponsor’s

services should have costs allocated and

billed in a comparable fashion. The

clarification noted above should address

this situation as well. In the second

example sited, the FAA would consider

the sponsor departments receiving

shared-use police services not to be

comparable to the airport receiving

exclusive use police services.

The Final Policy also provides that

the allocation plan must not burden the

airport with a disproportionate share of

allocated costs, and requires that all

comparable units of the airport owner or

operator be billed for indirect costs

billed to the airport. The FAA is

unwilling to accept the suggestion that

comparable users of a service may

sometimes be treated differently for

billing purposes, so long as the costs

attributed to one unit of government are

not then charged to the airport. The

FAA believes that such practices would

result in an unfair burden being placed

upon the airport simply because of the

airport’s ability to pay.

This provision, however, is not

intended to require a sponsor’s General

Fund activities to bill other General

Fund activities for indirect costs that are

properly allocable to those activities, if

the airport is billed. The policy is clear

that comparable billing for services is

required only for comparable users.

Enterprise funds need not be treated

as comparable to units of a sponsoring

government financed from the sponsor’s

general fund, and comparable billing

between enterprise funds and other

units of government is not required.

While the FAA may presume that

enterprise funds are comparable to each

other, an airport sponsor is free to

demonstrate that particular enterprise

funds are sufficiently different in

material ways—such as the way they

consume sponsor services or their

overall financial relationships with the

sponsor—to justify different practices in

charging for indirect costs. The Final

Policy does not further define

comparability because decisions on

comparability will depend on the

specific circumstances of a sponsor. The

Final Policy also explicitly permits the

allocation of general costs of

government and central services costs to

the airport, if the cost allocation plans

meets the Final Policy’s requirements.

As specified in the Final Policy,

however, the allocation of these costs to

the airport may require special scrutiny

to assure that the airport is not being

burdened with a disproportionate share

of the allocated costs.

In addition, the FAA continues to

recognize that use of airport revenue to

pay some expenses not normally

considered to be allowable pursuant to

OMB Circular A–87, such as fire and

police services, is consistent with the

revenue retention requirement. If such

costs are allocated as an indirect cost in

accordance with the Final Policy, they

will be considered by the FAA as

acceptable charges.

The Final Policy is modified to permit

the allocation of certain categories of a

sponsor’s general cost of government as

an indirect charge to the airport. Such

charges include indirect expenses of the

Office of Governor of a State, State

legislatures, offices of mayors, county

supervisors, city councils, etc. An

airport owner’s or operator’s central

service costs may also be allocated to

the airport. The Final Policy specifies

that allocation of these categories of

costs to the airport may require special

scrutiny to assure that the airport is not

being burdened with a disproportionate

share of the costs.

The FAA proposed to prohibit the

allocation of all general costs to the

airport on the grounds that the payment

of such costs with airport revenue

would be inconsistent with the purpose

of the revenue use restriction—to avoid

subsidy of general sponsor

governmental activity. It is clear from

the comments that airports routinely

pay for a share of the general costs the

legislative and executive branches of the

governmental unit of which the airport

is a part under cost allocation plans

prepared in accordance with GAAP.

Further, the comments demonstrate that

the payment of legislative and executive

branch costs by airport revenue can be

justified as a cost of the airport because

the legislative and executive branches

have direct, tangible oversight and

control responsibilities for the airport,

and their activities provide direct

benefits to the airport, such as in the

areas of funding, capital development,

and marketing.

In addition, under the Final Policy,

the costs of shared-use facilities must be

allocated to all users of the facility, even

if the original purpose of constructing

the facility was to provide exclusive use

or benefit to the airport. While a

sponsor-owned facility may have

originally been established for the

benefit of the airport, the FAA believes

that the purpose of the facility can

change from time to time based on local

circumstances and that allocation of

costs should be based on current

purpose, as well as use. The FAA may

consider a number of factors in

determining current purpose, including

current use, design and functionality.

b. Standard of Documentation for the

Reimbursement of Cost of Services and

Contributions to Government Entities

In its administration of airport

agreements, the FAA is not normally

concerned with the internal

management or accounting procedures

used by airport owners. As a matter of

policy and procedure, the FAA has

consistently required that

reimbursement of capital and operating

costs of an airport made by a

government entity must be clearly

supportable and documented.

Neither the Proposed Policy nor the

Supplemental Notice explicitly

discussed a standard of documentation

that must be achieved for a sponsor to

claim reimbursement for services and/or

contributions it provided to the airport.

However, events subsequent to the

issuance of both documents indicate a

need for FAA to provide specific

guidance on the standard of

documentation that will support the

expenditure of airport revenues.

In the examination of a possible

diversion of airport revenue by the City

of Los Angeles at Los Angeles

International, Ontario, Van Nuys and

Palmdale Airports (FAA Docket No. 16–

01–96), the FAA reviewed the

underlying documentation which the

City of Los Angeles offered to support

the payment of approximately $31

million in airport revenue to the Los

Angeles’ general fund as the

reimbursement of sponsor contributions

and services provided to the airport. In

the Director’s Determination dated

March 17, 1997, the FAA stated its

standard of documentation to justify

such reimbursements. Accordingly, the
7708 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

FAA is including that standard in the

Final Policy.

The Final Policy requires that

reimbursements for capital and

operating costs of the airport made by a

government entity, both direct and

indirect, be supported by adequate

documentary evidence. Adequate

documentation consists of underlying

accounting records and corroborating

evidence, such as invoices, vouchers

and cost allocation plans, to support all

payments of airport revenues to other

government entities. If this underlying

accounting data is not available, the

Final Policy allows reimbursement to a

government entity based on audited

financial statements, if such statements

clearly identify the expenses as having

been incurred for airport purposes

consistent with the Final Policy

statement. In addition, the Final Policy

provides that budget estimates are not a

sufficient basis for reimbursement of

government entities. Budget estimates

are just that—estimates of projected

expenditures, not records of actual

expenditures. Therefore, budget

estimates cannot be relied on as

documentary evidence to show that the

funds claimed for reimbursement were

actually expended for the benefit of the

airport.

Indirect cost allocation plans,

however, may use budget estimates to

establish pre-determined indirect cost

allocation rates. Such estimated rates

must, however, be adjusted to actual

expenses in the subsequent accounting

period.

5. Prohibited Uses of Airport Revenue

a. Impact Fees/Contingency Fees

The Proposed Policy prohibited the

payment of impact fees assessed by a

nonsponsoring governmental body that

the airport sponsor is not obligated to

pay or that exceed such fees assessed

against commercial or other

governmental entities. The

Supplemental Notice did not modify

this provision. The term ‘‘impact fees’’

was not defined in the Proposed Policy.

Airport operators: One Florida airport

sponsor stated that impact fees should

be allowable to either a sponsoring or

non-sponsoring governmental body.

Another commented that the language

referring to a ‘‘non-sponsoring’’

governmental body was vague and

confusing. Within the state of Florida,

impact fees are typically administered

by a non-sponsoring government body.

It was stated that the wording did not

seem to prohibit impact fee payments

when assessed by a ‘‘sponsoring’’

agency, or impact fees that an airport

sponsor is obligated to pay.

The Final Policy: For clarity, the Final

Policy is modified to delete the

reference to ‘‘non-sponsoring’’

governmental body and to delete the

reference to fees the sponsor is not

obligated to pay. In addition, the FAA

is adding a statement that in appropriate

circumstances, airport revenue may be

used to reimburse a governmental body

for expenditures that the imposing

government will incur as a result of onairport development, based on actual

expenses incurred.

The effect of the deletions is to

broaden the prohibition to all impact

fees, within the meaning of the term

used in the policy statement. As such,

the deletions are consistent with the

statutory prohibition on payment of

airport revenues that do not reflect the

value of services or facilities actually

provided to the airport. Until a

governmental unit undertakes the

activity for which the impact fee is

intended to compensate, it is impossible

to know with certainty whether the

impact fee is an accurate reflection of

the cost of the activity attributable to the

airport or its value to the airport, or

even that the activity will occur. This

situation is true regardless of both the

status of the governmental unit as

airport sponsor and the status of the fee

as discretionary. The FAA understands

that many local laws or regulations

authorizing impact fees do not require

the fees to be spent to mitigate or

accommodate the results of the airport

action that triggers the fee. The FAA has

no basis for assuring the payment of

impact fees would be consistent with

the purpose of section 47107(b)—to

prevent an airport sponsor who received

Federal assistance from using airport

revenues for expenditures unrelated to

the airports.

The broader prohibition is consistent

with applicable FAA policies.

Longstanding FAA policy has permitted

a sponsor to claim reimbursement from

airport revenue only for ‘‘clearly

supportable and documented charges,

* * * supported by documented

evidence.’’ FAA Order 5190.6A, par. 4–

20.a(2)(c)(ii). An impact fee assessed

before the imposing government

incurred any expenses to accommodate

airport growth would not meet this

standard.

In addition, a standard of

documentation required by the Final

Policy applies to all expenditures of

airport revenues subject to section

47107(b), including impact fee

payments. That standard requires that

expenditures of airport revenues be

supported by data on the actual costs

incurred for the benefit of the airport,

not by budget or other estimates, which

impact fees essentially are. The Final

Policy will allow submission of those

assessed fees resulting from the

proposed development when the

amount of the fees become fully

quantifiable, as provided for in Section

IV of the Final Policy, following

implementation by the imposing

government of the mitigation measures

for which the impact fee is assessed. At

that time, the FAA can best determine

whether the fees assessed against airport

revenue satisfy the requirements of

section 47107(b) and this policy. In

unusual circumstances, the FAA may

permit a prepayment of estimated

impact fees at the commencement of a

mitigation project, if the funds are

necessary to permit the mitigation

project to go forward, so long as there

is a reconciliation process that assures

the airport is reimbursed for any

overpayments, based on actual project

costs, plus interest.

However, the Final Policy does take

into account the potential that an airport

operator may be required by state or

local law to finance the costs of

mitigating the impact of certain airport

development projects undertaken by the

airport sponsor. Therefore, where

airport development causes a

government agency to take an action,

such as constructing a new highway

interchange in the vicinity of the

airport, airport revenues may be used

equal to the prorated share of the cost.

In all cases, the action must be shown

to be necessitated by the airport

development. In the case of

infrastructure projects, such impact

mitigation must also be located in the

vicinity of the airport. This proximity

requirement is not being applied to all

mitigation measures because some

mitigation measures—especially certain

environmental mitigation measures—

may not occur in the vicinity of the

airport.

The Final Policy also acknowledges

the possibility that an airport operator

may be bound by local or state law to

use airport revenue to pay an impact fee

that is prohibited by this policy. The

Final Policy states that the FAA will

consider any such local circumstances

in determining appropriate corrective

action.

b. Subsidy of Air Carriers

As discussed in Section V ‘‘Permitted

Uses,’’ the Supplemental Notice

acknowledged the fact that Congress, in

the 1994 FAA Authorization Act,

effectively authorized the use of airport

revenue for promotion of the airport by

expressly prohibiting ‘‘use of airport

revenues for general economic

development, marketing, and
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7709

promotional activities unrelated to

airports or airport systems.’’ At the same

time, that statutory provision also

limited the scope of acceptable

promotional activity.

In the Supplemental Notice, the FAA

proposed new policy language that more

clearly addressed the kinds of

promotional and marketing activities

that are and are not legitimate operating

costs of the airport under 47107(b). In

the Supplemental Notice, Section

VIII(I), the FAA proposed that ‘‘[d]irect

subsidy of air carrier operations’’ is a

prohibited use of airport revenue

because it is not considered a cost of

operating the airport. The FAA drew a

distinction between methods of

encouraging new service. Supplemental

Notice proposed to allow the use of

airport revenue to encourage passengers

to use the airport through promotional

activities, including cooperative

promotional activities with airlines and

to allow airport operators to enhance the

viability of new service through fee

incentives, on the one hand. As noted,

the FAA proposed to prohibit the use of

airport revenue to simply buy increased

use of the airport by paying an air

carrier to operate aircraft, on the other.

The FAA considered the former

activities to be a permitted expenditure

for the promotion and marketing of the

airport and the latter to be a prohibited

expenditure for general economic

development. The FAA explained in the

preamble to the Supplemental Notice

that neither promotional activities nor

promotional fee discounts would be

considered a prohibited direct subsidy

of airline operations. 61 FR at 66738.

Airport operators: In their comments

on the Supplemental Notice, ACI–NA/

AAAE state that, generally, an

expenditure or activity should not be

considered revenue diversion if there is

a reasonable expectation that such an

expenditure or activity will benefit the

airport. Furthermore, they note that the

law does not single out direct air carrier

subsidy or fee waivers for more

stringent scrutiny than other marketing

activities. This argument in favor of the

reasonable business judgement of the

airport management should be applied

to the use of airport revenue for

promotion and marketing not unrelated

to the airport, including direct air

carrier subsidies and fee waivers. ACI/

AAAE stated ‘‘both forms of financial

assistance should be permitted, if an

airport has a reasonable expectation that

the subsidy will benefit the airport and

the subsidy or discount is made

available on a non-discriminatory

basis.’’

ACI/AAAE further stated that there is

no real distinction between direct

subsidy and fee waivers, as well as none

between direct subsidy and the residual

airport costing methodologies, making

the distinction in the policy illogical.

They predicted that the proposed policy

is likely to promote detrimental effects,

including eliminating air service to

some small airports, increasing

congestion at dominant hubs at the

expense of medium-sized airports,

reducing potential competition and

raising fares.

Several individual airport operators

concurred with the ACI–NA/AAAE

position. One operator commented that

any subsidies should be permitted, as

long as the airport remains selfsustaining and the subsidies are not

included in airline costs in calculating

landing fees, terminal rents and other

user charges.

Another airport operator, the LNAA,

which is engaged as a party in a 14 CFR

Part 13 investigation regarding its

former air carrier subsidy program,

commented that there is no real

difference between an airport making a

direct subsidy to an air carrier or

waiving fees.

Two airport operators expressed

different views. One operator agreed

that airport revenues should not be used

to subsidize new air carrier service

because the practice of subsidization

could lead to destructive competition

for air service among airports. Another

airport operator stated that it ‘‘does not

currently engage in nor does it

contemplate any form of direct subsidy

to air carriers in exchange for air

service.’’ This operator considers the

Supplemental Notice to provide

adequate flexibility to airport operators

to foster and promote air service

development.

Air carriers: The ATA strongly

opposed the assertion that direct

subsidies of airline operations with

airport revenue may be considered to be

operating costs of the airport and would

extend the prohibition to indirect

subsidies. They argued that the

distinction in the proposed policy that

allows fee waivers under certain

circumstances, but prohibits direct

subsidy is illogical. Both result in

revenue diversion, whether the

beneficiary is ‘‘a start up carrier, a new

entrant in a market, or an existing

carrier at an airport.’’ The ATA further

commented, in connection with joint

marketing endeavors, that the

permissible ‘‘promotional period’’

should be defined, as should the scope

of permissible marketing activities.

The Final Policy: The FAA has

clarified the policy provision on the

direct subsidy of air carriers with airport

revenue; however, the prohibition

remains, as does the distinction between

direct subsidy and the waiving of fees

and the joint promotion of new service.

The FAA has applied the test of section

47107(b) to determine to what extent

various kinds and amounts of

promotional and marketing activities

can be considered legitimate operating

costs of the airport.

In pursuit of uniformity, the FAA has

integrated references to the section on

the permitted uses of airport revenue, as

well as to the section on selfsustainability, to assist airport operators

in pursuing reasonable strategies to

promote the airport and provide

incentives to encourage new air service.

Among other things, marketing of air

service to the airport, and expenditures

to promote the airport to potential air

service providers can be treated as

operating costs of the airport. Of course,

support for marketing of air service to

the airport must be provided

consistently with grant assurances

prohibiting unjust discrimination.

The setting of fees is a recognized

management task, based on a number of

considerations, including the airport

management’s assessment of the

services needed by airport consumers,

and the airport management’s

assessment of the financial

arrangements necessary to secure that

service. The FAA has consistently

maintained that fee waivers or discounts

involving no expenditure of airport

funds raise issues of compliance with

the self-sustaining rate structure

requirement, not the revenue-use

requirement. The Final Policy therefore,

permits fee waivers and discounts

during a promotional period. The

waiver or discount must be offered to all

users that are willing to provide the type

and level of new service that qualifies

for the promotional period. The Policy

limits the fee waiver or discount to

promotional periods because of the

requirement that the airport maintain a

self-sustaining airport rate structure. In

addition, indefinite fee waivers or

discounts could raise questions of

compliance with grant assurances

prohibiting unjust discrimination. The

Final Policy does not define a permitted

promotional period. There is too much

variation in the circumstances of

individual airports throughout the

country to permit adoption of a single

national definition of a suitable

promotional period.

In contrast, the direct payment of

subsidies to airline involves the

expenditure of airport funds and hence

raises questions under the revenue-use

requirements. The FAA continues to

believe that the costs of operating

aircraft, or payments to air carriers to
7710 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

operate certain flights, are not

reasonably considered an operating cost

of an airport. In addition, payment of

subsidy for air service can be viewed as

general regional economic development

and promotion, rather than airport

promotion. Use of airport revenue for

these purposes is expressly prohibited

under the terms of the 1994 FAA

Authorization Act. The Final Policy

does not preclude a sponsor from using

funds other than airport revenue to pay

airline subsidies for new service, and it

does not preclude other community

organizations— such as chambers of

commerce or regional economic

development agencies—from funding a

program to support new air service.

Therefore, the Final Policy maintains

the distinction between direct subsidy

of air carriers and the waiving of fees,

and prohibits the former.

6. Policies Regarding the Requirement

for a Self-Sustaining Rate Structure

As noted in the summary, the Final

Policy contains a separate section on the

requirement that an airport maintain a

rate structure that makes the airport as

self-sustaining as possible under the

circumstances at the airport, to provide

more comprehensive guidance in a

single document. The 1994 FAA

Authorization Act directed the FAA to

adopt policies and procedures to assure

compliance with both the revenue uses

and self-sustaining airport rate structure

requirement. The general guidance

repeats the guidance appearing in the

Department of Transportation Policy

Statement Regarding Airport Rates and

Charges, 61 FR 31994 (June 21, 1996).

The Final Policy interprets the basic

requirement and addresses exceptions

to the basic rule for leases of airport

property at nominal or less-than fair

market value (FMV) to specific

categories of users.

Each federally assisted airport owner/

operator is required by statute and grant

assurance to have an airport fee and

rental structure that will make the

airport as self-sustaining as possible

under the particular airport

circumstances, in order to minimize the

airport’s reliance on Federal funds and

local tax revenues. The FAA has

generally interpreted the self-sustaining

assurance to require airport sponsors to

charge FMV commercial rates for

nonaeronautical uses of airport

property. However, in the case of

aeronautical uses, user charges are also

subject to the standard of

reasonableness. In applying the two

standards together for aeronautical

property, the FAA has considered it

acceptable for an airport operator to

charge fees to aeronautical users that are

less than FMV, but more than nominal

charges. The FAA defines ‘‘aeronautical

use’’ as any activity which involves,

makes possible, or is required for the

operation of aircraft, or which

contributes to or is required for the

safety of such operations. Policy

Statement Regarding Airport Fees,

Statement of Applicability, 61 FR at

32017.

Many entities lease airport property

for aeronautical and nonaeronautical

uses at nominal lease rates. The FAA

has determined that nominal leases to

many of these entities is consistent with

the requirement to maintain a selfsustaining airport rate structure. The

Final Policy provides specific guidance

regarding nominal leases for six

categories of users. This guidance is

discussed below.

a. Use of Property at Less Than FMV for

Community/Charitable/Recreational Use

Airport operators: The ACI–NA/

AAAE agree with the general conclusion

that use of airport property for

community and charitable purposes at

less than FMV should be permissible.

However, they argued that the criteria

listed in the Supplemental Notice are

too narrow. Other criteria should be

considered, and an airport should be

required to provide no more than one

justification. The ACI–NA/AAAE

specifically mentioned aeronautical

higher education institutions and notfor-profit air and space museums as

additional permitted uses, based on H.R.

Rep. 104–714, 104th Cong. 2nd Sess. at

39 (1996) reprinted in 1996 USCC.A.N.

3676.

Individual airport operators also

requested more flexibility in various

forms. One operator suggested that the

Supplemental Notice establishes an

unnecessary two-part test which many

community uses of airport property will

fail to satisfy. Another operator argued

that such airport property use should

not be limited to temporary

arrangements, e.g., parks and baseball

fields, which indicates that only uses

that allow property to be returned rather

quickly to the airport inventory would

be permitted.

In contrast, another airport operator

suggested that, in order to place less

burden on the airport operator, such

uses should be limited in scope and that

the below-market value amount that an

airport operator could charge for such

usage should be established as some

percentage of the appraised value of the

property.

Air carriers: The ATA agrees in

principle with the concept of limited

use of airport property for certain

specified community purposes at less

than FMV. However, ATA stated that

the Supplemental Notice lacks

specificity and that its application

would consequently be inconsistent

with the self-sustaining and revenue-use

requirements. The ATA proposed to

narrow the first element of the standard

to permit contribution of property if the

property is put to a general public use

desired by the local community and the

use does not adversely affect the

capacity, safety or operations of the

airport. The ATA would narrow the

second test by permitting the use of

property that is expected to generate no

more than minimal revenue, which the

ATA would define as minimal revenue

equal to or less than 20 percent of

revenue that could be earned by similar

airport property in commercial or air

carrier use. When the property could be

expected to earn more than this defined

minimal amount, the ATA would

permit less than FMV rental if the

revenue earned by the community use

approximates the revenue that would

otherwise be generated.

The ATA would also require that the

community use be subject to periodic

review and renewed justification and

that the airport proprietor retain

absolute discretion to reclaim the

property for airport use.

Other commenters: A member of the

United States House of Representatives

expressed concern that the policy, if

adopted as proposed, does not provide

sufficient flexibility to airport operators

to be good neighbors within their

community. This commenter suggested

that in rural areas, requiring community

organizations to pay FMV could reduce

airport revenue as paying community

organizations are forced off of the

airport by higher rents and no new

tenants are found.

Final Policy: The Final Policy

generally permits below-FMV-rental of

airport property for community uses,

but generally limits the uses to property

that is not potentially capable of

producing substantial income and not

needed for aeronautical use. Consistent

with the suggestions of the ATA, the

permitted community uses of such

property will be limited to those that are

compatible with the safe and efficient

operation of the airport and which are

for general local use. In addition, the

community use should not preclude

reuse of the property for airport

purposes, if the airport operator

determines that such reuse will provide

greater benefits to the airport than the

continued community use. Leases to

private, non-profit organizations

generally will be required to be at

market rates unless the sponsor can

demonstrate a ‘‘community goodwill’’
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7711

purpose to the lease, or can demonstrate

a benefit to aviation and the airport, as

discussed below.

While the Final Policy states that

property provided for community use at

no charge should be expected to

produce no more than minimal revenue,

we are not adopting a definition of

minimal. For property that is capable of

generating more than minimal revenue,

a sponsor could charge less than FMV

rental rates for community use, if the

revenue earned from the community use

approximates that revenue that could

otherwise be generated. Providing such

property for community use at no

charge would not be appropriate.

The FAA has determined that this

approach to community use strikes an

appropriate balance between the needs

of the airport to be a good neighbor and

the Federal requirements on the use of

airport revenue and property. This

formulation provides substantial

flexibility to airport operators. At the

same time, the self-sustaining

requirement and the policy goal of the

revenue-use requirement justify some

limitation on local discretion in this

area.

The requirement that community use

not preclude reversion to airport use is

based on both the self-sustaining

requirement and the airport sponsor’s

basic AIP obligation to operate a grantobligated airport as an airport.

Under the Final Policy, the lease of

airport property to a unit of the

sponsoring government for

nonaeronautical use at less than fair

market value is considered a prohibited

revenue diversion unless one of the

specific exceptions permitting belowmarket rental rates applies. If a

sponsor’s use of airport property

qualifies as community use, and the

other requirements for community-use

leases are satisfied, the FAA would not

object to a lease at less than fair market

value. Qualified uses could include park

or recreational uses or other public

service functions. However, such use

would be subject to special scrutiny to

ensure that the requirements for belowFMV community use is satisfied. The

community use provision of the Final

Policy does not apply to airport

property used by a department or

subsidiary agency of the sponsoring

government seeking an alternative site

for the sponsor’s general governmental

purposes at less-than-commercial value.

For example, a city cannot claim the

community use exception for a nominal

value lease of airport property for a

municipal vehicle maintenance garage.

Such usage, while beneficial to the

taxpaying citizens of the sponsoring

government, would be difficult to justify

as benefiting the airport by improving

the airport’s acceptance in the

community.

b. Not for Profit Aviation Museums

The DOT OIG has cited instances in

which an aviation museum at a

federally assisted airport is leasing

airport property at less than a fair

market rental rate. In clarifying the

revenue diversion prohibitions

recommended for inclusion in the FAA

Authorization Act of 1996, the House

Transportation and Infrastructure

Committee urged the FAA to take a

flexible approach to the lease of airport

property at below-market rates to notfor-profit air and space museums

located on airport property. H.R. Rep.

No. 104–714, 104th Cong. 2nd Sess. at

39 (1996) reprinted in 1996

U.S.C.C.A.N. 3676 (House Report). The

Committee recommended that this type

of rental arrangement should not be

considered revenue diversion because of

the contribution that such museums

make to the understanding and support

of aviation.

One airport operator commented that

long-term, less-than-market value rental

arrangements, particularly for

leaseholds encompassing permanent

facilities, should be permitted when

such arrangements serve a clear and

valuable aviation-related purpose. This

comment could include aviation

museums.

One operator of a not-for-profit

aviation museum urged the FAA to

permit nominal rate leases. This

operator stated that a FMV-based lease

for its museum property would double

its current operating budget.

The Final Policy: The Final Policy

permits airport operators to charge

reduced rental rates and fees, including

nominal rates, to not-for-profit aviation

museums, to the extent that the

reduction is reasonably justified by the

tangible and intangible benefits to the

airport or civil aviation. This provision

recognizes the potential for aviation

museums to provide benefits to the

airport by stimulating understanding

and support of aviation, consistent with

the suggestion contained in the House

Report, U.S.C.C.A.N. 3676. Benefits to

the airport may include any in-kind

services provided to the airport and

airport users by the aviation museum.

The limitation to not-for profit museums

is consistent with the requirement for a

self-sustaining airport rate structure,

because there is no reason to give forprofit aviation museums preferential

treatment over other commercial

aeronautical activities. All for-profit

aeronautical activities provide some

benefit to the airport, by making it more

attractive for potential airport users. If

this benefit were a sufficient reason to

permit reduced rental rates to

commercial aviation businesses on a

routine basis, the requirement for a selfsustaining airport rate structure would

be virtually unenforceable.

The Final Policy permits but does not

require below-market rental rates,

including nominal rates. The airport

operator is free to treat a qualified

aviation museum as it would any other

aeronautical activity in setting rental

rates and other fees to be paid by the

museum.

c. Aeronautical Higher Education

Programs

The DOT OIG has cited instances in

which aeronautical secondary and postsecondary education programs at

federally assisted airports are leasing

airport property at less than a fair

market rental rate.

In the House Report, 1996

U.S.C.C.A.N. 3676, the House

Transportation and Infrastructure

Committee also urged the FAA to take

a flexible approach to aeronautical

higher education programs located on

airports. The Committee recognized that

some federally obligated airports have

leased property to non-profit, accredited

collegiate aviation programs, and that

facilitating these programs will help

build a base of support for airport

operations by giving students, who will

be the future users of the national

airspace system, easy access to aviation

facilities.

The Final Policy: The Final Policy

permits reduced rental rates, including

nominal rates, to not-for-profit

aeronautical secondary and postsecondary education programs

conducted by accredited educational

institutions, to the extent that the

reduction is justified by tangible or

intangible benefits to the airport or to

civil aviation. This treatment is justified

for the same reason that reduced rental

rates and fees to certain aviation

museums are permitted. Again, the

benefits may include in-kind services

provided to the airport and airport

users. As with aviation museums, the

educational institution and education

program must be not-for-profit. Forprofit aviation education, such as flighttraining, is a standard commercial

aeronautical activity at many airports.

Permitting reduced rental rates and fees

to for-profit aviation education

programs would seriously undermine

compliance with the self-sustaining

requirement and could raise questions

of compliance with the grant assurances

prohibiting unjust discrimination.
7712 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

The Final Policy permits but does not

require below-market rental rates,

including nominal rates. The airport

operator is free to treat a qualified notfor-profit aeronautical education

program as it would any other

aeronautical activity in setting rental

rates and other fees to be paid by the

education program.

d. Civil Air Patrol Leases

Reduced-rental leases, including

nominal leases, to the Civil Air Patrol/

United States Air Force Auxiliary (CAP)

at a number of airports have also been

criticized in OIG audits. As a result of

this criticism, some airport operators

have been seeking higher rents from the

CAP when leases have come up for

renewal.

In its comments, the CAP contends

that the current standard airport

industry practice of permitting CAP use

of airport property for a nominal rent

confers substantial benefits to the

airport and, in general, to the aviation

community. The CAP, therefore,

requests that a policy be adopted which

would formally permit CAP units to

continue to occupy facilities on

federally obligated airports at a nominal

rent, whether under formal lease

arrangements, or otherwise, at the

discretion of the airport owner/operator.

The Final Policy: The Final Policy

permits reduced rental rates and fees to

CAP units operating at the airport, in

recognition of the benefits to the airport

and benefits to aviation similar to those

provided by not-for-profit aviation

museums and aeronautical secondary

education programs. As with other notfor profit-aviation entities, the reduction

must be reasonably justified by benefits

to the airport or to civil aviation. In-kind

services to the airport and airport users

may be considered in determining the

benefits that the CAP unit provides. In

addition, this treatment of the CAP,

which has been conferred with the

status of an auxiliary to the United

States Air Force, is not identical to the

treatment provided to military units in

the Final Policy, as discussed below, but

is consistent with that treatment.

The reduced rental rates and fees are

available only to those CAP units

operating aircraft at the airport. For CAP

units without aircraft, a presence at the

airport is not critical. The airport

operator can accommodate those CAP

units with property that is not subject to

Federal requirements on maintaining a

self-sustaining rate structure, without

compromising the effectiveness of the

CAP units. Of course, if such units

provide in-kind services that benefit the

airport, the value of those services may

be recognized as an offset to FMV rates.

The Final Policy permits but does not

require nominal rental rates. The airport

operator is free to treat a qualified notfor-profit aeronautical CAP lease as it

would any other aeronautical activity in

setting rental rates and other fees to be

paid by the education program.

e. Police/Firefighting Units Operating

Aircraft at the Airport

Many airports host police or firefighting units operating aircraft (often

helicopters). The OIG has frequently

criticized reduced rate or no-cost leases

to these units of government as

inconsistent with the self-sustaining and

revenue-use requirements.

The Final Policy requires the airport

operator to charge reasonable rental

rates and fees to these units of

government. In effect, these units of

government must be treated the same as

other aeronautical tenants of the airport.

This treatment is consistent with the

policy’s general approach toward

dealings between units of government—

fees should be set at the level that

would be produced by arm’s-length

bargaining. The treatment is also

justified because police and fire-fighting

aircraft units provide benefits to the

community as a whole, and not

necessarily to the airport. However, as

with other police and fire-fighting units

located at an airport, the policy does

allow rental payments to be offset to

reflect the value of services actually

provided to the airport by the police and

fire-fighting aircraft units.

f. Use of Property by Military Units

The US Air Force Reserve and the Air

National Guard both have numerous

flying units located on federally

obligated, public-use airports. The

majority of these aircraft-operating units

are located on leased property at

civilian airports established on former

military airport land transferred by the

US Government to the airport owner/

operator under the Surplus Property Act

of 1944, as amended, or under other

statutes authorizing the conveyance of

surplus Federal property for use as a

public airport. Frequently, the favorable

lease terms were contemplated in

connection with the transfer of the

former military property and may have

been incorporated in property

conveyance documents as obligations of

the civilian airport sponsor. As with

other reduced-rate leases, these

arrangements have been criticized in

individual OIG audits.

The Final Policy: The Final Policy

provides that leasing of airport property

at nominal lease rates to military units

with aeronautical missions is not

inconsistent with the requirement for a

self-sustaining rate structure. The

Department of Defense (DOD) has a

substantial investment in facilities and

infrastructure at these locations, and its

operating budgets are based on the

existence of these leases. Moving those

facilities upon expiration of a lease or

the payment of FMV rent for facilities to

support military aeronautical activities

required for national defense and public

safety would be beyond the capability of

the DOD without additional legislation

and enlargement of the DOD operating

budget. In all of the enactments on the

self-sustaining rate structure

requirement and use of airport revenue

and the accompanying legislative

history, the FAA can find no indication

that Congress intended the airport

revenue requirements to be applied in a

way to disrupt the United States’

defense capabilities or add significantly

to the cost of maintaining those

capabilities. Moreover, Congress

specifically charged the FAA, in 49

U.S.C. § 47103, with developing a

national plan of integrated airport

systems (NPIAS) to meet, among other

things, the country’s national defense

needs. Inclusion in the NPIAS is a

prerequisite for eligibility for AIP

funding. Thus, Congress clearly

contemplated a military presence at

civil airports. Therefore, the FAA will

not construe the requirement for a selfsustaining airport rate structure to

prohibit nominal leases to military units

operating aircraft at an airport.

The Final Policy permits but does not

require nominal rental rates. The airport

operator is free to treat a qualified

military unit as it would any other

aeronautical activity in setting rental

rates and other fees to be paid by the

military unit.

7. Lease of Airport Property at Less

Than FMV for Mass Transit Access to

Airports

The Supplemental Notice proposed

that airport property could be made

available at less than fair rental value for

public transit terminals, rights-of-way,

and related facilities, without being

considered in violation of the

requirements governing airport finances,

under certain conditions. The transit

system would have to be publicly

owned and operated (or privately

operated by contract on behalf of the

public owner) and the transit facilities

directly related to the transportation of

air passengers and airport visitors and

employees to and from the airport.

Twenty-one responses addressed this

issue.

Airport commenters: The airport

operators concur with the principle of

making airport land available for mass
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7713

transit at rates below fair market value.

ACI–NA/AAAE stated that the

determination to use airport property for

a transit terminal, transit right-of-way,

or related facilities at less than fair

rental value is consistent with the grant

assurance requiring airports to be selfsustaining.

Air carriers: The ATA asserted that

FAA has exceeded its statutory

authority in the proposal. ATA’s

considers transit facilities to be like

commercial business enterprises,

because they occupy airport property

and charge their customers for their

services. ATA also stressed that airport

transit facilities are non-aeronautical

facilities which are not ‘‘directly and

substantially related to the air

transportation of passengers or

property.’’

Other commenters: Transit operators,

including a transit operator trade

association generally supported the

position in the Supplemental Notice.

Another commenter stated that

making airport property available at less

than fair market rental value or making

airport revenue available for transit

facilities equates to the airport paying a

hidden taxation. This commenter

argued that it was not the intention of

Congress, when it passed the AAIA, to

have grant funds used to subsidize,

either directly or indirectly, any activity

that provides no benefit to air travel.

The Final Policy: The Final Policy

incorporates the provision proposed in

the Supplemental Notice, with a

technical correction to include transit

facilities use for the transportation of

property to or from the airport. The FAA

does not consider public transit

terminals to be the equivalent of

commercial business enterprises.

Rather, they are more like public and

airport roadways providing ground

access to the airport. Generally

speaking, the FAA does not construe the

self-sustaining assurance to require an

airport owner or operator to charge for

roadways and roadway rights-of-way at

FMV.

Moreover, even though publiclyowned transit systems charge

passengers for their services, they

generally operate at a loss and are

subsidized by general taxpayer revenue.

Charging fair market value for on airport

facilities would thus burden general

taxpayers with the costs of providing

facilities used exclusively by transit

passengers visiting the airport.

Therefore, a requirement to charge FMV

would not further the purpose of the

self-sustaining assurance—to avoid

burdening local taxpayers with the cost

of operating the airport system.

a. Private Transit

ACI–NA/AAAE and four airport

operators commented that private

transit operators should have treatment

equal to public transit operators. They

argued that the concepts of publicprivate partnerships, and privatization

of transportation facilities, may be

realities in the not-too-distant future.

Moreover, private ownership would not

detract in the least from the functions

identified in the Notice for these

facilities, such as bringing passengers to

and from the airport. They also noted

that the language in the AIP Handbook

(Order 5100.38A, Section 6) does not

specifically exclude private operators.

The language states transit facilities will

be allowable provided they will

primarily serve the airport.

One state Department of

Transportation also urged that reduced

rental rates should be offered to

privately-owned and operated transit

systems on the same basis as publiclyowned systems.

Final Policy. The Final Policy retains

some distinctions between privately and

publicly owned systems. In general,

privately-owned systems are more

analogous to other ground

transportation providers—private taxis

and limousine services, rental car

companies—and even private parking

lot operators. These entities are

commercial enterprises that operate for

profit and are a significant source of

revenue for the airport. Most

importantly, they are not supported by

general taxpayer funds, and charging

FMV would not raise questions of

burdening local taxpayers with the cost

of the airport.

However, the FAA is aware that, in

many communities with no publiclyowned bus systems or very limited

systems, privately-owned bus systems

fulfill the role of providing public

transit services to the airport.

Accordingly, the FAA is revising the

Final Policy to permit an airport

operator to provide airport property at

less than FMV rates to privately-owned

systems in these limited circumstances.

b. Airport Passengers

Nine airport commenters addressed

the proposed requirement that transit

facilities be directly related to the

transportation of air passengers and

airport visitors and employees to and

from the airport to qualify for less-thanFMV rentals. The commenters argue

that the provision is too narrow by

restricting the transit service to airpassengers and airport visitors and

employees. One airport operator states

that airport sponsors must have the

flexibility to build airport transit

systems that principally serve airport

passengers, employees and other users

but which may also secondarily

transport some nonairport users. Two

airport operators with general-use rail

transit systems planned or operating on

or near their airports argue that the

airport benefits from improved ground

access, reduced traffic congestion and

improved air quality of general use

systems and that rent-free property

should, therefore, be provided to general

use systems.

Final Policy: The Final Policy

incorporates the language of the

Supplemental Notice. That language

does not preclude any use of transit

facilities constructed on airport property

by nonairport passengers if the property

is to be leased at less-than-FMV. The

requirement that the facilities be

‘‘directly related’’ to the airport does not

equate to a requirement that the

facilities be ‘‘exclusively used’’ for

airport purposes. However, if the

intended use of a facility is not

exclusive airport use, some rental

charge may be necessary to reflect the

benefits provided to the general public.

The determination on whether the

facilities are ‘‘directly related’’ will be

made on a case-by-case basis.

It appears that some of the concern

about this issue was generated by the

language in the preamble, which

referred to transit facilities ‘‘necessary

for the transportation of air passengers,

airport visitors and airport employees to

and from the airport.’’ The preamble

offered a maintenance/repair facility as

an example of facilities that would not

qualify. The FAA is not convinced that

the benefits to the airport of having such

facilities on the airport is sufficient to

justify less-than-FMV rental rates.

However, as noted, the FAA does not

construe the policy language ‘‘facilities

directly related the transportation of

[airport passengers]’’ to require that the

facilities be used exclusively by airport

passengers.

8. Military Base Conversions Issues

In its comments to the Proposed

Policy, one airport operator argued that

using airport revenue to assist in

development of revenue-generating

properties on former military bases that

are converted to civil airports should

not be considered a prohibited use of

revenue.

In addition, ACI–NA/AAAE state that

a base closure and conversion to civilian

use often results in the existence of

significant recreational facilities on

property owned by an airport. In regard

to these facilities on converted military

bases, ACI/AAAE stated, ‘‘[a] leasing
7714 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

arrangement whereby a municipality

assumes all liability and operating

expenses in exchange for a no-revenue

lease is beneficial to the airport and

should not be prohibited.’’

Final Policy: The Final Policy

provides for no special treatment of

converted military bases with respect to

airport revenue use, and no special

provisions are included in the final

policy.

The FAA policy on the use of public

and recreational use of property will be

consistently applied to airports whether

or not they are former military bases.

Ordinarily, airport revenue may not be

used to finance the costs of public and

recreational facilities at the airport, just

as airport revenue may not be used to

develop other facilities not needed for

the airport, even if those facilities will

generate revenue for the airport. In

addition, unless the recreational

facilities qualify under the communityuse exception, the airport operator

would be expected to receive FMVbased rental payments for the

recreational or public property.

Operational costs borne by a

municipality as a result of a base

conversion can be considered in the

analysis of whether a reduced rent is

justified by tangible or intangible

benefits to the airport.

9. Enforcement Policy, Whether to

Impose Civil Penalty Even if Funds are

Returned

The Proposed Policy provided that if

the FAA received information that

improper use of airport revenue had

occurred, the FAA would investigate the

matter and attempt to resolve the issue

informally. The matter could be

resolved if the sponsor persuaded the

FAA that the use of airport revenue was

not improper, or if the sponsor took

corrective action (which usually would

involve crediting the diverted amount to

the airport account with interest). The

proposed policy provided that the FAA

would propose enforcement action only

if the FAA made a preliminary finding

of noncompliance and the sponsor had

failed to take corrective action. The

Proposed Policy outlined the

enforcement actions available to the

FAA as of the date of publication. The

actions included: (1) withholding of

new AIP grants and payments under

existing grants (49 USC §§ 47111(e) and

(d), respectively); (2) withholding of

new authority to impose PFCs (49 USC

47111(e)); (3) withholding of all Federal

transportation funds appropriated in

Fiscal Years 1994 and 1995 (as provided

in the Department of Transportation

appropriation legislation for those

years); (4) assessment of civil penalties

not to exceed $50,000 (49 USC § 46301);

and (5) initiation of a civil action to

compel compliance with the grant

assurances (49 USC § 47111(f)).

The Proposed Policy outlined the

administrative procedural rules

applicable to airport compliance matters

at the time of publication, 14 C.F.R.,

Part 13 ‘‘Investigation and Enforcement

Procedures.’’

Airport operators: ACI–NA and AAAE

strongly urged the FAA to provide in

the final policy that remittance of any

diverted amounts, together with

associated interest, should be sufficient

to ‘‘cure’’ instances of revenue

diversion, regardless of how those

instances come to the attention of the

FAA. In particular, a non-airport party

should not be given the capacity,

through the filing of a formal compliant,

to eliminate an airport’s ability to cure

the problem.

Air carriers: ATA suggested that the

proposed policy should be

strengthened, backed up by a stronger

enforcement policy and aggressive

monitoring and vigorous enforcement

action. ATA additionally argued that

FAA should promulgate one rule that

sets forth in detail the substantive

requirements regarding revenue

retention and diversion and a separate

compliance and enforcement policy

document.

ATA objected that the proposed

policy continues to provide a passive

monitoring procedure and this approach

is not sufficient to provide prompt and

efficient enforcement. IATA objected

that the Proposed Policy does not

promote prompt or effective

enforcement.

ATA suggested that the FAA establish

a formal compliance monitoring and

inspection program that includes

compliance monitoring and audits/

inspections similar to those it conducts

at certificated airlines, such as for drug

and alcohol testing. Further, ATA stated

that FAA’s enforcement policy should

result in civil penalties being assessed

with the same vigor with which they are

assessed against airlines for alleged

regulatory violations. In addition, ATA

urged that FAA should maintain the

threat of assessing civil penalties for

each day an airport or sponsor is in

violation of the revenue-use

requirement and for each day a sponsor

fails to repay amounts determined to

have been diverted unlawfully. IATA

similarly supported assessment of the

maximum civil penalty for each

instance of unlawful revenue use.

The Final Policy: After publication of

the Proposed Policy, the FAA

Reauthorization Act of 1996 mandated

new remedies for improper use of

airport revenues and new compliance

monitoring programs. The Final Policy

has been modified to reflect the new

requirements. Implementation of the

requirements will result in more active

and systematic monitoring of airport

revenue use and more systematic

resolution of questionable airport

practices, as requested by the ATA and

the IATA. It should be noted that the

FAA had already assumed a more active

role in monitoring through the

implementation of the financial

reporting requirements of the 1994 FAA

Authorization Act.

In accordance with the requirements

of the 1996 FAA Reauthorization Act,

the Final Policy reflects the clear

congressional intent that the FAA focus

compliance efforts on the lawful use of

airport revenue. The FAA will use all

means at its disposal to monitor and

enforce the revenue-use requirements

and will take appropriate action when a

potential violation is brought to the

FAA’s attention by any means. To detect

whether airport revenue has been

diverted from an airport, the FAA will

use four primary sources of information:

(1) the annual airport financial reports

submitted by the sponsor; (2) findings

from a single audit conducted in

accordance with OMB Circular A–133

(including the audit review and opinion

required by the 1996 Reauthorization

Act); (3) investigation following a thirdparty complaint, and, (4) DOT Office of

Inspector General audits.

The FAA will seek penalties for the

diversion of airport funds if the airport

sponsor is not willing to correct the

diversion and make restitution, with

interest, in a timely manner. This

approach is consistent with the FAA’s

objective of achieving compliance with

a sponsor’s obligations. Moreover, it is

consistent with section 805 of the 1996

Reauthorization Act, which provides for

imposition of administrative and civil

penalties only after a sponsor has been

given an opportunity to take corrective

action and failed to do so.

10. Form of Policy

As is reflected in the Proposed Policy

and Supplemental Notice, the FAA

proposed to implement section 112 of

the 1994 Act by publishing a policy

statement, rather than adopting a

regulation.

The Comments: The ATA argued that

the FAA should promulgate a regulation

establishing substantive requirements

for use of airport revenue and a separate

enforcement policy. The ATA argued

that a substantive regulation will

provide more clarity on prohibited and

permitted practices and be less
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7715

susceptible to conflicts over

interpretation.

The AOPA also raised concerns over

the prompt and effective enforcement of

airport revenue diversion within the

terms of this Proposed Policy.

The Final Policy: The FAA will

publish policy guidance on airport

revenue use and enforcement as a policy

rather than as a regulation. 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,

which clearly contemplates the issuance

of a policy statement for this purpose.

As discussed in connection with

specific issues, the wide variation in

airport situations makes it impractical

for the FAA to promulgate standards

with the specificity and inflexibility

urged by ATA. Moreover, 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

§ 47107(b)(2), or directly under § 47133,

and rulemaking is not required to

implement those statutes.

On the issue raised by ATA and

AOPA concerning the prompt and

effective enforcement mechanism to

address specific revenue diversion

issues, the FAA had been using 14 CFR

Part 13. However, on December 16,

1996, 14 CFR Part 16, Rules of Practice

for Federally Assisted Airport

Proceedings, took effect. Part 16

established new investigation and

enforcement procedures for airport

compliance matters, including

compliance with the revenue-use

requirement. Part 16 includes time

deadlines and processes to assure that

FAA promptly and effectively

investigates and adjudicates specific

airport compliance matters involving

Federally Assisted Airports. The FAA

considers the procedural requirements

of the Reauthorization Act of 1996 to be

self-executing and will apply the

statutory provisions in the case of any

conflict with Part 16. However, the FAA

is in the process of revising Part 16 to

incorporate those new procedural

requirements.

Paperwork Reduction Act

Requirements

The Office of Management and Budget

(OMB) has previously approved,

pursuant to the Paperwork Reduction

Act, the annual airport financial reports

described in Section VIII.A of the Final

Policy under OMB Number 2120–0569.

Policy Statement

For the reasons discussed above, the

Federal Aviation Administration adopts

the following statement of policy

concerning the use of airport revenue:

Policies and Procedures Concerning the

Use of Airport Revenue

Table of Contents

Section I—Introduction

Section II—Definitions

A. Federal Financial Assistance

B. Airport Revenue

C. Unlawful Revenue Diversion

D. Airport Sponsor

Section III—Applicability of the Policy

A. Policy and Procedures on the Use of

Airport Revenue and State or Local

Taxes on Aviation Fuel

B. Policies and Procedures on the

Requirement for a Self-Sustaining

Airport Rate Structure

C. Application of the Policy to Airport

Privatization

Section IV—Statutory Requirements for the

Use of Airport Revenue

A. General Requirements, 49 USC

§§ 47107(b) and 47133

B. Exception for Certain Preexisting

Arrangements (Grandfather Provisions)

C. Application of 49 USC § 47133

D. Specific Statutory Requirements for the

Use of Airport Revenue

E. Passenger Facility Charges and Revenue

Diversion

Section V—Permitted Uses of Airport

Revenue

A. Permitted Uses of Airport Revenue

B. Allocation of Indirect Costs

C. Standard of Documentation for the

Reimbursement to Government Entities

of Costs of Services and Contributions

Provided to Airports

D. Expenditures of Airport Revenue by

Grandfathered Airports

Section VI—Prohibited Uses of Airport

Revenue

A. Lawful and Unlawful Revenue

Diversion

B. Prohibited Uses of Airport Revenue

Section VII—Policies Regarding Requirement

for a Self-Sustaining Airport Rate

Structure

A. Statutory Requirements

B. General Policies Governing the SelfSustaining Rate Structure Assurance

C. Policy on Charges for Nonaeronautical

Facilities and Services

D. Providing Property for Public

Community Purposes

E. Use of Property by Not-for-Profit

Aviation Organizations

F. Use of Property by Military Units

G. Use of Property for Transit Projects

H. Private Transit Systems

Section VIII—Reporting and Audit

Requirements

A. Annual Financial Reports

B. Single Audit Review and Opinion

Section IX—Monitoring and Compliance

A. Detection of Airport Revenue Diversion

B. Investigation of Revenue Diversion

Initiated Without Formal Complaint

C. Investigation of Revenue Diversion

Precipitated by Formal Complaint

D. The Administrative Enforcement

Process

E. Sanctions for Noncompliance

F. Compliance with Reporting and Audit

Requirements

Section I.—Introduction

The Federal Aviation Administration

(FAA) issues this document to fulfill the

statutory provisions in section 112 of

the Federal Aviation Administration

Authorization Act of 1994, Pub.L. No.

103–305, 108 Stat. 1569 (August 23,

1994), 49 USC 47107(l), and Federal

Aviation Administration

Reauthorization Act of 1996, Public Law

104–264, 110 Stat. 3213 (October 9,

1996), to establish policies and

procedures on the generation and use of

airport revenue. The sponsor assurance

prohibiting the unlawful diversion of

airport revenues, also known as the

revenue-use requirement, was first

mandated by Congress in 1982. Simply

stated, the purpose of that assurance,

now codified at 49 USC §§ 47107(b) and

47133, is to provide that an airport

owner or operator receiving Federal

financial assistance will use airport

revenues only for purposes related to

the airport. The Policy Statement

implements requirements adopted by

Congress in the FAA Reauthorization

Acts of 1994 and 1996, and takes into

consideration comments received on the

interim policy statements issued on

February 26, 1996, and December 18,

1996.

Section II—Definitions

A. Federal Financial Assistance

Title 49 USC § 47133, which took

effect on October 1, 1996, applies the

airport revenue-use requirements of

§ 47107(b) to any airport that has

received ‘‘Federal assistance.’’ The FAA

considers the term ‘‘Federal assistance’’

in § 47133 to apply to the following

Federal actions:

1. Airport development grants issued

under the Airport Improvement Program

and predecessor Federal grant programs;

2. Airport planning grants that relate

to a specific airport;

3. Airport noise mitigation grants

received by an airport operator;

4. The transfer of Federal property

under the Surplus Property Act, now

codified at 49 USC § 47151 et seq.; and

5. Deeds of conveyance issued under

Section 16 of the Federal Airport Act of

1946, under Section 23 of the Airport

and Airway Improvement Act of 1970,

or under Section 516 of the Airport and

Airway Improvement Act of 1982

(AAIA).
7716 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

B. Airport Revenue

1. All fees, charges, rents, or other

payments received by or accruing to the

sponsor for any one of the following

reasons are considered to be airport

revenue:

a. Revenue from air carriers, tenants,

lessees, purchasers of airport properties,

airport permittees making use of airport

property and services, and other parties.

Airport revenue includes all revenue

received by the sponsor for the activities

of others or the transfer of rights to

others relating to the airport, including

revenue received:

i. For the right to conduct an activity

on the airport or to use or occupy

airport property;

ii. For the sale, transfer, or disposition

of airport real property (as specified in

the applicability section of this policy

statement) not acquired with Federal

assistance or personal airport property

not acquired with Federal assistance, or

any interest in that property, including

transfer through a condemnation

proceeding;

iii. For the sale of (or sale or lease of

rights in) sponsor-owned mineral,

natural, or agricultural products or

water to be taken from the airport; or

iv. For the right to conduct an activity

on, or for the use or disposition of, real

or personal property or any interest

therein owned or controlled by the

sponsor and used for an airport-related

purpose but not located on the airport

(e.g., a downtown duty-free shop).

b. Revenue from sponsor activities on

the airport. Airport revenue generally

includes all revenue received by the

sponsor for activities conducted by the

sponsor itself as airport owner and

operator, including revenue received:

i. From any activity conducted by the

sponsor on airport property acquired

with Federal assistance;

ii. From any aeronautical activity

conducted by the sponsor which is

directly connected to a sponsor’s

ownership of an airport subject to 49

U.S.C. §§ 47107(b) or 47133; or

iii. From any nonaeronautical activity

conducted by the sponsor on airport

property not acquired with Federal

assistance, but only to the extent of the

fair rental value of the airport property.

The fair rental value will be based on

the fair market value.

2. State or local taxes on aviation fuel

(except taxes in effect on December 30,

1987) are considered to be airport

revenue subject to the revenue-use

requirement. However, revenues from

state taxes on aviation fuel may be used

to support state aviation programs or for

noise mitigation purposes, on or off the

airport.

3. While not considered to be airport

revenue, the proceeds from the sale of

land donated by the United States or

acquired with Federal grants must be

used in accordance with the agreement

between the FAA and the sponsor.

Where such an agreement gives the FAA

discretion, FAA may consider this

policy as a relevant factor in specifying

the permissible use or uses of the

proceeds.

C. Unlawful Revenue Diversion

Unlawful revenue diversion is the use

of airport revenue for purposes other

than the capital or operating costs of the

airport, the local airport system, or other

local facilities owned or operated by the

airport owner or operator and directly

and substantially related to the air

transportation of passengers or property,

when the use is not ‘‘grandfathered’’

under 49 U.S.C. § 47107(b)(2). When a

use would be diversion of revenue but

is grandfathered, the use is considered

lawful revenue diversion. See Section

VI, Prohibited Uses of Airport Revenue.

D. Airport Sponsor

The airport sponsor is the owner or

operator of the airport that accepts

Federal assistance and executes grant

agreements or other documents required

for the receipt of Federal assistance.

Section III—Applicability of the Policy

A. Policy and Procedures on the Use of

Airport Revenue and State or Local

Taxes on Aviation Fuel

1. With respect to the use of airport

revenue, the policies and procedures in

the Policy Statement are applicable to

all public agencies that have received a

grant for airport development since

September 3, 1982, under the Airport

and Airway Improvement Act of 1982

(AAIA), as amended, recodified without

substantive change by Public Law 103–

272 (July 5, 1994) at 49 § U.S.C. 47101,

et seq., and which had grant obligations

regarding the use of airport revenue in

effect on October 1, 1996 (the effective

date of the FAA Authorization Act of

1996). Grants issued under that

statutory authority are commonly

referred to as Airport Improvement

Program (AIP) grants. The Policy

Statement applies to revenue uses at

such airports even if the sponsor has not

received an AIP grant since October 1,

1996.

2. With respect to the use of state and

local taxes on aviation fuel, this Policy

Statement is applicable to all public

agencies that have received an AIP

development grant since December 30,

1987, and which had grant obligations

regarding the use of state and local taxes

on aviation fuel in effect of October 1,

1996.

3. Pursuant to 49 U.S.C. § 47133, this

Policy Statement applies to any airport

for which Federal assistance has been

received after October 1, 1996, whether

or not the airport owner is subject to the

airport revenue-use grant assurance, and

applies to any airport for which the

airport revenue-use grant obligation is

in effect on or after October 1, 1996.

Section 47133 does not apply to an

airport that has received Federal

assistance prior to October 1, 1996, and

does not have AIP airport development

grant assurances in effect on that date.

4. Requirements regarding the use of

airport revenue applicable to a

particular airport or airport operator on

or after October 1, 1996, as a result of

the provisions of 49 U.S.C. § 47133, do

not expire.

5. The FAA will not reconsider

agency determinations and

adjudications dated prior to the date of

this Policy Statement, based on the

issuance of this Policy Statement.

B. Policies and Procedures on the

Requirement for a Self-Sustaining

Airport Rate Structure

1. These policies and procedures

apply to the operators of publicly

owned airports that have received an

AIP development grant and that have

grant obligations in effect on or after the

effective date of this policy.

2. Grant assurance obligations

regarding maintenance of a selfsustaining airport rate structure in effect

on or after the effective date of this

policy apply until the end of the useful

life of each airport development project

or 20 years, whichever is less, except

obligations under a grant for land

acquisition, which do not expire.

C. Application of the Policy to Airport

Privatization

1. The Airport Privatization Pilot

Program, codified at 49 U.S.C. § 47134,

provides for the sale or lease of general

aviation airports and the lease of air

carrier airports. Under the program, the

FAA is authorized to exempt up to five

airports from Federal statutory and

regulatory requirements governing the

use of airport revenue. The FAA can

exempt an airport sponsor from its

obligations to repay Federal grants, in

the event of a sale, to return property

acquired with Federal assistance and to

use the proceeds of the sale or lease

exclusively for airport purposes. The

exemptions are subject to a number of

conditions.

2. Except as specifically provided by

the terms of an exemption granted

under the Airport Privatization Pilot
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7717

Program, this policy statement applies

to a privatization of airport property

and/or operations.

3. For airport privatization

transactions not subject to an exemption

under the Pilot Program:

FAA approval of the sale or other

transfer of ownership or control, of a

publicly owned airport is required in

accordance with the AIP sponsor

assurances and general government

contract law principles. The proceeds of

a sale of airport property are considered

airport revenue (except in the case of

property acquired with Federal

assistance, the sale of which is subject

to other restrictions under the relevant

grant contract or deed). When the sale

proposed is the sale of an entire airport

as an operating entity, the request may

present the FAA with a complex

transaction in which the disposition of

the proceeds of the transfer is only one

of many considerations. In its review of

such a proposal, the FAA would

condition its approval of the transfer on

the parties’ assurances that the proceeds

of sale will be used for the purposes

permitted by the revenue-use

requirements of 49 U.S.C. §§ 47107(b)

and 47133. Because of the complexity of

an airport sale or privatization, the

provisions for ensuring that the

proceeds are used for the purposes

permitted by the revenue-use

requirements may need to be adapted to

the special circumstances of the

transaction. Accordingly, the

disposition of the proceeds would need

to be structured to meet the revenue-use

requirements, given the special

conditions and constraints imposed by

the fact of a change in airport

ownership. In considering and

approving such requests, the FAA will

remain open and flexible in specifying

conditions on the use of revenue that

will protect the public interest and

fulfill the objectives and obligations of

revenue-use requirements, without

unnecessarily interfering with the

appropriate privatization of airport

infrastructure.

4. It is not the intention of the FAA

to effectively bar airport privatization

initiatives outside of the pilot program

through application of the statutory

requirements for use of airport revenue.

Proponents of a proposed privatization

or other sale or lease of airport property

clearly will need to consider the effects

of Federal statutory requirements on the

use of airport revenue, reasonable fees

for airport users, disposition of airport

property, and other policies

incorporated in Federal grant

agreements. The FAA assumes that the

proposals will be structured from the

outset to comply with all such

requirements, and this proposed policy

is not intended to add to the

considerations already involved in a

transfer of airport property.

Section IV—Statutory Requirements for

the Use of Airport Revenue

A. General Requirements, 49 U.S.C.

§§ 47107(b) and 47133

1. The current provisions restricting

the use of airport revenue are found at

49 U.S.C. §§ 47107(b), and 47133.

Section 47107(b) requires the Secretary,

prior to approving a project grant

application for airport development, to

obtain written assurances regarding the

use of airport revenue and state and

local taxes on aviation fuel. Section

47107(b)(1) requires the airport owner

or operator to provide assurances that

local taxes on aviation fuel (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.

B. Exception for Certain Preexisting

Arrangements (Grandfather Provisions)

Section 47107(b)(2) provides an

exception to the requirements of Section

47107(b)(1) for airport owners or

operators having certain financial

arrangements in effect prior to the

enactment of the AAIA. This provision

is commonly referred to as the

‘‘grandfather’’ provision. It states:

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.

C. Application of 49 U.S.C. § 47133

1. Section 47133 imposes the same

requirements on all airports, privatelyowned or publicly-owned, that are the

subject of Federal assistance. Subsection

47133(a) states that:

Local taxes on aviation fuel (except

taxes in effect on December 30, 1987) or

the revenues generated by an airport

that is the subject of Federal assistance

may not be expended for any purpose

other than the capital or operating costs

of—

(a) the airport;

(b) The local airport system; or

(c) Other local facilities owned or

operated by the person or entity that

owns or operates the airport that is

directly and substantially related to the

air transportation of persons or

property.

2. Section 47133(b) contains the same

grandfather provisions as section

47107(b).

3. Enactment of section 47133

resulted in three fundamental changes

to the revenue-use obligation, as

reflected in the applicability section of

this policy statement.

a. Privately owned airports receiving

Federal assistance (as defined in this

policy statement) after October 1, 1996,

are subject to the revenue-use

requirement.

b. In addition to airports receiving

AIP grants, airports receiving Federal

assistance in the form of gifts of

property after October 1, 1996, are

subject to the revenue-use requirement.

c. For any airport or airport operator

that is subject to the revenue-use

requirement on or after October 1, 1996,

the revenue-use requirement applies

indefinitely.

4. This section of the policy refers to

the date of October 1, 1996, because the

FAA Authorization Act of 1996 is by its

terms effective on that date.

D. Specific Statutory Requirements for

the Use of Airport Revenue

1. In section 112 of the FAA

Authorization Act of 1994, 49 U.S.C.

§ 47107(l)(2) (A–D), Congress expressly

prohibited the diversion of airport

revenues through:

a. Direct payments or indirect

payments, other than payments

reflecting the value of services and

facilities provided to the airport;

b. Use of airport revenues for general

economic development, marketing, and

promotional activities unrelated to

airports or airport systems;

c. Payments in lieu of taxes or other

assessments that exceed the value of

services provided; or

d. Payments to compensate nonsponsoring governmental bodies for lost

tax revenues exceeding stated tax rates.

2. Section 47107(l)(5), enacted as part

of the FAA Authorization Act of 1996,

provides that:

(A) Any request by a sponsor to any

airport for additional payments for

services conducted off of the airport or

for reimbursement for capital

contributions or operating expenses

shall be filed not later than 6 years after

the date on which the expense is

incurred; and

(B) Any amount of airport funds that

are used to make a payment or
7718 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

reimbursement as described in

subparagraph (a) after the date specified

in that subparagraph shall be considered

to be an illegal diversion of airport

revenues that is subject to subsection

(n).

3. 49 U.S.C. § 40116(d)(2)(A) provides,

among other things, that a State,

political subdivision of a State or

authority acting for a State or a political

subdivision may not: ‘‘(iv) levy or

collect a tax, fee or charge, first taking

effect after August 23, 1994, exclusively

upon any business located at a

commercial service airport or operating

as a permittee of such an airport other

than a tax, fee or charge wholly utilized

for airport or aeronautical purposes.’’

E. Passenger Facility Charges and

Revenue Diversion

The Aviation Safety and Capacity

Expansion Act of 1990 authorized the

imposition of a passenger facility charge

(PFC) with the approval of the

Secretary.

1. While PFC revenue is not

characterized as ‘‘airport revenue’’ for

purposes of this Policy Statement,

specific statutory and regulatory

guidelines govern the use of PFC

revenue, as set forth at 49 U.S.C. 40117,

‘‘Passenger Facility Fees,’’ and 14 CFR

Part 158, ‘‘Passenger Facility Charges.’’

(For purposes of this policy, the terms

‘‘passenger facility fees’’ and ‘‘passenger

facility charges’’ are synonymous.)

These provisions are more restrictive

than the requirements for the use of

airport revenue in 49 U.S.C. 47107(b), in

that the PFC requirements provide that

PFC collections may only be used to

finance the allowable costs of approved

projects. The PFC regulation specifies

the kinds of projects that can be funded

by PFC revenue and the objectives these

projects must achieve to receive FAA

approval for use of PFC revenue.

2. The statute and regulations prohibit

expenditure of PFC revenue for other

than approved projects, or collection of

PFC revenue in excess of approved

amounts.

3. As explained more fully below

under enforcement policies and

procedures in Section IX, ‘‘Monitoring

and Compliance,’’ a final FAA

determination that a public agency has

violated the revenue-use provision

prevents the FAA from approving new

authority to impose a PFC until

corrective action is taken.

Section V—Permitted Uses of Airport

Revenue

A. Permitted Uses of Airport Revenue

Airport revenue may be used for:

1. The capital or operating costs of the

airport, the local airport system, or other

local facilities owned or operated by the

airport owner or operator and directly

and substantially related to the air

transportation of passengers or property.

Such costs may include reimbursements

to a state or local agency for the costs

of services actually received and

documented, subject to the terms of this

policy statement. Operating costs for an

airport may be both direct and indirect

and may include all of the expenses and

costs that are recognized under the

generally accepted accounting

principles and practices that apply to

the airport enterprise funds of state and

local government entities.

2. The full costs of activities directed

toward promoting competition at an

airport, public and industry awareness

of airport facilities and services, new air

service and competition at the airport

(other than direct subsidy of air carrier

operations prohibited by paragraph

VI.B.12 of this policy), and salary and

expenses of employees engaged in

efforts to promote air service at the

airport, subject to the terms of this

policy statement. Other permissible

expenditures include cooperative

advertising, where the airport advertises

new services with or without matching

funds, and advertising of general or

specific airline services to the airport.

Examples of permitted expenditures in

this category include: (a) a Superbowl

hospitality tent for corporate aircraft

crews at a sponsor-owned general

aviation terminal intended to promote

the use of that airport by corporate

aircraft; and (b) the cost of promotional

items bearing airport logos distributed at

various aviation industry events.

3. A share of promotional expenses,

which may include marketing efforts,

advertising, and related activities

designed to increase travel using the

airport, to the extent the airport share of

the promotional materials or efforts

meets the requirements of V.A.2. above

and includes specific information about

the airport.

4. The repayment of the airport owner

or sponsor of funds contributed by such

owner or sponsor for capital and

operating costs of the airport and not

heretofore reimbursed. An airport owner

or operator can seek reimbursement of

contributed funds only if the request is

made within 6 years of the date the

contribution took place. 49 U.S.C.

47107(l).

a. If the contribution was a loan to the

airport, and clearly documented as an

interest-bearing loan at the time it was

made, the sponsor may repay the loan

principal and interest from airport

funds. Interest should not exceed a rate

which the sponsor received for other

investments for that period of time.

b. For other contributions to the

airport, the airport owner or operator

may seek reimbursement of interest only

if the FAA determines that the airport

owes the sponsor funds as a result of

activities conducted by the sponsor or

expenditures by the sponsor for the

benefit of the airport. Interest shall be

determined in the manner provided in

49 U.S.C. 47107(o), but may be assessed

only from the date of the FAA’s

determination.

5. Lobbying fees and attorney fees to

the extent these fees are for services in

support of any activity or project for

which airport revenues may be used

under this Policy Statement. See Section

VI: Prohibited Uses of Airport Revenue.

6. Costs incurred by government

officials, such as city council members,

to the extent that such costs are for

services to the airport actually received

and documented. An example of such

costs would be the costs of travel for

city council members to meet with FAA

officials regarding AIP funding for an

airport project.

7. A portion of the general costs of

government, including executive offices

and the legislative branches, may be

allocated to the airport indirectly under

a cost allocation plan in accordance

with V.B.3. of this Policy Statement.

8. Expenditure of airport funds for

support of community activities,

participation in community events, or

support of community-purpose uses of

airport property if such expenditures are

directly and substantially related to the

operation of the airport. Examples of

permitted expenditures in this category

include: (a) the purchase of tickets for

an annual community luncheon at

which the Airport director delivers a

speech reviewing the state of the airport;

and (b) contribution to a golf

tournament sponsored by a ‘‘friends of

the airport’’ committee. The FAA

recognizes that contributions for

community or charitable purposes can

provide a direct benefit to the airport

through enhanced community

acceptance, but that a benefit of that

nature is intangible and not

quantifiable. Where the amount of

contribution is minimal, the value of the

benefit will not be questioned as long as

there is a reasonable connection

between the recipient organization and

the benefit of local community

acceptance for the airport. An example

of a permitted expenditure in this

category was participation in a local

school fair with a booth focusing on

operation of the airport and career

opportunities in aviation. The

expenditure in this example was $250.

9. Airport revenue may be used for

the capital or operating costs of those
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7719

portions of an airport ground access

project that can be considered an airport

capital project, or of that part of a local

facility that is owned or operated by the

airport owner or operator and directly

and substantially related to the air

transportation of passengers or property,

including use by airport visitors and

employees. The FAA has approved the

use of airport revenue for the actual

costs incurred for structures and

equipment associated with an airport

terminal building station and a rail

connector between the airport station

and the nearest mass transit rail line,

where the structures and equipment

were (1) located entirely on airport

property, and (2) designed and intended

exclusively for the use of airport

passengers.

B. Allocation of Indirect Costs

1. Indirect costs of sponsor services

may be allocated to the airport in

accordance with this policy, but the

allocation must result in an allocation to

the airport only of those costs that

would otherwise be allowable under 49

U.S.C. § 47107(b). In addition, the

documentation for the costs must meet

the standards of documentation stated

in this policy.

2. The costs must be allocated under

a cost allocation plan that meets the

following requirements:

a. The cost is allocated under a cost

allocation plan that is consistent with

Attachment A to OMB Circular A–87,

except that the phrase ‘‘airport revenue’’

should be substituted for the phrase

‘‘grant award,’’ wherever the latter

phrase occurs in Attachment A;

b. The allocation method does not

result in a disproportionate allocation of

general government costs to the airport

in consideration of the benefits received

by the airport;

c. Costs allocated indirectly under the

cost allocation plan are not billed

directly to the airport; and

d. Costs billed to the airport under the

cost allocation plan must be similarly

billed to other comparable units of the

airport owner or operator.

3. A portion of the general costs of

government, such as the costs of the

legislative branch and executive offices,

may be allocated to the airport as an

indirect cost under a cost allocation

plan satisfying the requirements set

forth above. However, the allocation of

these costs may require special scrutiny

to assure that the airport is not paying

a disproportionate share of these costs.

4. Central service costs, such as

accounting, budgeting, data processing,

procurement, legal services, disbursing

and payroll services, may also be

allocated to the airport as indirect costs

under a cost allocation plan satisfying

the requirements set forth above.

However, the allocation of these costs

may require special scrutiny to assure

that the airport is not paying a

disproportionate share of these costs.

C. Standard of Documentation for the

Reimbursement to Government Entities

of Costs of Services and Contributions

Provided to Airports

1. Reimbursements for capital and

operating costs of the airport made by a

government entity, both direct and

indirect, must be supported by adequate

documentary evidence. Documentary

evidence includes, but is not limited to:

a. Underlying accounting data such as

general and specialized journals,

ledgers, manuals, and supporting

worksheets and other analyses; and

corroborating evidence such as invoices,

vouchers and indirect cost allocation

plans, or

b. Audited financial statements which

show the specific expenditures to be

reimbursed by the airport. Such

expenditures should be clearly

identifiable on the audited financial

statements as being consistent with

section VIII of this policy statement.

2. Documentary evidence to support

direct and indirect charges to the airport

must show that the amounts claimed

were actually expended. Budget

estimates are not sufficient to establish

a claim for reimbursement. Indirect cost

allocation plans, however, may use

budget estimates to establish predetermined indirect cost allocation

rates. Such estimated rates should,

however, be adjusted to actual expenses

in the subsequent accounting period.

D. Expenditures of Airport Revenue by

Grandfathered Airports

1. Airport revenue may be used for

purposes other than capital and

operating costs of the airport, the local

airport system, or other local facilities

owned or operated by the sponsor and

directly and substantially related to the

air transportation of passengers or

property, if the ‘‘grandfather’’ provisions

of 49 U.S.C. § 47107(b)(2) are applicable

to the sponsor and the particular use.

Based on previous DOT interpretations,

examples of grandfathered airport

sponsors may include, but are not

limited to the following:

a. A port authority or state department

of transportation which owns or

operates other transportation facilities

in addition to airports, and which have

pre-September 3, 1982, debt obligations

or legislation governing financing and

providing for use of airport revenue for

non-airport purposes. Such sponsors

may have obtained legal opinions from

their counsel to support a claim of

grandfathering. Previous DOT

interpretations have found the following

examples of pre-AAIA legislation to

provide for the grandfather exception:

b. Bond obligations and city

ordinances requiring a five percent

‘‘gross receipts’’ fee from airport

revenues. The payments were instituted

in 1954 and continued in 1968.

c. A 1955 state statute for the

assessing of a five percent surcharge on

all receipts and deposits in an airport

revenue fund to defray central service

expenses of the state.

d. City legislation authorizing the

transfer of a percentage of airport

revenues, permitting an airport-air

carrier settlement agreement providing

for annual payments to the city of 15

percent of the airport concession

revenues.

e. A 1957 state statutory

transportation program governing the

financing and operations of a multimodal transportation authority,

including airport, highway, port, rail

and transit facilities, wherein state

revenues, including airport revenues,

support the state’s transportationrelated, and other, facilities. The funds

flow from the airports to a state

transportation trust fund, composed of

all ‘‘taxes, fees, charges, and revenues’’

collected or received by the state

department of transportation.

f. A port authority’s 1956 enabling act

provisions specifically permitting it to

use port revenue, which includes

airport revenue, to satisfy debt

obligations and to use revenues from

each project for the expenses of the

authority. The act also exempts the

authority from property taxes but

requires annual payments in lieu of

taxes to several local governments and

gives it other corporate powers. A 1978

trust agreement recognizes the use of the

authority’s revenue for debt servicing,

facilities of the authority, its expenses,

reserves, and the payment in lieu of

taxes fund.

2. Under the authority of 49 U.S.C.

§ 47115(f), the FAA considers as a factor

militating against the approval of an

application for AIP discretionary funds,

the fact that a sponsor has exercised its

rights to use airport revenue for

nonairport purposes under the

grandfather clause, when in the airport’s

fiscal year preceding the date of

application for discretionary funds, the

FAA finds that the amount of airport

revenues used for nonairport purposes

exceeds the amount used for such

purposes in the airport’s first fiscal year

ending after August 23, 1994, adjusted

by the Secretary for changes in the

Consumer Price Index of All Urban
7720 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

Consumers published by the Bureau of

Labor Statistics of the Department of

Labor.

Section VI—Prohibited Uses of Airport

Revenue

A. Lawful and Unlawful Revenue

Diversion

Revenue diversion is the use of

airport revenue for purposes other than

the capital or operating costs of the

airport, the local airport system, or other

local facilities owned or operated by the

airport owner or operator and directly

and substantially related to the air

transportation of passengers or property,

unless that use is grandfathered under

49 U.S.C. § 47107(b)(2) and the use does

not exceed the limits of the ‘grandfather’

clause. When such use is so

grandfathered, it is known as lawful

revenue diversion. Unless the revenue

diversion is grandfathered, the diversion

is unlawful and prohibited by the

revenue-use restrictions.

B. Prohibited Uses of Airport Revenue

Prohibited uses of airport revenue

include but are not limited to:

1. Direct or indirect payments that

exceed the fair and reasonable value of

those services and facilities provided to

the airport. The FAA generally

considers the cost of providing the

services or facilities to the airport as a

reliable indicator of value.

2. Direct or indirect payments that are

based on a cost allocation formula that

is not consistent with this policy

statement or that is not calculated

consistently for the airport and other

comparable units or cost centers of

government. 3. Use of airport revenues for general

economic development. 4. Marketing and promotional

activities unrelated to airports or airport

systems. Examples of prohibited

expenses in this category include

participation in program to provide

hospitality training to taxi drivers and

funding an airport operator’s float

containing no reference to the airport, in

a New Years Day parade. 5. Payments in lieu of taxes, or other

assessments, that exceed the value of

services provided or are not based on a

reasonable, transparent cost allocation

formula calculated consistently for other

comparable units or cost centers of

government; 6. Payments to compensate nonsponsoring governmental bodies for lost

tax revenues to the extent the payments

exceed the stated tax rates applicable to

the airport; 7. Loans to or investment of airport

funds in a state or local agency at less

than the prevailing rate of interest. 8. Land rental to, or use of land by,

the sponsor for nonaeronautical

purposes at less than fair rental/market

value, except to the extent permitted by

SectionVII.D of this policy.

9. Use of land by the sponsor for

aeronautical purposes rent-free or for

nominal rental rates, except to the

extent permitted by Section VII.E of this

policy.

10. Impact fees assessed by any

governmental body that exceed the

value of services or facilities provided to

the airport. However, airport revenue

may be used where airport development

requires a sponsoring agency to take an

action, such as undertaking

environmental mitigation measures

contained in an FAA record of decision

approving funding for an airport

development project, or constructing a

ground access facility that would

otherwise be eligible for the use of

airport revenue. Payments of impact

fees must meet the general requirement

that airport revenue be expended only

for actual documented costs of items

eligible for use of airport revenue under

this Policy Statement. In determining

appropriate corrective action for an

impact fee payment that is not

consistent with this policy, the FAA

will consider whether the impact fee

was imposed by a non-sponsoring

governmental entity and the sponsor’s

ability under local law to avoid paying

the fee.

11. Expenditure of airport funds for

support of community activities and

participation in community events, or

for support of community-purpose uses

of airport property except to the extent

permitted by this policy. See Section V,

Uses of Airport Revenue. Examples of

prohibited expenditures in this category

include expenditure of $50,000 to

sponsor a local film society’s annual

film festival; and contribution of $6,000

to a community cultural heritage

festival.

12. Direct subsidy of air carrier

operations. Direct subsidies are

considered to be payments of airport

funds to carriers for air service.

Prohibited direct subsidies do not

include waivers of fees or discounted

landing or other fees during a

promotional period. Any fee waiver or

discount must be offered to all users of

the airport, and provided to all users

that are willing to provide the same type

and level of new services consistent

with the promotional offering. Likewise

prohibited direct subsidies do not

include support for airline advertising

or marketing of new services to the

extent permitted by Section V of this

Policy Statement.

Section VII—Policies Regarding

Requirement for a Self-Sustaining

Airport Rate Structure

A. Statutory Requirements

49 U.S.C. § 47107(a)(13) requires

airport operators to maintain a schedule

of charges for use of the airport: ‘‘(A)

that will make the airport as selfsustaining as possible under the

circumstances existing at the airport,

including volume of traffic and

economy of collection.’’ The requirement is generally referred

to as the ‘‘self-sustaining assurance.’’

B. General Policies Governing the SelfSustaining Rate Structure Assurance

1. Airport proprietors must maintain

a fee and rental structure that in the

circumstances of the airport makes the

airport as financially self-sustaining as

possible. In considering whether a

particular contract or lease is consistent

with this requirement, the FAA and the

Office of the Inspector General (OIG)

generally evaluate the individual

contract or lease to determine whether

the fee or rate charged generates

sufficient income for the airport

property or service provided, rather

than looking at the financial status of

the entire airport. 2. If market conditions or demand for

air service do not permit the airport to

be financially self-sustaining, the airport

proprietor should establish long-term

goals and targets to make the airport as

financially self-sustaining as possible. 3. At some airports, market conditions

may not permit an airport proprietor to

establish fees that are sufficiently high

to recover aeronautical costs and

sufficiently low to attract and retain

commercial aeronautical services. In

such circumstances, an airport

proprietor’s decision to charge rates that

are below those needed to achieve a

self-sustaining income in order to assure

that services are provided to the public

is not inherently inconsistent with the

obligation to make the airport as selfsustaining as possible in the

circumstances.

4. Airport proprietors are encouraged,

when entering into new or revised

agreements or otherwise establishing

rates, charges, and fees, to undertake

reasonable efforts to make their

particular airports as self sustaining as

possible in the circumstances existing at

such airports. 5. Under 49 U.S.C. § 47107(a)(1) and

the implementing grant assurance,

charges to aeronautical users must be

reasonable and not unjustly

discriminatory. Because of the limiting

effect of the reasonableness

requirement, the FAA does not consider

the self-sustaining requirement to

require airport sponsors
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7721

to charge fair market rates to

aeronautical users. Rather, for charges to

aeronautical users, the FAA considers

the self-sustaining assurance to be

satisfied by airport charges that reflect

the cost to the sponsor of providing

aeronautical services and facilities to

users. A fee for aeronautical users set

pursuant to a residual costing

methodology satisfies the requirement

for a self-sustaining airport rate

structure.

6. In establishing new fees, and

generating revenues from all sources,

airport owners and operators should not

seek to create revenue surpluses that

exceed the amounts to be used for

airport system purposes and for other

purposes for which airport revenues

may be spent under 49 U.S.C.

§ 47107(b)(1), including reasonable

reserves and other funds to facilitate

financing and to cover contingencies.

While fees charged to nonaeronautical

users are not subject to the

reasonableness requirement or the

Department of Transportation Policy on

airport rates and charges, the surplus

funds accumulated from those fees must

be used in accordance with 49 U.S.C.

§ 47107(b).

C. Policy on Charges for

Nonaeronautical Facilities and Services

Subject to the general guidance set

forth above and the specific exceptions

noted below, the FAA interprets the

self-sustaining assurance to require that

the airport receive fair market value for

the provision of nonaeronautical

facilities and services, to the extent

practicable considering the

circumstances at the airport.

D. Providing Property for Public

Community Purposes

Making airport property available at

less than fair market rental value for

public recreational and other

community uses, for the purpose of

maintaining positive airport-community

relations, can be a legitimate function of

an airport proprietor in operating the

airport. Accordingly, in certain

circumstances, providing airport land

for such purposes will not be

considered a violation of the selfsustaining requirement. Generally, the

circumstances in which below-market

use of airport land for community

purposes will be considered consistent

with the grant assurances are:

1. The contribution of the airport

property enhances public acceptance of

the airport in a community in the

immediate area of the airport; the

property is put to a general public use

desired by the local community; and the

public use does not adversely affect the

capacity, security, safety or operations

of the airport. Examples of acceptable

uses include public parks, recreation

facilities, and bike or jogging paths.

Examples of uses that would not be

eligible are road maintenance

equipment storage; and police, fire

department, and other government

facilities if they do not directly support

the operation of the airport.

2. The property involved would not

reasonably be expected to produce more

than de minimis revenue at the time the

community use is contemplated, and

the property is not reasonably expected

to be used by an aeronautical tenant or

otherwise be needed for airport

operations in the foreseeable future.

When airport property reasonably may

be expected to earn more than minimal

revenue, it still may be used for

community purposes at less than FMV

if the revenue earned from the

community use approximates the

revenue that could otherwise be

generated, provided that the other

provisions of VII. D. are met.

3. The community use does not

preclude reuse of the property for

airport purposes if, in the opinion of the

airport sponsor, such reuse will provide

greater benefits to the airport than

continuation of the community use.

4. Airport revenue is not to be used

to support the capital or operating costs

associated with the community use.

E. Use of Property by Not-for-Profit

Aviation Organizations

1. An airport operator may charge

reduced rental rates and fees to the

following not-for-profit aviation

organizations, to the extent that the

reduction is reasonably justified by the

tangible or intangible benefits to the

airport or to civil aviation:

a. Aviation museums;

b. Aeronautical secondary and postsecondary education programs

conducted by accredited educational

institutions; or

c. Civil Air Patrol units operating

aircraft at the airport;

2. Police or fire-fighting units

operating aircraft at the airport generally

will be expected to pay a reasonable rate

for aeronautical use of airport property,

but the value of any services provided

by the unit to the airport may be offset

against the applicable reasonable rate.

F. Use of Property by Military Units

The FAA acknowledges that many

airports provide facilities to military

units with aeronautical missions at

nominal lease rates. The FAA does not

consider this practice inconsistent with

the requirement for a self-sustaining

airport rate structure. Military units

with aeronautical missions may include

the Air National Guard, aviation units of

the Army National Guard, U.S. Air

Force Reserve, and Naval Reserve air

units operating aircraft at the airport.

Reserve and Guard units typically have

an historical presence at the airport that

precedes the Airport and Airway

Improvement Act of 1982, and provide

services that directly benefit airport

operations and safety, such as snow

removal and supplementary ARFF

capability.

G. Use of Property for Transit Projects

Making airport property available at

less than fair market rental for public

transit terminals, right-of-way, and

related facilities will not be considered

a violation of 49 U.S.C. §§ 47107(b),

47133 or 47107(a)(13) if the transit

system is publicly owned and operated

(or operated by contract on behalf of the

public owner), and the facilities are

directly and substantially related to the

air transportation of passengers or

property, including use by airport

visitors and employees. A lease of

nominal value in the circumstances

described in this section would be

considered consistent with the selfsustaining requirement.

H. Private Transit Systems

Generally, private ground

transportation services are charged as a

nonaeronautical use of the airport. In

cases where publicly-owned transit

services are extremely limited and

where a private transit service (i.e., bus,

rail, or ferry) provides the primary

source of public transportation, making

property available at less than fair

market rental to this private service

would not be considered inconsistent

with 49 U.S.C. §§ 47107(b), 47133 or

47107(a)(13).

Section VIII—Reporting and Audit

Requirements

The Federal Aviation Administration

Authorization Act of 1994 established a

new requirement for airports to submit

annual financial reports to the

Secretary, and the Act required the

Secretary to compile the reports and to

submit a summary report to Congress.

The Federal Aviation Reauthorization

Act of 1996 established a new

requirement for airports to include, as

part of their audits under the Single

Audit Act, a review and opinion on the

use of airport revenue.

A. Annual Financial Reports

Section 111(a)(4) of the 1994

Authorization Act, 49 U.S.C.

§ 47107(a)(19), requires airport owners

or operators to submit to the Secretary
7722 Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices

and to make available to the public an

annual financial report listing in detail

(1) all amounts the airport paid to other

government units and the purposes for

which each payment was made, (2) all

services and property the airport

provided to other government units and

compensation received for each service

or unit of property provided.

Additionally, Section 111(b) of the 1994

Authorization Act requires a report, for

each fiscal year, in an uniform

simplified format, of the airport’s

sources and uses of funds, net surplus/

loss and other information which the

Secretary may require.

FAA Forms 5100–125 and 126 have

been developed to satisfy the above

reporting requirements. The forms must

be filed with the FAA 120 days after the

end of the sponsor’s fiscal year.

Extensions of the filing date may be

granted if audited financial information

is not available within 120 days of the

end of the local fiscal year. Requests for

extension should be filed in writing

with the FAA Airport Compliance

Division, AAS–400.

B. Single Audit Review and Opinion

1. General requirement and

applicability. The Federal Aviation

Reauthorization Act of 1996, Section

805; 49 U.S.C. § 47107(m) requires

public agencies that are subject to the

Single Audit Act, 31 U.S.C. § 7501–

7505, and that have received Federal

financial assistance for airports to

include, as part of their single audit, a

review and opinion of the public

agency’s funding activities with respect

to their airport or local airport system.

2. Federal Financial Assistance. For

the purpose of complying with 49

U.S.C. § 47107(m), Federal financial

assistance for airports includes any

interest in property received, by a

public agency since October 1, 1996, for

the purpose of developing, improving,

operating, or maintaining a public

airport, or an AIP grant which was in

force and effect on or after October 1,

1996, either directly or through a state

block grant program.

3. Frequency. The opinion will be

required whenever the auditor under

OMB Circular A–133 selects an airport

improvement program grant as a major

program. In those cases where the

airport improvement program grant is

selected as a major program the

requirements of 49 U.S.C. § 47107(m)

will apply.

4. Major Program. For the purposes of

complying with 49 U.S.C. § 47107(m),

major program means an airport

improvement program grant determined

to be a major program in accordance

with OMB Circular A–133, § 520 or an

airport improvement program grant

identified by FAA as a major program in

accordance with OMB A–133 § 215(c);

except additional audit costs resulting

from FAA designating an airport

improvement program grant as a major

program are discussed at paragraph 9

below.

5. FAA Notification. When FAA

designates an airport improvement

program grant as a major program, FAA

will generally notify the sponsor in

writing at least 180 days prior to the end

of the sponsor’s fiscal year to have the

grant included as a major program in its

next Single Audit.

6. Audit Findings. The auditor will

report audit findings in accordance with

OMB Circular A–133.

7. Opinion. The statutory requirement

for an opinion will be considered to be

satisfied by the auditor’s reporting

under OMB Circular A–133.

Consequently when an airport

improvement program grant is

designated as a major program, and the

audit is conducted in accordance with

OMB Circular A–133, FAA will accept

the audit to meet the requirements of 49

USC § 47107(m) and this policy.

8. Reporting Package. The Single

Audit reporting package will be

distributed in accordance with the

requirements of OMB Circular A–133. In

addition when an airport improvement

program grant is a major program, the

sponsor will supply, within 30 days

after receipt by the sponsor, a copy of

the reporting package directly to the

FAA, Airport Compliance Division

(AAS–400), 800 Independence Ave. SW

20591. The FAA regional offices may

continue to request the sponsor to

provide separate copies of the reporting

package to support their administration

of airport improvement program grants.

9. Audit Cost. When an opinion is

issued in accordance with 47107(m) and

this policy, the costs associated with the

opinion will be allocated in accordance

with the sponsor’s established practice

for allocating the cost of its Single

Audit, regardless of how the airport

improvement program grant is selected

as a major program.

10. Compliance Supplement.

Additional information about this

requirement is contained in OMB

Circular A–133 Compliance Supplement

for DOT programs.

11. Applicability. This requirement is

not applicable to (a) privately-owned,

public-use airports, including airports

accepted into the airport privatization

program (the Single Audit Act governs

only states, local governments and nonprofit organizations receiving Federal

assistance); (b) public agencies that do

not have a requirement for the single

audit; (c) public agencies that do not

satisfy the criteria of paragraph B.1 and

2; above; and Public Agencies that did

not execute an AIP grant agreement on

or after June 2, 1997.

Section IX—Monitoring and

Compliance

A. Detection of Airport Revenue

Diversion

To detect whether airport revenue has

been diverted from an airport, the FAA

will depend primarily upon four

sources of information:

1. Annual report on revenue use

submitted by the sponsor under the

provisions of 49 U.S.C. § 47107(a)(19),

as amended.

2. Single audit reports submitted,

pursuant to 49 U.S.C. § 47107(m), with

annual single audits conducted under

31 U.S.C. §§ 7501–7505. The

requirement for these reports is

discussed in Part IX of this policy.

3. Investigation following a third

party complaint filed under 14 CFR.

Part 16, FAA Rules of Practice for

Federally Assisted Airport Proceedings.

4. DOT Office of Inspector General

audits.

B. Investigation of Revenue Diversion

Initiated Without Formal Complaint

1. When no formal complaint has

been filed, but the FAA has an

indication from one or more sources

that airport revenue has been or is being

diverted unlawfully, the FAA will

notify the sponsor of the possible

diversion and request that it respond to

the FAA’s concerns. If, after information

and arguments submitted by the

sponsor, the FAA determines that there

is no unlawful diversion of revenue, the

FAA will notify the sponsor and take no

further action. If the FAA makes a

preliminary finding that there has been

unlawful diversion of airport revenue,

and the sponsor has not taken corrective

action (or agreed to take corrective

action), the FAA may issue a notice of

investigation under 14 CFR § 16.103.

If, after further investigation, the FAA

finds that there is reason to believe that

there is or has been unlawful diversion

of airport revenue that the sponsor

refuses to terminate or correct, the FAA

will issue an appropriate order under 14

CFR § 16.109 proposing enforcement

action. However, such action will cease

if the airport sponsor agrees to return

the diverted amount plus interest.

2. Audit or investigation by the Office

of the Inspector General. An indication

of revenue diversion brought to the

attention of the FAA in a report of audit

or investigation issued by the DOT

Office of the Inspector General (OIG)
Federal Register / Vol. 64, No. 30 /Tuesday, February 16, 1999 / Notices 7723

will be handled in accordance with

paragraph B.1 above.

C. Investigation of Revenue Diversion

Precipitated by Formal Complaint

When a formal complaint is filed

against a sponsor for revenue diversion,

the FAA will follow the procedures in

14 CFR Part 16 for notice to the sponsor

and investigation of the complaint. After

review of submissions by the parties,

investigation of the complaint, and any

additional process provided in a

particular case, the FAA will either

dismiss the complaint or issue an

appropriate order proposing

enforcement action.

If the airport sponsor takes the

corrective action specified in the order,

the complaint will be dismissed.

D. The Administrative Enforcement

Process

1. Enforcement of the requirements

imposed on sponsors as a condition of

the acceptance of Federal grant funds or

property is accomplished through the

administrative procedures set forth in

14 CFR part 16. Under part 16, the FAA

has the authority to receive complaints,

conduct informal and formal

investigations, compel production of

evidence, and adjudicate matters of

compliance within the jurisdiction of

the Administrator.

2. If, as a result of the investigative

processes described in paragraphs B and

C above, the FAA finds that there is

reason to proceed with enforcement

action against a sponsor for unlawful

revenue diversion, an order proposing

enforcement action is issued by the FAA

and under 14 CFR 16.109. That section

provides for the opportunity for a

hearing on the order.

E. Sanctions for Noncompliance

1. As explained above, if the FAA

makes a preliminary finding that airport

revenue has been unlawfully diverted

and the sponsor declines to take the

corrective action, the FAA will propose

enforcement action. A decision whether

to issue a final order making the action

effective is made after a hearing, if a

hearing is elected by the respondent.

The actions required by or available to

the agency for enforcement of the

prohibitions against unlawful revenue

diversion are:

a. Withhold future grants. The

Secretary may withhold approval of an

application in accordance with 49 USC

§ 47106(d) if the Secretary provides the

sponsor with an opportunity for a

hearing and, not later than 180 days

after the later of the date of the grant

application or the date the Secretary

discovers the noncompliance, the

Secretary finds that a violation has

occurred. The 180-day period may be

extended by agreement of the Secretary

and the sponsor or in a special case by

the hearing officer.

b. Withhold approval of the

modification of existing grant

agreements that would increase the

amount of funds available. A

supplementary provision in section 112

of the 1994 Authorization Act, 49 USC

§ 47111(e), makes mandatory not only

the withholding of new grants but also

withholding of a modification to an

existing grant that would increase the

amount of funds made available, if the

Secretary finds a violation after hearing

and opportunity to cure.

c. Withhold payments under existing

grants. The Secretary may withhold a

payment under a grant agreement for

180 days or less after the payment is due

without providing for a hearing.

However, in accordance with 49 USC

§ 47111(d), the Secretary may withhold

a payment for more than 180 days only

if he or she notifies the sponsor and

provides an opportunity for a hearing

and finds that the sponsor has violated

the agreement. The 180-day period may

be extended by agreement of the

Secretary and the sponsor or in a special

case by the hearing officer.

d. Withhold approval of an

application to impose a passenger

facility charge. Section 112 also makes

mandatory the withholding of approval

of any new application to impose a

passenger facility charge under 49 USC

§ 40117. Subsequent to withholding,

applications could be approved only

upon a finding by the Secretary that

corrective action has been taken and

that the violation no longer exists.

e. File suit in United States district

court. Section 112(b) provides express

authority for the agency to seek

enforcement of an order in Federal

court.

f. Withhold, under 49 USC

§ 47107(n)(3), any amount from funds

that would otherwise be available to a

sponsor, including funds that would

otherwise be made available to a State,

municipality, or political subdivision

thereof (including any multi-modal

transportation agency or transit agency

of which the sponsor is a member

entity) as part of an apportionment or

grant made available pursuant to this

title, if the sponsor has failed to

reimburse the airport after receiving

notification of the requirement to do so.

g. Assess civil penalties.

(1) Under section 112(c) of Public Law

103–305, codified at 49 USC § 46301(a)

and (d), the Secretary has statutory

authority to impose civil penalties up to

a maximum of $50,000 on airport

sponsors for violations of the AIP

sponsor assurance on revenue diversion.

Any civil penalty action under this

section would be adjudicated under 14

CFR Part 13, Subpart G.

(2) Under section 804 of Public Law

104–264, codified at 49 USC

§ 46301((a)(5), the Secretary has

statutory authority to obtain civil

penalties of up to three times the

amount of airport revenues that are used

in violation of 49 USC §§ 47107(b) and

47133. An action for civil penalties in

excess of $50,000 must be brought in a

United States District Court.

(3) The Secretary may, under 49 USC

§ 47107(n)(4), initiate a civil action for

civil penalties in the amount equal to

the illegal diversion in question plus

interest calculated in accordance with

49 USC § 47107(o), if the airport sponsor

has failed to take corrective action

specified by the Secretary and the

Secretary is unable to withhold

sufficient grant funds, as set forth above.

(4) An action for civil penalties under

this provision must be brought in a

United States District Court. The

Secretary intends to use this authority

only after the airport sponsor has been

given a reasonable period of time, after

a violation has been clearly identified to

the airport sponsor, to take corrective

action to restore the funds or otherwise

come into compliance before a penalty

is assessed, and only after other

enforcement actions, such as

withholding of grants and payments,

have failed to achieve compliance.

F. Compliance With Reporting and

Audit Requirements

The FAA will monitor airport sponsor

compliance with the Airport Financial

Reporting Requirements and Single

Audit Requirements described in this

Policy Statement. The failure to comply

with these requirements can result in

the withholding of future AIP grant

awards and further payments under

existing AIP grants.

Issued in Washington, DC on February 8,

1999.

Susan L. Kurland,

Associate Administrator for Airports.

[FR Doc. 99–3529 Filed 2–11–99; 8:45 am]

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