# Policy and Procedures Concerning the Use of Airport Revenue

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URL: https://www.frixlaw.com/law-library/documents/fr%3A96-32019

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** December 18, 1996
- **Citation:** 61 FR 66735

## Text

DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
[Docket No. 28472]

Policy and Procedures Concerning the Use of Airport Revenue

AGENCY: Federal Aviation Administration (FAA), Department of
Transportation (DOT).

ACTION: Supplemental notice of proposed policy; request for comments.

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SUMMARY: On February 26, 1996, the FAA published for public comment, a
comprehensive statement of policy and procedures concerning the use of
airport revenue, based on the requirement that revenue at public
airports have received Federal grants generally be used only for
airport purposes. Comments received on the notice included comments on
four issues not discussed in detail in the February notice: (1) The use
of airport property and funds for community or charitable purposes; (2)
the extent to which airport funds may be used for marketing and
promotional activities; (3) guidance on the accounting and cost
allocation practices that the FAA considers acceptable for purposes of
compliance with the revenue retention requirement; and (4) the use of
airport

[[Page 66736]]

property for public transportation facilities. This supplemental notice
proposes additions to the policy proposed in February 1996 to include
specific policies and guidance on these four issues, based on comments
received. The final policy will reflect comments received on this
supplemental notice as well as the general notice published in
February. While the policy statement proposed is not made effective at
this time, statutory requirements relating to the use of airport
revenue remain in effect and will be enforced by the FAA. Airport
sponsors may assume that the FAA would act consistently with the views
expressed in this document in any enforcement action for revenue
diversion taken before a final policy statement is issued.

DATES: Comments must be received by February 18, 1997.

ADDRESSES: Comments should be mailed, in quadruplicate to: Federal
Aviation Administration, Office of Chief Counsel, Attention: Rules
Docket (AGC-200), Docket No. 28472, 800 Independence Avenue, SW.,
Washington, DC 20591. All comments must be marked: ``Docket No.
28472.'' Commenters wishing the FAA to acknowledge receipt of their
comments must include a pre-addressed, stamped postcard on which the
following statement is made: ``Comments to Docket No. 28472.'' The
postcard will be date stamped and mailed to the commenter.
Comments on this Notice may be examined in room 915G on weekdays,
except on Federal holidays, between 8:30 a.m. and 5 p.m.

FOR FURTHER INFORMATION CONTACT: Benedict D. Castellano, Manager,
Airport Safety and Compliance Branch, AAS-310, Federal Aviation
Administration, 800 Independence Ave. SW., Washington, DC 20591,
telephone (202) 267-8728; or Jonathan W. Cross, Airports Law Branch,
AGC-610, Office of the Chief Counsel, Federal Aviation Administration,
800 Independence Avenue, SW., Washington, DC 20591, telephone (202)
267-3473.

SUPPLEMENTARY INFORMATION:

This proposed statement of policy and related procedures is being
published pursuant to section 112(a) of the Federal Aviation
Administration Authorization Act of 1994, Pub. L. 103-305 (August 23,
1994) (1994 Authorization Act). That section requires the Secretary to
establish policies and procedures assuring the ``prompt and effective
enforcement'' of the requirement relating to the use of airport revenue
(also called the ``revenue retention requirement'') (49 U.S.C.
47107(b)) and the requirement that airports be as self-sustaining as
possible (49 U.S.C. 47107(a)(13)), and of the Airport Improvement
Program (AIP) sponsor assurances made under these sections. Section 112
includes specific guidance and requirements for the mandated policies
and procedures.
For convenience, the term ``sponsor'' is used throughout this
document to mean the state or local government body obligated under an
airport grant agreement. For purposes of the proposed policy statement
the term is generally interchangeable with the term ``airport owner or
operator'' used in some statutes. A sponsor may be an entity that
exists only to operate the airport, such as an airport authority
established by state law, or may be an authority established to operate
a variety of transportation facilities including an airport. Other
airports are owned by a state, county, or city government and operated
by an agency of that government, in which case the state, county, or
city is the sponsor, rather than the subordinate agency.

The Revenue Retention Requirement

Under the Airport and Airway Improvement Act of 1982, as amended
(AAIA), part of title V of the Tax Equity and Fiscal Responsibility
Act, Pub. L. 97-248, repealed and reenacted without substantive change,
Pub. L. 103-272 (July 5, 1994), 49 U.S.C. 47101, et seq., as amended by
Pub. L. 103-305 (August 23, 1994), public agencies receiving Federal
grants for airport development since September 3, 1982, are required to
comply with the revenue retention requirement, section 511(a)(12) of
the AAIA, now codified at 49 U.S.C. 47107(b). The revenue retention
assurance requires airport owners 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 air transportation of passengers or property.''

The Requirement To Be as Self-Sustaining as Possible

A related requirement of the AAIA with respect to airport revenue
is the requirement that an airport have a rate structure that makes the
airport as self-sustaining as possible under the circumstances existing
at the airport. 49 U.S.C. 47101(a)(13). The reason for this requirement
is to minimize an airport's reliance on Federal funds, and also to
minimize the need for the airport to be supported by local taxation.
Many of the OIG audits of airport revenue have found instances of a
rate structure in which the airport apparently could have charged more
for the non-aeronautical use of property than it has. Several of these
findings related specifically to the use of property for community-
relations purposes, such as for parks. In another case, the OIG found
that the airport operator did not charge a sufficient rate for the use
of airport property for a local public bus terminal.
In general, the FAA interprets the self-sustaining assurance to
require that a sponsor charge a fair-market commercial rate for non-
aeronautical leases and activities on an airport. The FAA has not
insisted on the airport's standard commercial rate for uses of property
for which it is unreasonable to expect a commercial rent, and has
permitted temporary uses of property at below-market rates pending
future commercial use.

Notice of Proposed Policy

On February 26, 1996, the FAA published a Notice of Proposed Policy
entitled ``Policy and Procedures Concerning the Use of Airport
Revenue'' (61 FR 7134). The period for public comment closed on April
26, 1996. The FAA received comments from 34 commenters on all aspects
of the proposed policy. Comments were received from various nonprofit
and trade organizations including the Air Transport Association and
International Air Transport Association, the American Association of
Airport Executives (AAAE) and the Airports Council International-North
America (ACI-NA), and the Aircraft Owners and Pilots Association; from
individual airport operators and state and local governments; and from
an automobile rental firm. The comments will be addressed in the final
policy statement to be issued in this docket.
The February notice listed several examples of uses of airport
revenue that respectively are or are not considered appropriate
expenditures under the terms of section 47107(b). The lists were not
exhaustive, however, and not all possible uses of airport revenue were
included. Many of the commenters submitted comments on issues that they
believed should be included in the final policy, but which were not
addressed in detail in the February proposal. In consideration of the
comments, the FAA believes that several of these issues are
sufficiently significant that supplemental guidance should be proposed
for public comment before the adoption of a final policy. In summary,
these issues are (1) The use of airport

[[Page 66737]]

property and funds for community or charitable purposes; (2) the extent
to which airport funds may be used for marketing and promotional
activities; (3) guidance on the accounting and cost allocation
practices that the FAA considers acceptable for purposes of compliance
with the revenue retention requirement; and (4) the use of airport
property for public transportation facilities. This notice proposes to
add new language to the policy statement published in the February
notice to address each of these issues. Each issue is discussed
separately below.
As with the practices specifically discussed in the proposed policy
published in February, the four practices discussed below are not new
requirements, but rather are an articulation of the FAA's proposed
implementation of a statute that has been in effect since 1982.
It should be noted that the use of airport property for community
purposes and public transit at less-than-market rates generally
involves the self-sustaining requirement rather than the revenue
retention requirement. The revenue retention requirement and the self-
sustaining requirement often arise in the same circumstances at an
airport, and both requirements are cited frequently in audits of
airport revenue by the Office of the DOT Inspector General (OIG). In
order to provide comprehensive guidance on the use of airport revenue
and property consistent with the airport's grant assurances, the FAA is
proposing to include more specific guidance on the self-sustaining
requirement in the final revenue diversion policy to the extent
necessary to address the use of airport property for community ``good-
will'' and public transit purposes.

1. Use of Airport Property for Community Charitable Purposes; Donation
of Airport Funds for Community Charitable Purposes

Discussion of Comments.

The OIG has found either revenue diversion or failure to obtain
fair rental value for airport property, or both, in 38 audits. In
several of those cases the OIG has cited the practice of leasing
airport property for charitable or community purposes, such as a park
or ball field, at no cost or at a below-market rental rate. The OIG
considers this practice to be a violation of the grant assurance
obligating the airport to maintain a fee and rental structure which
will make the airport as self-sustaining as possible under the
circumstances. Where the property is made available to an agency of the
sponsor, such as a parks department, the below-market lease could also
be considered a violation of the revenue retention requirement, since
the sponsor is choosing to subsidize its own non-aeronautical
activities with airport resources and could modify the arrangement at
any time.
Similarly, in an audit of revenues at airports operated by the City
of Los Angeles, the OIG found the donation of airport funds (as opposed
to no-cost use of land) to non-profit and community groups to be an
unlawful diversion of airport revenue.
The February notice of proposed policy does not discuss an
exception for community-purpose use of property, but in practice the
FAA has in limited circumstances permitted use of property at less than
fair market rental without finding a violation of the self-sustaining
or revenue use requirements. For example, in Arlington, Washington, the
FAA permitted the City of Arlington to maintain a park on airport
property for which there was no current commercial demand, if the
property remained available for commercial use, permanent improvements
for the park were not made, and no airport funds were used for the
park. In the comments on the proposed policy, a substantial number of
commenters requested a policy permitting practices of the kind found by
the OIG at Los Angeles airports. Specifically, commenters used various
terms to argue that the policy should permit: Use of airport land for
non-profit, public service agencies for a nominal fee; de minimis
support for a community purpose; use of property which is not otherwise
productive at less than FMV for local government, parks and recreation,
or other community purposes; use of airport property by community
groups, with limits; de minimis community participation expenditures;
goodwill community events; community involvement; minor community
goodwill expenses, etc. Supporting commenters argue that an airport
operator needs some flexibility to maintain positive relations with
surrounding communities, in consideration of the adverse impacts of the
airport (e.g., noise, commercial zoning), to ensure that the airport is
accepted as much as possible and that present and future airport
development is not restricted by local political action.
On the basis of the substantial number of similar comments received
on this issue, and the fact that similar practices have been found in
several OIG audits, the FAA believes that some form of below-market
contribution of the use of property for community use is a common and
long-standing practice at U.S. airports. In consideration of the
apparent prevalence of this practice and the comments received on the
issue, and of the FAA's past practice, the FAA is proposing to adopt a
policy that would permit the limited use of airport property for
certain community-related purposes as a legitimate cost of operating
the airport.
In specifying the permissible use of airport property for
`community' purposes and appropriate limits on such use to maintain
consistency with the requirements of 49 U.S.C. 47107(b) or
47101(a)(13), the FAA has considered the following issues raised by the
OIG audits and the public comments received:
Should the airport's need to ``be a good neighbor'' to the local
community be considered a ``circumstance existing at the airport''
under section 47107(a)(13(A) that would justify permitting use of
airport land for public purposes, at below-market or zero rent, by
local governments and non-profit organizations?
How should the commercial desirability of the property, or the
availability of the property for unrestricted development, affect the
determination of whether its lease at below-fair-market rent is
consistent with the self-sustaining requirement? I.e., should it be
easier to find justifying circumstances for the below-market lease of
property that is subject to some airport-related impairment on use?
Examples of impairments of commercial land use could be, for example,
part 77 surfaces close to the surface, location of the land in a runway
protection zone, or location of the land within a noise contour that is
not compatible with the prevailing land uses in the area.
Should expenditure of airport funds for purposes of community
goodwill be considered an ``operating cost of the airport'' for
purposes of section 47107(b)?
If so, should some limit be established on ``community goodwill''
expenditures? E.g., ACI-NA and AAAE have proposed a ``safe harbor'' for
community participation expenditures at a de minimis level.

Proposed Policy

The FAA proposes to recognize that making airport property
available for general, public community purposes such as parks and
recreation areas, 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

[[Page 66738]]

self-sustaining requirement. Generally, below-market use of airport
land for community purposes will be considered consistent with the
assurance if the community use of the property can be justified as
benefiting the airport and the property involved is not expected to
produce substantial income at the time the community use is
contemplated. Benefit to the airport can be tangible, in the form of
action to maintain the condition or security of the airport property
used, or intangible, such as the contribution to good relations with
surrounding communities. The greater the difference between the fair
rental value of the property and the actual amount of the lease, the
greater the burden of showing an airport-related benefit. Some
indications that the property would not be expected to produce
commercial income at the time would be that (1) The property is subject
to airport-related restrictions on use and structures, (2) the property
is subject to terrain, access limitations, or other factors that make
it unsuitable for commercial use, or (3) there is no apparent
commercial demand for the property due to general market conditions in
the area. In any event the above conditions would be considered in
determining the fair rental value of the property in question.
The use of airport funds to support community activities and
participation in community events would not be considered an airport
cost unless the expenditure is directly related to the operation of the
airport. For example, expenditure 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.
Use of airport property for community purposes by other departments
of the sponsoring government agency with park, recreational, or similar
responsibilities could meet the test of this policy, but would be
subject to special scrutiny for evidence that the use was beneficial to
the airport. This exception would not apply where the sponsor was using
airport property simply as a source of inexpensive land for the
sponsor's general governmental purposes.

II. Use of Airport Revenue for Economic Development, Airport Marketing,
and Airport Promotion

Discussion

Many if not most sponsors of commercial airports engage in some
form of promotional effort, to encourage use of the airport and
increase the level of scheduled service for passengers and cargo
shippers. Congress, in the FY 94 Authorization Act, effectively
affirmed the legitimacy of some promotion for airport purposes by
expressly prohibiting ``use of airport revenues for general economic
development, marketing, and promotional activities unrelated to
airports or airport systems;'' and the notice of proposed policy
reflects this distinction.
A number of commenters on the notice of proposed policy expressed
the opinion that some kinds of promotion should be considered a
legitimate use of airport revenue. ACI-NA/AAAE requested that FAA
establish a ``safe harbor'' for certain promotional and marketing
activities, perhaps based on a percentage of costs. Specific issues
raised by the audits and the comments are:
What kinds of promotional and marketing activities are and are not
considered legitimate operating costs of the airport under section
47107(b)?
Should the amount of expenditures on legitimate promotional and
marketing activities be limited, as a matter of policy?

Proposed Policy

The FAA proposes to adopt a policy that expenditures for the
promotion of an airport and marketing of the general services available
at the airport are legitimate costs of airport operation. Promotion and
marketing of the community or region, or promotional/marketing
expenditures directed toward regional economic development rather than
specifically toward promotion of the airport would not be considered an
airport cost. Under the policy proposed, procurement of air
transportation or air service by payment or direct subsidy, as opposed
to promotional activities to encourage such service, would be
considered regional economic promotion and would not be considered a
cost of operating the airport. The FAA understands that the purpose of
such a subsidy is essentially the same as the purpose of other
promotional activities directed toward air service development.
However, a distinction may be made between encouraging use of the
airport, through advertising and other promotional activities or even
through fee incentives, and simply buying increased use of the airport
by paying an air carrier to operate aircraft. The FAA proposes to
clarify in the final policy that this latter activity is ineligible for
the use of airport revenues, because it cannot be considered a capital
or operating cost of the airport.
Direct payments to carriers to provide service from a community's
general funds or from a local chamber of commerce, for example, would
not involve airport revenue and would not be subject to the revenue
retention requirement.
The policy would not define specific limits on spending for
promotional purpso9es, but would state that the FAA assumes that any
expenditures for promotional and marketing costs would be reasonable in
relation to the airport's financial situation. Disproportionately high
costs for promotion and marketing could be reviewed to see if the
expenditures actually qualified as ``airport costs'' under section
47107(b). The FAA could also consider whether excessive promotional
expenditures should be taken into account in the award of discretionary
grants.
Generally, the following would be considered costs of operating the
airport:
(1) Costs of activities directed toward promoting public and
industry awareness and use of airport facilities and services.
(2) Salary and expenses of persons engaged in efforts to promote
air service at the airport.
The following practices would not be considered costs of operating
the airport under section 47107(b):
(1) Expenditures for promotion of general economic development that
is not specifically related to the airport.
(2) Direct subsidy of airline operations. For this purpose direct
subsidies would be considered to be payments of airport funds to
carriers for air service, and would not include waivers of fees or
discounted landing or other fees during a promotional period or support
for airline expenditures for advertising or marketing of service in
specific markets.
The issue concerning direct subsidies to air carriers is one of
several issues currently being addressed in a formal investigation,
``Investigation into Lehigh-Northampton Airport Authority's Air Service
Development Program,'' FAA Docket No. 13-93-30, being conducted by the
FAA under the procedures set forth in 14 CFR part 13, subpart F.
Formal complaints filed by Delta Air Lines, Inc., Northwest
Airlines, Inc., United Air Lines, Inc., USAir, Inc., Atlantic Coast
Airlines, Inc., Allegheny Airlines, Inc., Piedmont Airlines, Inc., and
Midway Airlines, Inc., allege that the subsidization by the Authority
of certain air service, in exchange for air carrier's agreement to
provide service on certain schedules and at certain fares, constitutes
unlawful diversion of airport revenue in violation of Federal law. The
Authority asserts that it is traditional

[[Page 66739]]

and accepted industry practice for airport sponsors to expend airport
revenues for air service marketing and promotion purposes, including
direct subsidies of airline operations, and to pass some or all of
those costs through to the airlines by allocation to various cost
centers. It also argues that providing start-up carrier service
reflects a legitimate business judgment by an airport operator to
enhance air service and represents an appropriate airport operating
cost.
To the extent that the supplemental notice of proposed policy would
affect the Subpart F investigation, any issues considering those
effects and the question of retroactive application of the policy would
best be addressed within the context of the formal investigation.

III. Principles for Allocation of Indirect Costs

Discussion

The Notice of Proposed Policy did not discuss acceptable principles
of indirect cost allocation, but several commenters requested guidance
on cost allocation. Specifically, guidance was requested on approval of
indirect sponsor charges calculated according to a federally approved
cost allocation plan; allocation of shared costs; and the use of
generally accepted accounting principles in lieu of Office of
Management and Budget (OMB) Circular A-87, as recommended by the OIG.
Capital and operating costs of the airport under section 4710(b)
may include indirect costs allocated to the airport. Local governments
have great flexibility under generally accepted accounting principles
(GAAP) to develop a plan for allocation of indirect costs among
government departments, and the propriety of particular allocations has
been a subject of OIG audits of airport revenue.
In several audits, the OIG has recommended that the FAA require
that sponsors comply with OMB Circular A-87 in the allocation of
indirect costs of airport operation. In response, the FAA has noted
that A-87 applies by its terms only to the expenditure of funds on
federally funded projects, and sponsors are under no legal obligation
to use A-87 for cost allocation involving locally generated funds. FAA
has agreed with the OIG that cost allocation by a sponsor should be
applied consistently, and in compliance with the GAAP that apply to
local government enterprise funds.
A-87 is apparently the only set of guidelines that provides
specific guidance on indirect cost allocation for local government
accounting systems. In the Denver audit, the OIG listed several
principles derived from A-87 that the OIG believes ought to apply to
the allocation of indirect costs by an airport. First, the general
costs of government, such as costs of the city council, may not be
allocated to the airport. Second, each item of cost must be treated
consistently either as a direct or an indirect cost. Third, a local
cost allocation plan must provide that all users of a service must be
billed equally. This last is consistent with FAA Order 5190A, Sec. 4-
20(c)(ii), which states:

If an indirect charge is levied against the airport in support
of capital or operating expenses, the indirect charge must also be
levied against other governmental cost centers in accordance with
generally accepted accounting procedures and practices.

While the FAA continues to believe that the FAA cannot require A-87 in
its entirety as a strict guide to the allowability of expenditures for
capital and operating costs of an airport, we do believe the specific
principles identified by the OIG are an appropriate construction of the
revenue retention requirement.

Proposed Policy

The FAA proposes to make clear that allocation of indirect costs is
allowable under 49 U.S.C. 47107(b), and that no particular method of
cost allocation will be required, including OMB Circular A-87. However,
it remains important that only capital and operating costs of the
airport, airport system, and facilities directly and substantially
related to air transportation may be allocated indirectly to the
airport. To ensure that indirect costs are limited to allowable capital
and operating costs, the FAA proposes to apply certain general
principles and prohibitions to the allocation of costs. The proposed
guidance would not limit significantly (if at all) the development of
local cost allocation plans under OMB Circular A-87 or other state,
local, or Federal cost allocation guidance, or interfere with the
application of GAAP to airport accounting and cost allocation.
FAA 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 allowed under that guidance
would be in violation of the airport revenue retention requirement if
allocated to the airport. For example, a local allocation plan may
allocate general costs of government to various sponsor departments.
This may not be inherently improper from an accounting standpoint, but
would be considered by the FAA to be a diversion of airport revenue for
general, non-airport purposes. Even under a plan developed in
accordance with A-87, the calculation of depreciation costs or the
allowance of contributions to or membership fees in charitable
organizations could be inconsistent with the February 1996 notice of
proposed policy and this supplemental notice.
The FAA proposes to require specifically that indirect cost
allocations be applied consistently across departments to the
sponsoring government agency, and not unfairly burden the airport
account. Allocation of costs to comparable users, such as proprietary
or enterprise accounts, must be applied in the same manner. The general
sponsor cost allocation plan may not result in an overallocation to
proprietary or enterprise accounts.
Also, the allocation of the general costs of the sponsoring
government could not be allocated to the airport; however, this would
not affect direct or indirect billing for actual services provided to
the airport by local government.

IV. Use of Airport Land for Public Transit Facilities

Many commercial airports have some facility for the accommodation
of public transit passengers, ranging from curbside terminal bus stops
to dedicated airport stations for local mass transit systems. These on-
airport facilities that are owned or operated by the airport are
eligible for the use of airport revenue under section 47107(b).
Similarly, the capital costs of such on-airport facilities may be
eligible for the funds from Federal airport grants and passenger
facility charges as part of an airport development project. The public
transit systems at issue are publicly owned, not private, and are often
subsidized by public funds. Terminal facilities at the airport, whether
a curbside bus stop or a metro station, are generally provided only for
the use of air passengers and airport visitors and employees traveling
to and from the airport.
Public transit facilities are not aeronautical. As a result, the
general rule of interpretation of the self-sustaining assurance would
require the sponsor to charge commercial rates for the use of airport
property by local transit systems. However, in determining the
sponsor's obligation to develop a rate structure under the self-
sustaining requirement, the FAA does

[[Page 66740]]

not believe that public transit facilities can be grouped either with
commercial business enterprises or with non-aeronautical uses of the
airport that have no direct benefit for air travel. Public transit
facilities provide benefits to the airport by maximizing public access,
lessening ground traffic congestion, and improving air quality.
Therefore, the FAA believes that public transit facilities are more
appropriately analogized to public roadways, which are also public
facilities for transporting passengers, visitors, and employees to and
from the airport.

Proposed Policy

Accordingly, the FAA proposes to consider the use of airport
property for a public transit terminal, transit right-of-way, or
related facilities at less than fair rental value to be consistent with
the self-sustaining assurance. The exception would apply only to
publicly-owned transit systems, and only to facilities necessary for
the transportation of air passengers, airport visitors, and airport
employees to and from the airport. For example, a maintenance/repair
facility for transit buses would not need to be located at the airport,
and a commercial lease rate would be required for any airport land used
for this purpose.
In some cases the local public transit system may be owned and
operated by another department of the sponsoring government agency. The
FAA believes the same policy should apply to sponsor-owned transit
systems as to systems owned by other jurisdictions, and a sponsor-owned
transit facility located at the airport for the use of airport
passengers, visitors, and employees, at a below-market lease rate,
would not represent a diversion of airport revenue by the sponsor.
Note that a below-market rate is optional, not required; the policy
would not prevent the sponsor from charging market rates. However,
sponsors would have the freedom to charge below-market rates in order
to derive environmental, mobility, and other benefits achieved through
public transit to and from airports. Comments are requested on whether
some compensation for the use of airport property should be required,
or whether a lease at no cost or only nominal cost would be considered
consistent with the self-sustaining requirement.

Policy Statement Concerning Airport Revenue

For the reasons discussed above, the Federal Aviation
Administration is modifying the proposed policy concerning the use of
airport revenue, as published in the Federal Register on February 26,
1996, as follows:

Policies and Procedures Concerning the Use of Airport Revenue

* * * * *

VII. 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, as discussed in paragraph VII.B.
2. Costs 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.
3. The repayment of the airport owner (which may or may not be the
sponsor) of funds contributed by the owner for capital and operating
costs of the airport and not heretofore reimbursed.
4. 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. Examples of grandfathered airport sponsors may
include, but are not limited to, 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:
(a) 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.
(b) 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.
(c) 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.
(d) A 1957 state statutory transportation program governing the
financing and operations of a multi-modal transportation authority,
including airport, highway, port, rail and transit facilities, wherein
state revenues, including airport revenues, support the state's
transportation-related, 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.
(e) 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.

B. Allocation of Indirect Costs

Indirect costs of sponsor services may be allocated to the airport,
but the allocation must result in an allocation to the airport only of
those costs which would otherwise be allowable under 49 U.S.C.
47107(b).
In determining whether an indirect cost allocation is allowable,
the following principles apply:
1. Each allocation of cost and each procedure or plan for cost
allocation should be transparent and justifiable and should be a matter
of public record available to airport users and the general public.
Allocation of costs is also expected to be consistent with generally
accepted accounting principles (GAAP) applicable to local government
and to enterprise funds, although GAAP guidance on cost allocation is
limited.
2. Allocation of costs as allowed under OMB Circular A-87 or a

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Federally approved local cost allocation plan will be considered to
result in a reasonable and transparent cost allocation, but may still
need to be reviewed to assure that allocation of specific cost items
meets the special revenue retention requirements applicable to airport
revenue under 49 U.S.C. 47107(b).
3. Each item of cost must be treated consistently either as a
direct or an indirect cost, and the method of allocation must not
permit a cost item to be charged both directly and indirectly.
4. A charge to the airport under a local cost allocation plan must
be charged to all comparable users of a service equally.
5. The general costs of government, such as costs of the city
council, may not be allocated to the airport.

C. Permitted Uses of Airport Property

Making airport property available at less than fair market rental
for public 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 (other than to
the sponsor itself) will not be considered a violation of 49 U.S.C.
47107(b) or 47107(a)(13), which requires an airport proprietor to
maintain an airport rate structure that makes the airport as self-
sustaining as possible. 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 community use of the property can be justified as benefiting
the airport, and
2. The property involved would not reasonably be expected to
produce substantial income at the time the community use is
contemplated. The greater the difference between the fair rental value
of the property and the actual amount of the lease, the greater the
burden of showing an airport-related benefit.
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) 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 related to the transportation of air passengers and airport
visitors and employees to and from the airport.

D. Consideration of Lawful Diversion of Revenues in Awarding
Discretionary Grants

Airport owners or operators who lawfully divert airport revenue in
accordance with the ``grandfather'' provision should be aware that 49
U.S.C. 47115(f) requires the Secretary of Transportation to consider
such usage as a factor militating against the approval of an
application for discretionary funds when, in the airport's fiscal year
preceding the date of application for discretionary funds, the
Secretary finds that the amount of revenues used by the airport for
purposes other than capital or operating costs 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 Consumers published by the Bureau of Labor
Statistics of the Department of Labor.

VIII. Prohibited Uses of Airport Revenue

Prohibited uses of airport revenue include but are not limited to:
A. Direct or indirect payments, other than payments that reflect
the value of services and facilities provided to the airport, that are
not based on a reasonable, transparent cost allocation formula
calculated consistently for other comparable units or cost centers of
government.
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 are not based on a reasonable,
transparent cost allocation formula calculated consistently for other
comparable units or cost centers of government;
D. Payments to compensate nonsponsoring governmental bodies for
lost tax revenues exceeding stated tax rates;
E. Loans of airport funds to a state or local agency at less than
the prevailing rate of interest.
F. Land rental to, or use of land by, the sponsor for
nonaeronautical purposes at less than the amount that would be charged
a commercial tenant, consistent with Paragraph VII.C. of this policy.
G. 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;
H. Expenditure of airport funds for support of community activities
and participation in community events, or for support of community-
purpose uses of airport property, unless the expenditure is directly to
the operation or marketing of the airport;
I. Direct subsidy of air carrier operations.
J. Indirect payment for the general costs of government (but not
including billing for specific services provided to the airport).

Issued in Washington, DC, on December 11, 1996.
Susan L. Kurland,
Associate Administrator for Airport.
[FR Doc. 96-32019 Filed 12-17-96; 8:45 am]
BILLING CODE 4910-13-N

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A96-32019. Public record. Not legal advice.