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Introduction and Background 13 1.4.3 Use Agreements and Bond Resolutions Airport-airline use and lease agreements provide the basis for the financial relationship between airports and airline tenants. Depending on the business relationship and associated provisions, airlines may retain the right to approve capital expenditures via Majority-in-Interest (MII) purview and in some cases operating budgets. Capital expenditures such as renewable energy projects and offset-eligible projects are unlikely to be excluded from airline MII purview; there- fore the airport may be obligated to seek airline permission to undertake them. In the absence of an airline use and lease agreement, the U.S. Department of Transportation's Policy Regarding the Establishment of Airport Rates and Charges establishes the guidelines that airports must fol- low in determining which costs can be included in the airline rate base if a rate methodology is unilaterally employed by an airport. Smaller commercial service airports and general aviation airports may not necessarily have use agreements with their tenants or rate resolutions that prescribe annual cost-related adjust- ments of rates and therefore may have less opportunity to recover capital or operating expendi- tures associated with renewable energy projects or offset-eligible projects from their tenants. As a result, these airports are more dependent on grant participation or are more likely to need a faster return on investment for these projects than larger commercial service airports, which could affect the structure of the transaction. For example, smaller airports may not have ready access to debt for these projects and may need to solicit private investment and associated sharing of risks and rewards. Airports that issue general airport revenue bonds are subject to bond resolutions that describe the nature of the debt obligation, the security for the obligations, and the airport's duties to the bondholders, among other things. They commit the airport to generating annual revenues in excess of operating expenses and debt service to provide a cushion for bondholders (usually equal to 25%, referred to as the "rate covenant"). Before airports can issue more debt, they must meet the conditions required under the additional bonds test, which can be more onerous than the rate covenant. Bond resolutions also typically have restrictions on the sale or long-term lease of airport property. An airport's ability to add operating costs and debt are also limited by risk and market thresholds for leveraging future revenues. Responsibility for debt repayment, increases in operating expenses, and associated impacts on tenant rates and charges are typically matters of negotiation between airports and tenants (although some airports do not have airline use and lease agreements and only need to consult with air- lines regarding annual rates). Airport sponsors should review their legal documents to determine their requirements. Depending on the form of the agreement for the project, the associated cost may be defined as an operating expense or a capital expenditure. If it is an operating expense, tenants are less likely to have the right to veto the project. It is unlikely that bond resolutions or airport agreements would list and define these types of expenditures explicitly.