Airport Governance and Ownership (2009)

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8 Across the country, communities have attempted to find the right balance between reserving and releasing control, as reflected in the following examples: • There are numerous airports at one end of the con- trol spectrum in which primary decision-making re- sponsibility is reserved by a general-purpose govern- ment. The cities of Atlanta, Denver, Chicago, Cleveland, New Orleans, and Houston (to name just a few) govern their airports directly. Clark County (Nevada), Broward County (Florida), and Sacramento (California), also directly govern airports in their communities. States, including Alaska, Hawaii, and Connecticut, do likewise. • Public entities have created boards and commis- sions to operate airports while retaining some degree of oversight and control. For example, the City of Los An- geles retains decision-making authority over key as- pects of four airports (Los Angeles International, On- tario, Van Nuys, and Palmdale Airports), but has delegated considerable decision-making responsibility to the Los Angeles World Airports, with its own Board of Airport Commissioners. The State of Minnesota cre- ated the Metropolitan Airport Commission to operate airports within the Minneapolis-St. Paul metropolitan area and has adjusted the appointment of commission- ers on several occasions to alter the relative degree of control that the state and the local entities have over airport decision-making. In a unique but illuminating example, the U.S. Congress endeavored to retain direct and indirect control over Dulles and Reagan National Airports, such as by creating a Board of Review com- prised of members of Congress with veto power over airport decisions, while delegating operational control to the Metropolitan Washington Airports Authority. • Commercialization and privatization present fur- ther relaxation of public control but generally do not reflect abandonment of control by the public entity with primary decision-making responsibility. Virtually all private participation in airport governance or manage- ment is subject to detailed agreements, leases, or simi- lar contracts that prescribe and constrain actions by the private entity. In the case of several airports that have been commercialized under management agreements, operational control may be delegated to a private entity, but the governing body remains active and publicly ac- countable in terms of airport decision-making. Even in the case of airport privatization, discussed below, the private operator’s authority over key decisions is often constrained by the long-term lease agreement with the airport owner and the continued application of com- mitments to the federal government. • Airport authorities and port authorities may be subject to varying levels of oversight and control by a general-purpose government. Again, a state or local government may retain ownership of the underlying airport property, may appoint authority commissioners, may be authorized to veto authority decisions, and may exercise control in other direct and indirect ways. Con- versely, some airport authorities have been structured and operate as separate and independent bodies from the public entities that created them, from the host ju- risdictions in which the airports are located, and from the airport owners. E. Conclusion Airport governance defies easy categorization. While airports may share common features, no two airports likely share all of the attributes described in this sec- tion. Further, even if airports shared the same or simi- lar structural characteristics, the political, economic, and other contexts in which they operate could lead to substantially different outcomes. The multitude of variables that together comprise airport governance dramatically affects the inquiry into whether particular governance structures enable air- ports to perform better than similarly-situated airports. As explored further below, this variability has the fol- lowing implications, at a minimum: 1) a thorough analysis would have to account or control for each of these variables; 2) the multiplicity of variables makes definitive conclusions as to the optimal governance model extremely difficult; and 3) communities contem- plating a change in governance structure have many different variables to adjust or recalibrate that would be more modest than dramatic changes such as transfer of operational control to an airport authority or private operator. III. LEGAL PRINCIPLES AFFECTING AIRPORT GOVERNANCE A. Introduction The essential purpose of an airport is to provide transportation infrastructure in support of aviation. Yet, a community’s need for transportation infrastruc- ture typically is related to broader needs, particularly support of the local economy.16 Airports often serve as the physical gateway to a community, may be integrally connected to a healthy business environment, and may have a significant economic impact in terms of fiscal revenue and employment. As discussed throughout this report, airports are not profit centers for local govern- ments, because federal law precludes the use of airport revenue for nonairport purposes, at least with respect to airports that are not grandfathered under the rele- vant statutory provisions.17 The governing body of an airport must have certain powers in order for the airport to perform its dual roles as transportation infrastructure and an economic asset. These powers roughly can be divided between powers 16 Community goals in operating airports are described in de- tail at § IV. 17 49 U.S.C. § 47107(b). For a thorough explication of the law of revenue diversion, see TRANSP. RESEARCH BD., ACRP LEGAL RESEARCH DIGEST 2: THEORY AND LAW OF AIRPORT REVENUE DIVERSION (2008), http://onlinepubs.trb.org/onlinepubs/acrp/acrp_lrd_002.pdf.

9 that are essential and powers that are desirable, al- though the precise dividing line plainly is debatable. There are certain powers that a governing body sim- ply could not do without and still function as a sustain- able organization. These essential powers include the ability to maintain and construct infrastructure; gener- ate revenue; obtain adequate financing and incur debt for operations and development; regulate airport opera- tions, tenants, and users; provide a safe and secure fa- cility; hire staff, execute contracts, lease property, and perform similar administrative functions; acquire and dispose of property; and sue and be sued. While this list reflects powers that a governing body could not do without and remain viable in the long- term, there is a considerably longer list of powers that, while not absolutely required, enable airports to per- form their functions as transportation infrastructure and economic assets more effectively and efficiently. These desirable powers include the ability to, for exam- ple, promote health, safety, and welfare through the exercise of police powers; acquire property by condem- nation (eminent domain); control land uses beyond its boundaries; control liability exposure (tort, inverse con- demnation, federal antitrust); control management and employee hiring and salaries; mitigate environmental impacts; maximize aeronautical and nonaeronautical revenues; market the airport; adapt to changed circum- stances; and delegate or transfer power. B. State Law All public entities operating airports in the United States do so pursuant to statutory authority granted by the state legislature or recognized under a state consti- tution. Any delegations of power from the state and exercise of “home rule” authority must be made within limitations set forth in each state’s constitution. In par- ticular, state constitutions often restrict taxing and spending to “public purposes”; prohibit or limit “special legislation” (laws that are not generally applicable across the state); and restrict the delegation of legisla- tive authority to executive agencies. To support further inquiry and research into state- specific requirements on the subject of airport govern- ance, the authors have compiled and briefly summa- rized the statutes in each state on the creation and op- eration of airports and airport authorities. This compilation is presented as Appendix B. This compila- tion does not include enabling legislation creating indi- vidual airport authorities, generally-applicable legisla- tion on intergovernmental agreements and the joint exercise of power, or state regulation of airports and aviation. State laws authorizing political subdivisions to es- tablish and operate airports and state laws authorizing or creating airport authorities tend to include a number of common elements.18 While not all statutes delegate 18 It is important to consider that the state enabling statutes may or may not reflect the full authority that local jurisdictions may have to operate airports within the states. the same power or structure its exercise in the same way, most state statutes have common features, includ- ing the following: • Declaration of the right of counties and municipali- ties to acquire, operate, develop, and regulate airports. • Declaration of the right of counties and municipali- ties to acquire property for airport purposes, including by eminent domain. • Declaration that operation of an airport is a public and governmental function and a matter of public ne- cessity. • Delegation of police power and other authority to regulate airports. • Delegation of zoning authority, including land use, noise regulation, and control over airport hazards. • Delegation of authority to issue bonds, and de- scription of terms by which the governing body can is- sue and service debt. • Delegation of authority for two or more counties and municipalities to operate an airport jointly, and the provision for intergovernmental and joint-exercise-of- powers agreements. • Delegation of power to create airport authorities and to transfer an airport to an airport authority. • Description of how airport authorities will be gov- erned, including the number of commissioners, the ap- pointment process, term, officers, meetings, etc. • Description of how airport authorities may gener- ate revenue and incur debt. C. Legal Challenges to the Creation and Delegation of Power Over Airports In the first part of the 20th century, states began enacting statutes explicitly authorizing political subdi- visions to establish and operate airports. These statutes prompted a wave of lawsuits from nearby communities, from other political subdivisions competing for control of the new airport, and from taxpayers challenging the use of tax revenues or bonding authority to build and operate airports. By and large, the statutes survived these challenges. As states experimented with different forms of gov- ernance, state legislatures both created individual air- port authorities and authorized local governments to create their own airport authorities. These statutes also prompted a number of legal challenges, which were equally unsuccessful. Appendix C contains a compilation of reported deci- sions concerning airport governance. This compilation does not include every reported decision that implicates governance in some manner, but rather those cases involving direct attacks on governance based on princi- ples of state and, to a lesser extent, federal law. Early challenges to municipal airport ownership and operation included claims that the statutorily granted power of owning and maintaining an airport could not be considered a “public purpose” under the state consti-

10 tution19 or under the city charter,20 that an airport was not a legitimate use of a public park21 and that eminent domain could not be exercised for purposes of acquiring land to be used as an airport.22 Use of public funds also provided a source of chal- lenge, often via claims that operation of a public airport was not a public purpose. Taxpayers challenged the City of Cleveland’s decision to issue bonds without voter approval to finance the purchase of land outside the city for an airport.23 The court held that the airport was es- tablished for a public purpose and fit the definition of a public utility such that a statute allowing cities to pur- chase land and construct public utilities outside their boundaries applied to the airport. Other plaintiffs chal- lenged whether a city could issue bonds and levy taxes to pay for an airport24 and whether a city could use tax- payer funds for construction, operation, or maintenance of a city airport without first seeking voter approval under a constitutional provision limiting taxing and spending to public purposes.25 Overwhelmingly, courts have found municipal airport projects to be “govern- mental” or “public” where questions of public financing are presented.26 Courts also have rejected claims that cities were ex- ceeding the power granted to them by statute when they went beyond the specific authority enumerated by the legislation.27 In one such case, the court held that, 19 McClintock v. Roseburg, 127 Ore. 698, 273 P. 331 (1929); Went v. Philadelphia, 301 Pa. 261, 151 A. 883 (1930) (finding airport was public purpose in both cases). See also 8A AM. JUR. 2D Aviation § 89 (2008). 20 Krenwinkle v. Los Angeles, 4 Cal. 2d 611, 614–15, 51 P.2d 1098, 1100 (1935) (holding that airport was public purpose). 21 Wichita v. Clapp, 125 Kan. 100, 107, 263 P.12, 16 (1928) (holding that airport was legitimate use of public park). 22 Burnham v. Beverly, 309 Mass. 388, 392, 35 N.E.2d 242, 245 (1941) (finding proper use of eminent domain). 23 State ex rel. Hile v. Cleveland, 26 Ohio App. 265, 160 N.E. 241 (1927). 24 Dysart v. St. Louis, 321 Mo. 514, 527, 11 S.W.2d 1045, 1049 (1928) (holding that, under statute authorizing munici- palities to establish airports, airport was legitimate purpose for use of bonding and taxing authority); Ragsdale v. Hargraves, 198 Ark. 614, 618–19, 129 S.W.2d 967, 969 (1939) (same, but for airport jointly held and controlled by two cities). 25 Goswick v. Durham, 211 N.C. 687, 191 S.E. 728 (1937); Sing v. Charlotte, 213 N.C. 60, 67–68, 195 S.E. 271, 275–76 (1938). Both cases held cities could use taxpayer funds without voter approval. 26 Hesse v. Rath, 249 N.Y. 436, 164 N.E. 342 (1928); see also Aviation Servs., Inc. v. Bd. of Adjustment, 20 N.J. 275, 279, 119 A.2d 761, 764 (1956) (providing extensive list of cases find- ing airports qualify as public use). 27 Wentz v. Philadelphia, 301 Pa. 261, 271–72, 151 A. 883, 887 (1930); see also Magee v. Mallett, 178 Miss. 629, 174 So. 246 (1937) (finding that statute authorizing municipality to own and operate airports and to “do all things and perform all acts necessary, proper or desirable to effectuate the full intent and purpose of this act” included authority to contract and pay for any engineering work necessary for airport). under the state constitution, a grant of power to a mu- nicipal corporation “necessarily includes all appropriate means for the carrying out of the purpose specified.” This means that, not only could the city condemn land and use taxpayer funds for an airport, but it also could construct a terminal, landing fields, hangars, utilities, and other infrastructure necessary to accomplish the purpose of operating an airport.28 Another ground for challenge involved whether a city could sublet its airport to a private party to operate the airport. An early Kansas case held that although cities had general statutory authority to establish and operate airports, cities could not sublet the airport to a private entity in the absence of a specific statutory grant: A city, which has acquired a municipal aviation field or airport under authority of [state statute], has no corpo- rate power to sublet such airport to a private individual, and…the fact that the city does not yet find it practicable to…manage the airport itself [cannot] justify a disposition of [the airport] not authorized by statute.29 Courts in other states reached similar conclusions.30 In the Kansas case, however, a month after the court issued its opinion holding that the city lacked authority to sublet the airport for management purposes, the state legislature responded by enacting a statute ex- pressly providing such power.31 More recently, courts have been more willing to accommodate municipalities contracting with private parties for the operation of an airport.32 Other courts were asked to consider whether a city can acquire and own land for an airport outside its boundaries. Most, following statutory provisions, up- held the right of municipal corporations to establish and operate airports outside their boundaries.33 After courts had resolved most of the challenges to public airports in favor of the cities and airports during the early part of the 20th century, a new wave of cases arose contesting the governance of airports by airport authorities. During the 1930s and 1940s, states began creating airport authorities to own and operate air- 28 Wentz, 151 A. at 887–88. 29 State v. Coffeyville, 127 Kan. 663, 274 P. 258 (1929). 30 See, e.g., Reid v. Fulton, 181 Misc. 711, 712, 47 N.Y.S.2d 185, 186 (1944) (The municipality had no proprietary rights in the airport distinct from the public purpose, and in the absence of statutory authority, the airport could not be appropriated for any other use. “The property…was acquired by the City for a public airport. It cannot now dispose of the possession of the entire property for the term of ten years for private purposes.”). 31 See Concordia-Arrow Flying Serv. Corp. v. Concordia, 131 Kan. 247, 248, 289 P. 955, 956 (1930). 32 S. Airways Co. v. De Kalb County, 102 Ga. App. 850, 854– 56, 118 S.E.2d 234, 239–40 (1960) (holding that county owner of airport could contract with private party for operation of airport). 33 McLaughlin v. Chattanooga, 180 Tenn. 638, 645, 177 S.W.2d 823, 826 (Tenn. 1944) (upholding municipality’s right to establish airport outside its boundaries); see also Hanover Twp. v. Town of Morrison, 4 N.J. Super. 22, 66 A.2d 187 (1979).

11 ports, and in many cases authorized municipalities to create their own airport authorities if they so chose. Some of the issues raised against airport authorities were similar to those raised earlier against traditional municipal corporations such as cities and counties es- tablishing and operating airports, but others were spe- cific to airport authorities.34 The establishment of an airport authority usually entails the establishment of a separate governmental unit that, as a general rule, is given powers to tax or create public indebtedness. Against the initial wave of challenges, courts generally upheld the creation of these new political units35 with taxing and bonding au- thority36 and held repeatedly that airports would be considered to serve public, rather than private, pur- poses.37 A number of airport authorities were challenged under constitutional provisions prohibiting “special” legislation, but these challenges were also largely un- successful.38 Challenges within the last several decades continue to raise many of the same issues first raised against general-purpose governments and airport authorities from the 1920s through the 1950s. These claims have been equally unavailing and include claims that the airport does not serve a public purpose such that its 34 See, e.g., Bailey v. Evansville-Vanderburgh Airport Auth. Dist., 240, Ind. 401, 411, 166 N.E.2d 520, 525 (1960). Where city and county jointly created airport authority, taxpayers challenged the constitutionality of the airport authority district on a variety of grounds, including a claim that issuance of gen- eral obligation bonds by the board of the authority would, when added to the existing indebtedness of the city and county, ex- ceed constitutional debt limitations for both governments. The court rejected the argument: “it is now well settled that the debts of such [municipal] corporations [created for special pub- lic purpose like an airport] are not to be included with the debts of other municipal corporations in the same geographical area in order to determine whether [the debt limit has been infringed].” 35 Berry v. Milliken, 234 S.C. 518, 524–26, 109 S.E.2d 354, 356–57 (1959) (holding that creation by the Legislature of a special-purpose district for the purpose of establishing and maintaining a public airport is a lawful exercise by the General Assembly of its plenary power to create special-purpose dis- tricts). 36 See, e.g., Bailey v. Evansville-Vanderburgh Airport Auth. Dist., 240 Ind. 401, 411, 166 N.E.2d 520, 525 (1960). 37 See, e.g., State ex rel. Gibbs v. Gordon¸138 Fla. 312, 189 So. 437 (1939); People ex rel. Greening v. Bartholf, 388 Ill. 445, 58 N.E.2d 172 (1944). 38 See, e.g., Monaghan v. Armatage, 218 Minn. 108, 109–10, 15 N.W.2d 241, 242–43 (1944) (finding creation of Airport Commission was not special legislation); Wayne County Bd. of Comm’rs v. Wayne County Airport Auth., 253 Mich. App. 144, 658 N.W.2d 804 (2002); Monterey Peninsula Airport Dist. v. Mason, 19 Cal. 2d 446, 121 P.2d 727 (1942) (challenging crea- tion of airport district as special legislation); Reno v. County of Washoe, 94 Nev. 327, 580 P.2d 460 (1978) (same); Bailey v. Evansville-Vanderburgh Airport Auth. Dist., 240 Ind. 401, 166 N.E.2d 520 (1960) (same); Geneva v. DuPage Airport Auth., 193 Ill. App. 3d 613, 550 N.E.2d 261 (1990) (same). property is not exempt from taxation and that funds expended on it are being used for a private or commer- cial purpose;39 claims that an airport authority act is “special legislation” because it applies only to one air- port or one city or county;40 claims that delegation of power to operate airports is an unconstitutional delega- tion of legislative authority or an unconstitutional dele- gation of legislative authority to private persons or enti- ties;41 and challenges to use of eminent domain by municipal corporation or airport authority.42 While airport operator liability is complex and be- yond the scope of this report, the issue warrants brief mention in this context. Public entities commonly have been sued in connection with their ownership and op- eration of airports for 1) aircraft accidents,43 2) anti- competitive behavior,44 and 3) inverse condemnation (based principally on noise)45 and/or common law equivalents (i.e., nuisance and trespass).46 In many cases, the threshold question is whether the public en- tity is immune from suit,47 which, in many jurisdictions, turns upon whether the public entity’s operation of the airport constitutes a governmental or proprietary func- 39 Nolte v. Paris Air, Inc., 975 So. 2d 627, 628 (Fla. Dist. Ct. App. 2008) (holding that airport lease to fixed-base operators did not involve public funds being used for private purpose). 40 Monaghan, 15 N.W.2d 241 (regarding the Minnesota Air- ports Commission); and later, Wayne County Bd. of Comm’rs, 658 N.W.2d 804; Monterey Peninsula Airport Dist., 121 P.2d 727 (challenging creation of airport district as special legisla- tion); Reno, 580 P.2d 460; Geneva, 550 N.E.2d 261; Irving v. Dallas/Fort Worth Int’l Airport Bd., 894 S.W.2d 456 (Tex. App. 1995). 41 In re Advisory Opinion to the Governor (R.I. Airport Corp.), 627 A.2d 1246 (R.I. 1993); State ex rel. McElroy v. Baron, 169 Ohio St. 439, 443–45, 160 N.E.2d 10, 13-14 (1959) (holding Toledo-Lucas County Port Authority Act did not involve illegal delegation of legislative power); Meisel v. Tri-State Airport Auth., 135 W. Va. 528, 64 S.E.2d 32 (W.Va. 1951). 42 Burbank-Glendale-Pasadena Airport Auth. v. Hensler, 83 Cal. App. 4th 556, 561–64, 99 Cal. Rptr. 2d 729, 733–34 (2000) (finding that cities may delegate their eminent domain powers to a joint-power airport authority created by the cities pursu- ant to a joint-powers agreement). 43 See, e.g., Coleman v. Windham Aviation, Inc., No. KC 2004-0985, 2006 R. I. Super. LEXIS 143 (2006 WL 3004071) (R.I. Super. Ct. Oct. 19, 2006); see also McMahon Helicopter Servs., Inc., v. United States, No. 04-74133, 2006 U.S. Dist. LEXIS 51819 (2006 WL 2130625, at *8) (E.D. Mich. July 28, 2006). 44 See, e.g., Commonwealth v. Susquehanna Reg’l Airport Auth., 423 F. Supp. 2d 472 (M.D. Penn. 2006); see also Fine Airport Parking, Inc. v. City of Tulsa, 71 P.3d 5, 12 (Okla. 2003). 45 See, e.g., Biddle v. B.A.A. Indianapolis, L.L.C., 860 N.E.2d 570 (Ind. 2007). 46 See, e.g., Burchfiel v. Gatlinburg Airport Auth., No. E2005- 02023, 2006 Tenn. App. LEXIS 747 (2006 WL 3421282) (Tenn. Ct. App. Nov. 28, 2006). 47 See, e.g., Du Page Aviation Corp. v. Du Page Aviation Auth., 594 N.E.2d 1334, 1339–40 (Ill. Ct. App. 1992).

12 tion.48 Several courts have deemed operation of an air- port to constitute a governmental function, thus immu- nizing the public entity from liability, elevating the standard of liability, or imposing a cap on damages.49 Most importantly for present purposes, courts typically have not distinguished between general-purpose gov- ernments and special-purpose authorities in consider- ing immunity; once it is determined that a special- purpose authority is a political subdivision or unit of government generally covered by the relevant statute, the authority will enjoy the same level of protection as general-purpose governments.50 A notable exception is where the state legislature has conferred immunity to counties and cities in their operation of an airport but did not correspondingly confer immunity upon airport authorities.51 D. Federal Law In general, public entities do not govern airports pursuant to any specific grant of power from the federal government. Thus, federal law does not control the manner in which airports are governed in the same way as state law. However, federal law influences airport governance by, for example, directly and indirectly re- quiring that a governing body have the powers neces- sary to satisfy obligations to the federal government, particularly the FAA and TSA. Equally important, fed- eral law precludes public entities that are not directly responsible for the airport from taking various actions to regulate or derive revenue from the airport and its users. Airport Improvement Program and Grant Assur- ances. The FAA administers the AIP, the grant funding program for airport planning and development. Both public and private entities may be eligible to receive grants under the AIP. However, the entity seeking grant funding must have certain attributes and must be empowered to carry out the obligations assumed in ex- change for a grant, known as “grant assurances” or “sponsor assurances.” This entity is referred to as the “airport sponsor.” Among these requirements, the entity applying for an AIP grant must have “legal authority to apply for the grant, and to finance and carry out the proposed project.”52 Further, the governing body must assure that 48 See, e.g., Ludwig v. Learjet, Inc., 830 F. Supp. 995, 998 (E.D. Mich. 1993); see also Gen. Aviation, Inc. v. Capital Reg. Airport Auth., 569 N.W.2d 883, 884 (Mich. Ct. App. 1997). 49 See, e.g., Zimomra v. Alamo Rent-a-Car, Inc., 111 F.3d 1495, 1501 (10th Cir. 1997) (holding that public entity was immune from antitrust liability). 50 See, e.g., Coleman v. Windham Aviation, Inc., No. KC 2004-0985, 2006 R. I. Super. LEXIS 143 (2006 WL 3004071 at *2-3) (R.I. Super. Ct. Oct. 19, 2006). 51 Spencer v. Greenwood/Leflore Airport Auth., 834 So. 2d 707 (Miss. 2003); see also Anderson v. Jackson Mun. Airport Auth., 419 So. 2d 1010 (Miss. 1982). 52 Fed. Aviation Admin., Updated Grant Assurances (“Grant Assurances”), Program Guidance Letter No. 05-03, Attachment 1: Airport Sponsor Assurances, § C(2)(a) (June 3, 2005), it “holds good title, satisfactory to the Secretary [of Transportation], to the landing area of the airport or site thereof, or will give assurance satisfactory to the Secretary that good title will be acquired.”53 This typi- cally includes fee simple title; however, the FAA consid- ers a lease satisfactory so long as the lessor is a public agency, the lease term is greater than 20 years, the lease does not impede the sponsor’s ability to comply with the Grant Assurances, and rent is paid in advance or the sponsor can assure future payments.54 There are very few instances in which an entity that is not the airport sponsor can seek and obtain AIP grant funding. This generally is limited to certain plan- ning and noise mitigation efforts.55 A key commitment under the Grant Assurances is that the airport sponsor is required to use airport reve- nue only for the airport, local airport system, or another “local facility that is owned and operated by the person or entity that owns or operates the airport that is di- rectly and substantially related to the air transporta- tion of passengers or property.”56 The use of airport revenue for nonairport purposes, known as revenue diversion, is strictly prohibited and subjects the airport sponsor to onerous penalties.57 Airport operators that had certain financial arrangements in effect at the time Congress enacted the prohibition can continue to divert airport revenue.58 The prohibition on revenue diversion applies to all federally-obligated airports regardless of the airport governance structure. As explored further below, this greatly reduces any financial incentive to transfer an airport or decision-making responsibility for an airport because, in general, no profits can be realized from such a transaction. Privatization, under an FAA- administered pilot program, presents an important ex- ception to this general rule. http://www.faa.gov/airports_airtraffic/airports/aip/guidance_let ters/media/PGL_05-03.pdf. 53 Grant Assurances, § C(4)(a); See also 49 U.S.C. § 47106(b)(1) (2006). 54 FAA Order No. 5100.38C, Airport Improvement Program Handbook, ¶ 711 (2005), available at http://www.faa.gov/airports_aitraffic/airports/aip/aip_handbook / (select appropriate Part). (Last visited May 4, 2009). 55 Id. ¶ 207. 5649 U.S.C. § 47133(a)(3); see also 49 U.S.C. § 47107(b)(1)(C); Grant Assurance, § C(25). 57 See FAA Policy and Procedures Concerning the Use of Air- port Revenue, 64 Fed. Reg. 7696 (Feb. 16, 1999). 58 49 U.S.C. § 47107(b)(2) (Paragraph (1) of this subsection does not apply if a provision enacted not later than September 2, 1982, in a law controlling financing by the airport owner or operator, or a covenant or as- surance in a debt obligation issued not later than September 2, 1982, by the owner or operator, provides that the revenues, in- cluding 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.).

13 The Grant Assurances impose several additional ob- ligations, including the obligations to 1) make the air- port “available for public use on reasonable conditions and without unjust discrimination,”59 2) refrain from granting an “exclusive right” to conduct an aeronautical activity,60 and 3) “maintain a fee and rental structure for the facilities and services at the airport, which will make the airport as self-sustaining as possible under the circumstances existing at the particular airport, taking into account such factors as the volume of traffic and economy of collection.”61 Airport sponsors may have varying levels of author- ity to carry out the Grant Assurances as a result of the diffused power described in Section I. For example, Grant Assurance requires the airport sponsor to clear and protect the airspace surrounding the airport from hazards to air navigation.62 Grant Assurance 21 re- quires the airport sponsor to promote land uses within the surrounding area that are compatible with airport operations.63 As described above, public entities with primary decision-making responsibility for an airport may lack control over the surrounding area. Thus, the airport sponsor may not have authority to prohibit the construction of hazards or to ensure compatible land use, and instead must make recommendations and en- courage other public entities to do so. Passenger Facility Charges. In addition to being eli- gible for AIP grant funds, the public agency that con- trols a commercial service airport may be authorized to impose, collect, and use PFCs on enplaning passen- gers.64 Conversely, public entities that do not control the airport may not tax, regulate, prohibit, or control PFCs. As required under the AIP, in applying for authority to impose, collect, or use a PFC, the public entity must certify that it “has legal authority to impose a PFC and to finance and carry out the proposed project.”65 59 49 U.S.C. § 47107(a)(1) (2006); see also Grant Assurances, § C(22). 60 49 U.S.C. §§ 40103(e), 47107(a)(4). 61 60 Grant Assurances, § C(24); see also 49 U.S.C. § 47107(a)(13). 62 Grant Assurances, § C(20) (Hazard Removal and Mitigation. It will take appropriate ac- tion to assure that such terminal airspace as is required to pro- tect instrument and visual operations to the airport (including established minimum flight altitudes) will be adequately cleared and protected by removing, lowering, relocating, marking, or lighting or otherwise mitigating existing airport hazards and by preventing the establishment or creation of future airport haz- ards.). 63 Grant Assurances, § C (21) (“Compatible Land Use. It will take appropriate action, to the extent reasonable, including the adoption of zoning laws, to restrict the use of land adjacent to or in the immediate vicinity of the airport to activities and purposes compatible with normal airport operations, including landing and takeoff of aircraft.”). 64 49 U.S.C. § 40117(b) (2006). 65 FAA Passenger Facility Charges, 14 C.F.R. pt. 158, app. A, § B(1) (2008). Rates and Charges. Federal law recognizes the right of a state or subdivision that owns or operates an air- port to impose “reasonable rental charges, landing fees, and other service charges from aircraft operators for using airport facilities.”66 Conversely, a state or subdivi- sion that does not own or operate an airport is expressly prohibited from collecting such fees and charges.67 Airport Operating Certificates. Federal law requires that an airport operator must maintain an airport op- erating certificate if the airport serves 1) aircraft de- signed for at least 31 passenger seats operated by an air carrier, or 2) aircraft designed for more than nine seats conducting scheduled passenger operations of an air carrier.68 To maintain their certificate, airport operators must satisfy numerous obligations for maintaining, operating, and improving the airport.69 Although the airport operator does not have to certify that it has the power to carry out the certificate requirements, the op- erator clearly must have the requisite authority to, for example, hire, equip, and train personnel to perform the specific duties and otherwise carry out the require- ments imposed upon certificate holders. Airport Security Programs. Federal law generally requires that an airport operator develop and imple- ment a security program if the airport serves aircraft subject to prescribed security requirements.70 Airport operators may be required to develop and implement a complete, supporting, or partial security program de- pending on the nature of aircraft operations at the air- port. Although not prescribed explicitly in TSA regula- tions, the airport operator must have the requisite powers to perform its security-related obligations. For example, an airport operator required to maintain a complete or supporting security program must provide “law enforcement personnel in the number and manner adequate to support its security program.”71 Surplus Property and Deed Restrictions. Federal law prescribes a process by which the federal government can transfer surplus federal property to a “State, politi- cal subdivision of a State, or tax-supported organiza- tion” for a public airport.72 The federal government made extensive use of these provisions to convey many World War II–era airfields to local governments after the war. The conditions of transfer include obligations similar to the Grant Assurances, discussed above, in- cluding the requirement to make the airport publicly available, to refrain from granting exclusive rights, and the obligation to prevent and mitigate hazards to air navigation.73 66 49 U.S.C. § 40116(e). 67 49 U.S.C. § 40116(b). 68 49 U.S.C. § 44706(a). 69 See 14 C.F.R. pt. 139. 70 See 49 C.F.R. § 1542.1 (2008). 71 49 C.F.R. § 1542.215(a)(1); see also 49 U.S.C. § 44903(c) (2006). 72 49 U.S.C. § 47151(a). 73 See 49 U.S.C. § 47152.

14 Proprietary Powers. Federal law also recognizes a public entity’s ability to exercise “proprietary powers and rights” for an airport that it owns or operates.74 States and subdivisions that do not own or operate an airport are expressly preempted from enacting or en- forcing laws “related to a price, route, or service of an air carrier.”75 Like other powers, the “proprietary pow- ers and rights” of the airport operator are not a delega- tion or grant from the federal government but rather a recognition of power, in contrast to other entities that have been stripped of such authority.76 The precise nature and scope of these proprietary powers and rights have not been delimited.77 The so- called “proprietor’s exception” most often has been called upon to recognize an airport proprietor’s author- ity to restrict or prohibit particular types of aircraft operations in the interest of reducing noise78 and ad- dressing congestion.79 The Grant Assurances also rec- ognize the right of an airport sponsor to “prohibit or limit any given type, kind or class of aeronautical use of the airport if such action is necessary for the safe opera- tion of the airport or necessary to serve the civil avia- tion needs of the public.”80 In stark contrast, the U.S. Supreme Court has de- termined that a local government that is not the airport proprietor is expressly preempted from restricting air- craft operations through the exercise of its police power.81 Likewise, a federal court has declared that a state is preempted from attempting to use its regula- tory authority to compel the airport proprietor to re- strict aircraft operations.82 74 49 U.S.C. § 41713(b)(3). 75 49 U.S.C. § 41713(b)(1). 76 See, e.g., Arapahoe County Pub. Airport Auth. v. Centen- nial Express Airlines, Inc., 956 P.2d 587 (Colo. 1998) (court held that airport proprietor’s ban on scheduled commercial passenger service was not preempted but rather a valid exer- cise of power conferred by state law). 77 Am. Airlines v. Dep’t of Transp., 202 F.3d 788, 806 (5th Cir. 2000). 78 British Airways Bd. v. Port Auth. of N.Y. and N.J., 558 F.2d 75 (2d Cir. 1977). 79 W. Air Lines v. Port Auth. of N.Y. and N.J., 817 F.2d 222, 223 (2d. Cir. 1987); Houston v. FAA, 679 F.2d 1184, 1186 (5th Cir. 1982). 80 FAA Updated Grant Assurances, Program Guidance Let- ter No. 05-03, Attachment 1: Airport Sponsor Assurances, § C(22)(i) (June 3, 2005), http://www.faa.gov/airports_airtraffic/airports/aip/guidance_let ters/media/PGL_05-03.pdf. 81 City of Burbank v. Lockheed Air Terminal, 411 U.S. 624, 633, 93 S. Ct. 1854, 1859–60, 36 L. Ed. 2d 547, 553–54 (1973). 82 San Diego Unified Port Dist. v. Gianturco, 651 F.2d 1306, 1317 (9th Cir. 1981) (“These criteria (ownership, operation, promotion, and the ability to acquire necessary approach easements) comprise a federal definition of proprietors for pre- emption purposes.”); see also Piroli v. City of Clearwater, 711 F.2d 1006 (11th Cir. 1983). While these federal laws and regulatory programs cover a variety of subjects, they reflect a common legal principle of airport governance: there is a critically im- portant distinction between the entity with decision- making responsibility for the airport and other state and local governments. This entity may be labeled for different purposes as the airport “sponsor,” “proprietor,” and “operator.” This status, regardless of the label, car- ries with it tremendous responsibility to the federal government and airport users, principally through the Grant Assurances, the obligations attendant to the air- port operating certificate, and implementation of an airport security program. Whether explicitly required or not, this entity generally must have requisite and sufficient powers to carry out the obligations and satisfy the requirements imposed by the federal government. At the same time, carrying this label empowers the public entity to take certain actions to the exclusion of states and local governments. The ability, for example, to impose PFCs, impose rates and charges on airport users, and restrict aircraft operations resides only with the airport sponsor/proprietor/operator. While these powers plainly must be balanced against the responsi- bilities and liabilities attendant to governing an airport, they present powerful tools to control an airport. As a related and final note on the issue of state and federal law, conspicuously absent from this discussion has been mention of any legal authority requiring the airport sponsor/proprietor/operator to take any particu- lar action to develop or improve an airport. While the Grant Assurances require the airport sponsor to make the airport publicly available, neither federal nor state law generally dictate that any particular capital im- provements be constructed. Control of an airport carries with it the exclusive power to decide whether to grow the airport or not. For many communities, this funda- mental power constitutes the greatest incentive to be the public entity with control over the airport. As de- scribed in the next section, among the very few options to overcome what are perceived to be bad decisions about airport development is for the state legislature to compel an involuntary change in airport governance. E. The Effects of State and Federal Law on the Initial Choice of Governance Structure 1. State Law Constraints As a general matter, state statutes and constitutions provide for some combination of state agencies, coun- ties, municipalities, joint-exercise-of-power authorities, port authorities, and airport authorities to operate air- ports. Multiple types of airport operators often occur within a single state or region. For example, in Califor- nia, airports are operated by state agencies (University of California), counties (Sacramento County), cities (Los Angeles and San Francisco), port authorities (Port of Oakland), and joint-exercise-of-powers authorities (Burbank-Glendale-Pasadena Airport Authority). State law constrains the initial choice of airport gov- ernance structure in some instances. In particular,

15 state law may mandate particular governance struc- tures for particular airports or types of airports. For example, Minnesota law specifically identifies the gov- ernance structure for the Metropolitan Airports Com- mission (MAC) (the operator of the Minneapolis–St. Paul International Airport (MSP) and other reliever airports), and the state took the operation and owner- ship of MSP from the City of Minneapolis.83 Minnesota state law also puts the operation and development of airports within the metropolitan Minneapolis–St. Paul area within the jurisdiction of the MAC, which would either operate or license such airports. State law does not appear to create any explicit im- pediments to the operation of smaller private airports by individuals, partnerships, and corporations. This is evidenced in part by the fact that roughly three- quarters of the almost 20,000 airports in the United States are privately owned. Liability or other considera- tions may steer operators of public use airports towards certain corporate structures, but they generally do not deter the creation or operation of these airports. Nonetheless, general state laws may have practical effects that skew the choices of governance. For exam- ple, as discussed above, the sovereign immunity and public liability or immunity provisions often create pro- tections from tort liability (e.g., higher standards for culpability, liability caps, and procedural requirements) that are not generally available for private entities. State and local land use and other regulatory require- ments may also be tougher on private entities than pub- lic ones, some of which may enjoy intergovernmental immunity from local land use regulation. While these types of provisions may create some advantages for public entities, they must be offset against the public process, political, and other burdens associated with public operations. 2. Federal Law Constraints Federal law provides essentially no constraint on the choice among different types of public entities that might operate an airport. None of the federal statutes, regulations, Grant Assurances, or guidance documents discriminates meaningfully among different types of public entities in terms of funding eligibility or compli- ance issues. Sponsors of larger, multi-airport systems have some limited advantages over single-airport pro- prietors due to the ability to share revenues and costs among airports, as well as to designate airports for cer- tain types of aeronautical uses.84 However, there are few legal deterrents to adding airports to create or ex- pand an airport system. Federal law does shape the incentives relating to the choice between public and private airports, especially for airports that may be eligible for federal funding. Federal law treats privately-owned airports in a nomi- nally identical way to public airports for purposes of 83 MINN. STAT. §§ 473.601–473.679 (2008). 84 See FAA Order No. 5190.6A, Airports Compliance Re- quirements, § 4-8(d) (1989). obligations, subjecting them to the same requirements on revenue diversion, rates and charges, and other principles. However, the revenue diversion prohibition has some deterrent effect on setting up an airport as a wholly private entity if the sponsor anticipates needing federal grant assistance or surplus property. While the revenue diversion principles allow the collection of fair market rents for the use of the land ab initio and the collection of management fees by private entities, such profit-making opportunities are more limited than the potential profits associated with running an entire air- port as a profit-generating enterprise. Further, federal law favors publicly-owned airports in their ability to acquire or use federal funding and PFCs. For example, under the AIP, entitlement funds are available for publicly-owned airports providing commercial service that are not available to similarly- situated private airports.85 Similarly, a publicly-owned airport can rely on statutory provisions to require air- lines to collect PFCs on their behalf.86 However, a pri- vately-owned airport would have to negotiate with air- lines to get their agreement to collect such fees. Federal law requires potential airport sponsors to choose between the potential benefits of federal grant assistance—which could be useful in the initial devel- opment of an airport—and an unfettered ability to make a profit on the airport's operations as a business (as opposed to supplying an input into the airport's op- eration, such as management or land) once it is a going concern, the ability to subsidize commercial flights di- rectly, and the potential ability to discriminate among airport users. It is uncertain just how significant this factor is in the real world. Most new commercial service or large general aviation airports are built by existing airport proprietors (e.g., City of Denver (Colorado), Panama City (Florida), and Clark County (Nevada)) that appear to be more interested in the public benefits of an airport for general economic development and transportation purposes than airport-specific profits. The large capital costs associated with planning, permitting, and con- structing a new airport make federal grant assistance extremely attractive in these contexts. Further, the use of existing airport revenues are often critical to the funding of these start-up costs. The development of a pure "greenfield" airport not designed to replace an existing airport or built by an existing sponsor is exceptionally rare. Indeed, it pro- vides such a small sample that it is hard to draw any meaningful conclusions. One current project, the Bran- son Airport in Missouri, shows that federal law does not completely deter or bar the private development of a new commercial service airport. The Branson Airport is a privately-financed and -operated facility with a 7,150- 85See FAA Order No. 5100.38C, Airport Improvement Pro- gram Handbook, at 5-11 (2005), available at http://www.faa.gov/airports_aitraffic/airports/aip/aip_handbook / (select appropriate part). (Last visited May 4, 2009). 86 See 49 U.S.C. § 40117.