Theory and Law of Airport Revenue Diversion (2008)

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3 THEORY AND LAW OF AIRPORT REVENUE DIVERSION By Paul Stephen Dempsey, Tomlinson Professor of Law, McGill University1 I. INTRODUCTION Harvard economist John Kenneth Galbraith ob- served, “In all countries the economic system depends on and develops from the State financing of highways, airports, postal services and urban infrastructure of the most diverse and essential sort.”2 Traditionally, many national governments have provided infrastructure services that were too complex and expensive for the local authorities to provide. Such services include air- ports and air navigation, meteorology, and communica- tions systems. Federal oversight satisfied the need for a high degree of uniformity and standardization. The government also provided the services of health, immi- gration, customs, and the protection and security of civil aviation. But, relatively recently, several nations have embraced private enterprise and competition, rather than government oversight, to provide essential transport and have “corporatized” various portions of the infrastructure, such as airports and air traffic con- trol services.3 Unlike the global paradigm of nationally owned and operated or corporatized or privatized airports, most airports in the United States are owned and operated by local (city, county, regional, and in some instances state) governments.4 Despite local government owner- 1 Tomlinson Professor of Law and Director, Institute of Air & Space Law, McGill University, Montreal, Quebec, Canada. From 1979–2002, Dr. Dempsey was Professor of Law & Direc- tor of the Transportation Law Program, University of Denver College of Law. A.B.J. (1972), J.D. (1975), University of Geor- gia; LL.M. (1978), George Washington University; D.C.L. (1986), McGill University. Admitted to the practice of law in Colorado, Georgia, and the District of Columbia. 2 Bev Desjarlais, Doug Young’s Defection Shows His True Colors, HILL TIMES, June 5, 2001, at 16. 3 See, e.g., Soon-Kil Hong & Kwang Eui Yoo, A Study on Airport Privatization in Korea: Policy and Legal Aspects of Corporatization and Localization Over Airport Management, 66 J. AIR L. & COM. 3 (2000); PAUL DEMPSEY ET AL., THE MCGILL REPORT ON GOVERNANCE OF COMMERCIALIZED AIR NAVIGATION SERVICES (2006), reproduced at http://www.mcgill.ca/files/iasl/ANS_Report_final.pdf (Last vis- ited Jan. 23, 2008). 4 For many years, the Washington, D.C., airports (Reagan National and Washington Dulles) were federally owned and operated, but these too have been transferred to local govern- mental institutions. In 1987, the U.S. government transferred the operation of Ronald Reagan Washington National and Dul- les International Airports to the newly created Metropolitan Washington Airports Authority under a 50-year lease. ship, the federal Airport Improvement Program (AIP) grants and Passenger Facility Charge (PFC) authoriza- tions provide significant funding for many of these air- ports and oversee local airports directly, through Titles 14 and 49 of the Code of Federal Regulations, and indi- rectly, in the form of conditions imposed in grant agreements. The fiscal problems facing local govern- ments more generally (including, for example, the needs of urban roads, water, sewage, parks, schools, hospitals, and other infrastructure, and fire and police protection) coupled with a declining tax base have forced many to search for new sources of revenue. Redirecting revenue from airports to fund nonairport municipal needs ap- pears attractive to some local political leaders. Yet Con- gress has stepped in to promulgate laws to circumscribe the ability of federally funded airports to divert airport revenue “downtown.” Conflicts over locally owned and operated airports and federal funding and regulation are by no means unique to revenue-diversion issues, but they manifest themselves here as well. While, on the one hand, Congress has been concerned with assisting airports with their need to secure ade- quate funding, on the other, it has been concerned about the possibility that airports might use airport revenue for nonairport purposes. Where federal funds have been spent to build or improve local airport infra- structure, allowing airport revenue to be spent on non- aviation-related activities in effect results in an indirect transfer from the federal to the local treasury. Airlines and aircraft operators, as well as airport concession- aires, have objected to diversion on grounds that if air- port revenue is spent on nonaviation uses, they will be forced to shoulder the economic burden thereby created. Airports account for between 4 percent and 6 percent of Most airports in the U.S. were created as departments of cities or counties; most remain owned and operated by a gov- ernmental institution. As of 2003, city-owned airports were the most common form of ownership in the United States (38 per- cent), followed by regional/airport authority (25 percent), single county (17 percent), and multiple-jurisdictions (9 percent). For example, the cities of Atlanta, Chicago, Denver, Detroit, Mi- ami, and Philadelphia own their airports. State ownership accounts for 5 percent of the total, including Baltimore Wash- ington International Airport, Anchorage International (and most other airports in Alaska), and the Hawaiian airports. Airports at Boston, Dallas/Ft. Worth, Minneapolis/St. Paul, New York/New Jersey, Seattle/Tacoma, and Washington are operated by independent authorities (several by multi-purpose Port Authorities, which account for 3 percent of the total). Air- ports Council International–North America, Who Governs the Airport and Does It Matter?, http://www.aci-na.org/docs/70- Airport%20Governance.doc (Last visited Jan. 23, 2008).