Legal Considerations in the Funding and Development of Intermodal Facilities at Airports (2018)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

5 of 2012 continued the legislative policy trend encouraging the development of intermodal facili- ties at airports and directing the GAO to study air- rail connectivity.25 Finally, the Moving Ahead for Progress in the 21st Century Act (MAP 21), quickly followed with directions that the Secretary of Transportation assist states in funding intermodal connectors and aerotropolis systems. III. THE FUNDING OF AIRPORT INTERMODAL FACILITIES There are five primary sources of funding avail- able for the development of airport intermodal facili- ties: 1) the Airport Improvement Program (AIP); 2) Passenger Facility Charges (PFCs); 3) bonds;26 4) air- port revenue; and 5) federal, state, and local grants and loans. Each source of funding has its particular limitations. Indeed, one of the complexities in the development of intermodal facilities has been associ- ated with assembling a workable funding package. AIP funds are used overwhelmingly for airside projects related to aircraft operations, runways and taxiways. No intermodal facility at an air- port has yet been funded with AIP funds. AIP funds are available, however, for the construc- tion of terminal buildings associated with inter- modal facilities. The FAA has approved the use of PFC funds for airport intermodal facilities, but those funds are limited by the eligibility criteria established for AIP funding and other statutory restrictions. Nevertheless, PFC funds can be used for a broader range of airport projects than AIP funds—including landside projects. PFC- backed bonds are subject to the same consider- ations as PFC funding. The use of airport revenue carries with it the fewest limitations but, like all other airport funds, the use of airport revenue is subject to an airport sponsor’s federal statutory and grant assurance obligations (most particu- larly revenue diversion and the self-sustaining commitment).27 State and local grants (and other funding) have played a significant role in a num- ber of intermodal projects at airports as direct funding or as part of a package of funding that includes other federal grants and loans (such as the Department of Transportation’s New Starts and TIFIA programs). All of these funding sources, and their limitations, are discussed briefly in the following sections and in greater detail in the case studies that follow. 25 Pub. L. No. 112-95, § 810, 126 Stat. 11, 123 (2.14.12). 26 Airport bonds may be supported by PFCs and airport revenue. 27 49 U.S.C. §§ 47107(a)(13), 47107(b), 47133. additional demand for all modes of transportation.18 ISTEA contained the practical innovation of foster- ing and funding Metropolitan Planning Organiza- tions (MPOs)—authorizing MPOs to plan for local transportation projects19 and requiring that these plans be consistent with the broader and long-term transportation plans within each state.20 Seven years after ISTEA, Congress enacted TEA- 21. In addition to reaffirming the national goals of safe, efficient, and economical transportation, TEA- 21 spoke in terms of the management of an inte- grated and connected transportation system.21 The statute represented a policy change from the fund- ing of highways to the planning and building of transportation “connections.”22 Two years later Con- gress included airports in this expansive view of the construction of a national transportation system. B. Intermodal Transportation Policy for Airports If ISTEA promoted intermodalism as a national policy, the 2000 enactment of AIR21 made its reach global. In AIR21, Congress saw airports as the intermodal link to the global economy that allowed the country to compete in the international mar- ketplace.23 Airports would serve as transportation hubs for all forms of transportation that provided access to commercial and population centers, busi- ness locations and the “vast rural areas of the United States,” all while reducing energy consump- tion and pollution and promoting economic devel- opment.24 The FAA Modernization and Reform Act 18 daN vetroySky aNd adiB kaNafaNi, the poteNtial role of airportS aS iNtermodal termiNalS: leSSoNS from iNterNatioNal aNd domeStic experieNceS, 1 (University of California Transportation Center, University of California 1994) [hereinafter Vetroysky & Kanafani]. 19 Id. at 22-25 & n. 129. 20 Id. at 25-26. 21 Transportation Equity Act for the 21st Century (TEA-21), 23 U.S.C. § 101 (7.21.98); Intermodal Transpor- tation, supra note 10 at 26. 22 TEA-21 also provided funding for loans and loan guarantees under the Transportation Infrastructure Finance and Innovation Act (TIFIA). TIFIA provides loans, standby lines of credit and loan guarantees for large transportation projects that are of “national signifi- cance.” 23 U.S.C. § 601. The following links provide pro- gram information https://www.transportation.gov/sites/ dot.gov/files/docs/TIFIA%20Program%20Guide_ April_2015_2.pdf and fhwa office of program admiNiS- tratioN, a guide to federal aid programS aNd proJectS available at https://www.fhwa.dot.gov/federalaid/projects. cfm?CFID=8345371&CFTOKEN=33c46eOc45655f10- 39521D54-D77D-2D74-1C9C02B30015B64F. 23 49 U.S.C. § 47101(b)(1) and (7). 24 49 U.S.C. § 47101(b)(4) and (5).

6 an airport and the level at which the airport applies its Passenger Facility Charge. Large and medium hub airports, collecting PFCs at $3 or less are sub- ject to a reduction in their entitlement funds of 50% of projected PFC revenue for the fiscal year until AIP “formula grants” have been reduced by 50%. Airports collecting PFCs at rates greater than $3 have their AIP funding reduced by 75%.37 Although no airport intermodal project has yet been funded through the AIP program, FAA Order 5100.38B states the AIP eligibility criteria for such “facilities” (including ground access projects).38 The Handbook places intermodal projects at airports within the general category related to the “move- ment of passengers, cargo and baggage.” The Hand- book goes on to restate the three eligibility criteria contained in Paras. 620a and 622b for AIP eligibil- ity—the intermodal project 1) may only extend to the nearest public facility of sufficient capacity to accommodate airport traffic; 2) must be located on airport property or a right-of-way acquired by the airport; and 3) must serve exclusively airport traf- fic.39 “Related” facilities, such as lighting, opera- tional equipment, informational technology and signage are eligible for AIP funding when they are shown to be a “necessary part” of an otherwise eli- gible facility. Finally, the Handbook requires that an airport must retain ownership, even if it leases the facility or allows some other entity to operate it.40 AIP eligibility criteria are discussed in considerable depth in the Handbook and in further detail in Sec- tion IV. C. 1. and the case studies in Section VI. B. The Passenger Facility Charge Program The Passenger Facility Charge was enacted as part of the Aviation Safety and Capacity Expansion Act of 1990.41 The 1990 Act allowed for the imposi- tion of a fee up to $3 on each passenger boarding an aircraft at a U.S. airport.42 PFCs were initially in the assurances. Violating grant assurance has serious financial and administrative consequences. https://www. faa.gov/airports/aip/grant_assurances/media/2012-aip- assurances-airport-sponsors.pdf. 37 49 U.S.C. § 47114(f). 38 AIP Handbook, supra note 35 and 49 U.S.C. § 47102(3)(1). 39 AIP Handbook, supra note 35. 40 Id. at 6367. 41 Pub. L. No. 101-508 (Omnibus Budget Reconciliation Act of 1990, Title IX (1990)). 42 The PFC is a federal exception to the Anti-Head Tax Act (49 U.S.C. § 40116), which prohibits states and local authorities from taxing passenger enplanements at air- ports. The Act was passed in response to a Supreme Court ruling that allowed such taxes and the lobbying by air- lines for a prohibition on them following the Supreme A. The Airport Improvement Program Congress enacted two laws in 1970 that addressed airport funding issues: The Airport and Airway Development Act28 established a funding program that eventually became the AIP and the Airport and Airway Revenue Act of 197029 established the fund- ing aspect of the Airway Development Act by creat- ing the Airport and Airway Trust Fund. The Airport Trust Fund receives money from aviation-related taxes on tickets, flight segments, cargo waybills, general and commercial aviation fuels, interna- tional arrivals and departures and frequent flyer awards. The Airport and Airway Improvement Act of 1982 created what is now known as the Airport Improve- ment Program.30 The Federal Aviation Reauthoriza- tion Act of 199631 reauthorized AIP and, for the first time, contained specific policy directives regarding intermodal planning.32 The Wendell H. Ford Avia- tion Investment and Reform Act for the 21st Century reauthorized AIP without major program changes, increased significantly funding for airport capital development and reaffirmed the previous Act’s pol- icy directives regarding intermodal development at airports,33 as did subsequent reauthorizations enacted in 2003, 2012, and 2016.34 AIP funds sup- port FAA activities and federal grants to airports. AIP funds are distributed to airports as grants according to a detailed statutory scheme that includes formula grants to specific airports or kinds of airports and discretionary funding.35 AIP grant applications are conditioned on an airport’s accep- tance of certain assurances regarding future airport operations. These “grant assurances” include obliga- tions such as making the airport available for public use on reasonable terms and without unjust eco- nomic discrimination and expending airport reve- nue only on airport-related capital and operating costs.36 AIP funding is reduced based on the size of 28 Title I of Pub. L. No. 91-258 (1970). 29 Title II of Pub. L. No. 91-258 (1970). 30 Pub. L. No. 97-248 (1982). 31 Pub. L. No. 104-264 (1996). 32 See generally, fiNaNciNg airport improvemeNtS, report No. r43327, (Congressional Research Service, May 10, 2017) available at https://www.everycrsreport. com/reports/R43327.html [hereinafter Airport Improve- ments]. 33 Pub. L. No. 106-181 (2000). 34 See generally, Id. at 5 and Appendix A. 35 See generally, airport improvemeNt program haNd- Book 7-11 (Federal Aviation Administration, 2004) [here- inafter AIP Handbook]. 36 49 U.S.C. § 47107. The grant assurances bind an air- port to carrying out the federal policy directives contained

7 collected were spent on ground access projects at airports.49 PFC eligibility for airport ground access projects that support the movement of passengers, cargo and baggage is the same as that for AIP projects.50 And, if imposed at levels higher than $3, PFCs at medium and large hub airports, must pass the “significant contribution” test by showing that the project enhances the safety, security, capacity or competi- tion at an airport or must be used to reduce airport noise.51 In addition, when PFC funds are used for a terminal or ground surface project, an airport must show that it has made adequate provision for its air- side projects.52 Although PFCs are obtained from the use of an airport and are hence considered “local” revenue, airports must still, similar to the AIP, make a request for their use and must make certain assur- ances to the FAA regarding their use.53 The FAA issues regular guidance about the PFC program and the use of PFC revenue. The FAA has issued specific guidance for the use of PFC funds for the develop- ment of airport ground access projects. Currently in effect is Passenger Facility Charge to Ground Access Projects.54 The FAA has also issued a recent Notice of Proposed Policy Amendment, Passenger Facility Charge Program: Eligibility of Ground Access Proj- ects Meeting Certain Criteria.55 The 2016 Notice dra- matically changes the FAA’s policy regarding the use of PFCs for intermodal projects but, as of the date of the publication of this digest, it has not yet been finalized. PFC requests for intermodal facility funding must satisfy the criteria for AIP eligibility and at least one of the PFC Program objectives. PFC Pro- gram objectives include: 1) preserving or enhancing the safety, capacity, or security of the national air transportation system; 2) reducing or mitigating noise resulting from an airport, or 3) enhancing competition between or among air carriers.56 A 49 https://www.faa.gov/airports/pfc/monthly_reports/ media/archive/2018_January/stats.pdf; daNiel horowitz, grouNd acceSS to domeStic airportS: the creatioN of a federal program to StreamliNe eNhaNcemeNt aNd moderNizatioN proJectS, (Massachusetts Institute of Technology 2003) (extended FAA chart). 50 49 U.S.C. § 40117(a)(3)(A); Notice of Policy supra note 47 at 6367. 51 Id. at 6368-69. 52 Id. at 6370; TCRP 62, supra note 43 at 131. 53 https://www.faa.gov/airports/pfc/media/pfc-assurances. pdf (PFC Assurances). 54 69 Fed. Reg. 6366 (Nov.12, 2004). 55 81 Fed. Reg. 26611 (May 3, 2016) [hereinafter 2016 Notice]. 56 Notice of Policy, supra note 47 at 6368. capped at $3 for each airport and $12 total for each round trip for segmented flights (flights with con- nections at other airports).43 PFCs are local funds collected by airlines as part of the ticketing process. Nevertheless, PFCs must be used by airports to fund only eligible airport-related projects or to ser- vice debt obtained to carry out such projects.44 In April 2000, AIR21 raised the PFC caps to $4.50 for each enplaned passenger and an $18 limit for each round trip for segmented flights.45 PFCs are pre- dominantly used for landside projects whereas AIP funds are overwhelmingly reserved for airside proj- ects.46 PFCs cannot be used to fund revenue-produc- ing projects such as terminal concession areas or projects inconsistent with an airport’s grant assur- ance obligations. Depending on the level of PFC col- lection, an airport may be required to make adequate provision for the funding of airside needs before ter- minal projects may be funded with PFCs.47 Airports must obtain the FAA’s approval for the imposition of PFCs as well as for each project funded with PFCs. An airport may spend PFC funds as they are received (“pay as you go”) or use them to support or retire debt on eligible airport capital improvement projects. Although an airport must consult with air- lines about the use of PFC funds, the decision remains with the airport with the approval of the FAA.48 From 1990 to 2016, 9% of all PFC funds Court’s decision. Evansville v. Delta Air Lines, 405 U.S. 707 (1972). 43 PFCs may be imposed in amounts from $1 to $4.50. 49 U.S.C. § 40117(b). PFC funds may be used in direct payment for project costs or they may be used to support bonds for such projects. 44 49 U.S.C § 40117. improviNg puBlic traNSportatioN acceSS to large airportS report 62, 132 (Transportation Research Board, 2000) [hereinafter TCRP 62]. 45 Airports that wish to impose a PFC in excess of $3 must demonstrate to the FAA that its funded projects will make significant improvements in air safety, increase competition, or reduce congestion or the effects of noise on the community and that such projects could not be fully funded through AIP funding. Large and medium hub air- ports that charge PFCs in excess of $3 forego 75% of their AIP formula funds, but remain eligible for AIP discretion- ary grants. 46 See generally, Airport Improvements supra note 32 at 13 and Table 2 (project comparison for PFC and AIP funds). 47 49 U.S.C § 40117(d)(4) ($3 threshold PFC amount); Notice of Policy Regarding the Eligibility of Airport Ground Access Transportation Projects for Funding Under the PFC Program, 69 Fed. Reg. 6366, 6370 (2004) [herein- after Notice of Policy]; TCRP 62 supra note 43 at 131. 48 TCRP 62 supra note 43 at 134.