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

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8 concession fees and any other airport-imposed charge are all considered airport revenue. Airport revenue is subject to a statutory requirement that it must be used for the “capital and operating costs of (A) the airport; (B) the local airport system; or (C) other local facilities owned or operated by the air- port owner or operator and directly and substan- tially related to the air transportation of passengers or property.”61 The same standard also appears in 49 U.S.C. § 47133. Thus, airport revenue may not be diverted to uses other than supporting the airport.62 Airport revenue is eligible for use for intermodal facilities if an airport can satisfy the statutory requirement that the funds will be expended for the capital and operating costs of 1) the airport, 2) the local airport system; or 3) other facilities owned or operated by the airport owner and directly and sub- stantially related to the air transportation of pas- sengers or property.63 The FAA has regarded the third requirement satisfied for structures and equip- ment 1) located entirely on airport property and 2) designed and intended exclusively for the use of air- port passengers.64 The rules regarding the eligibility for the use of airport revenue for intermodal projects at airports are discussed in significant detail in Bul- letin No. 1 and in Section V.A. and in the case stud- ies contained in Section VI. IV. THE SOURCES OF NON-AIRPORT FUNDING FOR INTERMODAL FACILITIES The history of intermodal facility development on airports and the literature of public transit infra- structure development contain suggestions for the financing of airport intermodal facilities that may supplement or even replace AIP grants, PFCs and airport revenue. As this section explains, intermo- dal facilities at airports have been funded histori- cally from multiple sources. Increasingly, however, 61 49 U.S.C. § 47107(b)(1). See also FAA Policy and Pro- cedures Concerning the Use of Airport Revenue 64 Fed. Reg. 7696 (Feb.16,1999) [hereinafter FAA Policy]. 62 A related requirement is that airports must operate their facilities to be as “self-sustaining” as possible. Air- ports must, therefore, rent facilities at fair market value and must obtain fair compensation for the opportunities they provide to concessionaires. The line between revenue diversion and violation of the “self-sustaining” assurance can be a fine one. Nevertheless, they are both prohibited and the penalties for violating either can be severe–49 U.S.C. § 47107(b)(1) (revenue diversion standards); 49 U.S.C. § 47126 (criminal penalty for false statements). See generally, FAA Policy supra note 61 at 7696. 63 49 U.S.C. § 47107(b); Bulletin No. 1 at 4-6; FAA Pol- icy supra note 61 at 7696, 7715-16. 64 Id. at 7719. request by a large or medium hub airport for a proj- ect at the $4 or higher PFC level is required to show that the facility makes a significant contribution to: 1) improving air safety and security; 2) increasing air carrier competition; 3) reducing congestion (cur- rent or anticipated); or 4) reducing noise.57 Projects funded at the $4 PFC level and above must also meet the airside needs test which requires a demon- stration that the airport sponsor has made adequate provisions to satisfy its airside needs. The PFC eligi- bility requirements are discussed in considerable detail in the 2004 Notice and in further detail in Section IV. C. and D. and the case studies contained in Section VI. C. Airport Bonds Airport bonds are generally tax-exempt private activity bonds (PABs) or general airport revenue bonds (GARBs) supported by general airport reve- nue, such as landing fees, user charges, rents or PFCs.58 There are also special facility bonds (SFPs),59 but airports rarely use those instruments to fund the development of intermodal facilities. The same restrictions that apply to PFCs also apply to PFC- backed PABs and GARBs. D. Airport Revenue Airport revenue is defined as any funds collected by an airport for any activities conducted on airport property.60 Thus, landing fees, lease rates and charges, mineral development royalties, rentals, 57 Id. at 6368-69. 58 See generally, TCRP 62, supra note 43 at 129-130; Airport Council International, Primer: Airport Financing available at http://www.aci-na.org/sites/default/files/ basics_of_airport_financing.pdf. 59 SFBs are issued by an airport for the purpose of building a specific facility, such as a terminal or mainte- nance hangar. The bonds are secured by revenue from the facility and generally backed by the creditworthiness of the airport and the facility tenant. SFBs are perceived to carry higher risk than other forms of airport bond financ- ing and may, therefore, carry a higher interest rate. AVF 8700 - Airport Finance 101; crS report for coNgreSS: airport fiNaNce overview, available at http://congressio- nalresearch.com/98-579/document.php. 60 The precise definition of airport revenue contained in 14 C.F.R. § 158.3 is all “revenue generated by a public air- port (1) through any lease, rent, fee, PFC or other charge collected, directly or indirectly, in connection with any aeronautical activity conducted on an airport that it con- trols; or (2) In connection with any activity conducted on airport land acquired with Federal financial assistance, or with PFC revenue under this part, or conveyed to such public agency under the provisions of any Federal surplus property program or any provision enacted to authorize the conveyance of Federal property to a public agency for airport purposes.”

9 rail link from the City of Denver to the airport. The land in the area of Pena Station will be assessed a property tax in order to reimburse the airport for its investment in the station and the related infrastructure. B. Public-Private Partnerships (P3) An increasing demand for public infrastructure combined with a decreasing desire to pay for such development or to wait a significant length of time until funding becomes available, has resulted in an interest in the use of non-public money in the form of public-private partnerships (P3s) to finance pub- lic infrastructure development.67 P3s can take sev- eral variations on the theme of design-build- finance-operate agreements. Unless project costs are paid upfront, a P3 development tends to require a stream of revenue that will provide continuing compensation to the developer. Recently, toll roads, parking garages and city parking meters have been used to support such agreements.68 The revenue from airport concessions have also been used to attract operators for airport terminals.69 The con- struction of the Portland MAX Red Line to PDX is an example of the use of a P3 for an intermodal facil- ity at an airport. The construction of the Los Ange- les LAMP development is another example of a P3 intermodal development at an airport.70 C. Federal Loan and Grant Programs Several federal programs unrelated to airport revenue and grants are available to finance inter- modal facilities at airports. Funding for these fed- eral programs, however, is limited and can be uncertain with each new federal budget. Also, the 67 RobeRt S. KiRK & William J. mallett, Funding and Financing HigHWayS and Public tRanSPoRtation, 18-19, (Congressional Research Services, 2017) available at every- crsreport.com/reports/R44674.html [hereinafter Kirk & Mallett]. 68 Not all of these public-private partnerships, however, have proved beneficial to the public entities offering them. https://chicago.suntimes.com/news/parking-meters- garages-took-in-156m-but-city-wont-see-a-cent/; http:// amlawdaily.typepad.com/amlawdaily/2009/06/when- p3-deals-go-horribly-horribly-wrong.html; https://www. ncppp.org/indiana-toll-road-bankruptcy-leads-congress- to-reassess-p3-model-crs-reports/; http://www.ncppp.org/ wp-content/uploads/2013/02/CRS-Insights-Indiana-Toll- Road-Bankruptcy-Chills-Climate-for-P3s.pdf. 69 RacHel y. tang, aiRPoRt PRivatization: iSSueS and oPtionS FoR congReSS, 1 - 3 (Congressional Research Ser- vices, 2017) available at https://fas.org/sgp/crs/misc/ R43545.pdf. 70 https://www.lawa.org/en/news-releases/2018/news- release-22; https://www.ncppp.org/much-of-l-a-airport- project-will-be-built-through-p3s/. such facilities are funded from an even wider array of sources, including airport, non-airport, federal, state, and private sources.65 These sources include the concept of value capture, public-private partner- ships, municipal bonds, federal loan financing, fed- eral grants, transit system and toll revenue, and national and state infrastructure banks. The sec- tions below provide a general introduction to non- airport funding. A. Value Capture Value Capture is a concept that appears to have originated in the 19th century when exurban real estate developers shared the cost of transit systems that brought buyers and residents to housing devel- opments on the fringes of urban areas.66 Value Cap- ture recognizes that property values and business activity increase in proximity to transit corridors. Thus, value capture asks the property owners and businesses that benefit from the construction of transit infrastructure to bear some of the cost of that construction through special assessments, tax increment financing, development impact fees and joint development. While the literature of airport intermodal devel- opment does not describe any such theory put into practice at an airport, there is, at least, a conceptual precedent for value capture in one airport intermo- dal project. The PDX MAX project in Portland was, in part, a public-private partnership. Conceptually, however, the project recognized that a piece of real estate increased in value because of its location in a light rail corridor between a light rail main line and the airport terminus station. Bechtel, a private developer, was willing to trade its construction of certain parts of the PDX spur in return for the right to develop a piece of property along the rail line. This transaction recognizes, albeit in a less formal way than taxes or fees imposed by a governmental unit, the increased value to a property holder of a property’s proximity to a public transit corridor. Another example of the value capture concept can be found at Denver International Airport’s Pena Station. Pena Station is one of the stops on the light 65 Two intermodal centers constructed “near” airports— the Landside Access Modernization Program (LAMP) at LAX and the Miami Intermodal Center (MIC) at MIA— are being funded from non-airport sources. LAX and MIA, however, are responsible for the construction of APMs and terminal access facilities. https://www.lawa.org/connectingLAX; http://www.micdot.com/. 66 Funding and Financing Highways and Public Trans- portation, available at https://www.everycrsreport.com/ reports/R44674.html (Aug. 6, 2017) at 18 [hereinafter Funding and Financing].