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ACRP LRD 40 3 PERMISSIBLE USES OF AIRPORT PROPERTY AND REVENUE Peter J. Kirsch and Christian L. Alexander, Kaplan Kirsch & Rockwell LLP, Denver, CO SUMMARY This publication explores the boundaries of permissible use of airport revenue and property under federal law and provides legal analysis regarding industry trends and legislative and regulatory changes beyond those covered in previous ACRP re- search. Through legal research and qualitative interviews with a small number of airport officials representing a diversity of airports, this research seeks to provide practical guidance for determining permitted uses of airport revenue and property in a meaningful and useful way for industry stakeholders. The permissible use of airport revenue and related permis- sible uses of property are two of the most common legal issues faced by airport proprietors. They also are two of the most dif- ficult to navigate. While the federal governmentâs clear and longstanding interest in protecting its investment in the nationâs airports and air navigation system provides the foundation for the prohibition on so-called ârevenue diversion,â revenue and related property use restrictions can at times complicate airport management and development. In a review of available law, guidance, cases and illustrative projects, a number of key principles and concepts emerges. First, while it is simple to state that airport revenue must be used only for airport capital and operating costs, in practice, this maxim in certain cases is susceptible to much complexity, which may make it difficult for airport proprietors to spot potential revenue diversion problems. An equally simplified, but useful, principle is that an airport proprietor must be able to explain the airport nexus for every expenditure of airport dollars and for the use of every acre of airport property. Second, determining the revenue source and, particularly, whether and in what manner it derives from the federal govern- ment, is essential for understanding permissible uses of airport revenue and property. It is equally important to understand the source and legal characterization of each parcel of airport prop- erty, which may not be immediately clear by merely observing its current use or description. Inaccurate, outdated or informal historical records on airport property acquisition, use and re- strictions have caused considerable headaches for airport pro- prietors. Paradoxically, revenue diversion may exist even when no funds change hands. For example, low- or no-rent use of air- port property for nonaeronautical purposes could constitute revenue diversionâand could implicate other grant obliga- tions, as wellâeven if there is no airport revenue being chan- neled to non- airport use. This point is particularly applicable to non commercial (e.g., governmental and community) uses of airport property. The loss of revenue or profit is measurable in dollars, which benefit the entity that is not paying reasonable rates. There are exceptions to this principle for certain aero- nautical expenditures (e.g., fee waivers under an air service in- centive program), but such exceptions remain circumscribed and generally are narrowly construed. There was a time when airport real estate functioned primar- ily as a buffer or protection against neighboring land uses. But as the airport industry and its stakeholders have become more cost-sensitive and the need to develop new revenue sources has intensified, airport proprietors increasingly are viewing vacant or underused airport property as a valuable, if unproductive, asset. This research reflects the extent to which airport propri- etors are seeking creative means of using airport revenue and property. While these creative endeavors require careful analysis and assessment of applicable revenue use requirements, airport proprietors report that such efforts can be pivotal in helping achieve strategic and financial goals for themselves and other stakeholders. Private entities and non-airport governmental units, in particular, can play a key role in unlocking the value of airport property by generating revenue/income for off-airport use, but only if the airport proprietor receives fair market value for use of the airport or for services rendered to the airport. The authors would like to thank Nicholas M. Clabbers, Steven L. Osit, Grace Patrick, Andrew Fischer, and Anjie Zhi in particular for their contributions to this research. I. INTRODUCTION Understanding the permissible use of airport revenue is one of the most common legal issues faced by airport proprietors. It is also one of the most difficult to navigate. While some prin- ciples of applicable law are clear, other areas continue to present challenges for airport proprietors, either because of ambiguity in the law, complexity of applicable federal restrictions or politi- cal and economic pressures on how to spend airport revenue. Although federal government guidance regarding specific areas of airport revenue diversion exists, there is relatively little litera- ture that integrates these resources and applies analysis across different subcategories of airport revenue use and diversion. There are few reported court cases and only a small handful of FAA administrative cases.1 1 Researchers are warned that, at times, there have been delays in updates to the databases containing FAA administrative decisions under 14 C.F.R. Part 16 available on the online legal research portals Lexis and Westlaw. At this writing, those databases are not up to date. Decisions are available on the FAA website, but the site does not purport
CONTENTS Summary, 3 I. Introduction, 3 II. Foundations and Fundamentals, 5 A. Brief Historical Review and Review of Recent Updates, 5 B. Brief Review of Theoretical Foundation for Regulation of Airport Revenue and Related Property Use, 8 C. Nexus Between Airport Property and Airport Revenue Use, 11 D. Statutory and Regulatory Framework for Controlling Use of Airport Revenue and Related Property Use, 16 E. Established Boundaries for Permissible Use of Airport Revenue, 23 III. Methodology, 25 A. Research Purpose, Scope and Method, 25 B. Data Collection Method and Techniques, 26 C. Discussion of Method of Analysis and Presentation of Results, 26 IV. Findings and Discussion, 27 A. Recent Developments in Airport Proprietor Activities to Expand Sources or Pursue Creative Strategies for Airport Revenue Use, 27 B. Key Factors, Issues, Strategies and Examples of Permitted and Prohibited Airport Revenue Use and Related Property Use, 28 V. Conclusions, 48 Bibliography, 50 List of Acronyms, 55 APPENDIX A Template Interview Questionnaire, 55 APPENDIX B Anonymized Interview Participants, 56 APPENDIX C Anonymized Airport Proprietors for Hypotheticals, 56 2 ACRP LRD 40