Permissible Uses of Airport Property and Revenue (2020)

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Permissible Uses of Airport Property and Revenue Copyright National Academy of Sciences. All rights reserved. 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 government’s clear and longstanding interest in protecting its investment in the nation’s airports and air navigation system provides the foundation for the prohibition on so-called “revenue diversion,” 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 diversion—and could implicate other grant obliga- tions, as well—even 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

Permissible Uses of Airport Property and Revenue Copyright National Academy of Sciences. All rights reserved. 4 ACRP LRD 40 The law governing use of airport property is inextricably tied to the use of airport revenue. While airport property historically was used primarily or exclusively for airport functions (either aeronautical or nonaeronautical ancillary functions that were tied to airport needs and operations), airport proprietors in the last decade have become far more entrepreneurial in their view of airport property. Instead of merely being buffer or open space to shield the airport from nearby property uses, airport property is coming to be viewed as a marketable or revenue-producing asset, the revenue from which can help the proprietor’s bottom line and reduce costs to aeronautical users. Airport proprietors are devising creative plans for property use, though these are not well-addressed in legal precedents. As airport proprietors be- come more creative in use of their property, the linkage between airport property use and airport revenue use becomes tighter and more complex. In 2008, ACRP published the ACRP Legal Research Digest 2: Theory and Law of Airport Revenue Diversion (ACRP LRD 2), which covered the historical and theoretical basis for federal restrictions on airport revenue use. This publication updates ACRP LRD 2 with respect to industry trends and legislative and regulatory changes and takes the research further by exploring the boundaries of permissible use of airport revenue and prop- erty under federal law. The ultimate objective of the research is to provide practical guidance for determining permitted uses of airport revenue and property in a meaningful and useful way for industry stakeholders. More important, this research provides a framework and guide for airport proprietors to evaluate the legality of new or creative uses of airport property or revenue. To deliver on the research’s objective and ensure that the analysis is based on actual airport proprietor experiences, re- searchers interviewed a select group of airport proprietors and surveyed existing legal research and literature to identify new projects and controversies. In the research findings, researchers focus on the application of federal law and policy to specific cat- egories of expenditures and uses. The resulting analysis provides a practical guide to help industry stakeholders navigate the diffi- cult terrain of airport revenue use in some of the thorniest areas. In the process, researchers suggest useful analytical frameworks and strategies for determining permissible uses of airport rev- enue and property.2 This digest begins with a review of the foundations and fun- damentals of airport revenue and property use, building on the work in the ACRP LRD 2 (Chapter II). Chapter II includes a brief review of the history of airport revenue use regulation and more recent legislative and regulatory developments, as well as a review of the theoretical foundation and legal framework to provide the robust research, indexing and digesting tools available from Lexis and Westlaw. ACRP also publishes a compilation of DOT and FAA administrative decisions in web format with summaries, available at https://crp.trb.org/acrplrd21/. 2 The analysis provided in this digest does not necessarily reflect FAA policy and should not be interpreted as an expression of agency policy. FAA may not agree with all analyses or interpretations in this digest. Therefore, readers are encouraged to engage with FAA officials before pursuing strategies discussed herein. under lying airport revenue and related property use. Chapter II also includes a review of the legal mechanisms guiding airport revenue regulation and the established boundaries of permis- sible revenue and related property use based on existing federal law and guidance. Chapter III provides an overview of the research methodol- ogy, including research purpose, scope, method and techniques used. As Chapter III explains, the legal research conducted for this article was based on analysis of existing law, previously researched case studies and documented projects and contro- versies regarding airport revenue diversion. The research also included qualitative interviews with a select number of airport officials representing a diversity of types, sizes and locations of airports. The purpose of these interviews was to identify various practical issues and potential strategies related to use of airport revenue and property.3 Chapter III also explains that we used the collected information to conduct a non-statistical analysis and formulate hypothetical cases to explain legal concepts. Results of the research are discussed in Chapter IV. Researchers present the research findings primarily through the lens of five categories of topics regarding airport revenue use and related property issues. These categories were selected based on the experience of researchers dealing with the thorniest legal issues and types of issues reported by survey participants. The categories in Chapter IV are (1) nonaeronautical development of airport property; (2) ground access, including intermodal projects; (3) use of revenue and property to promote airline competition and aeronautical service generally; (4) privatization and public-private partnerships; and (5) intergovernmental cost sharing and governmental/community use of airport property. These categories are not intended to be an exhaustive list of ways in which airport property or revenue may be used, but instead a selection of topics that provide fertile ground for wrestling with particularly difficult revenue diversion issues. These topics also cover areas in which researchers believe further practical guid- ance and examples would be beneficial for airport proprietors, either because of subtle nuances in the law, changing legal land- scape or a lack of available formal legal precedent or definitive agency interpretation. Finally, Chapter V presents conclusions based on the analy- sis provided in Chapter IV. This chapter includes a summarized set of tips for airport staff and stakeholders in assessing airport revenue use issues. 3 A total of nine airport representatives were interviewed. As discussed in the methodology section, this qualitative research, including the interviews, did not rely on statistical analysis. Since the research relied on a small qualitative study, it is not intended to be read as a representative sample of airports. Readers should be cautioned not to make assumptions regarding the generalizability of the proprietors’ experiences.