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Permissible Uses of Airport Property and Revenue (2020)

Chapter: II. FOUNDATIONS AND FUNDAMENTALS

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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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Suggested Citation:"II. FOUNDATIONS AND FUNDAMENTALS." National Academies of Sciences, Engineering, and Medicine. 2020. Permissible Uses of Airport Property and Revenue. Washington, DC: The National Academies Press. doi: 10.17226/26011.
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ACRP LRD 40 5 view of federal interest is grounded in the principle that even where the federal investment is modest, it is made under the assumption that it is instrumental (perhaps crucial) for the en- tire airport operation and that federal interest, therefore, covers the entire airport. Furthermore, as with federal funding itself, property purchased with federal grants or donated for airport purposes by the federal government generally should not be used for local purposes unrelated to the airport. This principle is not only foundational to the funding of airport infrastructure in the United States, but provides the legal and policy basis for much of federal airport regulation. It also is broad, meaning the FAA regulates not only the use of revenue, but also the location of certain airport facilities, the way contracts are executed (even in certain cases those with no federal involvement), financial recordkeeping of airport proprietors, environmental standards for development and operation of airport facilities, and relation- ships between airport proprietors and their users and tenants. Although the federal government has long conditioned fed- eral grants for airport development on provisions that imple- ment federal policies, broad restrictions on use of airport rev- enue were not expressly included as a condition of grants until the 1980s. However, earlier federal policy did influence air- port revenue use indirectly through various conditions tied to grants of land and funding, including promoting the growth of air travel and financial sustainability and stability of airports.7 Since the founding of the first federal grant in aid program in the 1940s—the Federal Aid to Airport Program (FAAP)—and continuing with its successors—the Airport Development Aid Program (ADAP) and current Airport Improvement Program (AIP)—federal conditions have come in the form of contractual grant assurances.8 While grant assurances technically are con- tractual, their terms and substantive provisions are statutorily mandated. One of the earliest grant assurances, which has been in effect continuously, is a requirement to provide for public use of the airport on fair and reasonable terms without unjust discrimination.9 For conveyances of land under the Surplus Property Act of 1944 and Section 16 of the Federal Airport Act of 1946, as well as subsequent laws, restrictions appeared in the deeds of conveyance,10 including especially restrictions requiring use of conveyed property for airport purposes. The documents con- veying these properties defined “airport purposes” to mean that the property had to be used for aeronautical uses and, in some instances, non-aviation businesses that could serve as a revenue 7 See, e.g., Federal Airport Act of 1946, Pub. L. No. 79-377, § 12, 60 Stat. 170, 177 (1946); Surplus Property Act of 1944 Amendment, Pub. L. No. 80-289, 61 Stat. 678 (1947). See also 91 Cong. Rec. 8430-49 (1945) (discussing motives for establishment of federal airport assistance program). 8 Federal Airport Act of 1946, § 12, 60 Stat. at 177; Airport and Airway Development Act of 1970, Pub. L. No. 91-258, § 18, 84 Stat. 219, 229 (1970). 9 Federal Airport Act of 1946, § 11(1), 60 Stat. at 176. 10 Policy and Procedures Concerning the Use of Airport Revenue, 64 Fed. Reg. 7696, 7717 § II.A (Feb. 16, 1999) [hereinafter Revenue Use Policy, Feb. 1999]. II. FOUNDATIONS AND FUNDAMENTALS A. Brief Historical Review and Review of Recent Updates 1. Historical Review of Restrictions on Airport Revenue and Property Use The federal government has been instrumental in the devel- opment of air commerce since its beginnings in the early 20th century—a role it continues to this day.4 The underlying prin- ciple of federal involvement is as simple as it is comprehen- sive: to establish and maintain a safe and efficient national air transportation system. The tradeoff for airport proprietors has been financial—in exchange for substantial federal regulatory oversight, airport proprietors receive federal grants to maintain and develop their facilities. A major source of federal support to airport proprietors5 has been in the form of land grants, funding for land acquisition and funding assistance for airport planning and development projects. In exchange for this assistance, the federal government imposes conditions concerning the use of airport revenue and property. The principle underlying these restrictions is that the federal grants represent a substantial in- vestment in these facilities and, therefore, the federal govern- ment has a strong interest in ensuring that airport proprietors use grants and associated funds appropriately on the capital and operating costs of the airport itself. Congress and the FAA each has concluded that use of revenue derived from a feder- ally subsidized airport for non-airport purposes amounts to a hidden tax6 on travelers (e.g., those who pay taxes that fund fed- eral grant programs) that impermissibly benefits unrelated local municipal services. Historically, Congress and the FAA have not limited federal interest to those airport facilities that have been financed with federal grants or occupy real property that was donated by the federal government to the airport proprietor. Instead, the philo- sophical principle underlying regulation of airport revenue use has been far broader: Once there is federal investment in airport facilities, the entire airport becomes “grant-obligated”— meaning that with limited, but important, exceptions, revenue generation and revenue use become subject to federal oversight. This broad 4 Under current federal law, the FAA is required to “encourage the development of civil aeronautics and safety of air commerce in and outside the United States.” 49 U.S.C. § 40104 (2019). 5 Throughout this digest, the term “airport proprietor” generally refers to the owner of an airport (usually a state or political subdivision of a state) who is responsible for oversight of operation of a public-use airport, whether directly as the owner or indirectly as the operator of the airport. This term encompasses the reference to “airport owner or operator” contained under federal airport assistance statute. See 49 U.S.C. § 47133(b) (2019). Federal regulations and policies often use the term “airport sponsor” to refer specifically to an airport proprietor who is participating in a federal airport grant assistance program (e.g., Airport Improvement Program). For clarity, this digest uses the term “airport” to refer to the physical area and facilities identified as airport property on an ALP or listed on an Exhibit “A” Property map and not to the entity that owns or operates the facility. 6 See 49 U.S.C. § 47107 note (2019).

6 ACRP LRD 40 source for airports.11 Since the earliest of these conveyances, the FAA has developed procedures for the release of deed restric- tions to allow airport proprietors more flexibility in the use of the property for nonaeronautical purposes or actual disposal.12 Today’s statutes and the implementing regime13 retain require- ments that airport proprietors use revenue from property use for airport purposes,14 as well as other restrictions as discussed in subsequent sections of this digest. Current federal requirements regarding use of airport rev- enue first appeared as a result of reauthorization of a federal airport assistance program in 1982.15 The Airport and Airway Improvement Act of 1982 (AAIA) renamed the program the Airport Improvement Program and restated and expanded re- quired conditions attached to all federal airport grants.16 One of the new conditions provided that “all revenues generated by the airport [proprietor], if it is a public airport, will be expended for the capital or operating costs of the airport, the local airport system, or other local facilities which are owned or operated by the owner or operator of the airport and directly related to the actual transportation of passengers or property.”17 Congress ex- empted airport proprietors from this new requirement if they had existing debt obligations or statutory financing provisions that stipulated that airport revenue could be used for other purposes.18 Subsequent laws and amendments regarding the revenue use requirement in the decade or so after its initial passage in 1982 primarily focused on further tightening of permissible use of airport revenue to broadly prohibit all forms of revenue di- version.19 In 1987, Congress further amended the revenue use restrictions to limit spending on local non-airport facilities to those costs “substantially,” as well as directly related to trans- 11 See Surplus Property Act of 1944 Amendment, Pub. L. No. 80-289, 61 Stat. 678 (1947) (amending § 13 of the Surplus Property Act to allow for transfer of federal property “needed to develop sources of revenue from non-aviation businesses…”). See also FAA Order No. 5190.6B, FAA Airport Compliance Manual § 3.5 (2009). 12 FAA Order no. 5190.6B § 22.4.c. 13 The FAA almost universally uses policies and orders to implement these statutory requirements, not regulations. 14 See FAA Order no. 5190.6B §§ 22.17.c., 22.13, 22.18. 15 See id. § 16.2.a.; FAA Policies and Procedures Concerning the Use of Airport Revenue, at 1. 16 See Airport and Airway Improvement Act of 1982, Pub. L. No. 97-248, § 505, 96 Stat. 324, 676-77 (1982); see also FAA, FAA Historical Chronology, 1926-1996, https://www.faa.gov/about/ history/chronolog_history/media/b-chron.pdf. 17 Airport and Airway Improvement Act of 1982, § 511(a) (12), 96 Stat. at 687. This condition is now codified at 49 U.S.C. §  47107(b) (2019). This language has been subsequently revised. See infra Section II.D.5.a. 18 Id. See also infra Section II.D.3. (discussing grandfathering provisions). 19 The term “revenue diversion” has come to mean, broadly, the use of any airport revenue for purposes unrelated to the capital and operating cost of the airport. FAA Order No. 5190.6B ch. 15. portation of passengers or property and to prohibit new local aviation fuel taxes from being spent on non-aviation purposes.20 Congressional research in the early 1990s indicating that local public airport proprietors and local governments were skirting airport revenue use restrictions led to the 1994 addi- tion of new airport revenue use reporting and enforcement re- quirements, as well as statutory provisions expressly ou tlining penalties for noncompliance.21 The 1994 legislation clarified that airport proprietors should strive to make airports as self- sustaining as possible22 and that they were prohibited from cre- ating revenue surpluses beyond those necessary for reasonable reserves, contingencies or financing.23 It also required the FAA to develop a policy concerning the use of airport revenue,24 which the FAA published as a final document in 1999.25 Notwithstanding these enactments, Congress continued to be concerned that the federal investment in airport infra- structure was being devalued because airport proprietors were diverting revenue to other local purposes. The result was a 1996 law that significantly expanded the scope of federal rev- enue use requirements.26 Under the new law, codified at 49 U.S.C. § 47133, airport revenue use restrictions were expanded to cover all public and private airport proprietors who receive federal funding, as well as airport proprietors who accept real- property conveyances from the federal government.27 Asserting the long-term harm of revenue diversion, and concerned that currently obligated airport proprietors might cease accepting 20 See Airport and Airway Safety and Capacity Expansion Act of 1987, Pub. L. No. 100-223, § 109, 101 Stat. 1486, 1499-1502 (Dec. 30, 1987) (codified at 49 U.S.C. § 47107(b) (1) (2019)). 21 Federal Aviation Administration Authorization Act of 1994, Pub. L. No. 103-305, 108 Stat. 1569 (1994). See also U.S. Gov’t Accountability Office, GAO/RCED-97-3, Airport Privatization: Issues Related to the Sale or Lease of U.S. Commercial Airports 36 (1996); Paul Stephen Dempsey, Transp. Research Bd., Airport Coop. Research Program, Legal Research Digest 2: Theory and Law of Airport Revenue Diversion 13 (2008), http://nap.edu/23092 (discussing research on revenue use violations). 22 49 U.S.C. § 47107(k) (3) (2019). 23 Federal Aviation Administration Authorization Act of 1994, § 110, 108 Stat. at 1573 (codified at 49 U.S.C. § 47101(a) (13) (2019)). 24 See 49 U.S.C. § 47107(k) (1)-(2). 25 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. 7696 (Feb. 16, 1999). This policy has been subsequently amended. See infra Section II.A.2. The FAA has published the full policy reflecting changes based on court deci- sions on its website at https://www.faa.gov/airports/airport_ compliance/. 26 See Airport Revenue Protection Act of 1996, Pub. L. No. 104-264, Title VIII, § 802, 110 Stat. 3213, 3270 (1996) (codified as amended at 49 U.S.C. § 47107 note (2019)) (“Congress finds that … the Secretary and the Administrator have not enforced airport revenue diversion rules adequately and must have additional regulatory tools to increase enforcement efforts.”). 27 49 U.S.C. § 47133; Airport Revenue Diversion: Hearing Before the Subcomm. On Aviation of the S. Comm. On Commerce, Sci., and Transp., 104th Cong. (1996); 142 Cong. Rec. S5268-69 (daily ed. May 17, 1996) (statement by Sen. McCain). As discussed further below, there are grandfathering exceptions to the application of revenue use requirements for airports receiving federal property before enactment of this legislation.

ACRP LRD 40 7 2. Recent Developments Since Publication of Theory and Law of Airport Revenue Diversion Although the broad contours of federal policy on the use of airport revenue have remained the same since the 2008 publica- tion of The Theory and Law of Airport Revenue Diversion, there have been a number of new developments. In 2009, the FAA updated its Airport Compliance Manual, FAA Order 5190.6B. In 2012, Congress expanded the APPP to include provisions exempting privatized airports from revenue use requirements.39 However, there has been limited participa- tion in that program, and only two airports have fully priva- tized, one of which later reverted to public ownership. Another change in 2012 was Congress’s decision to permit revenue derived from mineral extraction at general aviation airports in amounts that exceed the five-year projected mainte- nance needs of the airport to be allocated to non-airport federal, state or local transportation infrastructure projects within the geographical limits of the airport proprietor’s jurisdiction.40 In addition, Congress expanded the definition of “noise land” (dis- cussed further below) acquirable with federal funding to include developed or undeveloped “buffer” noise land and directed pro- ceeds from the sale of noise land to be applied toward airport reinvestment.41 In 2014, the FAA amended its Policy and Procedures Con- cerning Use of Airport Revenue to reflect longstanding federal policy that revenues from state and local government taxes on aviation fuel are subject to airport revenue use requirements and must be spent on aviation-related expenses.42 The FAA stated it would apply this policy amendment prospectively to new and existing fuel taxes imposed by proprietor and non- proprietor entities alike, providing state and local governments a three-year window in which to achieve compliance. To assist in ensuring compliance, the FAA requested that state and local governments submit action plans detailing what they would do to ensure aviation fuel tax funds were not diverted. The FAA has compiled a status list of jurisdictions regarding action plans.43 Also in 2014, the FAA published a bulletin on best practices for providing surface access to airports, in which it included guidance on allowable uses of airport property and revenue for building ground transportation access.44 In 2016, Congress exempted nominal rate leases of airport proprietors with Air National Guard units entered into before 39 FAA Modernization and Reform Act of 2012, Pub. L. No. 112-95, § 156, 126 Stat. 11, 36 (2012) (amending 49 U.S.C. § 47134). 40 Id. § 813 (codified at 49 U.S.C. § 47133 note (2019)). 41 Id. § 135 (codified at 49 U.S.C. § 47107(c)). 42 Proceeds from Taxes on Aviation Fuel, Nov. 2014, 79 Fed. Reg. at 66,283. 43 Aviation Fuel Tax Action Plans and Status, FAA, https://www.faa. gov/airports/airport_compliance/aviation_fuel_tax/ (last updated Mar. 20, 2019). 44 Bulletin 1, supra note 37. See also FAA Order No. 5100.38D, Change 1, Airport Improvement Program Handbook app. P (2019) (guidance on ground transportation issued in 2014). federal assistance to circumvent indefinite revenue use require- ments, Congress applied the new requirements to any airport proprietor with an existing grant obligation and made revenue restrictions permanent for the life of the airport.28 Congress ex- cepted from the new requirements only those airport propri- etors not then subject to revenue use conditions, and only as long as they did not accept any further federal assistance.29 In 1996, Congress also passed a law authorizing the Airport Privatization Pilot Program (APPP), which sought to promote airport privatization through, among other things, partial ex- emption from airport revenue use requirements.30 As discussed below in further detail, although this program was expanded in 201231 and again in 2018,32 there has been limited participa- tion and, to date, only two airports have fully privatized, one of which later reverted.33 In the mid-1990s and 2000s, the FAA published a series of guidance documents that elaborated on federal requirements regarding airport revenue use. This included the previously cited policy on airport revenue use in 1999,34 as well as the updating of its Airport Compliance Manual, Order 5910.6B,35 which covers a range of topics including airport revenue use. More recently, the FAA has moved to respond to additional rev- enue use concerns, including violations regarding local taxes36 and ground transportation spending.37 Since 1996, the statutory framework for use of airport rev- enue and related airport property use has remained largely the same, with the exception of some relatively minor changes in- tended to refine, but not substantially alter, revenue and prop- erty use restrictions.38 28 See Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7699. 29 49 U.S.C. § 47133(b). 30 Federal Aviation Reauthorization Act of 1996, Pub. L. No. 104- 264, § 149, 110 Stat. 3213, 3224-27 (1996) (codified as amended at 49 U.S.C. § 47134 (2019)). 31 FAA Modernization and Reform Act of 2012, Pub. L. No. 112-95, § 156, 126 Stat. 11, 36 (2012) (amending 49 U.S.C. § 47134). 32 FAA Reauthorization Act of 2018, Pub. L. No. 115-254, § 160, 132 Stat. 3186, 3221 (2018) (amending 49 U.S.C. § 47134 (2019)). 33 Rachel Y. Tang, Cong. Research Serv., R43545, Airport Privatization: Issues and Options for Congress 5 (2017). 34 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7699. 35 FAA Order No. 5190.6B. 36 Policy and Procedures Concerning the Use of Airport Revenue; Proceeds from Taxes on Aviation Fuel, 79 Fed. Reg. 66,282 (Nov. 7, 2014) (2014 Amendment to Revenue Use Policy) [hereinafter Proceeds from Taxes on Aviation Fuel, Nov. 2014]. 37 FAA, Bulletin 1: Best Practices—Surface Access to Airports (2006) [hereinafter Bulletin 1]; FAA Order No. 5100.38D, Change 1, Airport Improvement Program Handbook app. P (2019). 38 See, e.g., Department of Transportation and Related Agencies Appropriation Act of 1998, Pub. L. No. 105-66, § 340, 111 Stat. 1425, 1448-49 (1997) (codified at 49 U.S.C. § 47107 note (2019)) (clarifying that payments to Native American tribes from airport revenues under certain circumstances does not constitute illegal revenue diversion); FAA Reauthorization Act of 2018, Pub. L. No. 115-254, § 163, 132 Stat. 3186, 3224 (2018) (codified at 49 U.S.C. § 47101 note (2019)) (discussed below).

8 ACRP LRD 40 and to permit airport proprietors to seek privatization on be- half of multiple airports under its control. The renamed Airport Investment Partnership Program (AIPP) also allows airport proprietors to seek planning grants of up to $750,000. In an important revision to remove agency discretion, the legislation provides that the airport proprietor and new private recipient shall be exempt, to the extent necessary, from repayment of fed- eral grants, return of property acquired with federal assistance and the use of proceeds from the airport’s sale or lease exclu- sively for airport purposes. Previously, the FAA had discretion to grant these exemptions.50 The legislation also removed the previous cap limiting the number of participating airports to 10.51 A recent Congressional Research Service report suggested that there would be more interest in privatization if there were further relaxa tion of airport revenue and land-use restrictions.52 Among other changes in the 2018 FAA Reauthorization Act was the addition of a provision under the grant assurance stat- ute, 49 U.S.C. § 47107(v), allowing, in limited cases, for the use of airport property by a local government for an interim com- patible recreation purpose at below fair market value.53 The ap- plicability of this provision is limited by a number of important restrictions, including especially that it applies only to leases for such use entered into before Feb. 16, 1999, the subject airport property must have been acquired under a federal airport devel- opment grant program and the airport proprietary must certify that it is not responsible for any other costs associated with the recreational purposes.54 B. Brief Review of Theoretical Foundation for Regulation of Airport Revenue and Related Property Use 1. Regulatory Theory Tied to Benefits Received from Federal Assistance and Concern over Diversion of Funding from Use for Aeronautical Purposes Airport proprietors, local communities and governments, and the federal government all have an interest in supporting the economic viability of airports and the aviation industry to facilitate air travel and promote associated economic and social benefits that derive from it.55 Who ultimately pays the costs of airport development—local vs. federal taxpayers, public vs. pri- vate entities, users vs. taxpayers generally—as well as who re- ceives the economic benefits—local communities vs. the general traveling public, airlines vs. passengers—can complicate how these shared goals are achieved. Ensuring that airport propri- etors operate their facilities as self-sufficiently as possible and that federal grants for airports are used directly and exclusively 50 FAA Reauthorization Act of 2018, Pub. L. No. 115-254, § 160, 132 Stat. 3186, 3221 (2018) (codified at 49 U.S.C. § 47134 (2019)). 51 Id. 52 See Tang, supra note 33, at 5. 53 FAA Reauthorization Act of 2018, § 131(3), 132 Stat. at 3204 (codified at 49 U.S.C. § 47107). 54 See id. at 3204-05 (detailing all eight restrictions). 55 See Dempsey, supra note 21, at 10-11. Oct. 7, 2016, from grant assurance requirements if the guard unit operated military aircraft at or remotely from the airport.45 The latest FAA reauthorization, which was enacted in 2018 and reauthorizes the AIP program until 2023, provides a few changes related to use of airport property. The law expressly provides for “[l]imited regulation of non-federally sponsored property” by prohibiting the Secretary of Transportation— and, by extension, the FAA—from directly or indirectly regu- lating “(1) the acquisition, use, lease, encumbrance, transfer or disposal of land by an airport owner or operator; (2) any facility upon such land; or (3) any portion of such land or facil- ity,” except where necessary for safety; to ensure that airports receive or give fair market value for the purchase, sale or lease of airport property; or concerning regulation of land or facili- ties purchased with AIP grants or that are subject to the Surplus Property Act or PFC requirements.46 Additionally, the 2018 FAA Reauthorization Act directs the Comptroller General to study the implications of repealing the revenue-use grandfathering provisions found at 49 U.S.C. § 47107(b) (2).47 The legislative history indicates that Congress is concerned about issues of equity between grandfathered and non-grandfathered airports and about the magnitude of rev- enue generated from grandfathered airports that may not be serving the purposes of promoting air travel.48 In 2018, the U.S. Department of Transportation (DOT) Office of Inspector Gen- eral (OIG) published its own report on the FAA’s accounting of revenue use by grandfathered airports.49 In 2018, Congress further modified and renamed the pro- gram to allow for privatization of parts of an airport—such as a rental car facility or parking—rather than an entire airport, 45 FAA, Airport Sponsor Assurances (2014) [hereinafter Grant Assurances], https://www.faa.gov/airports/aip/grant_assurances/media/ airport-sponsor-assurances-aip.pdf; Act of Oct. 7, 2016, Pub. L. 114-238, 130 Stat. 972 (2016) (codified at 49 U.S.C. § 47107(t) (2019)). See also 162 Cong. Rec. H5698 (daily ed. Sept. 20, 2016) (statement of Rep. Zeldin). 46 FAA Reauthorization Act of 2018, Pub. L. No. 115-254, § 163, 132 Stat. 3186, 3224 (2018) (codified at 49 U.S.C. § 47101 (2019)). The above summarizes the exceptions under Section 163; for the exact provision please see the text of the provision itself. At this writing, the FAA has not promulgated regulations or policy on the application of Section 163, nor is it required to do so under the FAA Reauthorization Act of 2018. As a result, the interpretation of this section is likely to result from precedents established from specific fact-specific application of the section over time. Senior FAA officials have publicly stated that the agency intends to issue guidance or interpretation to assist in implementation of Section 163. See Program Guidance Letters (PGLs) and Program Information Memorandums (PIMs) for the Airport Improvement Program (AIP), FAA, https://www.faa.gov/airports/aip/ guidance_letters/#rpgls (last modified Sept. 4, 2019) (demonstrating FAA’s commitment to issuing guidance on implementation of the new statute in the form of Program Guidance Letters (PGLS)). 47 FAA Reauthorization Act of 2018, §143, 132 Stat. at 3212. 48 164 Cong. Rec. H3643, H3656 (daily ed. Apr. 26, 2018) (statements of Rep. Sanford). 49 Office of Inspector Gen., U.S. Dep’t of Transp., Report No. AV-2018-041, FAA Needs to More Accurately Account for Airport Sponsors’ Grandfathered Payments (2018) [hereinafter OIG Report No. AV-2018-041].

ACRP LRD 40 9 on aeronautical activities could burden air service providers and hinder growth of air travel.63 That is, at least in part, the ratio- nale behind federal grants, which should reduce the amount of revenue that must be locally generated for airport capital devel- opment. In response to the need for balance between achieving self-sufficiency and keeping airport fees reasonable, Congress has created a framework for airport proprietors that simul- taneously (a) requires them to limit charges to airport users to those that are reasonable in light of the costs of providing aeronautical services; (b) in certain cases encourages them to seek non aeronautical revenue streams that assist the airport in becoming financially self-sustaining;64 (c) requires them to use all airport-related revenue for airport purposes;65 (d) focuses federal discretionary grant funds for capital projects deemed especially critical by the federal government; and (e) provides funding assistance for planning of airport development. The same principles that apply to the use of airport rev- enue apply in equal force to the use of airport property. The reason is straightforward: the interconnected and inextricable relationship among funding, revenue and use of real property. Federal support in the form of land grants can be monetized through revenue produced by such land. Where airport pro- prietors use land or facilities acquired with federal support for non aeronautical purposes without collecting revenues that are put toward airport purposes, the effect is the same as if airport revenues were being diverted to non-airport uses. Accordingly, legal restrictions applicable to airport revenue apply with equal force to the use of airport property. 2. Mechanism for Federal Control: Funding Through AIP Grant Agreements, Conveyances of Real Property, Statutory Prohibitions Federal control over funding and real property allows the FAA to implement its policies at a local airport level. Federal airport revenue use regulation revolves around statutorily pre- scribed restrictions on revenue and analogous contractual obli- gations and land conveyance conditions accompanying receipt of federal assistance or a deed for federal property, respectively. The standardized grant assurances that impose conditions on recipients of federal grants are the principal source of control over use of airport revenue.66 Grant Assurance 25 specifically addresses use of airport revenue, imposing restrictions limiting the use of airport revenue to airport or aeronautical purposes.67 Land conveyance documents contain similar restrictions, al- though the specific conditions vary based on particular circum- stances, the date of conveyance and the statutory authority for the conveyance. The FAA’s program for assessment, monitoring and enforcement of restrictions on airport revenue generally is 63 See 49 U.S.C. §§  47101(a) (13), 47107(a) (13) (A); Dempsey, supra note 21, at 10-11. 64 49 U.S.C. § 47107(a) (13). 65 49 U.S.C. § 47107(b). 66 See FAA Order No. 5190.6B, FAA Airport Compliance Manual ch. 4 (2009). 67 See Grant Assurances, supra note 45, § (C) (25), at 12-13. to fund airport and air system development underlie much of federal policy regarding airport revenue use. In short, effective control over the use of federal grant funds to support airports necessarily requires the federal government to control the use of almost all funding. Use of revenue derived from a federally sub- sidized airport for other non-airport local purposes is prohib- ited to prevent a “hidden tax” from being imposed on air trans- portation, and because it could result in federal funding being “used to substitute funds diverted to support local non-airport programs.”56 Accordingly, Congress has clearly and consistently sought to protect against the dilution of federal financial assis- tance through the “diversion” of airport revenue, regardless of the revenue source. The national airport system has been the focus of sustained and significant federal subsidy, which has been justified through the economic wealth and societal benefit created by growing a safe and efficient national airport system.57 At the same time, Congress also has expressed its desire that airports be operated as economically self-sustaining as possible58 and that costs be reasonably allocated to the users of airport services without bur- dening them with unnecessary taxes to fund unrelated activi- ties.59 Revenue derived directly from airport operations—such as landing fees, terminal leases, fuel sales, parking concessions and advertising—is particularly appropriate for reinvestment in airport development because payment for airport systems is closely tied to use of those services.60 Furthermore, reinvest- ment of airport revenue is necessary because federal funding cannot support the full cost of needed investment in airport development.61 Accordingly, Congress and federal regulators have made it federal policy that airport proprietors should seek to collect revenue from airport operation to cover airport costs and make airport operations as self-sustaining as possible.62 At the same time, the federal government has been attentive to ensure that revenue is not pursued as an end in itself and at the expense of other federal policies, such as efficiency or growth. Here is where a careful balance becomes necessary. Even if justified under the principle of self-sufficiency, unrestricted local charges 56 Proceeds from Taxes on Aviation Fuel, 78 Fed. Reg. 69,790 (Nov. 2014). See also 49 U.S.C. § 47107 (2019). Note; Dempsey, supra note 21, at 10-11. 57 See 49 U.S.C. §§ 47101(a) (5), (b). See also Civil Aeronautics Admin., U.S. Dep’t. of Commerce, Legislative History of the Federal Airport Act, at 516-518 (1948), https://babel.hathitrust.org/ cgi/pt?id=mdp.39015047400950;view=1up;seq=11 (Senate debate on the Federal Aviation Act of 1946 regarding the benefits conferred to local governments from federal support, as well as benefits derived by the federal government and the country from such assistance). 58 See 49 U.S.C. §§ 47101(a) (13), 47107(a) (14) (A) (2019). 59 See 49 U.S.C. § 47107. 60 U.S. Gov’t Accountability Office, GAO/RCED-98-71, Airport Financing: Funding Sources for Airport Development 17 (1998). 61 Policy and Procedures Concerning the Use of Airport Revenue, 61 Fed. Reg. 7134, 7135 (Feb. 26, 1996) [hereinafter Revenue Use Policy, Feb. 1996]. 62 49 U.S.C. §§47107(a) (13), 47107(l).

10 ACRP LRD 40 eral grants for airport development, the FAA has developed a number of sources of legal guidance through published policies, manuals and guidelines. Where formal guidance is not avail- able, airport proprietors and other stakeholders have relied on informal guidance through published and unpublished81 com- pliance and enforcement letters and agency decisions from the FAA. 3. Review of Prior Research This digest updates and supplements the Airport Coopera- tive Research Program’s (ACRP) 2008 publication Theory and Law of Airport Revenue Diversion, which provides a thorough discussion of the economic theory and legal bases for the pro- hibition on diversion of airport revenue.82 In addition, over the course of the past decade, ACRP has published several articles, papers and reports that address use of airport revenue. ACRP Legal Research Digest 35: Legal Considerations in the Funding and Development of Intermodal Facilities at Airports (2018) pro- vides more specific information on the use of airport revenue for funding intermodal facilities. ACRP Legal Research Digest 37: Legal Issues Relating to Airports Promoting Competition (2019); ACRP Synthesis 1: Innovative Finance and Alternative sources of Revenue for Airports; ACRP Synthesis 19: Airport Revenue Diversifica tion (2010); and ACRP Research Report 176: Generat- ing Revenue from Commercial Development On or Adjacent to Airports (2017) provide information on the revenue generation side of the issue. Other ACRP publications that address airport revenue issues indirectly include ACRP Report 16: Guidebook for Management of Small Airports (2009), and ACRP Report 44: A Guidebook for the Preservation of Public-Use Airports (2016). With some exceptions,83 much of the independent research and analysis on airport revenue has focused on revenue more broadly,84 or revenue generation in particular.85 Several federal agencies, including the U.S. Department of Transportation’s Office of Inspector General, U.S. Government Accountability Office and U.S. Congressional Research Service also have pro- duced reports and documents with research results on various aspects of airport revenue, including revenue use and imper- 81 This reference to “unpublished” guidance and letters is not meant to imply that such documents are confidential or unavailable to the public. The reference to “unpublished” refers to documents that are not widely disseminated by the FAA on a website, in electronic databases or through similar sources for easy access. Such documents, however, generally are available to the public through the Freedom of Information Act or state open records acts. 82 See Dempsey, supra note 21. 83 David Bannard, Will Ground Access Woes and Federal Revenue Restrictions Choke U.S. Airports?, 29 Air & Space Law., no. 2, 2016, at 4, https://www.foley.com/en/insights/publications/2016/07/ will-ground-access-woes-and-federal-revenue-restri. 84 Edgar Jimenez et al., The Airport Business in a Competitive Environment, 111 Proced-a—Soc. & Behav. Sci. 947 (2014); Andy Carlisle, Airport Business Resilience: Plan for Uncertainty and Prepare for Change, 9 Airport Mgmt. 118 (Winter 2014-15). 85 Webbin Wei & Geoffrey D. Gosling, Strategies for Collaborative Funding of Intermodal Airport Ground Access Projects, 32 J. Air Transp. Mgmt. 78 (2013). based on these contractual or deed restrictions, even though there are direct statutory obligations underlying agreements for federal grants.68 Impermissible use of airport revenue by an airport propri- etor constitutes a violation of both an airport proprietor’s grant assurances and federal law.69 Where an airport proprietor has received federal land under the Surplus Property Act or by other statutory conveyance, impermissible revenue use also may be deemed a violation of the condition of the conveyance.70 The FAA has a range of mechanisms available to enforce revenue diversion requirements and penalize violations, cata- logued under Sections IV and IX(E) of the Revenue Use Policy. This includes: withholding of future grants,71 modification of existing grants72 or payments under existing grants;73 withhold- ing of approval of passenger facility charge applications;74 with- holding of other federal transportation funding available to the proprietor;75 assessing civil penalties of up to three times the amount of airport revenues diverted;76 and seeking injunctive relief,77 reimbursement of diverted revenue and any penalties above $50,000 in federal district court.78 Civil penalties under 49 U.S.C. § 46301 and judicial injunctive relief under 49 U.S.C. §  47111(f)79 are available against parties who violate airport revenue use requirements, including state or local governments that divert aviation fuel tax revenue.80 As part of its responsibilities for overseeing the AIP process and enforcing grant assurances and other conditions on fed- 68 49 U.S.C. § 47133 (2019). 69 49 U.S.C. §§ 47107(l)-(m). 70 See FAA Order 5190.6B §16.3. 71 49 U.S.C. §§ 47106(d), 47115(f) (2019); Revenue Use Policy, Feb. 1999, 64 Fed. Reg. 7696, 7723 (Feb. 16, 1999). 72 49 U.S.C. § 47111(e) (2019); Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7723. 73 49 U.S.C. § 47111(d); Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7723. Withholding funding for more than 180 days requires an opportunity for a hearing or agreement between the sponsor and FAA. See id. 74 49 U.S.C. § 40117 (2019); Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7723. 75 49 U.S.C. § 47107(n) (3) (2019); Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7723. 76 49 U.S.C. §§ 46301(a), (d) (2019). Penalties above $50,000 must be brought in court. See id.; Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7723. 77 49 U.S.C. § 47111(f). 78 49 U.S.C. § 46301 (2019). 79 49 U.S.C. §  47111(f) provides authority for the Secretary of Transportation to pursue violations of the grant assurances in federal district court “to enforce obedience thereto by a writ of injunction or other process, mandatory or otherwise, restraining any person from further violation.” The legislative history regarding this provision reflects that Congress intended “to send a strong message to airport sponsors and local and state governments to discourage and prevent unlawful diversion of airport revenues and to strengthen DOT and FAA[’]s ability to enforce the law.” H.R. Rep. No. 103-677, pt. 60, at 59 (1994) (Conf. Rep.). 80 See Proceeds from Taxes on Aviation Fuel, Nov. 2014, 79 Fed. Reg. 66,282, 66,284-85.

ACRP LRD 40 11 poses cannot be used otherwise without FAA approval, unless the restrictions on use of the property are formally released.92 There are two paths for transferring federal property directly to an airport proprietor for airport use. On recommendation from the FAA, the Surplus Property Act permitted the War Assets Administration (now the General Services Administra- tion) to transfer surplus military airport property to civilian public-use airports93 (most Surplus Property Act transactions occurred in connection with the disposal of surplus military airfields after World War II, though the statute still exists and is occasionally used). Other federal government agencies also may transfer property for local airport use under the airport funding statute.94 AIP funding also can be used directly to pur- chase property exclusively for airport use.95 In cases of federal property transfer and property acquisition with federal funds, the acquiring airport proprietor is subject to conditions through deed conveyance (in the case of federal property transfers) or, in the case of AIP-funded acquisitions, an airport proprietor grant agreement. Limitations on use of airport revenue based on grant assurances are discussed in the following sections. Even where the federal government has not conveyed property or funded airport property acquisition—i.e., when an airport proprietor has acquired land with its own resources— use of that property may be limited by the grant assurances and FAA oversight if the airport proprietor otherwise is feder- ally obligated because it has received either federal property or federal funding. One condition of AIP funding is that airport proprietors must prepare “layout plans showing the airport’s boundaries, location of existing and proposed airport facilities and structures, and location of all existing and proposed non- aviation areas and existing improvements.”96 Known as Airport Layout Plans (ALPs), these depict the airport’s boundaries, in- cluding all aeronautical facilities, and identify plans for future development.97 Any property that is “described as part of an airport in an agreement with the United States or defined by an airport layout plan or listed in the Exhibit ‘A’ property map, is considered to be ‘dedicated’ or obligated property for airport purposes” and is subject to federal grant assurances covering the airport.98 This requirement is critically important because 92 But see discussion, infra, concerning Section 163 of the FAA Reauthorization Act of 2018 and its effect on FAA approvals for use of airport property. 93 49 U.S.C. §§ 47151-53 (2019). See also FAA Order 5190.6B § 3.2. 94 49 U.S.C. § 47125 (2019). 95 49 U.S.C. § 47117(a) (2019). See also Grant Assurances, supra note 45, § (C) (31) (2014) (discussing disposal of property acquired with AIP funding). 96 49 U.S.C. §  47107(a) (16) (2019); Grant Assurances, supra note 45, § (C) (29); FAA Order No. 5190.6B §7.18. 97 See FAA Order No. 5190.6B §7.18. 98 See id. § 22.1. A common error is to confuse the ALP property map with so-called “Exhibit A.” While many airport proprietors use the same map, these are distinct maps with distinct, if overlapping, legal consequences. See id. § 7.19; id. app. R. An airport proprietor who receives AIP grants is obligated by grant assurance 29 to prepare an ALP. A complete ALP includes a property map which depicts airport missible revenue diversion.86 FAA policy, guidance and other documents provide helpful context regarding the legislative and regulatory history of revenue use requirements.87 Recent legislation has directed the Comptroller General to study the implications of repealing the revenue use grandfather- ing provisions found at 49 U.S.C. § 47107(b) (2).88 A 2018 DOT Office of Inspector General report concluded that the FAA should more accurately account for grandfathered payments by airport proprietors.89 C. Nexus Between Airport Property and Airport Revenue Use The source and character of airport property is important for understanding the limits of airport revenue use for two reasons. First, airport property received from the federal government or acquired with federal funding triggers the application of federal conditions, which include a requirement to use airport revenue for airport purposes.90 Second, the source and characterization of airport property may limit the use, lease or sale of that prop- erty itself, as well as limit the subsequent use of any revenue derived thereby. 1. Use of Land Acquired from the Federal Government or with Federal Assistance Land received from the federal government or acquired with AIP funds generally must be used for aeronautical purposes; AIP funds are not available to acquire property for non aeronautical commercial use.91 Regardless of how it was purchased, airport property that has formally been dedicated for aeronautical pur- 86 Office of Inspector Gen., U.S. Dep’t of Transp., Report No. AV-2003-030, Oversight of Airport Revenue—Federal Aviation Administration (2003); U.S. Gov’t Accountability Office, GAO/ RCED-99-109, General Aviation Airports—Unauthorized Land Use Highlights Need for Improved Oversight and Enforcement (1999); U.S. Gov’t Accountability Office, GAO/RCED-97-3, Airport Privatization—Issues Related to the Sale or Lease of U.S. Commercial Airports (1996); U.S. Gov’t Accountability Office, GAO/T-RCED-99-214, General Aviation Airports— Oversight and Funding (1999); U.S. Gov’t Accountability Office, GAO/T-RCED-96-82, Airport Privatization—Issues Related to the Sale or Lease of U.S. Commercial Airports (1996); see Tang, supra note 33; Robert S. Kirk, Cong. Research Serv., R40608, Airport Improvement Program (AIP): Reauthorization Issues for Congress (2009). 87 See FAA Order No. 5190.6B, FAA Airport Compliance Manual (2009); Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7696 (Feb. 16, 1999); FAA Historical Chronology, 1926-1996, supra note 16. 88 See FAA Reauthorization Act of 2018, Pub. L. No. 115-254, §143, 132 Stat. 3186, 3212 (2018). 89 OIG Report No. AV-2018-041, supra note 49. 90 Since 1999, all financial assistance, including donated land, is covered under the revenue use requirements. In addition, deeds for land transferred under the Surplus Property Act prohibited the use of proceeds from non-aviation business on airport land for anything other than aeronautical purposes. 91 FAA Order No. 5190.6B § 22.5.b.

12 ACRP LRD 40 the property was acquired. Authority for interim use must be re- quested from the FAA and should not last more than five years.105 The FAA will not approve interim uses that are incompatible with airport development or where there is, or likely will be, demon- strated aeronautical demand for the property.106 In addition, land purchased pursuant to a grant from the federal government will not be approved for interim use unless the property as a whole has ceased to be used or needed for airport purposes.107 The FAA discourages or prohibits concurrent or interim uses that might be anticipated to extend beyond a temporary basis or be difficult to remove when an aeronautical need arises. For example, the FAA will scrutinize use of airport property for golf courses “because experience has shown airport proprietors are reluctant to give up the facility later on and return the land to its aeronautical function.”108 3. FAA Authority Under Section 163 Section 163 of the FAA Reauthorization Act of 2018 cir- cumscribed FAA regulation of airport property or facilities by limiting agency authority to ensure the safety and efficiency of airport operation, payment and receipt of fair market value for land and facilities, and regulation of land acquired from the federal government or with federal funding.109 Both the signifi- cance of the statutory changes and the absence of any definitive FAA implementing policies or guidance mean that any analysis of Section 163 must carry the caveat that the FAA has yet to 105 Id. § 22.6. See also Boca Airport, Inc. v. Boca Raton Airport Auth., FAA Docket No. 16-00-10, Final Decision and Order (Mar. 20, 2003) (interim use must be approved, but was allowable because it did not adversely impact the safety, utility or efficiency of the airport). 106 See FAA Order No. 5190.6B, FAA Airport Compliance Manual § 22.6 (2009). 107 See id. § 22.6. 108 See id. § 26.1.f.(9). The FAA also has cautioned airport proprietors about leasing airport property for interim park purposes, since doing so might trigger Section 4(f) of the U.S. Department of Transportation Act of 1966. Office of Airports, FAA, Environmental Desk Reference for Airport Actions ch. 7 (2007). Under Section 4(f) of the U.S. Department of Transportation Act of 1966, land from publicly owned parks, recreation areas, wildlife refuges and historic properties is prohibited unless there is no feasible and prudent alternative and harm to the property is minimized. See 23 C.F.R. § 774.3 (2019). The FAA is responsible for making such determinations regarding airport property. For more information, see Office of Airports, FAA, Environmental Desk Reference for Airport Actions ch. 7 (2007). For separate limited community use exceptions subject to agreements that predate publication of the Revenue Use Policy, Feb. 1999, see 49 U.S.C. § 47107(v) (2019). 109 FAA Reauthorization Act of 2018, Pub. L. No. 115-254, §163, 132 Stat. 3186, 3224 (2018) (codified at 49 U.S.C. § 471077 note (2019)). Earlier versions of the legislation drew a line between aeronautical and nonaeronautical property, rather than defining agency oversight based on safety. While the aeronautical/nonaeronautical distinction did not survive in the final version of the statute, use of property that was designated for nonaeronautical use on an FAA-approved ALP prior to enactment of the statute is less likely than aeronautical property to affect “the safe and efficient operation of aircraft or safety of people and property on the ground related to aircraft operations.” Therefore, the aeronautical/nonaeronautical distinction continues to be used as an informal, convenient, if not entirely accurate shorthand. an ALP is not merely a map. Rather, it has binding legal signifi- cance for airport proprietors. 2. Exceptions to Prohibition on Nonaeronautical Use Historically, FAA policy has permitted two limited, but im- portant, exceptions to prohibition on the use of federally ob- ligated aeronautical property for nonaeronautical purposes: concurrent use and interim use. With enactment of Section 163 of the FAA Reauthorization Act of 2018, it is unclear how FAA policy will change. Unless the FAA issues additional guidance,99 which is not required by the new statute, airport proprietors will need to exercise caution and understand the exceptions as they existed prior to the new law. Whether the FAA will continue to use the same distinctions under the new law is an open question. Concurrent use. One exception to restrictions on use of dedi- cated airport property occurs with its compatible concurrent use. No formal FAA release is needed if aeronautical property is to be used for a compatible non-aviation purpose, while also serving the primary purpose for which it was acquired.100 For example, a runway clear zone area (an aeronautical use) can simul taneously be used for cultivation of low-growing crops, or lease of such land, to generate revenue for the airport.101 Such use is considered concurrent. However, a concurrent use cannot prevent use of the property for the designated aeronautical pur- pose, and concurrent use of surplus property cannot degrade or potentially degrade the aeronautical utility of the land. For example, use of hangars for residential purposes is considered an incompatible concurrent use, 102 as is use of property for shooting ranges.103 Furthermore, concurrent use is permissible only when the user pays fair market value for it and revenue generated from such use is designated for airport purposes.104 Interim use. The second exception is interim use, or the tem- porary use of aeronautical property for nonaeronautical pur- poses, pending the anticipated aeronautical purpose for which property and land uses within the airport boundary. In addition, each application for AIP grant funding must include, as “Exhibit A” to that application, a current map which “delineates all airport property owned … by the sponsor,” id. including the funding source for each property acquisition. By attaching Exhibit A to a grant application, the airport proprietor attests to the accuracy of the information in Exhibit A and agrees that all property depicted thereon is subject to regulation by the FAA under the grant assurances. Most important, no property shown on Exhibit A may be encumbered or disposed of, except in compliance with applicable FAA regulations. For this reason, Exhibit A has meaningful legal implications, and errors thereon can lead to complex and undesirable legal consequences. For convenience, and to ensure accuracy, many airport proprietors elect to use the same map for Exhibit A and the ALP property map. 99 See Program Guidance Letters (PGLs) and Program Information Memorandums (PIMs) for the Airport Improvement Program (AIP), FAA, https://www.faa.gov/airports/aip/guidance_letters/#rpgls (last modified Sept. 4, 2019). 100 See FAA Order No. 5190.6B § 22.5. 101 Id. 102 Id. § 21.6.f.(8). 103 Id. § 26.1.f.(9). 104 Id.

ACRP LRD 40 13 the statute starts with the presumption that the FAA is not to regulate property, as opposed to the opposite, which has been the practice for decades. In addition to removing direct or indirect FAA regulation, the statute changes the scope of FAA review of ALPs and limits the agency’s approval authority. The statute limits FAA ALP ap- proval to only those portions of the plan that (a) materially im- pact the safe and efficient operation of aircraft at, to or from the airport; (b) would adversely affect the safety of people or prop- erty on the ground adjacent to the airport as a result of aircraft operations; or (c) that adversely affect the value of prior federal investments to a significant extent. Cardinal principles of statutory construction dictate a pre- sumption that Congress uses language precisely to mean what it says. That principle is important in understanding how to read Section 163. The statute is structured to prohibit the FAA from regulating airport land use unless one of the enumerated excep- tions applies. This means that one must assume that Congress opine definitively on the meaning and significance of the stat- ute. But because it has the potential to substantially alter the reg- ulatory relationship between airport proprietors and the FAA (especially with respect to land use that does not affect the safety or efficiency of the airport, is being leased at fair market value, and is not acquired from the government or with government funding), it is essential to understand the statutory language and its potential applicability. Figure 1 shows the full text of Section 163. The statute changes the nature of FAA approvals for use of certain airport property that is not federally obligated, i.e., property that was purchased without federal funds or trans- ferred with a federal deed. Congress has directed the FAA not to “directly or indirectly” regulate such property except in a lim- ited manner, i.e., to ensure that any transaction involving such property is at fair market value and to ensure “the safe and ef- ficient operation of aircraft or safety of people and property on the ground related to aircraft operations.” It is noteworthy that SEC. 163. LIMITED REGULATION OF NON-FEDERALLY SPONSORED PROPERTY. (a) IN GENERAL.— Except as provided in subsection (b), the Secretary of Transportation may not directly or indirectly regulate— (1) the acquisition, use, lease, encumbrance, transfer or disposal of land by an airport owner or operator (2) any facility upon such land or (3) any portion of such land or facility. (b) EXCEPTIONS. — Subsection (a) does not apply to — (1) any regulation ensuring — (A) the safe and efficient operation of aircraft or safety of people and property on the ground related to aircraft operations (B) that an airport owner or operator receives not less than fair market value in the context of a commercial transaction for the use, lease, encumbrance, transfer or disposal of land, any facilities on such land or any portion of such land or facilities or (C) that the airport pays not more than fair market value in the context of a commercial transaction for the acquisition of land or facilities on such land. (2) any regulation imposed with respect to land or a facility acquired or modified using Federal funding or (3) any authority contained in — (A) a Surplus Property Act instrument of transfer or (B) section 40117 of Title 49, United States Code. (c) RULE OF CONSTRUCTION. — Nothing in this section shall be construed to affect the applicability of sections 47107(b) or 47133 of Title 49, United States Code, to revenues generated by the use, lease, encumbrance, transfer or disposal of land under subsection (a), facilities upon such land or any portion of such land or facilities. (d) AMENDMENTS TO AIRPORT LAYOUT PLANS. — Section 47107(a) (16) of title 49, United States Code, is amended — (1) by striking subparagraph (B) and inserting the following: “(B) the Secretary will review and approve or disapprove only those portions of the plan (or any subsequent revision to the plan) that materially impact the safe and efficient operation of aircraft at, to or from the airport or that would adversely affect the safety of people or property on the ground adjacent to the airport as a result of aircraft operations, or that adversely affect the value of prior Federal investments to a significant extent;” (2) in subparagraph (C), by striking “if the alteration” and all that follows through “airport; and” and inserting the following: “unless the alteration — “(i) is outside the scope of the Secretary’s review and approval authority as set forth in subparagraph (B); or “(ii) complies with the portions of the plan approved by the Secretary; and” and (3) in subparagraph (D), in the matter preceding clause (i), by striking “when an alternation” and all that follows through “Secretary, will” and inserting “when an alteration in the airport or its facility is made that is within the scope of the Secretary’s review and approval authority as set forth in subparagraph (B) and does not conform with the portions of the plan approved by the Secretary, and the Secretary decides that the alteration adversely affects the safety, utility or efficiency of aircraft operations or of any property on or off the airport that is owned, leased or financed by the Government, then the owner or operator will, if requested by the Secretary.” Figure 1: Full text of Section 163.

14 ACRP LRD 40 use of the airport. While these exceptions may encompass most applications of the statute for some airports, airport proprietors that hold considerable vacant land that is distant from the air- field or in a location that is not likely to affect airfield operations may find that the statute significantly alters their regulatory re- lationship with the FAA. The applicability of Section 163 can best be understood using the chart shown in Figures 2. 4. Land Disposal Disposal of airport property (e.g., through sale) requires the FAA to release the property from restrictions on its use. To release airport property, the FAA must determine that it is not intended that any FAA regulation of airport land use be an exception from the broad statutory prohibition. While the ex- ceptions undoubtedly are broad and encompass considerable airport property and activities, it important to recognize that Congress used language to provide any land use regulation as an exception to the principle that the FAA has limited airport land use regulatory authority. The statute does not alter grant assurance obligations or obli- gations in connection with use of PFC revenue. Among obliga- tions unaffected by the statute are the proprietor’s obligation to maintain an up-to-date ALP, to ensure compliance with revenue use policies and statutes, and to protect the airport from activi- ties or development that could interfere with safe and efficient Figure 2: Chart showing applicability of Section 163.

ACRP LRD 40 15 value, and all such compensation is considered airport rev- enue.115 Where airport land was acquired neither from the fed- eral government nor with federal assistance, it may be sold with- out reimbursing the federal government.116 Where the land was acquired as surplus property from the federal government or with federal funding through AIP, additional restrictions apply. Surplus property must be sold for fair market value, and the pro- ceeds must be used “exclusively for developing, improving, op- erating or maintaining a public airport.”117 This includes a range of airport-related activities, including both AIP and non-AIP- eligible airport development projects and retirement of airport bonds.118 For land acquired with AIP funding, an amount equal to the government’s proportional share of the fair market value from disposal must be made available to the FAA for reinvest- ment in another AIP-eligible project, as set forth under Section 47107.119 Land purchased with federal funding should generally be disposed of through sale, with resulting funds being returned to the FAA or used for authorized airport purposes.120 Land acquired neither from the federal government nor with federal assistance may be sold without reimbursing the federal govern- ment. However, the proceeds from any sale of airport property, unless returned to the federal government, are considered air- port revenue and must be accounted for as such.121 Some limitations on property use may remain as deed re- strictions notwithstanding sale to a third party. While unusual, surplus property may be transferred to a third party with FAA approval and without release of deed restrictions on its use, but only if the recipient is eligible to assume the federal obligations and does so.122 If a sale has been authorized by the FAA (e.g., through release or approval, as applicable), the airport propri- etor “is obligated to include in any deed, lease or other convey- ance of a property interest to another a reservation assuring the public rights to fly aircraft over the land released and to cause inherent aircraft noise over the land released.”123 The airport proprietor also must include restrictions in any transfer deed that prohibits “the erection of structures or growth of natural 115 Id. § 22.16. See FAA, Compliance Guidance Letter 2018-3, Appraisal Standards for the Sale and Disposal of Federally Obligated Airport Property (2018) (providing internal guidance to FAA offices regarding the appraisal process required for the sale and leasing of federally obligated property). 116 FAA Order No. 5190.6B, FAA Airport Compliance Manual § 22.16 (2009). 117 49 C.F.R. § 155.7 (2019). 118 FAA Order No. 5190.6B § 22.17.e. Note that under the statute the term “airport development” is defined to include a specific range of activity types of and expenses. 49 U.S.C. § 47102(3) (2019) (defining projects considered “airport development”). 119 49 U.S.C. §§ 47107(c) (2) (B), 47107(c) (4) (2019). 120 Whether or not the airport proprietor must reimburse the federal government depends on whether there is another eligible project at the airport or another airport operated by the airport proprietor. If there is no such eligible funding opportunity, the federal government must be reimbursed. FAA Order No. 5190.6B § 20.5.e. 121 Id. § 22.16. 122 Id. § 6.7.b. 123 Id. § 22.16.a. needed for present or foreseeable public airport purposes.110 The FAA defines “release” as “the formal, written authorization discharging and relinquishing [of] the FAA’s right to enforce an airport’s contractual obligations.”111 A release may cover only a particular grant assurance or federal obligation, or all of them, so as to permit disposal (including sale) of the property.112 While property other than land purchased with FAA grants (e.g., snow removal equipment) is automatically released from federal ob- ligations on the end of its useful life,113 federal obligations relat- ing to land acquired with AIP funding or conveyed as surplus or nonsurplus property extend in perpetuity.114 As a matter of policy, the FAA may occasionally add restrictions to any release that it believes are necessary. Disposal must be considered in the context of the FAA’s strong policy disfavoring sale of any airport property. This policy’s underlying principle is as simple as it is obvious: It is always difficult for an airport proprietor to acquire land (es- pecially for urbanized airports), and the sale of land almost inevitably leads to its development, which would make future reacquisition costly and difficult. It is equally important to keep in mind the federal government’s interest in accounting for all airport revenue, even foregone revenue, when disposing of land to ensure federal money is not used to subsidize local non- airport activities. Generally speaking, an airport proprietor’s account must re- ceive fair market value compensation for removal of any airport property from the airport, even where the proprietor does not sell the property or is authorized to sell it at below fair market 110 See FAA Order No. 5190.6B § 22.16. It is critically important to distinguish between two terms which often are used interchangeably but have distinct legal significance. An FAA “release” is required for the use of airport property that was acquired for aeronautical purposes but the airport proprietor desires to use for nonaeronautical purposes, or for the sale or long-term lease of property acquired with federal statutory or grant restrictions. An FAA “approval” is needed for many other property transactions involving real property that is depicted on Exhibit A. Among transactions that need approval, rather than a release, are changes in the designation of non-federally funded property from aeronautical to nonaeronautical uses. The source of funds for the original acquisition will be material in determining whether a release or an approval is needed for certain transactions. The legal processes for release and for approval are distinct and implicate different legal requirements. FAA approval is far less complex and requires considerably less documentation than release. It is unclear exactly how Section 163 of the FAA Reauthorization Act of 2018 will affect FAA approval processes, since the new law does not affect releases. 111 See id. § 22.2. 112 See id. Under FAA policy, the term “release” can refer to either releasing a particular property from certain grant assurances so as to allow for a change in the use of the property or releasing a parcel from all federal obligations so as to allow for disposal or “removal from airport dedicated use.” See id. § 22.4.c. FAA airport district offices are delegated the authority to determine the conditions of release of airport property on a case-by-case basis. See id. § 22.3. 113 The physical useful life of a facility or improvement “extends to the time it is serviceable and useable with ordinary day-to-day maintenance.” Id. § 22.3. 114 Id. Obligations were not perpetual under FAAP, and there are very few ADAP land grants that did not expire after 20 years.

16 ACRP LRD 40 land),128 subject to FAA review and approval.129 All noise buffer land, including AIP-funded noise land that is subsequently con- verted to noise buffer land, may be leased at fair market value, and such a lease, even if long-term (e.g., normally longer than 25 years), will not be considered a disposal of the land.130 Al- though such use would not be considered disposal under FAA compatibility guidance,131 the FAA generally considers certain long-term leases to constitute disposal of property and accord- ingly require FAA approval.132 Airport proprietors seeking to lease noise land for non-airport purposes on a long-term basis must carefully review the existing ALP to ensure that its des- ignation and use description are consistent with the proposed leased use. The revenue derived from leases of noise buffer land is considered normal airport revenue subject to standard airport revenue use requirements.133 D. Statutory and Regulatory Framework for Controlling Use of Airport Revenue and Related Property Use 1. Forms of Federal Assistance Triggering Airport Revenue Restrictions: AIP, Surplus Property, Nonsurplus Property All airport proprietors whose airports are considered “feder- ally obligated” are subject to federal regulation on airport rev- enue use. While an airport most commonly becomes federally obligated because its proprietor has accepted AIP grant funds 128 “Noise buffer land,” also known as “noise compatibility land,” is a broader category than “noise land” under FAA’s Part 150 requirements because such property may lie outside of the DNL 65 dB contour and therefore could not have been acquired with AIP noise program grants absent a lower local land use compatibility standard. Noise land also can be converted to noise buffer land. Note that AIP noise grant funding may not be used directly to acquire land to use as a noise buffer or to acquire land for airport development. FAA Noise Land Guidance, supra note 125, § 1.B., at 1. 129 Id. at 3, 16. 130 See id. at 16. 131 See id. 132 FAA Order No. 5190.6B, FAA Airport Compliance Manual § 22.33(d) (2009) (“Long-term leases that are not related to aeronautical activities or airport support services have the effect of a release for all practical purposes and shall be treated the same as a release. Such leases include convenience concessions serving the public such as hotel, ground transportation, food and personal services, and leases that require the FAA’s consent for the conversion of aeronautical airport property to revenue-producing nonaeronautical property.”). While the Order uses the term “release,” FAA policy is to apply the same principle when only FAA approval, not release, is required. See also Boston Air Charter v. Norwood Airport Comm’n, FAA Docket No. 16-07-03, Final Agency Decision and Order (Aug. 14, 2008) (long-term nonaeronautical lease is considered to be a deprivation of the proprietor’s ability to direct and control the airport). 133 49 U.S.C. § 47107(c) (5) (A) (2019) (“A lease at fair market value by an airport owner or operator of land acquired for a noise compatibility purpose using a[n AIP] grant … shall not be considered a disposal.”); FAA Noise Land Guidance, supra note 125, at 16 (“Fair market rent receipts are airport revenue and are applied to eligible airport uses in compliance with FAA airport revenue requirements.”). objects that would constitute an obstruction to air navigation,” as well as “any activity on the land that would interfere with or be a hazard to the flight of aircraft over the land or to and from the airport, or that interferes with air navigation and communi- cation facilities serving the airport.”124 5. Noise Land While most airport property is classified as aeronautical or nonaeronautical, and specific legal requirements attach to each characterization, a third category has its own unique legal standing. This property is commonly referred to as noise land. Land that an airport proprietor receives from the federal gov- ernment or acquires with federal funding in areas around an airport to mitigate noise impacts has its own specific use and disposal requirements. Under the FAA’s Noise Compatibility Planning regulations, at 14 C.F.R. Part 150, airport proprietors may be eligible for AIP funding to acquire noise-affected land for conversion to airport-compatible land uses.125 As an excep- tion to the general rule that airport property must be used for airport-related purposes indefinitely, land acquired with AIP funding for a noise compatibility purpose must be disposed of “at fair market value at the earliest practicable time after the land no longer is needed for a noise compatibility purpose.”126 Proceeds from the sale of noise land must be reinvested in eligible airport projects and programs, prioritizing any applica- ble airport noise program.127 As an alternative to sale or disposal (e.g., long-term lease), noise land may instead be converted for airport use (i.e., converted to aeronautical and, in rare cases, to nonaeronautical use, including conversion to noise buffer 124 Id. See 14 C.F.R. Part 77 (2019) for the regulations concerning protection of navigable airspace. 125 See Office of Airport Planning & Programming, FAA, Noise Land Management and Requirements for Disposal of Noise Land or Development Land Funded with AIP 1 (2014) [hereinafter FAA Noise Land Guidance], https://www.faa.gov/airports/ environmental/policy_guidance/media/Noise-Land-Management- Disposal-AIP-Funded-Noise-Development-Land.pdf. Although the FAA Noise Land Guidance, which appeared in Program Guidance Letter 14-05, has been cancelled and superseded by the Airport Improvement Program Handbook, FAA Order No. 5100.38D, Change 1 (2019). Order 5100.38D still references it for guidance on the issue. See FAA Order No. 5100.38D, at B-1 to B-6 tbl.B-1. For this reason, we refer to it here in our discussion of noise land. 126 49 U.S.C. § 47107(c) (2) (A) (i) (2019); See Grant Assurances, supra note 45, § (C) (31). The FAA Modernization and Reform Act of 2012 amended this provision to state that land acquired for a noise compatibility purpose includes “land serving as a noise buffer either by being undeveloped or developed in a way that is compatible with using the land for noise buffering purposes. FAA Modernization and Reform Act of 2012, Pub. L. 112-95, § 135, 126 Stat. 11, 22-23 (2012). 127 FAA Noise Land Guidance, supra note 125, at 2; FAA Order No. 5100.38D, at 5-64 tbl.5-39. FAA guidance provides for an order or preference in which such revenue must be invested, starting with reinvestment in an approved noise compatibility project, then other AIP-eligible projects, and finally repayment to the FAA. A complete list of order of preference is provided at FAA Order No. 5100.38D, at 5-64 tbl.5-39.

ACRP LRD 40 17 2. Criteria for Becoming Subject to Federal Revenue Use Oversight The criteria for determining when airport proprietors are subject to federal airport revenue use restrictions are fairly straightforward: Public or private airport proprietors that re- ceive any form of federal assistance listed in the previous sec- tion must conform to federal revenue use requirements.138 Once any public or private airport proprietor receives AIP assistance, revenue use requirements apply indefinitely for as long as the airport remains in existence.139 It is important to recognize the difference between grant assurance obligations (which have a duration of 20 years from the date of acceptance of federal funds) and revenue use obligations, which are permanent if an airport proprietor has received a single AIP grant after Oct. 1, 1996. The criteria for determining the duration of revenue use restrictions is more complicated when an airport is federally obligated through federal assistance other than AIP grants or when the proprietor has not received an AIP grant since 1996. This is because the conditions of acceptance of federal airport assistance have changed over time, and because Congress has in some cases not retroactively applied new revenue require- ments to pre-existing arrangements.140 The following provides the criteria for determining airport revenue obligations based on previous non-AIP federal assistance. Any public or private airport proprietor that obtained as- sistance through federal development grants, planning grants, aircraft noise mitigation grants or the transfer of federal prop- erty (as described in the previous section) after Oct. 1, 1996, is statutorily subject to federal airport revenue use requirements for the life of its airport.141 All public airport proprietors that have received AIP funding since Sept. 3, 1982 and that had grant obligations regarding use of airport revenue in effect on Oct. 1, 1996, also are subject to airport revenue use requirements for the life of their airport.142 Practically speaking, it is likely that virtually all airport proprietors receiving AIP funding since 1982 continued to have grant obligations in effect on Oct. 1, 1996, because the standard assumed duration of grant assurance obligations is at least 20 years.143 restrictions that accompany receipt of grant funding (e.g., Blue Ash Airport in Cincinnati). 138 49 U.S.C. §§ 47107(b) (1), 47133(a) (2019). However, as discussed further below, there are exceptions to what is considered “airport revenue” that may permit what would otherwise be impermissible use of airport revenue. 139 Proceeds from Taxes on Aviation Fuel, Nov. 2014, 79 Fed. Reg. 66,282, 66,283 (Nov. 7, 2014); Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7717. See also id. at 7699. 140 Id. at 7699 (citing Bennett v. New Jersey, 470 U.S. 632 (1985)). 141 See FAA Order No. 5190.6B, FAA Airport Compliance Manual §§ 15.7-.8 (2009). 142 Proceeds from Taxes on Aviation Fuel, Nov. 2014, 79 Fed. Reg. at 66,283; Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7716; FAA Order No. 5190.6B § 15.7. 143 More specifically, the federal grant assurances under the AIP last for the useful life of the building, improvement or land built or acquired within the last 20 years, the FAA has determined that, based on 49 U.S.C. § 47133, there are several other forms of federal assis- tance that trigger the need for the airport proprietor to comply with federal airport revenue use restrictions: • Airport development grants issued under the AIP and predecessor federal grant programs • Airport planning grants that related to a specific airport • Airport noise mitigation grants received by an airport proprietor • The transfer of federal property under the Surplus Property Act (49 U.S.C. § 47151) • Deeds of conveyance issued under Section 16 of the Federal Airport Act of 1946; Section 23 of the Airport and Airway Development Act of 1970, or Section 516 of the AAIA of 1982.134 These categories are based on the FAA’s interpretation of “federal assistance” referenced in 49 U.S.C. §  47133, whose scope is broader than 49 U.S.C. § 47107(b), which applies to AIP grants only. The FAA’s interpretation of what constitutes federal assistance is based on federal legislation adopting the interpreta- tion provided by the Supreme Court in Department of Transpor- tation v. Paralyzed Veterans.135 The FAA has provided some additional detail regarding what it considers “federal assistance” as the term is used in 49 U.S.C. § 47133. For instance, it has determined that its installation and operation of navigational aids and operation of control towers are not considered federal assistance, nor is the imposition of passenger facility charges.136 While the above forms of assistance may trigger the obliga- tion to comply with airport revenue use restrictions, a more detailed case-by-case analysis of an airport’s funding history is necessary to determine whether it is subject to federal air- port revenue use requirements, as discussed in the following section.137 134 See Revenue Use Policy, Feb. 1999, 64 Fed. Reg. 7696, 7715 § III.A (Feb. 16, 1999); FAA Order No. 5190.6B § 15.8. 135 Dep’t of Transp. v. Paralyzed Veterans, 477 U.S. 597 (1986). 136 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7699. The FAA states that its interpretation of what constitutes federal assistance is based on federal legislation adopting the interpretation provided by the Supreme Court in Department of Transportation v. Paralyzed Veterans, 477 U.S. 597. 137 Only a few years ago, this section would have been largely theoretical because almost all commercial airports and thousands of general aviation airports were federally obligated, and there was neither practical nor political likelihood that the airports would ever lose that status. See Airport Improvement Program (AIP) Grant Histories, FAA, https://www.faa.gov/airports/aip/grant_histories/ (last updated Apr. 9, 2019) (linking to historical annual AIP grant award data). For numerous policy and economic reasons that are beyond the scope of this paper, the prospect of removing the legal and financial restrictions that accompany federal funding has become a practical possibility for some large and small airports. Even some large hub airports have discussed foregoing AIP grants to be in a position to remove the restrictions imposed on grant recipients. Nevertheless, only a small handful of airports have successfully navigated the process for removing federal

18 ACRP LRD 40 3. “Grandfathering” Airports from (i) Revenue Use Restrictions and (ii) Fuel Tax Use Restrictions When federal revenue use restrictions were enacted in 1982, numerous airport proprietors were party to existing financial arrangements under which airport revenue was being allocated in a manner that would violate the new law. In particular, many airport proprietors used revenue derived from their airports for other non-airport purposes or non-airport facilities owned and operated by the same entity. Many of these arrangements involved financing the airport or other local projects or general government funds. These otherwise impermissible uses of air- port revenue are “grandfathered,” or exempted from statutory revenue use restrictions,147 and may lawfully continue to use air- port revenue in a manner that would otherwise be considered unlawful. Airport proprietors whose financial arrangements are grandfathered, however, cannot extend that exemption to new financial arrangements or expansion of existing ones.148 Airport proprietors must satisfactorily demonstrate to the FAA and DOT on a case-by-case basis that existing arrange- ments are grandfathered. Arrangements established before Sept. 3, 1982, include: • Debt obligations or financing legislation applicable to an independent authority or state transportation department that owns or operates other transportation facilities in addi tion to airports under which airport revenue may be used for non-airport purposes • Bond obligations and city ordinances requiring a 5 percent “gross receipts” fee from airport revenue • State statutes assessing a 5 percent surcharge on all receipts and deposits in an airport revenue fund to defray central service expenses of the state • City ordinances authorizing payment of a percentage of air- port revenue to the city • State law allocating revenues from a multimodal authority, including airport revenue, to a state transportation trust fund • State-enabling acts that specifically permit use of airport revenue for costs of various public entity owners, including servicing debt, maintaining an entity’s facilities and alloca- tion for an entity’s expenses, reserves and payment in lieu of taxes.149 147 49 U.S.C. §  47107(b) (2) (2019); 49 U.S.C. §  47133(b) (2019) (Stating that revenue restrictions “shall not apply if a provision enacted not later than September 2, 1982, in a law controlling financing by the airport owner or operator or a covenant or assurance in a debt obligation issued not later than September 2, 1982, by the owner or operator, provides that the revenues, including local taxes on aviation fuel at public airports, from any of the facilities of the owner or operator, including the airport, be used to support not only the airport but also the general debt obligations or other facilities of the owner or operator.”). 148 FAA Order No. 5190.6B, FAA Airport Compliance Manual § 15.10 (2009). 149 Id. Airports that are federally obligated by virtue of property conveyances are subject to the conditions contained in the conveyance documents.144 Any proprietor to whom federal property was conveyed after Oct. 1, 1996, would be automati- cally subject to federal revenue use requirements pursuant to 49 U.S.C. §  47133. The conditions included in older convey- ance documents for federal property may be different, as federal policy has evolved. If these conditions included restrictions on airport revenue use, then these airports are subject to standard federal revenue restrictions because any restrictions found in these documents would be considered permanent for the life of the airport. Federally conveyed land also would constitute federal assistance, subjecting the airport proprietor to revenue use restrictions found in 49 U.S.C. § 47133. However, if an air- port proprietor received property from the federal government with no such revenue use requirements in the conveyance docu- ments and the airport proprietor was not otherwise obligated through AIP funding and the grant assurances on Oct. 1, 1996, then the airport proprietor is not subject to federal airport rev- enue restrictions based solely on its prior receipt of federal prop- erty.145 This narrow exception applies to only a few airports in the country. Public airport proprietors that received federal funding through AIP and its predecessors ADAP and FAAP prior to 1982 would not have had revenue use restrictions included in their grant agreements and, therefore, would not be subject to airport revenue use restrictions so long as they have not re- ceived additional AIP funding after 1982 or any form of federal assistance, as defined in the previous section, since Oct. 1, 1996. Until recently, one additional restriction on airport revenue was not enforced as rigorously, because it affects governments regardless of whether they also are airport proprietors. As dis- cussed further below, restrictions on airport revenue use also extend to any state or local taxing authority that enacted a new tax on aviation fuel after Dec. 30, 1987. Even if such government entities are not obligated under any grant assurance agreement or conveyance document, the FAA has interpreted the scope of the revenue use requirements in 49 U.S.C. §§ 47107(b) and 49133 to apply to these entities as well.146 with federal funding. Improvements and facilities built with AIP funding are assumed to have a useful life of 20 years. An exception would be where an entire grant was used for equipment whose useful life was clearly less than 20 years. Because the value of land does not depreciate, AIP grant assurance obligations run with the land for as long as it is used as a public-use airport. FAA Order No. 5190.6B ch. 2. 144 The FAA has published a partial list of airports obligated through agreements with the federal government. See FAA Order No. 5190.2R, List of Public Airports Affected by Agreements with the Federal Government (1990). 145 See Revenue Use Policy, Feb. 1999, 64 Fed. Reg.at 7699 (An airport that had accepted Surplus Property from the Federal government, but did not have an AIP grant in place on Oct. 1, 1996, would not be subject to the revenue use requirement by operation of [49 U.S.C.] § 47133.”). 146 Proceeds from Taxes on Aviation Fuel, Nov. 2014, 79 Fed. Reg. at 66,283.

ACRP LRD 40 19 enue at stake, the potential loss of discretionary grants may not be much of a disincentive. A new federal law requires review of the financial impact of grandfathered revenue diversion and the potential for future elimination of that exemption.157 4. Meaning and Characterization of Airport Revenue In accordance with Congress’s direction, airport revenue is defined through FAA policy, rather than directly by regula- tion.158 The FAA has defined airport revenue broadly to include “those revenues paid to or due to the airport proprietor for use of airport property by the aeronautical and nonaeronautical users of the airport. It also includes revenue from the sale of airport property and resources and revenue from state and local taxes on aviation fuel.”159 The FAA’s description of this definition reflects exclusions mandated by Congress, as described above in previous sections. Revenue derived from airport use more specifically includes “fees, charges, rents or other payments received by or accruing to the proprietor from air carriers, tenants, concessionaires, lessees, purchasers of airport properties and airport permit holders making use of the airport property and services.”160 Im- portant, as further detailed later in this digest, airport revenue does not include revenue generated by tenants themselves from their activities or sale of their own goods and services, but rather is limited to tenant payments to the airport proprietor for use of the airport—including, for example, fees, rentals, lease agree- ments and the like.161 Airport revenue also includes revenue from activities conducted by the proprietor itself, including aeronautical and nonaeronautical sales or services.162 157 FAA Reauthorization Act of 2018, Pub. L. No. 115-254, §143, 132 Stat. 3186, 3212 (2018). 158 The term “airport revenue” is defined in FAA regulations regarding PFCs. See 14 C.F.R. §  158.3 (2019). However, as discussed further below, the FAA generally doesn’t include PFC revenue in the definition of “airport revenue” because PFCs are subject to entirely separate statutory requirements. Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § IV.E. In the Federal Aviation Administration Authorization Act of 1994, Congress instructed the FAA to “establish policies and procedures that will assure the prompt and effective enforcement” or revenue use requirements. Pub. L. No. 103-305, § 112, 108 Stat. 1569, 1574 (1994) (codified at 49 U.S.C. §  47107(k) (1)). Congress instructed the FAA to “establish policies and procedures that will assure the prompt and effective enforcement” of revenue use requirements. The FAA has interpreted this directive to require publication of revenue use restrictions, including the definition of “airport revenue” as a policy, rather than a regulation. See Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7714. 159 FAA Order No. 5190.6B § 15.6. See also Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7716 § II.B.1. (defining airport revenue as “[a]ll fees, charges, rents, or other payments received by or accruing to the sponsor” from a wide array of sources, including leases for use of airport property and services, sale or transfer of airport real property or other property rights, and revenue from proprietor activities on the airport). 160 FAA Order No. 5190.6B § 15.6.a.; see also Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7716 § II.B. 161 FAA Order No. 5190.6B § 15.6.a. 162 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7716 § II.B.1.b. The FAA published a list of fewer than a dozen airport pro- prietors that it officially recognizes as grandfathered as of May 2018, but the list may not be exhaustive.150 The list provides a description of the basis for grandfathering in each instance.151 It is crucial to note that an airport proprietor may be grand- fathered for some, but not all, transactions—i.e., grandfather- ing is construed narrowly to apply to those arrangements that pre-existed the statutory revenue use requirements and does not apply to every transaction by a grandfathered airport proprietor. In 1987, Congress extended airport revenue use restrictions to apply to state and local taxes on aviation fuel.152 However, as it did with the more general revenue use restrictions, Congress exempted state and local aviation taxes enacted on or before Dec. 30, 1987. Accordingly, these taxes also are grandfathered, but only as enacted before Dec. 30, 1987.153 Any subsequent in- creases in these aviation fuel tax rates would be subject to the FAA’s Revenue Use Policy. There has been considerable debate over grandfathering as a result of increased FAA attention on enforcement of the statutory requirement beginning in 2014.154 Grandfathering is not an open wallet. A 2018 OIG report found significant unintentional misreporting in amounts of airport revenue paid by several grandfathered airport propri- etors to local governments.155 Out of concern for the potential for widespread, if legal, diversion of airport revenue by grand- fathered airports, Congress instructed the FAA to consider lim- iting awards of discretionary AIP grants in which the amount of airport revenue used for non-airport purposes exceeds the Consumer Price Index-adjusted revenue base of the fiscal year ending after Aug. 23, 1994.156 Depending on the amount of rev- 150 See FAA, Grandfathered Airports: May 1, 2018, https:// cats.airports.faa.gov/GrandfatheredAirports.pdf. The FAA has indicated to the authors of this digest that two of the 11 airport proprietors listed at this source no longer are eligible for grandfathering. 151 There are at least two possible ways the FAA could identify grandfathered airports: (1) through self-reporting data that airports are required to submit through the FAA’s Compliance Activity Tracking System (assuming that an airport that qualified for grandfathering would be incentivized to identify itself), and (2) through investigation prompted by either a dispute or inquiry by an airport proprietor or the FAA itself. See, e.g., Letter from David L. Bennett, Dir., Office of Airport Safety and Standards, FAA, to Joseph J. Petrocelli, Comm’r of Transportation, Westchester Cty. (Feb. 14, 1997), https://crp.trb.org/ acrplrd21/wp-content/themes/acrp-child/lrd21/documents/1997_ Petrocelli.pdf (determining, at the request of an airport proprietor, that a transfer of funds from an airport proprietor to a local county was not “grandfathered.”). 152 Airport and Airway Safety and Capacity Expansion Act of 1987, Pub. L. No. 100-223, § 109(d), 101 Stat. 1486, 1499 (Dec. 30, 1987) (codified at 49 U.S.C. § 47107(b) (1) (2019)). 153 See 49 U.S.C. §§ 47107(b) (1), 47133(a) (2019); FAA Order No. 5190.6B § 15.10.a.6; Revenue Use Policy, Feb. 1999, 64 Fed. Reg. 7696, 7716 § III.A.2 (Feb. 16, 1999). 154 Proceeds from Taxes on Aviation Fuel, Nov. 2014, 79 Fed. Reg. 66,282, 66,282 (Nov. 7, 2014). See generally, Aviation Fuel Tax Action Plans and Status, FAA, https://www.faa.gov/airports/airport_ compliance/aviation_fuel_tax/ (last updated Mar. 20, 2019). 155 OIG Report No. AV-2018-041, supra note 49. 156 49 U.S.C. § 47115(f) (2019).

20 ACRP LRD 40 5. Differences in Legal Requirements for Airport Revenue Use Based on Funding and Acquisition Source Regardless of its source, airport revenue generally can be used only for expenditures with direct, identifiable benefit to the airport (capital and operating costs of the airport, per statute). Generally, airport revenue also must be spent for expenditures on the airport, with a few notable exceptions. Within this gen- eral rule, there are a few subtle variations. For comparison, spe- cific requirements for uses of various airport revenue types (and a few types of non-airport revenue) are discussed in the follow- ing sections. a. AIP Funding Public airport proprietors subject to federal revenue use restrictions based on acceptance of AIP funding must provide written assurances that the revenues generated by their airport “will be expended for the capital or operating costs of (A) the airport; (B) the local airport system; or (C) other local facilities owned or operated by the airport owner or operator and directly and substantially related to the air transportation of passengers or property.”171 This obligation is included in Grant Assurance 25, which is binding on all airport proprietors who receive AIP grants. Provisions of 49 U.S.C. § 47133(a) detail identical reve- nue use requirements for all public or private airport proprietors who have received any of the federal assistance types discussed earlier. Grant Assurance 25 and its statutory equivalent also should be read in conjunction with other obligations requiring pro- prietors to make airports as self-sustaining as possible (Grant Assurance 24 and its statutory equivalent). Specifically, airport proprietors must charge for use of airport facilities and ser- vices in a manner that makes the airport as self-sustaining as possible;172 however, they may not include the federal govern- ment’s share of costs for any project in the rate base used.173 Therefore, airport proprietors must consider not just how air- port revenue is spent, but ensure that sufficient airport revenue is raised. b. Surplus and Nonsurplus Property Conveyances For use of surplus and nonsurplus property, federal revenue use restrictions174 are the same as for airports receiving AIP funding: Revenue must be spent on (A) the airport; (B) the local airport system; or (C) other local facilities owned or oper- ated by the airport owner or operator and directly and substan- tially related to air transportation of passengers or property.175 171 49 U.S.C. § 47107(b) (1) (2019). 172 Id. § 47107(a) (13) (A). The self-sustaining requirement is beyond the scope of this digest, but it is important to recognize that failure to charge fair market value for nonaeronautical activities would be a violation of this requirement, in addition to separate requirements applicable to nonaeronautical property. 173 Id. § 47107(a) (13) (B). 174 I.e., conveyances of federal property after Oct. 1, 1996. See supra Section II.C.1-.2. 175 49 U.S.C. § 47133(a) (2019). Airport revenue extends to the income derived from the sale, transfer or disposition of property, even where that prop- erty was not acquired with federal assistance or was acquired through a condemnation proceeding.163 It also includes revenue from the sale or lease of mineral, natural or agricultural rights or products, or water taken from airport property.164 Although proceeds from the sale of land donated by the federal govern- ment or acquired with federal grants are, strictly speaking, not considered to be airport revenue under the Revenue Use Policy, FAA policy imposes the functional equivalent by requiring that such proceeds be used in accordance with the agreement be- tween the FAA and proprietor.165 Airport revenue also includes state or local taxes on avia- tion fuel, except those in effect on Dec. 30, 1987, as discussed above.166 This specific inclusion of fuel taxes as airport rev- enue pursuant to federal statute does not apply more broadly to other taxes on airport activities. Airport revenue does not include taxes from surrounding special taxing districts that are dedicated to airport support but not derived from use of the air- port167 or fines assessed using police powers, such as parking tickets and fines from other law enforcement violations (i.e., not derived from an airport proprietor’s proprietary powers).168 The FAA’s Revenue Use Policy expressly excludes Passenger Facility Charge (PFC) revenue from the definition of “airport revenue.”169 However, in broader terms, PFC revenue resembles and affects airport revenue, as well as property-use decisions at airports. This is reflected in federal regulations on PFC rev- enue, which, while separate from those covering other airport revenue, mirror airport revenue restrictions in many respects. These requirements are addressed in the Revenue Use Policy.170 163 Id. § II.B.1.a.ii. 164 See id. § II.B.1.a.iii. 165 Id. § II.B.3. 166 Id. § II.B.2. However, state and local taxes on aviation fuel may be used to support state aviation programs or noise mitigation programs on or off the airport. Id. 167 FAA Order No. 5190.6B, FAA Airport Compliance Manual § 15.6.b (2009). 168 Id. § 15.6.c. 169 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § IV.E.1. But cf. 14 C.F.R. § 158.3 (2019), in which FAA defines, for the purpose of PFC regulations “airport revenue” to include “revenue generated by a public airport (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 controls; 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.” To be precise, airport revenue can be subject to either the Revenue Use Policy or PFC regulations. PFCs still are considered airport revenue for financial reporting purposes, but not federal assistance purposes, under the Revenue Use Policy. 170 See Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § IV.E.

ACRP LRD 40 21 d. Airport Revenue from Aeronautical Functions Airport revenue derived from aeronautical functions is in- distinguishable from other revenue with respect to use require- ments. However, federal policies promoting the self-sufficiency of airports and requiring that proprietors levy reasonable rates for aeronautical services, both of which are embodied in grant assurances,184 converge to impose a practical limitation on the collection of aeronautical revenues. The FAA defines aeronautical use as “any activity which in- volves, makes possible or is required for the operation of air- craft, or which contributes to or is required for the safety of such operations.”185 The principle of self-sufficiency dictates that air- port proprietors charge for aeronautical use of airport property to cover the costs of maintaining and reinvesting in the airport, but proprietors are not required to charge aeronautical users fair market value rates.186 In fact, fair market value charges in certain competitive markets could be construed to violate the requirement that charges be reasonable. As a result, the FAA has determined that airport proprietors may charge less than fair market value for aeronautical services, but must charge at least a nominal amount and must strive to charge an amount suf- ficient to recover its overall capital and operational costs.187 The FAA has stated that “[a] fee for aeronautical users set pursuant to a residual costing methodology satisfies the requirement for a self-sustaining airport rate structure.”188 To ensure that the total revenue an airport proprietor col- lects remains reasonable, proprietors are prohibited from creat- ing revenue surpluses that exceed the amounts to be used for the airport system and other allowable uses.189 Airport propri- etors may save revenues and other funds to maintain reasonable reserves, facilitate financing and cover contingencies.190 e. Airport Revenue from Nonaeronautical Functions As with property use, the aeronautical/nonaeronautical distinction is critical to understanding airport revenue. While there are no restrictions on the use of airport revenue from nonaeronautical functions that differ from other types of air- port revenue, the FAA generally requires airport proprietors to publish a final policy amendment no later than six months after the Act’s enactment date). 184 See 49 U.S.C. § 47107(a) (13). 185 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. 7696, 7710 (Feb. 16, 1999) (citing Policy Statement Regarding Airport Fees, Statement of Applicability, 61 Fed. Reg. 31,994, 32,017). 186 Clarke v. Alamogordo, FAA Docket No. 16-05-19, Determination of the Director of Airport Safety and Standards, at 24 (Sept. 20, 2006) (“As it is, the statute and grant assurances allow for below fair market value rent in the case of aeronautical leaseholds.”). See also Bombardier Aerospace Corp. v. City of Santa Monica, FAA Docket No. 16-03-11, Determination of the Director of Airport Safety and Standards, at 16 (Jan. 4, 2005). 187 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7720-21 § VII.B.3., 5. See also id. at 7710 (FAA discussion of final rule). 188 Id. at 7721 § VII.B.5. 189 Id. 190 Id. Unlike grant assurances, which have been uniformly applied for decades, specific conditions attached to federally conveyed real estate vary based on the circumstances, legal authority and tim- ing of the transaction. For this reason, it is essential to review the individual property transactions (e.g., deeds and related conveyance documents) to determine the restrictions that apply on a parcel-by-parcel basis. Other conditions of federal land conveyances may affect use of airport property. The Surplus Property Act requires propri- etors to use airport property exclusively for airport purposes, except with approval of the Secretary of Transportation.176 Noncompliance with such restrictions is a serious matter. Most Surplus Property Act deeds contain a reversion, not merely a right to revert, to the federal government.177 As discussed above, the specific terms of conveyance may vary.178 c. Passenger Facility Charges PFCs are not considered “airport revenue” under the FAA’s definition of airport revenue in its Revenue Use Policy. For this reason, this digest does not address use of PFC revenue in detail. However, PFC revenue can impact airport revenue decisions at airports, and the authority to levy PFCs is conditioned on com- pliance with grant assurances applicable to revenue use.179 PFC revenue may be used only for projects that (1) preserve or en- hance safety, security or capacity of the national air transpor- tation system; (2) reduce noise or mitigate noise impacts from an airport; or (3) furnish opportunities for enhanced competi- tion between or among air carriers.180 PFCs are authorized on a project-by-project basis, and revenues generally cannot be used on unapproved projects without prior FAA approval.181 On the other hand, broader interpretation of statutory requirements to spend PFCs on “capacity-enhancing” projects means that this source of funding is potentially available for landside projects in a manner for which AIP funding cannot be used.182 PFCs also may be used to fund financing costs of debt issued to fund eli- gible costs, unlike AIP grants.183 176 See 49 U.S.C. § 47152(1) (2019). 177 See id. § 47152(8) (providing the government with a statutory right to reversion). 178 See FAA Order No. 5190.6B, FAA Airport Compliance Handbook §§ 3.8.b, 3.17 (2009). 179 49 U.S.C. § 40117(e) (2019). See also Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § IV.E. 180 49 U.S.C. § 40117(d) (2); 14 C.F.R. § 158.15(a) (2009). See generally, FAA Order No. 5500.1, Passenger Facility Charge Handbook (2001). 181 FAA Order No. 5500.1 chs. 11, 12. 182 See Tang, supra note 33, at 1. 183 See FAA Order No. 5500.1 § 4-6(f). The FAA has proposed potential changes to PFC funding of ground access projects. See Passenger Facility Charge (PFC) Program: Eligibility of Ground Access Projects Meeting Certain Criteria, 81 Fed. Reg. 26,611, 26,612-13 (May 3, 2016) [hereinafter PFC Proposed Guidance], amended by 81 Fed. Reg. 28,934 (May 10, 2016) (technical amendments only); 49 U.S.C. § 47107(a) (13) (2019). See also FAA Reauthorization Act of 2018, Pub. L. No. 115-254, §123, 132 Stat. 3186, 3203 (2018) (requiring the FAA to

22 ACRP LRD 40 to fund a state aviation program.198 As discussed further above, taxes and surcharges that are grandfathered under the AAIA as of 1982,199 and aviation fuel taxes that are grandfathered as of 1987,200 are not subject to federal revenue use restrictions. In 2014, the FAA issued a clarification of its policy (and fed- eral law) regarding state and local government taxes on aviation fuel, wherein the agency announced its intention to implement additional measures to enforce statutory requirements. The measures included requesting that state and local governments submit action plans detailing what they would do to ensure avi- ation fuel tax funds are not diverted.201 While the deadline for FAA compliance certification expired Dec. 8, 2017, a review of the FAA website indicates that many state and local jurisdictions are not yet in full compliance with federal law.202 Meanwhile, appeal of the new policy clarification in court has failed.203 Pursuant to separate federal law, state and local governments many not “levy or collect a tax, fee or charge first taking effect after Aug. 23, 1994, exclusively upon any business located at a commercial service airport or operating as a permittee of such an airport, other than a tax, fee or charge wholly utilized for airport or aeronautical purposes.”204 g. Non-Airport Revenue The FAA acknowledges that, in some cases, airport propri- etors may not be able to generate revenues sufficient to cover air- port operating and capital costs. In those cases, fees, leases and other charges for uses of airport property or services may be set at rates below the airport’s operating and capital costs.205 Airport proprietors always can subsidize the airport with non- airport revenue. But in order to comply with the requirement that pro- prietors operate their airport as financially self- sustaining as possible, an airport proprietor should establish long-term goals and targets to make the airport as financially self-sustaining as possible. 206 These requirements do not directly affect restric- tions on use of airport revenue. h. Airport Investment Partnership Program Federal law allows a limited exemption from airport revenue requirements for airport proprietors participating in the federal Airport Investment Partnership Program, 49 U.S.C. § 47134. As 198 Proceeds from Taxes on Aviation Fuel, Nov. 2014, 79 Fed. Reg. at 66,287. 199 49 U.S.C. §§ 47107(b) (2), 47133(b) (1) (2019). 200 Id. §§ 47107(b) (1), 47133(a). 201 Proceeds from Taxes on Aviation Fuel, Nov. 2014, 79 Fed. Reg. at 66,282-83, 66,286. 202 Aviation Fuel Tax Action Plans and Status, FAA, https://www. faa.gov/airports/airport_compliance/aviation_fuel_tax/ (last updated Mar. 20, 2019). 203 Clayton County v. FAA, 887 F.3d 1262 (11th Cir. 2018) (no jurisdiction to consider merits of petitioner’s claim because FAA letter regarding 2014 clarification not final agency action). 204 49 U.S.C. § 40116(d) (2) (A) (2019). See also Revenue Use Policy, Feb. 1999, 64 Fed. Reg. 7696, 7718 § IV.D.3 (Feb. 16, 1999). 205 Id. at 7720 § VII.B.3. 206 Id. at 7720 § VII.B.2. charge fair market value commercial rates for nonaeronautical uses of airport property.191 Violation of this principle could be construed as a violation of the grant assurance obligation that airports be operated as self-sufficiently as possible and could lead to a conclusion that aeronautical rates are not reasonable. The Revenue Use Policy states that “airport owners and opera- tors should not seek to create revenue surpluses that exceed the amounts to be used for airport system purposes and other pur- poses for which airport revenues may be spent under 49 U.S.C. § 47107(b) (1), including reasonable reserves and other funds to facilitate financing and to cover contingencies.”192 The FAA has made limited exceptions for a few categories of nonaeronautical uses of airport property for which less than fair market value rates may be charged.193 These types generally concern local community uses of property that are not poten- tially capable of producing substantial income, are compatible with safe and efficient operation of the airport, and use property not needed for aeronautical use.194 A guiding principle for the FAA is that such community uses of airport property “should not preclude reuse of the property for airport purposes, if the airport operator determines that such reuse will provide great- er benefits to the airport than continued community use.”195 Military and public (or, in limited cases, private) transit uses of airport property at less than fair market value rates also is per- missible.196 Airport proprietors cannot make property available to other units of government for nonaeronautical use (e.g., the local sheriff or roads department) at less than fair market value. f. State and Local Special and General Taxes State and local taxes levied specifically on airport services and functions are a form of airport revenue and, as such, their uses are limited in the same manner as other forms of airport reve- nue, whether such taxes are assessed by the airport proprietor or another government entity.197 State tax proceeds also may be used 191 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7721 § VII.C. See also id. at 7710 (FAA discussion of final rule). 192 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7721 § VII.B.6. 193 Id. at 7721 § VII.C.-H. 194 Id. at 7710. 195 Id. 196 Id. at 7721 § VII. F-H. 197 Proceeds from Taxes on Aviation Fuel, Nov. 2014, 79 Fed. Reg. 66,282, 66,287 (Nov. 7, 2014). See also Letter from Daphne Fuller, Assistant Chief Counsel for Airports and Envtl. Law, FAA, to Ronald S. Depue, Counsel, Hall Cty. Airport Auth. (Dec. 23, 2009), https://crp.trb. org/acrplrd21/wp-content/themes/acrp-child/lrd21/documents/2009_ Depue.pdf (statewide tax on aviation fuel constituted airport revenue). Section 159 of the FAA Reauthorization Act of 2018 amended 49 U.S.C. § 40116(d) (2) (A) to add subparagraph (v), which prohibits states or political subdivisions of states, except as otherwise provided under 49 U.S.C. §  47133, from levying or collecting a tax, fee or charge “first taking effect after the date of enactment of this clause, upon any business located at a commercial service airport or operating as a permittee of such an airport that is not generally imposed on sales or services by that state, political subdivision or authority, unless wholly utilized for airport or aeronautical purposes.” 49 U.S.C. § 40116(d) (2) (A) (v) (2019).

ACRP LRD 40 23 fuel taxes covering aviation fuel enacted before Dec. 30, 1987.217 In addition, Congress also has carved out several specific excep- tions to the revenue diversion rules, including excess revenue from mineral rights leases at general aviation airports that may go toward other local transportation projects218 and revenue that may permissibly go toward Native American groups under longstanding agreements.219 b. FAA Policies and Guidance on Permitted Uses Through its guidance documents, the FAA has interpreted federal law to further articulate acceptable uses of airport rev- enue.220 Airport proprietor costs and expenses that fall within the statutory boundaries of acceptable revenue use include: • Costs of activities directed toward promoting competi- tion at an airport, public and industry awareness of airport facilities and services, new air service and competition at the airport (other than by direct subsidy to air carriers), and salary and expenses of employees engaged in efforts to pro- mote air service at the airport.221 The FAA has promulgated additional guidance in the form of a guidebook on the topic of air carrier incentives.222 • A share of promotional expenses (e.g., marketing and advertising) aimed at increasing air travel through the airport.223 • Reimbursement to an airport proprietor or associated pub- lic entity for funds contributed for airport capital and op- erating costs. If the airport proprietor or associated public entity does not stipulate that the contribution is to be paid back, then it has six years from the contribution date to request reimbursement. 224 On the other hand, if the air- port proprietor or associated public entity stipulates that the contribution is to be paid back, then a loan agreement with reasonable terms and interest rate must be finalized at the time of the contribution. In either case this, this can in- clude interest on the principal contribution at a rate in line with interest received by the sponsor on other investments during that time period. The airport may repay the loan 217 49 U.S.C. §§ 47107(b) (1), 47133(a). 218 FAA Modernization and Reform Act of 2012, Pub. L. No. 112- 95, § 813, 126 Stat. 11, 124-25 (2012) (codified at 49 U.S.C. § 47133 note). 219 See Department of Transportation and Related Agencies Appropriations Act of 1998, Pub. L. No. 105-66, § 340, 111 Stat. 1425, 1448 (1997) (codified at 49 U.S.C. § 47107 note). 220 See Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § V.A.1. (mirroring statutory language); FAA Order No. 5190.6B § 15.9. (mirroring statutory language). 221 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § V.A.2.; FAA Order No. 5190.6B § 15.9.b. 222 See FAA, TC10-0034, Air Carrier Incentive Program Guidebook: A Reference for Airport Sponsors (2010) [hereinafter ASIP Guidebook]. 223 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § V.A.3.; FAA Order No. 5190.6B § 15.9.b. 224 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § V.A.4.; FAA Order No. 5190.6B § 15.9.c. exacted, the law now provides that an airport proprietor may be exempted from the revenue use requirements of Sections 47107(b) and 47133 as a result of sale or lease of all or part of an airport.207 This program, formerly known as the Airport Privati- zation Pilot Program, also exempts the purchaser or lessee from revenue use requirements “to the extent necessary to permit the purchaser or lessee to earn compensation from operation of the airport.”208 Other restrictions include protection against interruption of operations in the event of operator insolvency,209 limits on fee increases,210 and continuation of collective bargain- ing agreements covering airport employees.211 The FAA has not yet updated its application procedures to include the new provi- sions, which were promulgated in 1997.212 As of the writing of this digest, only one airport proprietor has applied to participate in the new program, and that application is a conversion from the previous program.213 E. Established Boundaries for Permissible Use of Airport Revenue 1. Permitted Uses of Airport Revenue a. Statutorily Recognized Permitted Revenue Uses Federal law provides that airport revenue at federally funded airports may be used only for capital or operating costs of the airport, the local airport system or other local facilities owned or operated by the airport proprietor and directly and substan- tially related to air transportation of passengers or property.214 Both laws establishing these general categories clarify that state taxes on aviation fuel may be used to support state aviation pro- grams and that airport revenue more generally may be used on or off the airport for noise mitigation purposes.215 Any use of airport revenue for other purposes is considered impermissible revenue diversion. Additional statutorily permitted uses of airport revenue cover the grandfathered uses discussed above: state and local taxes, debt obligations or other agreements prior to enactment of the AAIA in 1982 that would otherwise violate the existing prohibition on airport revenue diversion216 and state and local 207 49 U.S.C. § 47134(b) (1) (A) (2019). 208 Id. § 47134(b) (3). 209 Id. § 47134(c) (2). 210 Id. § 47134(c) (4)-(5). 211 Id. § 47134(c) (9). 212 See Airport Privatization Pilot Program: Application Procedures, 62 Fed. Reg. 48,693, 48,698 (Sept. 16, 1997). 213 See Airport Investment Partnership Program, 84 Fed. Reg. 42,977, 42,977 (Aug. 19, 2019) (concerning the application of Hendry County and Airglades Airport, LLC for participation of Airglades Airport in the AIPP). 214 49 U.S.C. §§ 47107(b) (1), 47133(a) (2019); Revenue Use Policy, Feb. 1999, 64 Fed. Reg. 7696, 7717 § IV.A (Feb. 16, 1999). 215 49 U.S.C. §§ 47107(b) (3), 47133(c). 216 49 U.S.C. §§ 47107(b) (2), 47113(b) (1). See also FAA Order No. 5190.6B, FAA Airport Compliance Manual § 15.10 (2009); Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7717 § IV.B.

24 ACRP LRD 40 As discussed further in Chapter VI of this digest, the FAA has provided additional guidance and discussion regarding a few critical types of airport revenue and property use. Other ACRP publications also have covered aspects of these issues. For more general information on these areas beyond the discussion provided in Chapter IV, readers are encouraged to examine the following: • Ground access projects: FAA’s Bulletin 1: Best Practices— Surface Access to Airports233 and ACRP Legal Research Digest 35: Legal Considerations in the Funding and Develop- ment of Intermodal Facilities at Airports (2018). • Marketing and advertising for airports: FAA’s Revenue Use Policy. • Air Service Incentive Programs: FAA’s Guidebook on Air Service Incentive Programs and ACRP Legal Research Digest 37: Legal Issues Relating to Airports Promoting Competition (2020). • Cost recovery for local governmental services: FAA’s Revenue Use Policy. • Governmental functions or public/communal activities con- ducted on airport property: FAA’s Revenue Use Policy and Order 5190.6B. • Privatization: ACRP Report 66: A Guide for Assessing Air- port Curbside Operations and Terminal Area Roadways (2008), and (forthcoming) Project 9-03 (Permitted Airport Involvement in Economic Development Efforts). • DOT and FAA Decisions: ACRP has compiled an online data base of DOT and FAA administrative decisions in web format with summaries, available at https://crp.trb.org/ acrplrd21/. 2. Prohibited Uses of Airport Revenue a. Statutorily Prohibited Uses of Airport Revenue Federal law outlines impermissible revenue diversion in its directive to the Secretary of Transportation to develop policies and procedures prohibiting: (A) Direct or indirect payments, other than those reflect- ing the value of services and facilities provided to the airport (B) Use of airport revenues for general economic develop- ment, marketing and promotional activities unrelated to airports or airport systems (C) Payments in lieu of taxes or other assessments that ex- ceed the value of services provided (D) Payments to compensate nonsponsoring governmental bodies for lost tax revenues exceeding stated tax rates.234 These prohibitions include any form of taxes paid toward a local or state government that are not then allocated to the air- 233 See Bulletin 1, supra note 37. See also FAA Order No. 5100.38D, Change 1, Airport Improvement Program Handbook app. P (2019). 234 49 U.S.C. § 47107(k) (2) (2019). according to its terms.225 This provision recognizes that a short-term subsidy may be necessary notwithstanding the self-sufficiency requirement and, by allowing reimburse- ment, encourages short-term subsidies for airport capital and operating costs. • Lobbying fees and attorney fees, but only to the extent such fees support activities or projects for which airport revenue could be used.226 • Costs incurred by government officials to the extent that such costs are for services to the airport and are docu- mented. An example is city council members meeting with FAA officials regarding AIP funding.227 Such direct or indirect intergovernmental charges can be subjected to intense audit examination by the FAA since they present enormous opportunities for abuse.228 • A proportionate share of the general costs of government under a cost allocation plan. This can include costs of execu tive offices and legislative branches.229 • Support for community uses of airport property if they are directly and substantially related to operation of the airport. Examples include: “(a) the purchase of tickets for an annual community luncheon at which the airport director delivers a speech reviewing the state of the airport; and (b) contribution to a golf tournament sponsored by a ‘friends of the airport’ committee.”230 The FAA has not set a standard dollar value for such community support that passes muster as a legitimate use of airport revenue. In- stead, the FAA determines the appropriateness of expendi- tures for community support based on the unique facts and financial circumstances on a case-by-case basis. • Capital costs of those portions of an airport ground access project that can be considered an integral part of an air- port capital project, or a facility that is owned or operated by an airport proprietor and is directly and substantially related to air transport.231 For example, the FAA has per- mitted airport revenue use “for structures and equipment associated with an airport terminal building station and a rail connector between the airport station and the near- est mass transit rail line, where the structures and equip- ment were (1) located entirely on airport property, and (2) designed and intended exclusively for the use of airport passengers.”232 225 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § V.A.4.; FAA Order No. 5190.6B § 15.9.c. 226 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § V.A.5.; FAA Order No. 5190.6B § 15.9.d. 227 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § V.A.6.; FAA Order No. 5190.6B § 15.9.e. 228 See FAA Order No. 5190.6B ch. 19. 229 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § V.A.7., V.B.3.; FAA Order No. 5190.6B § 15.9.f. 230 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718 § V.A.8.; FAA Order No. 5190.6B § 15.9.h. 231 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718-19 § V.A.9.; FAA Order No. 5190.6B § 15.9.i. 232 Revenue Use Policy, Feb. 1999, 64 Fed. Reg. at 7718-19 § V.A.9.

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Understanding the permissible use of airport revenue is one of the most common legal issues faced by airport management. While there are some clear lines, there are several categories (such as utility fees) of potential expenditures of airport revenue that are not as clearly defined.

The TRB Airport Cooperative Research Program'sACRP Legal Research Digest 40: Permissible Uses of Airport Property and Revenue updates the background of economic and legal information presented in ACRP Legal Research Digest 2: Theory and Law of Airport Revenue Diversion. It focuses on the application of federal law and policy to specific categories of expenditures and uses and includes discussion of statutory law, policy, case law, and informal and formal guidance from the Federal Aviation Administration.

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