National Academies Press: OpenBook

Permissible Uses of Airport Property and Revenue (2020)

Chapter: V. CONCLUSIONS

« Previous: IV. FINDINGS AND DISCUSSION
Page 48
Suggested Citation:"V. CONCLUSIONS." 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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Page 48
Page 49
Suggested Citation:"V. CONCLUSIONS." 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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Page 49

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48 ACRP LRD 40 V. CONCLUSIONS As the overview of Chapter II and analysis in Chapter IV explain, assessing the permissible use of airport revenue can be challenging. The number of variables, overlapping interests and unique legal and factual circumstances of each airport make generalizing difficult. In fact, too much generalizing can create the misimpression that the particular factual circumstances of the airport are unimportant or that analogies to other airports are especially instructive. Notwithstanding that caution, the task of providing some guideposts or bracket around permissible revenue and property use becomes easier once equipped with a basic understanding of the underlying theory of revenue diver- sion and examples that test the boundaries under federal law. To that end, it is helpful to keep the following in mind: • To know the permissible uses of airport revenue and prop- erty, it is essential to know the source of revenue and par- ticularly whether (and in what manner) it derives from the federal government. Federally required documentation— primarily the ALP, Exhibit “A” to AIP grant applications and annual revenue reports—can be vital sources of in- formation for making these determinations. Airport pro- prietors who do not know the source of their revenue with accountant precision face serious legal risks if they engage in any creative property or revenue transaction. • Airport proprietors cannot always assume that a particu- lar use of property clearly reflects whether it is considered aeronautical property (i.e., required to be used for aeronau- tical purposes). Outside of core aeronautical functions (e.g., runways, taxiways and other airfield functions), there are many collateral uses of airport property that may not fit neatly into either category, and the aeronautical classifica- tion may depend on facts and circumstances. Property uses that may seem crucial for the modern airport (e.g., conces- sions, parking, aircraft cabin supplies) are not considered aeronautical, while other functions that could today be car- ried out off-airport (e.g., drone use, flight training, engine repair) often are treated as aeronautical. • While it is slight oversimplification to say that airport rev- enue must “stay on the airport,” this maxim can serve as a helpful rule for airport proprietors in spotting potential revenue diversion problems. An equally simplified, but use- ful, principle is that an airport proprietor must be able to explain the airport nexus for every expenditure of airport dollars and use of every acre of airport property. A simi- lar simplifying corollary for analyzing nonaeronautical use or off-airport payments is to ask whether the airport pro- prietor is receiving fair market value for nonaeronautical use of property or services rendered to operate the airport. Calculating fair market value may not be straightforward in every instance, but the principle provides a guide for analysis. • Paradoxically, revenue diversion may exist even when no funds change hands. This is particularly the case for low- or no-rent uses of airport property for nonaeronautical pur- determine whether the donations received will approximate that amount. Here, it appears likely that this would be the case. If the donations were collected by a private for-profit business, the airport proprietor likely would be required to seek rent at fair market value. All rents paid by a nonprofit or for-profit third-party entity would be considered airport revenue and subject to applicable federal restrictions. With respect to option (1): • Assuming the donations are collected directly by the air- port proprietor and thus considered airport revenue, the airport proprietor must justify their use for the donated purpose. While the substance of the activity (local cam- paign to fight the opioid crisis) is not clearly “directly and substantially related to operation of the airport or air trans- portation system,”440 it could potentially be justified as a means of promoting the airport in the broader community and “enhancing community acceptance.”441 While spend- ing to promote community acceptance generally must be minimal to be justified—e.g., several hundred dollars or less 442—there is a case to be made, although unsupported by any law or precedent, that the amount is reasonable in relation to the specific financial situation, because the air- port proprietor would not otherwise be able to receive in- come through charitable contributions of its passengers. The airport proprietor’s argument based on airport promotion also would require prominent display of the airport’s logo in connection with the charitable activities to make clear the connection between the charitable program and airport. With respect to option (2): • As with option (1), assuming the donations are collected di- rectly by the airport proprietor and thus considered airport revenue, the airport proprietor must justify their use for the donated purpose. There is a much stronger connection between the charitable activity and the airport because the revenues will be used on the airport property and serve a deserving subset of the flying public. However, the airport proprietor generally cannot pay for the capital or operating costs of a community purpose that is using airport prop- erty at a rate less than fair market value.443 To reconcile this issue, the airport proprietor should require the nonprofit to pay fair market value for the space it uses to serve military service members, toward which the airport proprietor may direct the revenues (and donate the remaining amount, if any, to the nonprofit). The airport proprietor also should re- quire prominent display of the airport’s logo in connection with the charitable activities to make clear the connection between the charitable program and airport. 440 See id. at 7718, 7720. 441 See id. at 7718. 442 See id. 443 Id. at 7721.

ACRP LRD 40 49 poses. This point is especially applicable to noncommercial (e.g., governmental and community) uses of airport prop- erty. There are exceptions to this principle for certain aero- nautical expenditures (e.g., fee waivers under an air service incentive program), but the exceptions remain circum- scribed and generally are narrowly construed. • Enactment of Section 163 of the FAA Reauthorization Act of 2018 has the potential to change substantially the rela- tionship between the FAA and airport proprietors with re- gard to agency oversight of airport land uses. The principles of revenue use discussed in this report—such as prohibi- tions on revenue diversion, limitations on use of airport revenue or grant obligations for airports to use money in the best interest of the airport—all remain unchanged, but the FAA’s plenary regulation over use of all airport prop- erty undoubtedly will change. Whether this removal of FAA regulatory authority will cause a paradigm shift in the relationship or prove to be a mere procedural change remains to be seen. In any event, pending definitive FAA policy of how it intends to implement Section 163, airport proprietors will necessarily need to act with discretion. Our research also reflects the extent to which airport propri- etors are seeking creative means of using airport revenue and property. While these creative endeavors require careful analysis and assessment of applicable revenue use requirements, airport proprietors report that such efforts can be pivotal in helping the proprietor achieve its and other stakeholders’ strategic and financial goals. Private entities and non-airport governmental units in particular can play a key role in unlocking the value of airport property by generating revenue/income they can use off-airport, but only if the airport proprietor receives fair market value for airport use or services rendered to the airport. From a practical standpoint, success of these types of projects, most commonly in the form of public-private partnerships, is setting clear goals and aligning interests.

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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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