Airport Revenue Use Presentation 35th Annual Airport Conference David M. Cohen, FAA Eastern Region April 2012

What is Airport Revenue? Airport Revenue consists of each of the following: Fees, charges, rents or other payments accrued to the airport sponsor from entities that conduct activities on airport property, or lease or acquire airport property. (e.g. aircraft landing fees, rent from tenants, etc.) Revenue obtained from the sponsor through sponsor: 1) activities on airport property acquired with federal assistance; 2) aeronautical activities directly connected to a sponsor’s ownership of an airport (e.g. sponsor running an FBO); 3) nonaeronautical activities conducted on airport property not acquired with federal assistance, but only to the extent of the fair rental value of the property (e.g. sponsor running an on airport restaurant). State or local taxes on aviation fuel (except taxes in effect on December 30, 1987). Airport Revenue Use Presentation April 2012

What Laws Govern The Use of Airport Revenue? 49 USC 47107(b): Adopted under the Airport and Airway Improvement Act of 1982 (AAIA) this statute created the requirement that any public airport that receives federal aid for an airport development project must use its airport revenue only 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 related to the air transportation of passengers or property. (See the full text of the statute on slide 10) 49 U.S.C. 47133: Adopted under the FAA Authorization Act of 1996, this statute extends the revenue use requirement to any airport (including non public airports) that receive federal assistance after October 1, 1996. However, Section 47133 does not apply to an airport that only received federal assistance prior to October 1, 1996. The revenue use requirements do not expire. (See the full text of the statute on slide 11) Airport Revenue Use Presentation April 2012

Airport Revenue Use Presentation April 2012 Permitted Uses of Airport Revenue Permitted Uses: Capital or Operating Costs: e.g. airport maintenance, and development Marketing and Cooperative Marketing: Advertising the airports facilities and/or advertising travel to the region in which the airport is based, but only if travel through the airport is emphasized. Repayment of sponsor for contributions to airport : See 49 USC 47107(l)(5) Lobbying & Attorney Fees: if related to project for which airport revenue can be used. Government Officials: e.g. state or local official reimbursement for conducting business on behalf of the airport Gov’t oversight: cost of state or local government oversight and/or management of the airport including central service costs. Community activities: e.g. community luncheon or golf tournament, but only if there is direct benefit and/or promotion of the airport. Ground Access: e.g. motor vehicle or rail access to the airport if located entirely on airport property and intended for the benefit of the airport users. Grandfathering: revenue use requirement doesn’t apply if pre 9/2/82 law or debt obligation mandates airport revenue be used for nonairport purposes. Airport Revenue Use Presentation April 2012 4 4

Airport Revenue Use Presentation April 2012 Permitted Uses of Airport Revenue Documentation for Reimbursement to Government Entities for Capital and Operating Costs of the airport The Government entity must maintain evidence to support its direct and indirect charges to the airport. Such evidence may include accounting data, audited financial statements, and corroborating evidence such as invoices and vouchers. Documentary evidence should demonstrate that the charges to the airport were actually expended. When budgets are used in cost allocation plans, the plans must be adjusted to actual expenses in the subsequent period. However budget estimates are not sufficient to support a claim. Airport Revenue Use Presentation April 2012 5

Airport Revenue Use Presentation April 2012 Prohibited Uses of Airport Revenue Prohibited Uses: Overpayment for goods and services General Economic Development: not directly related to airport development Unrelated Marketing Payments to nonsponsoring governmental bodies Loans – less than current rates Impact Fees: excessive fees from government bodies for services provided except for sponsor actions (airport development/mitigation) Community Activities: unrelated to the airport Air Subsidy Service Rent or use of airport property for less than FMV Airport Revenue Use Presentation April 2012 6 6

Monitoring and Compliance The FAA depends upon the following sources of information to detect whether airport revenue has been illegally diverted: annual reports on revenue; single audit reports; investigation following a formal complaint filed under 14 CFR Part 16; d) OIG audits; and e) FAA investigations originating from a non formal complaint. Airport Revenue Use Presentation April 2012

Sanctions for Noncompliance Where the FAA has determined that illegal revenue diversion has occurred the FAA may take the following actions: a. withhold future grants b. withhold approval of modification of existing grants c. withhold payments under existing grants d. withhold approval of an application to impose a PFC e. withhold funds from apportionment grants f. assess civil penalties Airport Revenue Use Presentation April 2012 8 8

Airport Revenue Use Presentation April 2012 More Information For more information on this topic please see: Airport Revenue Use Policy 64 FR 7696-01 http://www.faa.gov/airports/resources/publications/federal_register_notices/media/obligation_final99.pdf FAA Order 5190.6B Chapter 15 http://www.faa.gov/airports/resources/publications/orders/compliance_5190_6/media/5190_6b_chap15.pdf Airport Revenue Use Presentation April 2012

Airport Revenue Use Presentation April 2012 Key Statutes [49 U.S.C. 47107(b)] Written assurances on use of revenue. (1) The Secretary of Transportation may approve a project grant application under this subchapter for an airport development project only if the Secretary receives written assurances, satisfactory to the Secretary, that local taxes on aviation fuel (except taxes in effect on December 30, 1987) and the revenues generated by a public 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. (2) Paragraph (1) of this subsection does 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. (3) This subsection does not prevent the use of a State tax on aviation fuel to support a State aviation program or the use of airport revenue on or off the airport for a noise mitigation purpose. Airport Revenue Use Presentation April 2012

Airport Revenue Use Presentation April 2012 [49 U.S.C. 47133] Restriction on Use of Revenues (a) Prohibition. - Local taxes on aviation fuel (except taxes in effect on December 30, 1987) or the revenues generated by an airport that is the subject of Federal assistance may not be expended for any purpose other than the capital or operating costs of – the airport; the local airport system; or any other local facility that is owned or operated by the person or entity that owns or operates the airport that is directly and substantially related to the air transportation of passengers or property. (b) Exceptions. - Subsection (a) 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. (c) Rule of Construction. - Nothing in this section may be construed to prevent the use of a State tax on aviation fuel to support a State aviation program or the use of airport revenue on or off the airport for a noise mitigation purpose. Airport Revenue Use Presentation April 2012

Airport Revenue Use Presentation April 2012 [49 U.S.C. 47107 (l)] Policies and Procedures To Ensure Enforcement Against Illegal Diversion of Airport Revenue. - In general. - Not later than 90 days after August 23, 1994, the Secretary of Transportation shall establish policies and procedures that will assure the prompt and effective enforcement of subsections (a)(13) and (b) of this section and grant assurances made under such subsections. Such policies and procedures shall recognize the exemption provision in subsection (b)(2) of this section and shall respond to the information contained in the reports of the Inspector General of the Department of Transportation on airport revenue diversion and such other relevant information as the Secretary may by law consider. Revenue diversion. - Policies and procedures to be established pursuant to paragraph (1) of this subsection shall prohibit, at a minimum, the diversion of airport revenues (except as authorized under subsection (b) of this section) through - (A) direct payments or indirect payments, other than payments reflecting the value of services and facilities provided to the airport; (B) use of airport revenues for general economic development, marketing, and promotional activities unrelated to airports or airport systems; (C) payments in lieu of taxes or other assessments that exceed the value of services provided; or (D) payments to compensate nonsponsoring governmental bodies for lost tax revenues exceeding stated tax rates. Efforts to be self-sustaining. - With respect to subsection (a)(13) of this section, policies and procedures to be established pursuant to paragraph (1) of this subsection shall take into account, at a minimum, whether owners and operators of airports, when entering into new or revised agreements or otherwise establishing rates, charges, and fees, have undertaken reasonable efforts to make their particular airports as self-sustaining as possible under the circumstances existing at such airports. Administrative safeguards. - Policies and procedures to be established pursuant to paragraph (1) shall mandate internal controls, auditing requirements, and increased levels of Department of Transportation personnel sufficient to respond fully and promptly to complaints received regarding possible violations of subsections (a)(13) and (b) of this section and grant assurances made under such subsections and to alert the Secretary to such possible violations. Statute of limitations. - In addition to the statute of limitations specified in subsection (n)(7), with respect to project grants made under this chapter - (A) any request by a sponsor to any airport for additional payments for services conducted off of the airport or for reimbursement for capital contributions or operating expenses shall be filed not later than 6 years after the date on which the expense is incurred; and (B) any amount of airport funds that are used to make a payment or reimbursement as described in subparagraph (A) after the date specified in that subparagraph shall be considered to be an illegal diversion of airport revenues that is subject to subsection (n). Airport Revenue Use Presentation April 2012

Airport Revenue Use Presentation April 2012 [49 U.S.C. 47107(n)] Recovery of Illegally Diverted Funds. – In general. - Not later than 180 days after the issuance of an audit or any other report that identifies an illegal diversion of airport revenues (as determined under subsections (b) and (l) and section 47133), the Secretary, acting through the Administrator, shall - (A) review the audit or report; (B) perform appropriate factfinding; and (C) conduct a hearing and render a final determination concerning whether the illegal diversion of airport revenues asserted in the audit or report occurred. Notification. - Upon making such a finding, the Secretary, acting through the Administrator, shall provide written notification to the sponsor and the airport of - (A) the finding; and (B) the obligations of the sponsor to reimburse the airport involved under this paragraph. Administrative action. - The Secretary may withhold any amount from funds that would otherwise be made available to the sponsor, including funds that would otherwise be made available to a State, municipality, or political subdivision thereof (including any multimodal transportation agency or transit authority of which the sponsor is a member entity) as part of an apportionment or grant made available pursuant to this title, if the sponsor - (A) receives notification that the sponsor is required to reimburse an airport; and (B) has had an opportunity to reimburse the airport, but has failed to do so. Civil action. - If a sponsor fails to pay an amount specified under paragraph (3) during the 180-day period beginning on the date of notification and the Secretary is unable to withhold a sufficient amount under paragraph (3), the Secretary, acting through the Administrator, may initiate a civil action under which the sponsor shall be liable for civil penalty in an amount equal to the illegal diversion in question plus interest (as determined under subsection (o)). Disposition of penalties. - (A) Amounts withheld. - The Secretary or the Administrator shall transfer any amounts withheld under paragraph (3) to the Airport and Airway Trust Fund. (B) Civil penalties. - With respect to any amount collected by a court in a civil action under paragraph (4), the court shall cause to be transferred to the Airport and Airway Trust Fund any amount collected as a civil penalty under paragraph (4). Reimbursement. - The Secretary, acting through the Administrator, shall, as soon as practicable after any amount is collected from a sponsor under paragraph (4), cause to be transferred from the Airport and Airway Trust Fund to an airport affected by a diversion that is the subject of a civil action under paragraph (4), reimbursement in an amount equal to the amount that has been collected from the sponsor under paragraph (4) (including any amount of interest calculated under subsection (o)). (Statute of limitations. - No person may bring an action for the recovery of funds illegally diverted in violation of this section (as determined under subsections (b) and (l)) or section 47133 after the date that is 6 years after the date on which the diversion occurred. Airport Revenue Use Presentation April 2012

Airport Revenue Use Presentation April 2012 49 U.S.C. 46301(a)(3) Penalty for diversion of aviation revenues.— The amount of a civil penalty assessed under this section for a violation of section 47107 (b) of this title (or any assurance made under such section) or section 47133 of this title may be increased above the otherwise applicable maximum amount under this section to an amount not to exceed 3 times the amount of revenues that are used in violation of such section. Airport Revenue Use Presentation April 2012