Courtesy Ashgate Publishing | Foundations of Aviation Law Michael W. Pearson and Daniel S. Riley © (paperback) (hardback)

Courtesy Ashgate Publishing | Chapter 12 Airport Development and Funding Foundations of Aviation Law

Courtesy Ashgate Publishing | Chapter Objectives After reading this chapter, you should: understand how the DOT evaluates the reasonableness of proposed airport fees; know the limitations imposed by the Anti-Head Tax Act on the ability of airports to collect fees and taxes; understand the process an airport follows for the FAA to authorize it to collect passenger fees under the Passenger Facility Charge Program; have a basic idea of how the FAA’s Airport and Airway Trust Fund generates revenue and how that revenue is spent; understand the eligibility requirements to obtain funding under the AIP; be familiar with the grant assurances that airports must agree to when accepting federal grants from the FAA.

Courtesy Ashgate Publishing | Airport Development and Funding The Anti-Head Tax Act The Anti-Head Tax Act was passed in The Act regulates both the type and the amount of fees that an airport may charge air carriers. The act contains several restrictions on the types of fees that may be charged to air carriers. A fee may only be assessed against aircraft that actually land or take off within the physical jurisdiction of the taxing authority. Airports are permitted to assess property taxes, net income taxes, franchise taxes, and taxes for the sale of goods or services. They may also assess rental charges, landing fees, and other service charges for the use of airport facilities. However, the DOT is empowered to regulate these fees to ensure they are reasonable and non-discriminatory. The DOT issued its Policy Regarding Airport Rates and Charges in 1996, and it published an amendment to that policy in 2008.

Courtesy Ashgate Publishing | Airport Development and Funding Air Transport Assoc. of America, Inc. v. US Dept of Transportation In order to reduce congestion at major airports, the DOT amended its Policy Regarding Airport Rates and Charges. The 2008 Amendments allow an airport to charge aircraft higher landing fees at peak times, a practice known as congestion pricing. This increase in traffic has led to more frequent and longer delays. One of the causes of flight delays is excess demand for runways during peak hours. In an ordinary market, supply and price adjust to eliminate excess demand, but airports are no ordinary market. Airports cannot readily increase the supply of landing slots because building more runways takes years. The Air Transport Association of America, on behalf of several US airlines, petitioned for review of the Amendments, arguing that they allowed airports to charge unreasonable and discriminatory fees.

Courtesy Ashgate Publishing | Airport Development and Funding The Airport and Airway Trust Fund The Airport and Airway Trust Fund was established by the Airport and Airway Revenue Act of The purpose of the Trust Fund is to provide a steady source of income for the FAA that grows in step with the aviation system. As traffic increases, so does revenue. The Trust Fund finances the FAA’s ability to provide grants to airports. Grants are not loans and, with limited exceptions, they do not have to be repaid. Grants provide funding for improvement projects, such as expansions, redesigns, modernization projects, noise abatement systems, navigational systems, environmental abatement projects, and other types of construction. The AIP is the program that administers the FAA’s grant process.

Courtesy Ashgate Publishing | Airport Development and Funding The Airport Improvement Program AIP Overview The AIP is authorized by the Airport and Airways Improvement act, which is contained in Title 49, Chapter 471 of the U.S.C. It provides grants for the planning and development of public-use airports. For medium to large hub airports, the program covers up to 75 percent of eligible costs. Small primary airports, reliever airports, and general aviation airports typically have less access to capital than major hubs, so the grant program will cover up to 95 percent of those airports’ eligible costs.

Courtesy Ashgate Publishing | Airport Development and Funding The Airport Improvement Program Airport Eligibility An airport is eligible for AIP funds if it is part of the National Plan of Integrated Airport Systems. The national plan is developed by the FAA as part of its mission to maintain both the safety and capacity of the national air transportation system. The national plan identifies those airports that the FAA considers necessary to provide a safe, efficient, and integrated system of public-use airports adequate to anticipate and meet the needs of civil aeronautics, the national defense requirements of the Secretary of Defense, and of the United States Postal Service. The FAA must provide Congress with an updated national plan every two years. The plan must include a list of airports that the FAA considers significant to the overall national air transportation system, and cost estimates for eligible airport development projects.

Courtesy Ashgate Publishing | Airport Development and Funding The Airport Improvement Program Project Eligibility To be eligible for AIP funds, a project must enhance airport safety, increase capacity, enhance security, or improve environmental impacts. An explanation of what types of projects are eligible for AIP funding is provided in FAA Order C. Generally speaking, improvements and repairs to an airfield are eligible, improvements and repairs to terminals and onsite facilities may be eligible under certain circumstances, and improvements and repairs offsite are usually ineligible.

Courtesy Ashgate Publishing | Airport Development and Funding The Airport Improvement Program Grant Assurances In exchange for receiving AIP funds, an airport must agree to a set of conditions called “grant assurances.” As a further condition of accepting AIP funds, a recipient must agree that it will not divert revenue from the airport to other purposes. Generally speaking, the grant assurances require grant recipients to: –make the airport available for public use; –charge air carriers substantially similar rates to operate out of the airport; –maintain the airport’s facilities in proper order; –operate the airport safely; and –make the airport available to government aircraft without charge.

Courtesy Ashgate Publishing | Airport Development and Funding The Airport Improvement Program City of Santa Monica v. FAA The Santa Monica Municipal Airport is a single-runway, regional public airport owned and operated by the City of Santa Monica, California. It serves four categories of general aviation aircraft (A, B, C, and D). The City received $10.2 million in AIP grant funds to complete airport improvements. With this acceptance, it promised that it would “make its airport available as an airport for public use on fair and reasonable terms and without unjust discrimination, to all types, kinds, and classes of aeronautical uses.” In 2008, the City passed an Ordinance prohibiting all Category C and D aircraft from landing at the municipal airport because it believed the aircraft could not safely operate at the municipal airport due to the lack of “runway safety areas” at the airport. Believing that the Ordinance violated the City’s obligation to make the airport available “for public use on fair and reasonable terms and without unjust discrimination, to all types, kinds, and classes of aeronautical use,” the FAA took action to prevent its enforcement. The City appealed to the Circuit Court of Appeals for the District of Columbia.

Courtesy Ashgate Publishing | Airport Development and Funding The Airport Improvement Program Arapahoe County Public Airport Authority v. Centennial Express Centennial Airport was built in 1967 to serve the growing aviation needs of the Denver metropolitan region. To fund airport construction and operations, Centennial Airport accepted $30.1 million in federal grants. As a condition of accepting these grants and pursuant to federal law, the Airport Authority gave its assurance that it “will make its airport available as an airport for public use on fair and reasonable terms and without unjust discrimination, to all types, kinds, and classes of aeronautical uses.” Passenger service has never been permitted at Centennial, so the airport lacks terminals, baggage handling, and passenger security. Centennial Express began conducting passenger carrier operations out of Centennial Airport without the Airport Authority’s permission. The Airport Authority immediately obtained an injunction prohibiting Centennial Express from conducting operations. Centennial Express appealed, arguing that the Airport Authority could not ban passenger carrier operations because of the conditions it agreed to when it accepted FAA grants.

Courtesy Ashgate Publishing | Airport Development and Funding The Airport Improvement Program State Block Grant Program The block grant program was designed to give more local control to the grant process. It authorizes block grants under the AIP to states, which then allocate the funds to airports as the states see fit. Currently, 10 states are authorized to participate in the pilot program. States that receive block grants must abide by the terms of their grant assurances and must agree only to use grant funds on airports that are included in the National Plan of Integrated Airport Systems. The states are responsible for ensuring that airports that receive grant funds comply with the grant assurances agreed to between the state and the FAA.

Courtesy Ashgate Publishing | Airport Development and Funding The Passenger Facility Charge Program Generally speaking, airports are prohibited from assessing a fee based on the number of passengers aboard an aircraft. The Passenger Facility Charge Program is an exception to this rule. The Program allows airports to charge a fee of up to $4.50 for every enplaned passenger, so long as: (1) the airport obtains prior permission from the FAA; (2) the airport is owned by a public agency; and (3) the revenue generated by the facility charge fees is used only for FAA-approved airport projects. Facility charges may either be used at the airport from which the passenger is enplaning or at “any other airport the agency controls.” Before the FAA may approve an airport’s request to assess a facility charge, the public agency requesting participation in the Passenger Facility Charge Program must provide written notice to air carriers that may be affected by the fee. The Passenger Facility Charge Program is an effective means for funding various types of projects at publicly owned airports. It is one of the primary tools used by airports to fund modernization projects.

Courtesy Ashgate Publishing | Airport Development and Funding The Recovery Act and the Grants-in-Aid for Airports Program The American Recovery and Reinvestment Act was signed into law in 2009 in response to a severe economic downturn. The Act has three goals: (1) to create new jobs and save existing ones; (2) to spur economic activity; and (3) to foster transparency and accountability in government spending. To achieve these goals, the Act provided for an economic stimulus package for contracts, grants, and loans. The Grants-in-Aid for Airports program is administered in conjunction with the AIP and provides funding for the: (1) construction or rehabilitation of new airports, (2) building and rehabilitating runways, runway safety areas, taxiways, aprons, and terminal buildings, (3) construction of Aircraft Rescue and Fire Fighting buildings and purchase of ARFF equipment; and (4) construction of perimeter fencing to enhance security.

Courtesy Ashgate Publishing | Chapter 12 Review Questions 1.Under what circumstances may an airport assess a per-passenger excise fee? 2.What did the DOT intend to do when it authorized congestion pricing at airports? 3.To which court may a party appeal if it is unhappy with an administrative ruling of the FAA? What standard of review will apply? 4.Why was the restriction on aircraft categories impermissible in City of Santa Monica v. FAA, while the total ban on passenger operations was deemed to be acceptable in Arapahoe County Public Airport Authority v. Centennial Express? 5.What are the benefits to both the FAA in awarding block grants to states instead of individual grants to specific projects? What are the benefits to the participating states?