Some Sophisticated Parties to AIP Grants cast doubts as to the “mandatory” terms; Congress must clarify

faa aip grant assurances
Share this article: FacebooktwitterlinkedinFacebooktwitterlinkedin

AIP Grant Assurances

The Banning and FXE cases suggest that airport executives doubt Assurances matter. Congress should remove that doubt.

There is a concept in contract law which treats parties entering into an agreement differently based on their individual “sophistication.” The law gives greater latitude to a person or organization with little commercial experience. As to a party to an agreement with a lot of familiarity, he/she/it is expected to have read the documents, to know when legal counsel should help and to comprehend the terms and obligations.

For example, a municipal organization is not only a creature of the law (a city or county’s existence is created by legal documents) but it enters into agreements with commercial service providers, employees and other state/local bodies; perhaps the largest number of contracts signed by a mayor or city manager is with the federal government. Many, many of these written documents involve receiving US funds (grants, statutory payments, loans and grants) which impose OBLIGATIONS as a condition of the payment. Failure to meet those terms usually result in negative consequences to the municipality.

It is fair to characterize most municipalities as qualifying as sophisticated parties. They are expected to understand and to assiduously adhere to these requirements.

The above two stories suggest that the signatories to the AIP Grant Assurances do not carefully read (or understand) their obligations and/or regard compliance as a serious matter.

The City of Banning, CA is a community of 30,000 (2015 est.) and has a median income of $38,919. It is governed by a City Council and City Manager. It functions with a city attorney, clerk, development department, community services organization, electric/water/wastewater services, police & fire and public works. Its annual budget exceeds $83M.

banning municipal airport faa

The municipal airport is part of the Department of Public Works, but no person is designated as the airport manager. The City’s website casts a very positive spin on its facility (BHG):

The Banning Municipal Airport is an element of the national and local transportation system, which significantly affects the economic development of the City of Banning. The airport is conveniently located adjacent to both the railroad and Interstate-10. The terminal/airport administration building is situated on the south side of the runway near the west end of the runway and is accessible from Barbour Street. With a runway over 5,100 feet in length, the airport is capable of handling most private single-engine as well as corporate jet aircraft. Most of the area is zoned AP-5 which has provisions for some:

Manufacturing
Warehousing
And service industry operations
Existing services include:
Fuel
Parking
Flight school/flight training
Restrooms
Charter services
Rental car services

With over 70 hangars and 25 tie-downs surrounded by full fencing and security lighting, the Banning Municipal Airport offers increased safety for overnight parking of aircraft.

Further, in 2007, a consultant prepared a Banning Municipal Airport- Airport Master Plan Update ; it concluded:

This Master Plan Update has documented the existing aviation need for a general aviation airport in the City of Banning and Riverside County area based on existing conditions, communication with local business entrepreneurs, and discussions with City officials. From today to the year 2026, the continued development of the Airport could be influenced by many factors, yet the most basic question remains: “What is the value of the Airport: to the City of Banning, adjacent business, neighboring community, and airport users?” For the community, the value of the Airport rests in the community’s expectations and vision for the future. In a growing economy, aviation can serve the community as an additional asset to assist in development or attract a business to the community.

The current situation is described as follows in the local newspaper:

The council is expected to vote on a resolution when it meets at 5 p.m. Tuesday, April 25, at the Banning Civic Center.

Mayor George Moyer said he is leaning toward shutdown based on the use studies — the airport saw traffic drop 71.7 percent between 2010 and 2015, from 4,674 flights to 1,324 — and the fact that the airport is not a moneymaker for the city.

“I’ve seen no need for us to keep wasting money out there,” he said. “We would like to find a developer who would take that on” to convert the property to other uses.

A study done by HcL Companies of Diamond Bar for the city last year and reviewed by the council in September showed that only 38 of 61 hangars at the airport are in use, and some of them are in a dilapidated condition.

“Investing more resources into the airport and providing upgrades would not be cost-effective or provide the city with an adequate return on investment,” according to the HdL report. Airport revenue barely covers expenses.

There is no mention of whether spending on the 2007 recommended improvements, of naming an airport, engaging in a marketing program or any other action which would help the airport increase its revenues. There is no greater proof of the City’s lack of concern about the airport than it had to hire someone to determine the use and condition of the hangars. A sophisticated analysis of the aeronautical opportunity for BNG would have to try to attract tenants from the crowded LA Basin, especially with the closure of SMO.

The discussion did mention that Santa Monica was able to escape its obligations, among other airports:

Closure, however, could take some years with Federal Aviation Administration consent required.

In airport shutdowns, the FAA must be paid back for unamortized portions of routine grants made for airport improvements. The city estimates that obligation at about $2 million. Peterson said that with the council in recent years considering closure, the city did not accept more grants from the FAA, so he expects the process to be easier than other airports.

In Rialto, it took almost 20 years to shutter that city’s municipal airport. It eventually happened in 2014, with the city relocating some tenants. A few businesses may open later this year as part of the private development of the property.

In Santa Monica, residents for years complained about airport noise and pollution. The city ended up in contentious litigation with the FAA, which agreed to a deal early this year that allows intermediate limits on traffic volume and then a shut down in 2028.

Banning will have to hire consultants to assist with technical studies and other professional services if the council commits to the closure.

The message seems to be “it’s no big deal to close the airport,” a refrain which is contrary to the AIP Grant Assurances which the City signed as a predicate to accepting in excess of $20,000,000. It does not reflect a sophisticated reading of a contractual obligation.

fort lauderdale executive airport aip grant faa

Fort Lauderdale is the 132nd largest US city with a budget of $899M. Fort Lauderdale International, which ranks #21 in passengers among US airports, is located within the city limits but is owned by Broward County. Fort Lauderdale Executive Airport (FXE) is a division of the Transportation and Mobility Department of the City of Fort Lauderdale.

The FAA has had in place for many, many years and has clearly publicized a prohibitiion against airport funds (revenue generated at the facility) being used for non-aviation purposes. Industry well knows that revenue diversion violates the Grant Assurances. There is specific guidance making it clear that general overhead assessments are not acceptable; so it is no surprise that Kevin Willis, FAA Director of Airport Compliance, found that FXE payments to the city “a fee equal to what it {the airport} would pay in taxes for fire and police services, road and infrastructure maintenance, and transportation and mobility services.”

Clearly, the City by commission or omission, ignored the FAA rules. If the City was an unsophisticated party, such ignorance might be countenanced.

Maybe the real import of these two cases is that the obligations established by Congress and reinforced by the FAA are deteriorating. Perhaps, the FAA’s decision to relieve Santa Monica from its federal terms is signaling to other airports that compliance is not mandatory. Congress, on occasions, individually and collectively, has asked the FAA to forget the requirements which previous Congresses have enacted.

The House and Senate are going through the periodic exercise of reauthorizing the FAA. As part of that significant legislative act, the Members should re-read the relevant sections and review the FAA’s interpretation. After such a review the 2017 Reauthorization ought to either:

  • REAFFIRM those requirements and send a message to all airports that a “mandate means that you must comply”, even if the facility is in a Member’s district.

OR

  • REVISE the standards in terms which reflect some new more “permissive” policy reflecting the Members’ current opinions.

The signers of the AIP Grant Assurances are sophisticated contractual parties. The Banning and FXE cases suggest that there is doubt within the airport executives that the Assurances matter. Congress should remove that doubt.

 


Is Banning’s airport a waste of money? Citing use studies, mayor says yes

Fort Lauderdale improperly collected millions from executive airport, FAA says

 

Share this article: FacebooktwitterlinkedinFacebooktwitterlinkedin

Be the first to comment on "Some Sophisticated Parties to AIP Grants cast doubts as to the “mandatory” terms; Congress must clarify"

Leave a comment

Your email address will not be published.