Plan Now, If You Plan to Sell Later: Restrictions on Use of Airport Revenues

If you own a commercial airport that has accepted federal grants and you have sold all or part of the airport’s property, you, no doubt are aware of the provisions of 49 U.S.C. § 47107(l)(5)(A). That provision of the Federal Aviation Reauthorization Act of 1996, as amended, limits any request to recoup capital an operating costs from the sale of airport property to those expenses that occurred within 6 years after the expense has been incurred:

any request by a sponsor or any other governmental entity 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

49 U.S.C. § 47107(l)(5)(A). That new terminal that the City spent $1 million out of its General Fund on seven years ago? According to § 47107(l)(5)(A), you cannot recoup the expense now. Those operating deficits that the airport has been running for the past ten years that the City has covered? Only the last six years can be recouped. Although you may not be planning on selling all or part of the airport now, or even five years from now, it makes sense, because of § 47107(l)(5)(A) to ensure that the owner’s expenses are currently being paid by the airport by requesting reimbursement on a timely basis.

Section 47107(l)(5)(A) is the outgrowth of the FAA’s and Congress’ concern about “revenue diversion” by the owners and operators of commercial airports. The Airport and Airway Improvement Act of 1982, as amended, which established the AIP, requires sponsors to use all of an airport’s revenue for its capital and operating costs and not divert revenue for nonairport purposes. 49 U.S.C. § 47107(b). The intent of this provision was to ensure that airports receiving federal grants also used the revenue generated at the airport to pay for its costs. In 1987, the restrictions on revenue diversion were tightened to limit the use of airport expenditures to activities that were not only “directly” but also “substantially” related to air transportation. Then, in 1991, in response to a FAA request, the Department of Justice issued an opinion stating that public owners of airports are entitled to unreimbursed capital and operating expenses from the proceeds of an airport’s sale or lease. The opinion also stated that no time limits exist on the right to receive compensation for these expenses. However, the Federal Aviation Reauthorization Act of 1996 added § 47107(l)(5)(A) limiting requests to recoup capital and operating costs to those made no later than six years after the expense occurred.

The statute of limitations was later included in the FAA’s “Policy and Procedures Concerning the Use of Airport Revenue.” 64 Fed.Reg. 7696 (Feb. 16, 1999). However, the FAA soften the blow a bit by stating that its policy “provides flexibility to structure future contributions to permit reimbursement over a longer period of time in order to promote the financial stability of the airport.” 64 Fed.Reg. at 7702. Moreover, the FAA Policy states that “if the contribution was a loan to the airport, and clearly documented as interest-bearing loan at the time it was made, the sponsor may repay the loan principal and interest from airport funds.” 64 Fed.Reg. at 7718.   Thus, in order to avoid having to settle for reimbursement of the past six years of expenses when an airport (or part thereof) is sold, the owner/operator of a commercial airport should ensure that it files its requests for reimbursement with the airport for the owner’s capital contributions and operating expenses on an ongoing basis, and not wait for airport property to be sold.

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