• NBAA Appeals FAA Santa Monica Financial Compliance Decision (2/3)

    From Larry Dighera@21:1/5 to All on Fri Dec 13 04:44:03 2019
    [continued from previous message]

    proceeding, the corrective action required by the Director’s
    Determination should have included
    actions to address the prior and continuing effects of the surplus,
    including, as requested in the
    Complainants’ associated motion, the suspension of landing fee
    collections until such time as a
    corrective action plan has been approved by the FAA – and, as
    discussed below, the refund to
    Airport users of the excessive – and thus unlawful – fees that have
    been collected.
    The Substantive Compliance Issues for Landing Fees Should Have Been
    The FAA has repeatedly established that excessive fees for
    aeronautical users of airports –
    along with any interconnected surpluses – are also among the agency’s significant compliance
    concerns. The FAA’s Airport Compliance Manual elaborates upon this
    issue, but the guidance is
    not new, having appeared in substantially similar form in § 4-20(c) of
    Order 5190.6A (1989) and
    § 70(d) of Order 5190.6 (1973). The central mandate is that: “In
    establishing new fees … sponsors
    should not seek to create revenue surpluses that exceed the amounts to
    be used for airport system
    purposes and for other purposes for which airport revenue may be
    spent. … Additionally, the
    progressive accumulation of substantial amounts of surplus
    aeronautical revenue could warrant an
    FAA inquiry into whether the aeronautical fees are consistent with the sponsor’s obligation to
    make the airport available on fair and reasonable terms.” See Order
    5190.6B, § 17.9.
    The FAA recently explicated the meaning of this requirement in United
    Airlines v. Port
    Authority of New York and New Jersey, no. 16-14-13, Director’s
    Determination (November 19,
    2018). Although the FAA acknowledged that an airport has some
    discretion in making
    expenditures that can be incorporated into the rate base for its
    aeronautical fees, the FAA also
    criticized the lack of transparency in and a lack of supporting
    documentation for the Port
    Authority’s methodology, and accordingly required corrective action.
    See id., at 17-18. Moreover,
    in a prior proceeding involving Santa Monica, the FAA specifically
    held that a fee may be
    unreasonable independent of whether it results in a surplus; that
    costs not specifically attributable
    to a specific cost center must be allocated by methodology that is
    transparent, reasonable, not
    unjustly discriminatory, and applied consistently; and that critical
    technical shortcomings in
    methodology are a basis for the FAA to reject a landing fee schedule.
    See Bombardier Aerospace
    Corp. v. City of Santa Monica, no. 16-03-11, Director’s Determination
    (January 3, 2005), at 44-
    45. See also New England Legal Foundation v. Massport, 883 F.2d 157
    (1st Cir. 1989) (upholding
    DOT administrative ruling which invalidated a flawed landing fee
    Accordingly, although Complainants do not dispute that the Director’s Determination was
    correct to require the City to update its landing fees to reflect the
    changed factual circumstances
    of the Airport, the FAA erred by failing to address whether the
    methodology previously utilized
    to establish landing fees for the Airport was compliant with FAA
    requirements. If new factual
    data is input into a methodology which remains improper, the outcome
    will still be improper. Thus
    the consequence of the absence of the requested guidance in the
    Director’s Determination is
    significant for SMO – and also for airports across the U.S., since
    such guidance will also inform
    whether their methodologies for calculating landing fees comply with
    their federal obligations.
    This is very much a live issue. As an initial matter, the Director’s Determination specifies
    that Santa Monica cannot be determined to be in compliance with its
    federal obligations. See id.,
    at 11. Further, in a prior Part 16 proceeding that specifically
    involved Santa Monica, the FAA
    confirmed that it may address current sponsor practices that are
    likely to result in future noncompliance.
    See National Business Aviation Association v. City of Santa Monica,
    California, no.
    16-14-04, Director’s Determination (December 4, 2015), at 9 (“the
    issue here posed is one in
    dispute now. Moreover, we may in limited circumstances, consider a
    case where the current
    situation portends the high likelihood of a future violation”). See
    also JetAway Aviation LLC v.
    Board of Commissioners, Montrose County, Colorado, no. 16-06-01,
    Director’s Determination
    (November 6, 2006), at 34; Town of Fairview, Texas v. City of
    McKinney, Texas, no. 16-99-04,
    Director’s Determination (July 26, 2000), at 17.
    In this proceeding, the City specifically has defended its
    methodology, and thus absent new
    guidance can be expected to utilize the same methodology in the
    corrective action plan, only
    changing the starting data pointsto reflect the Airport’s changed
    factual situation. The FAA should
    prevent that from happening, because that would allow the substantive
    issues raised in the
    Complaint to evade review while providing the City a nominal
    justification to increase its landing
    fees still further, based on its prior faulty reasoning. Because the
    Director’s Determination failed
    to do so, the Associate Administrator should now address the following
    issues, specifically raised
    in Complainants’ prior pleadings and now incorporated by reference
    into this appeal:
    • Transparency and Documentation. The Complaint argued that the
    process utilized by the
    City to increase its landing fees was impermissible because it was
    poorly documented –
    key assumptions were not explained, or were inconsistent among the few documents
    available to the public, and the City refused to make additional
    documents available to the
    public. See id., at 25-26 and 35. See also Complainants’ Reply (August
    1, 2016), at 19-
    21. Although the Director’s Determination instructed the City to start
    afresh, it did not
    address whether the City’s prior practices had been compliant. The FAA
    should specify
    that the prior procedures were not compliant, based on the briefing
    already provided.
    • Airfield Costs and Revenue. The increase in landing fees challenged
    by the Complaint was
    primarily premised on an alleged deficit between airfield costs and
    airfield revenue.
    Complainants argued that this rationale was invalid because it did
    not: (i) accurately
    measure the costs and revenue attributable to the airfield; (ii)
    explain how costs were
    allocated between airfield and non-airfield centers;10 and (iii) take
    into account the overall
    financial picture of the airport – including non-airfield costs and non-airfield revenue –
    which was revenue-neutral if not revenue-positive. See id., at 23-25
    and 31-33. See also
    Complainants’ Reply (August 1, 2016), at 12. The Director’s
    Determination briefly
    describes the City’s accounting for non-airfield costs and revenues as “unclear” (see id., at
    11), but did not make any specific findings about the City’s prior
    practices nor provide any
    guidance to the City for the methodology to be used going forward. To
    ensure that the
    pending corrective action will be meaningful, the FAA should specify
    whether: (i) the
    City’s measurement of airfield costs and revenue was compliant; (ii)
    the methodology for
    allocating costs between airfield and non-airfield centers was
    compliant; and (iii) the
    Airport’s overall finances must be considered even if an airfield
    deficit exists.
    • Indirect Cost Reimbursement. The increase in landing fees challenged
    by the Complaint
    also was premised in part on the Airport’s reimbursement to the City
    of indirect costs. The
    Complaint argued that the City should not have been allowed to rely on
    those figures,
    because of the lack of any explanation thereof, including both the
    amounts and the
    allocation methodology, as well as a significant but unexplained
    year-over-year increase
    in the figures relied upon by the City. See id., at 26-28. See also Complainants’ Reply
    (August 1, 2016), at 13-15. It is well-established that an airport
    sponsor has the burden to
    document the municipal expenditures that it claims are payable by an
    airport. See
    Complainants’ Reply (August 1, 2016), at 4-5. The Director’s
    Determination briefly
    describes the City’s allocations as “unclear” (see id., at 11), but
    did not make any specific
    findings about the City’s prior practices nor provide any guidance to
    the City for the
    methodology to be used going forward. The FAA should specify whether undocumented
    indirect cost reimbursement may be considered at all in setting
    landing fees – and if
    allowed, how it should be allocated between airfield and non-airfield
    cost centers – to
    ensure that the pending corrective action will be meaningful.
    • Legal Expenditures. The increase in landing fees challenged by the
    Complaint further was
    premised in part on certain legal fees incurred by the City. The
    Complaint argued (see id.,
    10 Santa Monica belatedly submitted an exhibit which purported to
    explain the allocations, but that exhibit comprises
    either a post hoc rationale or was improperly withheld from the public
    at the time the landing fees were adopted – the
    City has not specified which. See Complainants’ Objections (September
    19, 2016), at 1-2.
    at 28-29; see also Complainants’ Reply (August 1, 2016), at 15-16)
    that those fees, in
    addition to being undocumented, also should not have been payable with
    airport revenue
    (irrespective of whether they were allocated to an airfield or
    non-airfield cost center), to
    the extent that they were not incurred in support of the Airport, but
    rather in support of an
    unsuccessful effort by the City by ordinance to restrict Class C/D
    aircraft operations at
    SMO – an effort rejected by both the FAA and the courts. See, e.g.,
    City of Santa Monica
    v. FAA, 631 F.3d 550 (9th Cir. 2011). The Director’s Determination
    does not even
    mention this issue, much less make a finding. As above, this issue
    must be addressed by
    the FAA if corrective action is to be meaningful.
    • Amortization Costs. Another foundation for the Complaint’s challenge
    to the increase in
    landing fees was the amortization costs cited by the City, which also
    lacked supporting
    documentation and further did not appear to be properly categorized,
    given the consistent
    disparity between them and the data recorded in the City’s audited
    CAFRs (see id., at 29-
    30; see also Complainants’ Reply (August 1, 2016), at 16-18). This is
    another item that
    the Director’s Determination briefly describes as “unclear” (see id.,
    at 11) but about which
    there are no specific findings about the City’s prior practices nor
    any guidance to the City
    for the methodology to be used going forward. As above, this issue
    must be addressed by
    the FAA if corrective action is to be meaningful.
    • Double Charges. The Complaint’s challenge to the City’s increase in
    landing fees
    additionally was premised in part on the fact that the fees previously
    applied only to
    transient aircraft, but as revised applied to all aircraft, with the consequence that based
    operators now are effectively double-charged for costs already
    accounted for through other
    fees they pay such as tie-down fees, hangar fees, and fuel flowage
    fees (see id., at 31; see
    also Complainants’ Reply (August 1, 2016), at 18). The Director’s
    Determination does not
    address this issue. This is yet another issue that must be considered
    by the FAA if
    corrective action is to be meaningful.
    • Loans and Interest. The Director’s Determination specifies that a
    defect in the fee
    methodology previously used by the City was that it improperly
    presumed that the
    payments made to the Airport by the City were valid loans and thus
    payments of interest
    (and presumably also payments of principal, although not mentioned by
    the FAA) were
    required. See id., at 11. The Complainants concur – but as discussed
    above, the Director’s
    Determination does not identify all of the principal and interest that
    must be reimbursed,
    nor does it include the complete data necessary for the computation of
    the reimbursement
    11 As a result, the Associate Administrator’s resolution of the appeal
    of issue #1,
    including revised guidance for and calculations of the reimbursement
    that is due, is
    essential for the corrective action required in connection with issue
    #3 to be meaningful.
    • Facial Reasonableness. The Director’s Determination acknowledged
    that the landing fees
    at SMO on a per-pound basis had increased by 264% (and the collected
    revenue initially
    increased by 500%). See id., at 11. Nevertheless, it did not address
    the Complaint’s
    11 The City’s FY2018 CAFR states that the outstanding advances from
    other funds to the Airport comprise $7,748,971.
    That does not account for improper past payments of principal and
    interest, or statutory interest – but suffice to say
    that at the conclusion of this proceeding, the Airport’s surplus is
    likely to exceed $20 million.
    allegation that the revised landing fees at SMO are facially
    unreasonable. See id., at 33-
    35; see also Complainants’ Reply (August 1, 2016), at 16. In
    Bombardier Aerospace Corp.
    v. City of Santa Monica, no. 16-03-11, Director’s Determination
    (January 3, 2005), at 39,
    the FAA observed that the landing fee then imposed at SMO was the
    highest in the United
    States, and although that comparison did not mean that the fee was
    inherently unreasonable,
    “it does illustrate that the SMO landing fee methodology is not the
    result of generally
    accepted practices used within the industry.” In this case,
    Complainants documented that
    the revised landing fee also was out of sync with other comparable
    airports – one source
    of evidence being the City’s own data. Accordingly, irrespective of
    any new data that the
    City could provide, the FAA should have addressed whether the revised
    landing fee was
    facially impermissible – or, at a minimum, that it was evidence of
    improper methodology,
    re-emphasizing why the issues set forth above should also have been
    addressed by the
    Director’s Determination, and on this appeal must be addressed.
    The Ongoing and Growing Revenue Surplus Should Also Have Been
    Addressed – and Remedied
    The FAA has recognized that landing fees and surpluses are intertwined
    matters – and that
    unjustified surpluses are another compliance issue of major concern to
    the agency. See, e.g., Order
    5190.6B, § 17.9; 49 U.S.C. § 47101(a)(13); Sound Aircraft Services v.
    East Hampton Airport, no.
    16-14-07, Director’s Determination (January 2, 2019), at 12 (“the
    existence or absence of a surplus
    will … play an important role in determining if such a fee is
    reasonable”). As discussed above,
    the Director’s Determination failed to fully address the landing fee
    issues at the Airport, but did
    give them some attention, and required the City to recalculate the
    fees. Yet the Director’s
    Determination barely mentioned – and took no action to address – the
    surplus which existed and
    continues to exist at the Airport, intertwined with the landing fees.
    That was an error which must
    now be corrected by the Associate Administrator.
    As a preliminary matter, the Airport’s surplus is not a new issue in
    this appeal. The
    Complaint alleged that the Airport’s overall finances prior to the
    revision of its landing fees was
    at least neutral if not in the black, and that the consequence of the
    revision of the landing fees
    would be the accumulation of an impermissible surplus (see id., at
    21-25 and 31-33; see also
    Complainants’ Reply (August 1, 2016), at 13).12 The Complaint was
    correct, despite the City’s
    response that “it is obvious that there is no ‘surplus’ at the Airport
    – nor any realistic expectation
    that surplus will progressively accumulate there any time soon.” See
    City’s Answer (July 1, 2016),
    at 24. The City also may assert that the growth in the surplus can be attributed to factors such as
    12 Moreover, the Director’s Determination in its ruling on issue #3
    itself established that subsequent developments are
    relevant to and will be considered in this proceeding. The FAA
    indubitably has the discretion to expand the scope of
    a Part 16 investigation beyond the allegations made in a complaint and
    to collect additional evidence. See, e.g., 14
    C.F.R. § 16.29; Town of Fairview, Texas v. City of McKinney, Texas,
    no. 16-04-07, Final Agency Decision
    (November 30, 2005), at 20. In any case, to the extent necessary, the Complainants petition for the current surplus –
    and other public City data post-dating the 2016 briefing – to be taken
    into consideration pursuant to 14 C.F.R. §
    16.33(f). There is good cause to do so, given that the changed factual situation of the Airport was introduced as an
    issue by the FAA itself; the current status of the surplus and other
    financial reporting was, by definition, information
    not previously available to the Complainants; and the growth of the
    surplus directly bears upon the intertwined landing
    fees. See also National Business Aviation Association v. City of Santa
    Monica, California, no. 16-14-04, Final Agency
    Decision (August 15, 2016), at 7-8 (accepting supplemental affidavits
    from the City); Martin v. City of Prescott,
    Arizona, no. 16-97-01, Final Agency Decision (October 7, 1997), at
    footnote 2.
    growth in non-aeronautical revenue – but that still would not justify
    a surplus, and if anything
    provides a further justification for corrective action such as the
    reduction or elimination of landing
    fees at SMO (as discussed further below). Non-aeronautical revenue
    should be used to reduce the
    economic impact on aeronautical users. See, e.g., Bombardier Aerospace
    Corp. v. City of Santa
    Monica, no. 16-03-11, Director’s Determination (January 3, 2005), at
    The FAA should take administrative notice of the City’s CAFRs
    (publicly available at
    https://finance.smgov.net/budgets-reports/annual#/), which show that
    the factual situation at the
    Airport includes a tripling of its unrestricted cash and investments
    since 2016. At the end of
    FY2015 (June 30, 2015) – the most recent figure available at the time
    the Complaint was filed –
    they amounted to $4.2 million, but increased to $7.2 million at the
    end of FY2016 (June 30, 2016),
    $12.3 million at the end of FY2017 (June 30, 2017), and $12.9 million
    at the end of FY2018 (June
    30, 2018).13 Notably, that latest increase occurred despite airport
    revenue having been used to
    finance the initial truncation of the Airport’s runway in FY2018.
    Moreover, much of this revenue
    comes from long-term, high-PSF non-aeronautical leases, which are
    anticipated to continue
    through 2028. For example, in 2016 the Airport entered into a
    five-year lease – with a five-year
    renewal option – with Snapchat, Inc. (now Snap, Inc.) for
    non-aeronautical uses, which alone
    generates more than $3 million in annual revenue.
    14 The surplus will only continue to grow.
    This rapid growth in the Airport’s cash on hand, without any clear
    purpose for the funds,
    should be of serious concern to the FAA. There is no dispute that
    airports can and should maintain
    a reserve account sufficient to cover anticipated – and even
    unanticipated – future expenses. See,
    e.g., Order 5190.6B, § 17.9; H. Rpt. 103-677, at 68 (August 5, 1994).
    But an outright runaway
    accumulation of monies is not justifiable. In this case, there is no
    analysis of future expenses or
    contingencies to justify the surplus. Contrast Sound Aircraft Services
    v. East Hampton Airport,
    no. 16-14-07, Director’s Determination (January 2, 2019), at 13. In a
    Part 16 proceeding involving
    a similar general aviation airport, Aerodynamics of Reading v. Reading
    Regional Airport
    Authority, no. 16-00-03, the FAA held that an unrestricted cash
    balance of $462,000 – of which
    $362,000 was specifically designated to be a reserve account – was
    “within the bounds of
    reasonableness in the context of the airport’s financial
    contingencies, debt service, and future
    development.” See Final Decision and Order (July 23, 2001), at 21. In
    contrast, in this case the
    Airport’s unrestricted cash position amounts to nearly 2800% of RDG’s
    cash position – far beyond
    the boundaries of reasonableness.
    Moreover, this is a unique case, given the settlement agreement
    between the City and the
    FAA which provides the City the discretion to close the Airport after
    the end of 2028 – an
    opportunity which the City’s political leadership publicly insists
    will be taken.15 In light of that
    13 The CAFRs also calculate the airport’s net position. Although
    there is no indication in FAA guidance that this
    figure – which includes fixed assets – should be used to evaluate an
    airport’s “surplus,” the Complainants note that it
    shows even more growth than the Airport’s cash position. At the end of
    FY2015, it was negative $5.5 million; at the
    end of FY2016, it was $200,000; at the end of FY2017, it was $6.1
    million; and at the end of FY2018, it was $7.6
    14 See https://publicdocs.smgov.net/WebLink/DocView.aspx?id=2341197
    (May 10, 2016) (approving proposal
    previously submitted as Complainants’ Exhibit 84).
    15 See, e.g., A Resolution of the City Council of the City of Santa
    Monica Implementing the Consent Decree and
    Authorizing All Actions Necessary to Ensure the Closure of Santa
    Monica Airport Effective as of Midnight on
    position, the Airport’s need for long-term financial reserves is
    drastically reduced. Nor should it
    be permissible for the Airport to accumulate surpluses today that are
    not intended to ever be used
    for aeronautical purposes, but rather to be retained until after the
    Airport has been closed and then
    used to repurpose the property for non-aeronautical purposes and/or
    for general municipal
    purposes. Such a practice would amount to transparent – and
    impermissible – revenue diversion.16
    Under these circumstances, the Director’s Determination should not
    just have required the
    City to prepare an updated fee methodology but also to prepare a
    corrective action plan for the
    surplus in the Airport’s accounts. At a typical airport, a means to
    achieve compliance once a
    surplus had been identified might be to “convert a reasonable amount
    of the airport revenues into
    improvements that would enhance the value of the airport to the
    community (T-hangars, aircraft
    parking areas, terminal buildings, etc.).” See FAA Order 5190.6A, §
    4-20(c) (1989); FAA Order
    5190.6, § 70(d) (1973). But, as discussed above, given the City’s
    stated intent to close the airport
    in just over nine years, there would be no justification for the
    surplus being repurposed for
    significant aviation-related capital expenditures. Given the
    improbability if not impossibility of
    the City being able to identify legitimate Airport capital
    expenditures for which the surplus
    accumulated can be used, the proper solution would be for the surplus
    to be used to reduce the
    operational costs of the Airport’s users – foremost by eliminating the Airport’s landing fees
    (including, as moved for above, their immediate suspension – and
    ultimately their refund).17
    Finally, the Director’s Determination also should have required the
    City to consider using
    the surplus to reduce the tie-down and rent and fuel flowage fees paid
    by aeronautical tenants at
    the Airport. Even if landing fees are suspended going forward, that
    would reduce the surplus by
    only $4.5 million over the nine remaining years of the Airport’s
    guaranteed lifespan. Given the
    lack of appropriate capital projects to which those funds could be
    deployed, the only other means
    to bring the surplus back within the zone of reasonableness is to
    reduce the other fees collected by
    Airport users. The Director’s Determination having failed to address
    this issue, the Associate
    Administrator should now do so.
    The Unlawful Landing Fees Collected To Date Must Be Refunded
    Between August 1, 2013 and the present, the City has continued to
    charge Airport users
    landing fees that are among the highest in the country, despite its
    failure to properly advise, and
    receive informed input from, affected parties; its repetitive
    manipulation of underlying financial
    data; its rejection of its own analysis of other airports’ landing
    fees demonstrating the inherent

    December 31, 2028, and the Shortening of the Santa Monica Airport
    Runway Pending Closure, no. 11026 (February
    28, 2017)
    (https://publicdocs.smgov.net/WebLink/DocView.aspx?id=2344542). See
    also Complaint, at 7-9.
    16 The Western-Pacific Region’s informal determination dated October
    21, 2019 warned Santa Monica that doing so
    would be non-compliant. Likewise, nothing in 49 U.S.C. § 47133
    suggests that the closure of an airport releases from
    its obligations any revenues previously collected under its auspices.
    17 The City – in the Capital Improvement Program that is part of its
    FY2019-21 Adopted Biennial Budget – has
    proposed to spend up to $7.3 million annually on street, sidewalk, and
    building projects. These expenditures either
    are unconnected to aviation, or must be premised on the funded
    projects continuing to be used after the closure of the
    Airport, for entirely non-aeronautical purposes. This is an inversion
    of FAA policy – the City in effect is assessing
    higher fees for aeronautical users in order to subsidize facilities
    for non-aeronautical users. Contrast United States
    Construction Corporation v. City of Pompano Beach, Florida, docket no. 16-00-14, Final Agency Decision (July 10,
    2002), at 21 (“[o]perating the airport for aeronautical use is not a
    secondary obligation; it is the ‘prime obligation’”).
    unreasonableness of the SMO fees; its refusal to account for
    non-aeronautical income – the
    Airport’s principal income stream – in establishing and maintaining
    the rate base; and its continued
    maintenance of its landing fees in the face of an enormous and growing
    surplus. The landing fees
    were thus not just improper but unlawful from their inception, and as
    the surplus includes revenues
    from those fees, the Director’s Determination also should have
    included in its corrective action
    directive a requirement that the City address how those fees should be
    refunded to the affected
    The Complainants are aware that the FAA previously has opined that
    Part 16 is not an
    appropriate forum in which to request monetary damages. See, e.g.,
    Consolidated Services
    Engineers and Constructors, Inc. v. City of Palm Springs, no.
    16-03-05, Director’s Determination
    (June 10, 2004), at 28. But those statements are not determinative
    here; what is proposed is not a
    request for damages, but rather that for corrective action that is
    needed to bring an airport into
    current compliance, in the form of reimbursement; that is clearly
    within the FAA’s authority. This
    remedy is particularly appropriate under the unique current
    circumstances, in which there are not,
    nor will there be, legitimate expenditures for which those funds
    possibly can be used.
    The FAA has not previously been asked in Part 16 proceedings to apply,
    and thus has not
    applied, a critical element of its authority, as identified by 14
    C.F.R. § 16.109(a) – to issue “an
    order directing the refund of fees unlawfully collected.” Nothing in
    the language or history of that
    regulation limits the meaning of the term “unlawfully,” but the FAA consistently has described
    general violations of grant assurances to be “unlawful.” See, e.g.,
    Pelzer v. State of Michigan, 16-
    16-05, Director’s Determination (May 16, 2018), at 26; Bodin v. County
    of Santa Clara,
    California, no. 16-11-06, Director’s Determination (December 19,
    2011), at 21-22; Skydive Paris,
    Inc. v. Henry County, Tennessee, no 16-05-06, Director’s Determination
    (January 20, 2006), at
    19; Clarke v. City of Alamogordo, New Mexico, 16-05-19, Director’s Determination (September
    20, 2006), at 23; United Aerial Advertising, Inc. v. County of Suffolk
    Board of Commissioners,
    no. 16-99-18, Director’s Determination (May 8, 2000), at 17.
    Consistent with that guidance, the
    existence of a surplus at SMO that is incompatible with grant
    assurances #24 and #25 – and was
    built on the backs of excessive user fees, as alleged in the Complaint
    (see id., at 22-23) – can and
    should be the basis for an FAA order directing refunds.
    Moreover, even if the Section 16.109(a) authority for the first time
    should be construed to
    be limited to statutory violations, revenue diversion is a statutory
    violation pursuant to 49 U.S.C.
    § 47133 – and the Complaint alleged that the maintenance of a surplus
    by the Airport amounts to
    a violation of not just grant assurance #24 but also of grant
    assurance #25 (see id., at 22-23). The
    mere existence of an excessive surplus, in which funds are parked and
    not used for aeronautical
    purposes, standing alone amounts to revenue diversion – and in this
    case, the City may have a
    further, ulterior motive to retain the surplus for impermissible
    post-closure use. See also Sound
    Aircraft Services v. East Hampton Airport, no. 16-14-07, Director’s Determination (January 2,
    2019), at 12 (noting linkage – unreasonable fees are “a circumstance
    leading to revenue diversion,
    or an inappropriate revenue surplus”).
    Finally, nothing in Part 16 generally prohibits the FAA from
    recommending that a
    corrective action plan incorporate restitution to users who have
    previously paid excessive fees. As
    discussed above, since the truncation of the runway the landing fees
    collected by the Airport have
    declined, but previously they peaked at more than $1.5 million
    annually (in FY2014) – a
    significant, unwarranted expense for users of the Airport, which also
    cynically served the purpose
    of driving traffic away from the Airport. Again, this is an unusual
    case, given the length of time
    that elapsed between the filing of the Complaint and the Director’s Determination; the enormous
    surplus that has been accumulated; and the changes in the Airport’s
    factual situation – including
    the establishment of a timeframe for its closure – in the interim.
    Thus the Associate Administrator
    at a minimum should conclude that the corrective action instructions
    to the City should have been
    broader in scope, including reimbursement of unlawful landing fees,
    given the unprecedented
    surplus compliance problem in Santa Monica.
    For the reasons set forth above, the Associate Administrator should
    revise the Director’s
    Determination, in connection with issue #1, to specify that none of
    the transfers between the City
    and the Airport identified in the Complaint were adequately documented
    to comprise loans, and to
    modify the reimbursement obligations of the City based on both that
    finding and the other errors
    and omissions in the Director’s Determination that are identified in
    this appeal, as well as require
    that the City provide supplemental data to the extent necessary for
    revised calculations to be made
    of the City’s exact reimbursement obligations.
    In connection with issue #3, the Associate Administrator should
    resolve the compliance
    issues identified in the Complaint but not addressed in the Director’s Determination. Although
    the City has been instructed to update its landing fees because of
    subsequent changes in the factual
    situation of the Airport, the methodological issues identified in the
    Complaint are relevant to the
    parameters of the corrective action and are capable of evading review
    if not addressed at this time.
    Moreover, the current factual situation includes an excessive and
    growing surplus, which is
    intertwined with the landing fees; the Director’s Determination should
    not have ignored this issue
    – which it specifically recognized – and pending the preparation and
    approval of a corrective action
    plan, should have ordered remedies, such as the suspension of landing
    fees at SMO and refunds to
    Airport users of fees that not only created an excessive surplus but
    were thus illegal. The Associate
    Administrator should now provide redress, including by the requested
    interim order.
    Respectfully submitted,
    Jol A. Silversmith, Esq.
    Barbara M. Marrin, Esq.
    KMA Zuckert, LLC
    888 17th Street, N.W., Suite 700
    Washington, DC 20006
    (202) 298-8660
    Richard K. Simon, Esq.
    1131 Camino San Acacio
    Santa Fe, NM 87505
    (310) 503-7286
    Certificate of Service

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