Airport Governance and Ownership (2009)

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3 AIRPORT GOVERNANCE AND OWNERSHIP Daniel S. Reimer, Esq., and John E. Putnam, Esq. Kaplan Kirsch & Rockwell LLP I. INTRODUCTION As of January 2008, there were almost 20,000 air- ports in the United States.1 While the vast majority of these airports are privately owned and privately used, 4,150 airports are publicly owned and publicly used. These publicly-owned airports serve scheduled passen- ger operations, cargo operations, general aviation, or a combination of these operations. The principal focus of this report is on the governance of publicly-owned air- ports providing scheduled passenger service. There are relatively few federal and state constraints on the type of public entity that can own, manage, and operate an airport. As a result, airports are governed by virtually every type of public entity. General-purpose governments at the federal, state, county, and munici- pal levels all have governed or currently govern air- ports. In other instances, special-purpose entities such as airport authorities and port authorities have been established and given responsibility for the operation and development of airports. In spite of the multiplicity of governance models, there has been relatively little analysis of the advan- tages and disadvantages of different governance struc- tures and how well different types of public entities perform the function of governing airports. Although some communities have examined this issue in detail, either as a means to improve airport performance or to consider an alternative governance structure, there has been only limited consideration of this issue on an in- dustry-wide level.2 Theories abound as to the optimal governance model. Conventional wisdom has often provided that govern- ance by airport authorities with a high degree of auton- omy is superior in many respects to direct control by a general-purpose government. A somewhat complemen- tary theory is that formal integration of regional inter- ests in airport decision-making, such as through a multi-jurisdiction authority, is beneficial. Another theory is that selling or leasing a public air- port to a private operator can optimize airport perform- ance. The benefits of privatization in the United States are largely anecdotal, because only a few communities have attempted to fully privatize commercial service 1 FED. AVIATION ADMIN. (FAA), REPORT TO CONGRESS: NATIONAL PLAN OF INTEGRATED AIRPORT SYSTEMS (NPIAS) 2009–2013, at 1 (2008), available at http://www.faa.gov/airports_airtraffic/airports/planning_capaci ty/ (Last visited May 4, 2009). 2 Books, articles, and reports focusing on the subject of air- port governance are listed in App. D. airports. Despite this small set of cases, a literature review reveals that the theoretical benefit of privatizing airports has received far greater attention than consid- eration of the advantages, disadvantages, and opportu- nities for improving the traditional airport governance structures that have been and continue to be used in this country. This report is intended to serve two principal pur- poses: 1) to detail the laws and legal principles affecting airport governance; and 2) to correlate airport govern- ance and the governing body’s ability to perform par- ticular functions. The results of this and subsequent analysis may serve communities attempting to evaluate their own governance structures and to decide whether any changes are warranted and feasible. Section I describes the different governance struc- tures currently in use. Section II describes the legal principles under state and federal law affecting airport governance and the initial choice of a governance struc- ture. Section III describes the opportunities for and legal constraints on transfers and delegations of power over airports. Section IV examines the extent to which different governance models serve or impede airport goals and performance. Section V presents conclusions and considerations for any community examining whether to change its approach to airport governance. The appendices attached to this report provide fur- ther information and identify additional resources on the subject of airport governance. Appendix A identifies the operators of the approximately 150 commercial ser- vice airports that each account for more than 0.05 per- cent of enplaning passengers in the United States. Ap- pendix B identifies the operative statutory provisions in each of the 50 states on airport governance. Appendix C is an index of state and federal case law on the issue of airport governance. Appendix D is a bibliography of legal, technical, and scholarly resources on airport gov- ernance. Appendix E contains data on airport perform- ance using various metrics. II. AIRPORT GOVERNANCE TODAY A. Brief History There is no single path by which the publicly-owned airports in the United States came to their present gov- ernance form. It was quite common during the 1920s and 1930s for local governments to purchase airports previously in private ownership and to acquire vacant property to construct public airports. The U.S. Govern- ment constructed several airports during World War II and transferred the airfields to local governments after

4 the war pursuant to the Surplus Property Act.3 During the 1950s and 1960s, several airport authorities were established to assume control over public airports. Changes in airport governance continue to occur as a result of transfers of military airfields for commercial or joint (military and commercial) use, construction of new airports, and transfers and delegations of power over existing airports. B. Overview of Governance Types Myriad public entities govern airports in the United 3 The Surplus Property Act of 1944, 78 P.L. No. 457, 58 Stat. States. Airports Council International–North America (ACI-NA) conducts a general information survey of North American airports, including basic statistics on governance. The most recent ACI-NA survey, conducted in 2003 primarily among larger airports, revealed that 38 percent of the airports responding to the survey were owned and operated by a city, 25 percent by a re- gional/airport authority, and 17 percent by a single county. The remaining airports participating in the survey were governed by multiple jurisdictions, states, unified port authorities, and other public entities.4 765, 50 U.S.C. § 1611. 4 AIRPORTS COUNCIL–N. AMERICA (ACI-NA), HIGHLIGHTS OF THE 2003 GEN. INFO. SURVEY, at 1 (2003).

5 These results are consistent with the previous ACI-NA survey conducted in 1997.5 A 2005 survey conducted in the course of another project for the Transportation Research Board (TRB) Cooperative Research Program categorized airports differently, but with similar re- sults.6 In an effort to gather additional data on airport gov- ernance, the authors examined publicly-available in- formation on the commercial service airports identified as small, medium, and large hubs in the current Na- tional Plan of Integrated Airport Systems (NPIAS). These are airports that account for at least 0.05 percent of enplaning passengers. Appendix A identifies the op- erators of the approximately 150 hub airports. Figure 1 and Figure 2 summarize these data. The ACI-NA survey, our review, and other research examined in preparing this report reveal considerable variability in airport governance. The following are some examples of this variety in governance structures: • Two airports, Dulles and Reagan National Air- ports, are owned by the federal government and oper- ated by an airport authority, the Metropolitan Wash- ington Airports Authority, created by a compact between the Commonwealth of Virginia and the District of Columbia. • The following state governments operate individ- ual commercial service airports: Alaska, Arizona, Con- necticut, Hawaii, Maryland, Minnesota, New Hamp- shire, and Rhode Island. • State and local governments have delegated deci- sion-making responsibility for many airports to an air- port authority. This includes airport authorities repre- senting more than one general-purpose government. While the definition of an airport authority varies, this model rivals direct control by cities as the most common form of governance structure. Examples of state- and locally-created airport authorities include the San Diego County Regional Airport Authority (California), the Greater Orlando Aviation Authority (Florida), the Indianapolis Airport Authority (Illinois), the Wayne County Airport Authority (Michigan), and the Memphis Shelby County Airport Authority (Tennessee). • Several public entities operate multi-airport sys- tems, including the Metropolitan Airports Commission (Minnesota), the Metropolitan Washington Airports 5 See FAA/OST TASK FORCE STUDY, AIRPORT BUS. PRACTICES AND THEIR IMPACT ON AIRLINE COMPETITION, at 2–3 (1999) (summarizing the results of the 1997 General Informa- tion Survey), http://ostpxweb.dot.gov/aviation/Data/airportsbuspract.pdf. 6 See TRANSP. RESEARCH BD., ACRP SYNTHESIS 1: INNOVATIVE FINANCE AND ALTERNATIVE SOURCES OF REVENUE FOR AIRPORTS, at 6 (2007) (“The form of governance for the 100 busiest airports in the United States is as follows (the top 100 airports were determined based on numbers of enplaned pas- sengers in 2005): Authority—39%, City—33%, Regional—5%, County—13%, State—7%, Other—3%.”), http://onlinepubs.trb.org/onlinepubs/acrp/acrp_syn_001.pdf. Authority (Virginia), the Port Authority of New York and New Jersey, the Massachusetts Port Authority, Clark County (Nevada), Sacramento County (Califor- nia), the City of Los Angeles (California), the City of Chicago (Illinois), and the City of Phoenix (Arizona). As reflected in this list, multi-airport systems are governed by all types of public entities that operate commercial service airports. • Some public entities are responsible for modes of transportation in addition to airports, including the Port of Seattle, Port of Portland, Port of Oakland, the Massachusetts Port Authority, the Metropolitan Wash- ington Airports Authority, and the Port Authority of New York and New Jersey. • The U.S. Department of Defense participates in governing several airports used for joint military and commercial purposes. Examples of former military air- fields converted for joint military and commercial use include Palmdale Airport (California) (part of Air Force Plant 42), Charleston International Airport (South Carolina) (part of Charleston Air Force Base (AFB)), Northwest Florida Regional Airport (part of Eglin AFB), Wichita Falls Municipal Airport (Texas) (part of Sheppard AFB), Waynesville Regional Airport (Mis- souri) (part of Forney Army Airfield (AAF)), Killeen/Ft. Hood Regional Airport (Texas) (part of Gray AAF), Si- erra Vista Municipal Airport (Arizona) (part of Libby AAF), and Yuma International Airport (Arizona) (part of Marine Corps Air Station Yuma). • Some airports are governed by public entities that are unique (or at least extremely rare) and do not fit perfectly with other members of the same general cate- gory. The Metropolitan Washington Airports Authority is unique in that it leases two airports from the federal government and rare in that it exists pursuant to a two- state compact (along with the Port Authority of New York and New Jersey and the Chicago/Gary Regional Airport Authority). A few state universities, including the University of California and the Ohio State Univer- sity, operate general aviation airports. Special districts also have been formed to own and operate airports, in- cluding the Truckee Tahoe Airport District (California) and the Monterey Peninsula Airport District (Califor- nia). There are no obvious correlations between airport governance structure and other attributes. Similarly- situated airports, such as airports with high passenger volumes, airline hubs, or airports primarily serving low- cost carriers, are governed by all types of public enti- ties. Although not examined in detail for purposes of this report, general aviation airports are governed by the same variety of governance structures as commer- cial service airports. Airports within similar geographic regions, including densely populated areas with multi- ple airports (e.g., Florida, California, and the North- east), are governed by all types of public entities. Al- though professionals and academics from multiple disciplines have attempted to extract commonalities

6 among airport governance structures, no associations have been definitively established.7 C. Creating an Airport Governance Typology One of the fundamental problems in attempting to categorize airport governance in a meaningful way is that governance is a multifaceted concept. There are many dimensions to governing an airport that together constitute an airport’s governance structure. A comprehensive typology of airport governance would need to account for at least the following vari- ables, presented as questions that might be asked for each airport: 1. Does primary decision-making responsibility for airport operations and development reside in a general- purpose government or special purpose authority? 1.A. If a general-purpose government, what are the level of government (federal, state, county, munici- pal) and form of government (e.g., strong legislative, strong executive)? What role do elected officials play in day-to-day airport decision-making? Is there a delegated body that exercises some authority or oversight for the airport? To what extent is the airport subject to gener- ally applicable rules (e.g., civil service, contracting)? 1.B. If a special-purpose authority, what is the nature of the authority (port authority, airport author- ity) and what is the ongoing role, if any, of a general- purpose government in decision-making (e.g., appoint- ment of authority commissioners, etc.)? Who chooses the commissioners or board members, and how are they selected? 2. Has significant decision-making power or opera- tional control been commercialized or privatized? 3. How many transportation assets are under the public entity’s control? Does the public entity operate multiple airports as a system? Does the public entity control modes of transportation in addition to airports? 4. Does the entity with primary decision-making re- sponsibility for the airport own the underlying property? 5. Does the entity with primary decision-making re- sponsibility maintain land use and zoning jurisdiction over the airport? Over the surrounding areas? These variables in airport governance can have sig- nificant legal and practical consequences. The following examples are intended to be illustrative of the more significant implications of these variables in governance structure; several of these legal issues are examined in subsequent sections of this report: • General-purpose governments can call upon gen- eral-fund revenues to subsidize airport operations and capital development. The larger the population and geographic scope, the greater the tax base that may be 7 We recommend readers to the scholarly articles listed in App. D. available for this purpose.8 General-purpose govern- ments may subsidize airport authorities, but seldom have a legal obligation to do so. Operators of a multi- airport system may be able to distribute funding to air- ports other than the airport at which the revenue was generated.9 Port authorities may be able to call upon revenue from other modes of transportation for airport purposes. For example, the Port Authority of New York and New Jersey may be able to use nonairport revenue in its effort to make the Stewart International Airport carbon-neutral.10 • Aside from these important differences related to financing, most airport operators, regardless of govern- ance structure, will have similar legal authority to pay for airport operations and development through tradi- tional means: bond indebtedness, federal grant funding from the Federal Aviation Administration (FAA) through the Airport Improvement Program (AIP) and from the Transportation Security Administration (TSA) for security projects, local fees on enplaning passengers known as Passenger Facility Charges (PFC), revenues from nonaeronautical activities such as concessions and rates and charges imposed on airport users. Equally significant, airport revenue, grant funds, and PFC revenue can be used only for airport purposes. Regard- less of the nature of the airport governance structure, the diversion of airport revenue for nonairport purposes is prohibited.11 • Several airport authorities lease the airport from a general-purpose government. The respective rights of the general- and special-purpose entities commonly will be prescribed in the lease and the authority’s enabling legislation. These respective powers vary considerably from airport to airport. The general-purpose govern- ment may retain indirect power over airport decision- making such as, for example, the power to appoint and remove airport authority commissioners. • A public entity that operates a multi-airport sys- tem has limited legal authority to allocate traffic within the airport system. While the full scope of this power 8 The actual need to impose such taxes may be offset to a small or large degree by the concentration of airport passen- gers who may be able to fund capital improvements directly through, for example, Passenger Facility Charges. 9 This general rule is subject to important limitations. See FAA Policy Regarding Airport Rates and Charges, 61 Fed. Reg. 31,994 (1996), vacated in part by Air Transport Ass’n of Am. v. Dep’t of Transp., 119 F.3d 38 (D.C. Cir. 1997), amended by 129 F.3d 625 (D.C. Cir. 1997); FAA Notice of Amendment to Policy Statement, 73 Fed. Reg. 40,430 (2008). 10 See Press Release, Port Auth. of N.Y. and N.J., Port Au- thority Aims to be Carbon Neutral by 2010 Through Emission Reductions and Carbon Offsets (Mar. 27, 2008), available at http://www.panynj.gov/abouttheportauthority/presscenter/pres sreleases/PressRelease/index.php?id=1049. (Last visited May 4, 2009). 11 The relevant statute, 49 U.S.C. § 47107(b)(2), provides a narrow exception for airports that were required to use airport revenue for nonairport purposes beginning prior to Congress’s imposition of the prohibition.

7 has not been defined, FAA guidance suggests that it exceeds the power of individual airport operators work- ing cooperatively to allocate traffic within a region.12 • Some airports are located within the jurisdiction of a public entity that is not directly responsible for air- port decision-making. These host jurisdictions may have legal authority to regulate land use but are pre- empted from regulating aircraft operations and safety. A few states, including Texas and Washington, have attempted to immunize airports from certain local regu- lations; in other states, airport operators may be enti- tled to intergovernmental immunity. Numerous con- flicts and considerable litigation have arisen between airport operators and their host jurisdictions. A promi- nent example that has engendered considerable litiga- tion is the Bob Hope Airport in Burbank, California, which is operated by the Burbank-Glendale-Pasadena Airport Authority but located in the cities of Burbank and Los Angeles. Similar controversy over the applica- tion of local land use regulation by host jurisdictions has occurred in connection with the Dallas/Ft. Worth International Airport and the Lambert-St. Louis Inter- national Airport.13 • In addition to airports located within other juris- dictions, many airports are located immediately adja- cent to or near areas that are under the jurisdiction of entities that are not directly or indirectly responsible for airport decision-making. The lack of control by the host or neighboring jurisdiction may present few oppor- tunities to influence airport decision-making and may account for the numerous lawsuits historically filed by surrounding communities challenging airport develop- ment and growth. Advisory boards have been created in some instances to channel input from these communi- ties, creating another layer of airport decision-making. In other cases, host or neighboring communities may be given seats on airport authority commissions. However, it is unclear whether and to what extent such mecha- nisms temper local concerns about airport operations or facilitate the development of additional airport capac- ity. Long-running disputes between the airport operator and surrounding communities have occurred in Seattle, Los Angeles, Cleveland, Chicago, St. Louis, Atlanta, New Orleans, and Ft. Lauderdale, to name but a few prominent examples.14 • Private participation in airport decision-making and management is thought to lead to greater cost cer- 12 See FAA Order No. 5190.6A, Airports Compliance Re- quirements, § 4-8(d) (1989). 13 See City of Irving v. Dallas/Ft. Worth Int’l Airport Bd., 894 S.W.2d 456 (Tex. App. 1995); City of St. Louis v. City of Bridge- ton, 705 S.W.2d 524 (Mo. Ct. App. 1985). 14 See, e.g., Airport Cmtys. Coalition v. Graves, 280 F. Supp. 2d 1207 (W.D. Wash. 2003) (Seattle-Tacoma International Airport); City of Bridgeton v. FAA, 212 F.3d 448 (8th Cir. 2000) (Lambert-St. Louis International Airport); City of Cleveland v. City of Brook Park, 893 F. Supp. 742 (N.D. Ohio 1995) (Cleve- land-Hopkins International Airport); City of Grapevine v. DOT, 17 F.3d 1502 (D.C. Cir. 1994) (Dallas/Ft. Worth International Airport). tainty and efficiency, albeit with a loss of public control over airport assets. At the same time, public entities generally cannot avoid satisfying their state and federal obligations by delegating responsibility to private enti- ties. The subject of partial and full airport privatization is addressed in detail below. • The Department of Defense and the local airport operator may have somewhat conflicting missions and obligations when operating joint-use airports. For ex- ample, the Department of Defense may be interested in limiting commercial or general aviation operations to preserve the airfield and surrounding airspace for mili- tary use, while the local airport operator is contractu- ally obligated to the FAA to make the airport available for all types of aeronautical activities.15 This has caused considerable tension during the transition of several military airfields to joint military and commercial use. D. Degrees of Control Over Airport Decision- making A common consideration and source of controversy is the degree to which public and private entities control airport decision-making, both in absolute terms and relative to other entities. In some instances, direct con- trol by a general-purpose government may be an end unto itself. More frequently, direct control may be seen as enabling a general-purpose government to ensure that the airport is serving the public entity’s goals, in- cluding aspirations such as providing low-cost air ser- vice to multiple destinations and furthering economic development. Direct control by elected officials of a gen- eral-purpose government also promotes accountability by giving the electorate a chance to vote on the govern- ing body’s airport-related decision-making. The benefits of direct control often are balanced against the belief that greater autonomy can lead to improved performance and greater efficiency. For ex- ample, it is often noted that airport authorities avoid many of the civil service, contract approval, and other constraints of general-purpose governments. Manage- ment may have greater knowledge and expertise re- garding the specialized aviation industry. Thus, several communities have determined that ceding control to special-purpose authorities (port authorities and airport authorities) is better, all things considered, than reserv- ing decision-making power. 15 Compare 32 C.F.R. § 855.20(b) (“Operational considera- tions will be based on the premise that military aircraft will receive priority handling (except in emergencies), if traffic must be adjusted or re-sequenced.”) with 49 U.S.C. § 47107(a) (“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, satis- factory to the Secretary, that—(1) the airport will be available for public use on reasonable conditions and without unjust discrimination.”).