Legal Considerations in the Funding and Development of Intermodal Facilities at Airports (2018)

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18 station and then connects with the NYC subway’s A line at the Howard Beach Station.155 Bus transfers to local capillary stops are available at both stations. Jamaica Station, however, offers a shuttle bus to LaGuardia Airport. Construction of the AirTrain began in 1998 and was completed in 2002. The final cost of the system was $1.9 billion; $1.148 billion of which was funded by PFCs and the remainder by the Port Authority’s capital fund.156 1. PFC Application The Port Authority made its first request for PFC funding on February 28, 1992.157 The FAA approved a request for funding for the APM and planning for the AirTrain, but the Port Authority withdrew its request for $1.4 billion in funding for construction of the AirTrain because of air carrier complaints that the PFC request lacked sufficient detail.158 In this first request, the Port Authority generally stated that JFK suffered serious ground access constraints and that within 10 years passengers would be restricted significantly in gaining access to the airport.159 On March 31, 1995, the Port Authority made its second request for PFC funding for the AirTrain.160 The FAA approved the $325 million PFC request, finding that the project met the “nominal” require- ments for AIP eligibility and citing only general 155 JFK is a one-hour subway ride from central Manhattan. The LIRR offers a 20-minute ride to Manhattan at a substantial premium. 156 The AirTrain was originally designed to allow use of its tracks by rolling stock used by the subway and the LIRR in order to provide airport travelers with a “one seat” ride from Manhattan. The FAA determined that the additional cost of this overdesign was not eligible for PFC funding. 157 FAA Record of Decision dated July 23, 1992 at 2 [hereinafter JFK ROD 1]. Rail access to JFK was first pro- posed in 1968. Ground Access to Airports at 43. 158 ROD 1 at 8-9, 13-14. Most of the air carriers at JFK opposed the AirTrain PFC request because the PFC request failed to provide sufficient detail for their review, lacked estimates of O&M costs, failed to account for lost AIP grants resulting from the requested PFC imposition and that its PFC collection data was generally unreliable. 159 In order to comply with the FAA’s exclusive use requirement for PFC funding, the AirTrain was designed without stops between the airport and the subway sta- tions. This design prevents passengers from taking a “one seat” ride between downtown Manhattan and the airport. Instead, passengers must transfer from the subway and rail lines to the AirTrain in order to reach the JFK termi- nal. The design was also criticized because it does not allow potential passengers in the areas of the Jamaica and Howard Beach Stations from gaining access to the line. 160 FAA Record of Decision dated July 31, 1995 [herein- after JFK ROD 2]. other aviation projects.151 This is a truism—money spent on one thing cannot be spent on something else. At bottom though, throughout the Delta com- ments is the theme that intermodal facilities are dif- ficult to justify because they have difficulty passing a cost/benefit analysis.152 As discussed elsewhere, however, a cost/benefit calculus is a factor, but not a controlling one, for the FAA. The agency has shown its willingness and, even, expressed a preference that airports provide a cost/benefit discussion as part of a PFC application—particularly for high-cost intermodal project applications. VI. CASE STUDIES: THE DEVELOPMENT OF INTERMODAL FACILITIES AT AIRPORTS A. The John F. Kennedy Airport AirTrain The JFK AirTrain light rail system links the JFK terminals with the Long Island Railroad, the New York City subway and an automated people mover. New York City is served by three airports: LaGuardia, in northern Queens County, John F. Kennedy International (JFK), in southeastern Queens County, and Newark Liberty International, in northeastern New Jersey. All three airports are operated by the Port Authority of New York and New Jersey (Port Authority) which also operates bridges, tunnels, ports, bus terminals, and the Port Authority Trans Hudson (PATH) commuter train service linking New Jersey with Manhattan. JFK is 15 miles from Manhattan. The airport has eight passenger terminals with 48 million enplanements each year. The JFK AirTrain is an 8.1-mile long153 light rail system that consists of two lines and a loop that con- nects the passenger terminals at JFK.154 The Jamaica Station line is the longest component of the system. After traveling its terminal loop, the Jamaica Station line makes a stop at the Federal Circle rental car center (RAC) and then proceeds along the median of the Van Wyck Expressway to Jamaica Station for connections to the Long Island Railway (LIRR) and the New York City subway’s E, J, and Z lines. The LIRR travels in two directions from Jamaica Station: to Manhattan, Brooklyn, and Queens and, in the opposite direction, to points on Long Island. The Howard Beach train, after its ter- minal loop, travels to the Federal Circle RAC 151 Id. at 5. 152 Id. at 4. 153 The terminal loop is 1.8 miles; the Howard Beach line is 3.3 miles; and the Jamaica Station line is 3.0 miles for a total of 8.1 miles. NYT. PANYNJ web. 154 A separate APM moves passengers from each of the AirTrain stations in a loop to each of the JFK terminals.

19 certification that it would obtain a right-of-way for the Jamaica Station component of the system was sufficient for it to conclude that the facility would be located on airport property.168 2. The ATA Challenge to ROD 3 The Air Transport Association (ATA), an organi- zation representing airlines, filed a petition for review of the FAA’s AirTrain ROD 3. The ATA raised four principal arguments in opposition to ROD 3,169 only one of which is directly related to this discus- sion: The ATA argued that the Jamaica Station com- ponent of the AirTrain was not an airport-eligible project because it was not located on land defined by statute as airport property as required by 49 U.S.C. §§ 40117(a)(1) and (2). Instead, the Jamaica Station component would be constructed on a proposed right-of-way running down the center of the Van Wyck Expressway to which the Port Authority had not yet secured a right-of-way. The ATA based its claim on a reading of 49 U.S.C. § 47102(2)(A)(i) and (ii) that would have required any such right-of-way to be attached, along its entire length, to an airport landing area in order to be considered “on-airport” for purposes of PFC funding.170 Based on prior guid- ance (FAA Order 5100.38A Paras. 553 and 555), the FAA argued that a right-of-way need only be 168 Id. at 4-6. 169 The ATA also argued that 1) the approval of the Port Authority’s request for the AirTrain was beyond the scope of the FAA’s authority because it could not grant condi- tional approval of a PFC request; 2) the agency solicited and relied on information obtained ex parte from the Port Authority and, therefore, denied the ATA notice of, and the right to comment on, the material; and 3) the decision to allow PFC funding of the AirTrain was arbitrary and capricious. 169 F.3d at 4. The Court found for the FAA on the first and third arguments and agreed with the ATA on the procedural error contained in the second. As a result, the Court returned the case to the FAA for further admin- istrative proceedings. 169 F.3d at 11. Specifically, the Court found reasonable the FAA’s interpretation of its regulations which allowed applicants to request and the FAA to approve separately or concurrently the authority to impose and use PFCs (citing 14 CFR 158.25(a)). 169 F.3d at 5. The Court, therefore, upheld the FAA’s interpre- tation of 49 U.S.C. § 40117 (b)(2) and 14 CFR 158.25(c)(2) (i) and 158.27 that allow the agency to approve a concur- rent application for the collection and use of PFCs subject to an assurance that any ineligible elements of the appli- cation will not be funded. 169 F.3d at 5. The Court also found that the agency’s decision was not arbitrary and capricious because it did not adequately consider the costs and benefits of the project; no cost/benefit analysis was required. Nevertheless, the Court agreed that the FAA relied on ridership data furnished to the agency by the Port Authority, but not furnished to the ATA for comment. Accordingly, the Court remanded the matter to the FAA for further consideration. 169 F.3d at 11. 170 169 F.3d at 6. justifications for the project—reduction in roadway and terminal curbside congestion, improved intra- airport transport and enhanced capacity resulting from intermodal connections.161 The air carriers raised a number of objections to the second AirTrain PFC request; those objections related to the Port Authority’s request for approval for only part of the system (the Howard Beach component) rather than the complete (and more expensive) entirety of the system. The air carriers also argued that the AirTrain would have only a “small group” of users and, therefore, was neither cost-effective nor likely to relieve roadway congestion.162 The air carriers, however, were aware from the Port Authority’s ini- tial PFC funding request in 1992 and the FAA’s deci- sions in ROD 1 that the Port Authority was requesting PFC funding for an entire intermodal system at JFK and that its transportation forecasts applied to the entirety of that system. On July 21, 1997, the Port Authority filed its third request for PFC funding for the AirTrain— seeking $823 million for the remaining Jamaica Station component of the project.163 After the period for public comment on the request had closed, the FAA became concerned with the quality of the rider- ship data the Port Authority had supplied and requested supplemental information.164 In a ROD issued on February 9, 1998 (ROD 3) the FAA approved the supplemental request for PFC funding relying, in significant part, on the supplemental data supplied by the Port Authority.165 The Port Authority’s data demonstrated that JFK’s road capacity would, in only a few years, be able to accommodate a maximum of 36 million annual air passengers (MAAP), while the airport would, eventually, be able to transport 45 MAAP.166 ROD 3 found adequate justification for the AirTrain project because the supplemental data submitted by the Port Authority demonstrated that the project would have the effect of enhancing capacity at JFK, but the agency disallowed funding for certain main- tenance and storage facilities, fare collection equip- ment and costs associated with the interoperability of the AirTrain with other rail lines.167 Nevertheless the FAA determined that the Port Authority’s 161 Id. at 13-14. 162 Id. at 19. 163 Committee for Better Transit, Inc. v. FAA; 229 F.3d 387, 390 (CA2 2000). 164 Id. at 390-91. 165 Id. at 391. 166 These facts are taken from the Court of Appeals decision because the FAA was unable to provide a copy of ROD 3. ATA v. FAA, 169 F.3d 1, 3-4 (CADC 1999). 167 169 F.3d at 4.

20 parking lots and RACs.175 The FAA analyzed the first argument in the context of the AirTrain’s effect on enhancing the capacity of the air transportation system (14 C.F.R. § 158.15(a)(1)) and enhancing competition between or among air carriers (14 C.F.R. § 158.15(a)(3)). The FAA observed that an intermodal project such as the AirTrain allows an airport to better serve its regional community and, where ground access is demonstrated to limit an air- port’s growth, such a project enhances the capacity of the air transportation system.176 Further, because 49 U.S.C. § 40117(d)(3) and 14 C.F.R. § 158.15 (c) require “adequate justification” as a prerequisite to PFC funding and due to the significant scope of the AirTrain project, the FAA thought a higher level of scrutiny was necessary in making its adequate jus- tification determination.177 Moreover, the agency was not convinced that the initial set of data pro- duced by the Port Authority provided a sufficient basis for the approval of a $1.5 billion project such as the AirTrain.178 Accordingly, the FAA conducted a more searching analysis for its adequate justifica- tion determination. That heightened level of scru- tiny required a closer look at the data submitted by the Port Authority. The Port Authority’s data showed that the capac- ity of the JFK roadways would be reached in just three years at 36 MAAP, but that air service at JFK would grow to 45 MAAP within 13 years.179 The AirTrain, however, would allow 3.35 MAAP to reach the airport who would not otherwise be able to do so without the system.180 The Port Authority also pre- sented evidence that the increased passenger and aircraft operations levels resulting from the con- struction of the AirTrain would not affect signifi- cantly noise or pollution levels at JFK. At the FAA’s request, the FTA and the Federal Highway Admin- istration (FHWA) reviewed and confirmed the Port Authority’s data analysis. As a result, the FAA 175 ROD 4 at 17-18. 176 ROD 4 at 20. 177 There were additional factors suggesting the signifi- cance of the agency’s decision: The AirTrain represented the single largest PFC application that the FAA had received in the history of the PFC program, JFK was (at the time) the eighth busiest airport in the country and the ground access and PFC issues facing the agency would likely set precedent for similar applications in the future. 178 The initial data provided by the Port Authority was superficial and simply showed that the AirTrain would increase airside capacity by 134,000 passengers and four daily operations. Both sets of data were insignificant in the context of the $1.9 billion cost of the project. ROD 4 at 21. 179 ROD 4 at 22-23. 180 ROD 4 at 22. connected to an airport at some point and that, once connected, the right-of-way became part of the air- port. The Court thought the FAA’s interpretation reasonable and consistent with its prior positions and regulations.171 As a result of the ATA decision, airport ground access projects located on a right-of- way need only be connected to an airport at some point in order to qualify for PFC funding. Neverthe- less, due to a procedural error the Court remanded the matter and the FAA was required to once again review the Port Authority’s request for PFC funding for the AirTrain project at JFK.172 In a ROD dated August 16, 1999, the FAA re examined the Port Authority’s PFC request and issued an exhaustive analysis of the justification for the JFK AirTrain project.173 After restating its prior determination that the AirTrain was eligible under the AIP (FAA Order 5100.38A Paras. 553(a), 554 and 555 (October 24, 1989)), ROD 4 addresses the arguments raised by the air carriers in their con- tinuing opposition to the project. Although the air carriers raised several arguments, only two are rel- evant to the discussion here: 1) the AirTrain did not meet the statutory or regulatory requirements for PFC eligibility and 2) the project failed to demon- strate that it would produce any positive benefits relative to its cost.174 There were four elements to the air carriers’ argu- ment that the AirTrain failed to satisfy PFC eligibil- ity requirements: 1) the project did not meet any of the three statutory requirements for PFC eligibility under 14 C.F.R. § 158.15(a); 2) the Jamaica Station component (while on an airport right-of-way) is not on airport property; 3) the project was not AIP- eligible because it did not satisfy the ground access criteria stated in the AIP Handbook; and 4) PFC funds may not be approved for rail stations at 171 Id. at 6-7. 172 Id. at 11. 173 FAA Record of Decision dated August 16, 1999 [here- inafter ROD 4]. 174 The air carriers raised additional arguments that had been discussed by the FAA in prior RODs and others still that were not substantive. For example, the air carri- ers argued that the FAA was attempting to evaluate the AirTrain in isolation, ignoring the fact that it was a part of a much larger (and much more expensive) transportation network that had benefits for other revenue generating entities. They also reargued their claim that the project violated several environmental statutes and that the FAA had not followed the required notice and comment proce- dures. ROD 4 at 16-17. The FAA could find no statutory or regulatory requirement that it conduct a cost/benefit anal- ysis as part of the PFC approval process (ROD 4 at 28) even though, in this case, the FAA appeared to do so as part of its adequate justification analysis (ROD 4 at 21-22 and 29).

21 commissions.187 Perhaps most significantly, though, the Court cited the agency’s analysis that demon- strated that, over a 10-year period, 3.35 MAAP each year would be able to reach JFK on the AirTrain than would if the system were not constructed.188 Conclusion and Rules The JFK AirTrain project was the FAA’s first approval of a PFC request for the funding of an intermodal facility at an airport. It was also the largest PFC request the agency had ever received and set several precedents for intermodal PFC requests that would follow. The agency has remained consistent with the fundamental rules it established in the four RODs and two appellate decisions over the course of the AirTrain matter. Below is a sum- mary of the principles and rules of particular impor- tance established by the JFK AirTrain case. • Although no statute or regulation required either the Port Authority or the FAA to per- form a cost/benefit analysis for the project, both the size and scope of the project and the airline objections resulted in the agency’s willingness to entertain cost/benefit consid- erations as part of the “adequate justification” analysis required by 14 C.F.R. § 158.15(c). • The AirTrain request established the crite- ria for PFC funding for airport intermodal facilities: 1) the project must be eligible for AIP funding; 2) must meet at least one of the objectives of the PFC program (the enhance- ment of capacity or airline competition); and 3) must be adequately justified. In addition, the project must be 1) for the exclusive use of airport patrons; 2) must be constructed on airport land (or right-of-way); and 3) must be 187 Id. at 395. 188 Id. The Court of Appeals also considered the issue of the reliability of the data used by the FAA as the basis for the ROD. The CBT argued that the data used by the FAA was erroneous. Generally, an agency’s findings of fact are upheld if they are based on “substantial evidence.” Sub- stantial evidence is “less than a preponderance of the evi- dence, but more than a scintilla.” 229 F3d at 395 (citing Cellular Phone Task Force v. FCC, 205 F.3d 82, 89 (CA2 2000)). In more familiar terms, the “possibility of drawing two inconsistent conclusions from the evidence does not prevent . . . a finding from being supported by substantial evidence.” 229 F.3d at 395-96. In still more familiar terms, a “scintilla” of evidence is an iota or a trace of evidence. Merriam Webster dictionary. In this case the Court of Appeals believed the reliability of the data used by the FAA in the 1999 ROD was bolstered by the independent review conducted of “each stage of the Port Authority’s analysis” by the Federal Transportation Administration. 229 F.3d at 396. concluded that the 3.35 MAAP who would be trans- ported by the AirTrain constituted a “substantial capacity enhancement effect on JFK” and, therefore, enhanced the capacity of JFK and, as a result, the national air transportation system.181 The ATA raised, once again, the argument that the Jamaica Station component of the AirTrain was not eligible for PFC funding because it was not located on airport property and, as of the date of the notice, the Port Authority had still not secured the right-of-way for the project. The FAA, however, noted that the AIP Handbook does not require the acquisition of a right-of-way prior to project approval, but that the Port Authority demonstrated a prop- erty interest that was sufficient to assure that it would not be deprived of a right to occupy the prop- erty for the AirTrain.182 As evidence of its property interest in a right-of-way, the Port Authority was able to produce an agreement signed by the City of New York and the governor of the State of New York stating that they were committed to providing the necessary rights-of-way to the Port Authority in order to carry out the Jamaica Station component of the AirTrain project.183 3. The Challenge to ROD 4 ROD 4 was challenged by a citizens group that opposed construction of the Jamaica Station com- ponent of the JFK AirTrain.184 The Committee for Better Transit (CBT) argued that the FAA was required, by statute, to conduct a cost/benefit anal- ysis of each component of the AirTrain and that the Jamaica Station component, in particular, lacked adequate justification.185 The FAA held to its posi- tion and argued that no statutory or regulatory provision required it to perform a cost/benefit anal- ysis as part of its review of PFC applications.186 The Court of Appeals agreed and the Court found per- suasive the FAA’s exhaustive 54-page ROD on the matter that examined the potential costs and ben- efits of the project, the agency’s analysis of the cur- rent and future congestion at JFK, its analysis of the effect on congestion of the AirTrain, the reduc- tion in travel time from Manhattan to the airport, the reliability of a fixed rail system, the “wide- spread” regional support for the project, the assent of the many public officials to the project and the favorable analysis of several regional planning 181 ROD 4 at 23. 182 ROD 4 at 26. 183 ROD 4 at 26-27. 184 Committee for Better Transit, Inc. v. FAA, 229 F.3d 387 (CA2 2000). 185 229 F.3d at 392-93. 186 Id. at 394.

22 SFO with a line from San Francisco (on the north) terminating at a new airport station constructed by SFO at its planned international terminal. A second line would feed into the newly constructed airport station from San Mateo County to the south. Although consultants agreed that a through-track system would be more efficient for passengers and would likely cost less, for several reasons consensus developed around the “Y” configuration feeding into the SFO station by a spur from the north and south. Chief among the reasons that the “Y” configuration drew support was the availability of airport funding and political support for the construction of a station located on airport property adjacent to the terminal. Consequently, SFO agreed to construct, own, and lease to BART an airport station at its international terminal. The airport also constructed an APM above the BART station and a terminal connection to both stations; the APM transports passengers between the airport’s various terminals. An off- airport BART station at Milbrae (the junction point of BART’s main line and the airport spur) serves as an intermodal transfer point for rail (the CalTrain), automobiles (taxis, TNCs, and a parking garage) and buses. The total cost of the BART rail connec- tion to SFO was $1.5 billion, with the airport’s con- tribution capped at $200 million. The airport’s contribution was financed by bonds backed by air- port revenue,189 for which the airport was required to obtain the consent of its signatory airlines.190 1. SFO/BART Approval Process The “Y” design of the SFO BART extension has received significant criticism. Critics have observed that the station configuration is awkward and inef- ficient, even though it requires only a short walk to the terminal and the circulating APM. Passengers, for example, must change for intermodal connec- tions at Milbrae—a station located some distance from the airport.191 The design also reduces service frequencies and increases dwell time at the SFO station. Studies have also suggested that the “Y” design increased the cost of the project significantly, estimates performed at the time suggested that a 189 GAO/Anderson letter dated Aug. 30, 1996. 190 In return for their consent to the use of airport rev- enue the airlines required that 1) the airport agreed not to use PFC funds for the SFO BART extension, 2) BART con- firm funding for the remainder of the project not funded by airport revenue and 3) BART enter into a formal rental agreement with SFO for the station at $2.5 million each year for a term of 30 years. SFO/Airline and BART Letter Agreement dated July 19, 1996. 191 Federal Role in Airport Funding, supra note 16. connected to the nearest public access of suffi- cient capacity to accommodate airport traffic. • The airport need not own or hold a right-of- way in the property on which the intermodal facility will be located prior to its request for PFC funding, but such property interests must be “sufficient to assure that [it] will not be deprived of its right to occupy and use such lands.” • Fare collection equipment, LRS operations, maintenance and storage facilities (except for opening day equipment) and additional design and construction costs beyond the minimum necessary to serve airport patrons (“over-design”) may not be funded with PFCs. • Although not compelled by statute or regula- tion to do so, the FAA demonstrated a willing- ness to at least consider whether its approval of the JFK AirTrain PFC request would af- fect adversely the Port Authority’s ability to meet the capital improvement needs of the three airports under its supervision. B. The SFO/BART The Bay Area Rapid Transit (BART) rail system operates throughout the San Francisco Bay Area and links the City of San Francisco to the San Francisco International Airport and south to points in San Mateo County. San Francisco International Airport (SFO) is located fourteen miles south of downtown San Francisco. The airport draws passengers from nine area counties—from Sonoma in the north to San Jose in the south. SFO had 40 million passengers in 1997 and 50 million passengers in 2015. Ground access to the airport is provided by a state highway (Highway 101) and two interstate highways (I 280 and 380) that feed into airport access roads. In the 1980s, the access roads to SFO were severely con- gested due to the volume of traffic and the particular geography of the Bay Area peninsula and its bridges. In 1990, ground access to SFO was overwhelmingly had by rubber-tired vehicles; the airport had one of the highest bus and private shuttle transport rates in the country. Rail connections to the airport had been discussed since the early 1970s, but political and government groups were slow to arrive at consensus about a route and funding for the system. In the mid-1990s responsibility for planning a rail extension to SFO was transferred to BART. BART is a transit district formed by the California State Legislature that operates rail transit services over 112 miles of track in the Bay Area. Several plans were discussed and, in 1996, BART proposed a system that would serve

23 patrons. Thus, the track could not be funded with AIP or PFC funds and, in order to comply with the revenue diversion prohibition, only a pro rata por- tion of those expenses could be funded by airport revenue.195 Finally, the FAA informed SFO that nei- ther facilities located off-airport nor BART vehicles could be funded with airport revenue. In response to the FAA’s opinion letter and in order to avoid the loss of airport funding, BART and SFO revised the plan for the airport station and track into its current “Y” formation.196 In a letter dated October 18, 1996, the FAA’s Associate Administrator for Airports confirmed the agency’s opinion regarding SFO’s request to use air- port revenue to fund the on-airport portions of the BART extension197 and provided a more detailed response to a much more refined proposal by the air- port.198 By this time, for example, the airport was able to confirm that all construction and equipment (except for a bridge over Highway 101) would be located on property owned by the airport or subject to a right-of-way in the airport’s favor. The airport also changed its position and confirmed that it would own all “on-airport facilities, equipment and sys- tems funded with airport revenue.”199 As a conse- quence, the FAA confirmed that transit stations located on airport property that are intended for the use exclusively of airport patrons and that are nec- essary to connect to a transit system are eligible for funding with AIP grants or PFC funds.200 Projects that meet the AIP and PFC eligibility requirements and that are owned or operated by the airport may be funded with airport revenue.201 The BART 195 FAA/Rich letter. The pro rata portion would be cal- culated based on a “reasonable proration” of project costs attributable to use by airport patrons. 196 The airport also asked the FAA to opine on its fund- ing of “fixed facilities” and “operating systems” for the BART extension – both of which were to be located on air- port property. SFO/Martin letter. The airport and BART planned that the operating systems would be owned, oper- ated and maintained by BART but that, as required by San Francisco’s City Charter, the airport would “retain ultimate control over BART’s operations on the Airport.” SFO/Martin letter dated July 25, 1996. 197 The airport did not intend to fund, and did not request the FAA’s opinion on, funding for BART operating expenses, station artwork, or fare control equipment. 198 FAA/Kurland letter dated Oct.18, 1996. 199 FAA/Kurland letter at 4. 49 U.S.C. § 47107 (b)(1)(c) requires that an airport hold legal title to transit-related improvements funded with airport revenue. 200 The FAA considers a transit facility that is eligible for AIP and PFC funding to be “directly and substantially related to the air transportation of passengers.” FAA/ Kurland at 6. 201 FAA/Kurland letter at 6-7. through-track system would have cost half as much as the more awkward “Y” design.192 In contrast to the extraordinarily formal and lengthy process for the approval of the PFC request for the JFK AirTrain, the SFO BART extension pro- ceeded along a less formal process with a series of requests by SFO and opinion letters issued by the FAA. This process was made possible by the air- port’s decision to fund its $200 million commitment to the BART SFO extension with airport revenue- backed bonds rather than PFCs. SFO began this informal process with a preliminary letter from its Director of Airports to the FAA. SFO/ADO letter dated October 4, 1994. SFO’s letter described two plans for the BART extension project, stated its interest in using airport revenue to finance its com- mitment to the project and requested the agency’s opinion whether the proposed uses of airport reve- nue might constitute revenue diversion. According to 49 U.S.C. § 47107(b), airport sponsors who accept AIP grants agree that all revenue generated by the airport will be used for the capital or operating costs of the 1) airport, 2) local airport system, or 3) facili- ties owned or operated by the airport owner or oper- ator and directly and substantially related to the air transportation of passengers or property. The use of airport revenue for any other purpose constitutes revenue diversion and is prohibited by statute. There are substantial penalties for the diversion of airport revenue.193 The 1994 SFO letter describes two preliminary BART proposals, one for an on-airport, below ground spur and station used exclusively by airport patrons and a second proposal for a through-track system that entered and exited airport property and would be used by both airport and non-airport patrons.194 The FAA’s analysis of the spur proposal was straight- forward: The proposed station would be located on airport property, used by airport patrons exclusively, with ownership retained by the airport. The station would be eligible for AIP and PFC funding and the use of airport revenue to fund the station could not, therefore, constitute revenue diversion. The through-track proposal presented other issues because it would not be used exclusively by airport 192 David Bannard, Will Ground Access Woes and Federal Revenue Restrictions Choke U.S. Airports? 29 air & Space lawyer, 14-15 (2016) [hereinafter Bannard] available at https://www.americanbar.org/content/aba/ tools/digitalassetabstract.html/content/dam/aba/ publications/air_space_lawyer/summer2016/asl- v029n02- summer2016-bannard.pdf. 193 paul dempSey, acrp legal reSearch digeSt 2: the theory aNd practice of airport reveNue diverSioN, (Transportation Research Board, May 2008) at 25. 194 FAA/Rich letter dated March 3, 1995.

24 costs among the operating system’s expenses.205 Specifically, the audit found $2.6 million spent for operating costs were ineligible because the equip- ment was either installed off airport property or because the equipment was not owned by the air- port as required by the FAA/Kurland guidance let- ter. Thus, two supply stations, their power supplies and related spare parts that were located off airport property were ineligible for funding with airport revenue.206 Although the audit did not characterize SFO’s funding of ineligible operations equipment as revenue diversion, the OIG recommended that the FAA advise the airport that they were not “eligible uses of airport revenue.”207 Conclusion and Rules Although the planning, construction and approvals for the SFO BART extension took place during the same time frame that the FAA had under consideration the JFK AirTrain request for PFC funding, the two projects are quite different. First, unlike the AirTrain, the contractual relationship between the airport and the airlines at SFO required that the airport use airport revenue-backed bonds rather than PFC funding for the project. While the SFO BART station is located on the airport, the nearest intermodal facility is located off-airport on the BART mainline. Finally, significant sources of non-airport funding allowed SFO to cap the airport’s participation in a $1.6 billion project at only $200 million in airport funding. Nevertheless, the SFO BART extension required the FAA to resolve a num- ber of new issues. • When using airport revenue to fund an intermodal facility, airports may make use of the informal process, similar to the one used by SFO, to request guidance regarding revenue use issues in order to avoid airport revenue diversion issues and to prepare for a project audit. • Airport revenue may be used to fund not only intermodal facilities located on airport property, but related operating systems as well. • The FAA confirmed that the rules applicable to intermodal projects funded with airport revenue are less restrictive than those funded with AIP and PFC funds, but that airport revenue-funded facilities are subject to reasonable proration according to use by airport and non-airport passengers. 205 Id. at ii-iii. 206 Id. at 6-7. 207 Id. at iv, 10; FAA/Pfeiffer letter (dated June 30, 1999). station met all three of these requirements. So too did the BART spur and guideway located on airport property—including the bridge over Highway 101, which the agency analogized to a roadway overpass.202 The FAA next considered the funding of what SFO characterized as “systems elements” required for the installation and operation of the SFO exten- sion or, in more or less technical nomenclature, “con- ceptual systems.” The agency does not generally authorize AIP or PFC funding of such systems because they are considered operations and mainte- nance costs rather than capital projects. Neverthe- less, the FAA was willing to consider funding these “conceptual systems” with airport revenue if they were 1) owned or operated by the airport; 2) sub- stantially related to the air transportation of pas- sengers or property; 3) installed on airport property; and 4) airport funding is limited to the portion of the equipment related to the SFO station (but not the BART main line).203 Although items funded with airport revenue do not require FAA approval, they are subject to audit in order to ensure that an airport has not engaged in prohibited revenue diversion. In the winter of 1998, the Office of the Inspector General of the Depart- ment of Transportation conducted an audit of the SFO BART extension.204 The audit divided the air- port’s funding into two categories: 1) fixed facilities and 2) operating systems. Although it generally approved of the airport’s expenditures for fixed systems, it found what it considered to be ineligible 202 Although it did not identify the specific “property interest” required for a bridge over non-airport property, the agency stated that such an interest need only be “suf- ficient to assure that access to the airport via the BART system is protected.” FAA/Kurland letter at 7. 203 FAA/Kurland at 8-9. The list of potentially eligible equipment is extensive: 1) automatic train control equip- ment; 2) system wide cable network; 3) communications equipment; 4) traction power system; 5) track work; 6) contact rail; 7) mainline systems interface; 8) station com- munications; 9) station SLPA structure and systems; 10) RKU power relocation; 11) guideway systems installation; 12) guideway transition approaches; and 13) fire, life and safety elements. The agency granted conditional eligibil- ity to four additional pieces of equipment: 1) central com- puter tie-in (to the extent that costs were associated with bringing the SFO station on-line); 2) systems installation support (to the extent necessitated by the construction of the SFO BART station); 3) static and dynamic integration and testing and start-up (to the extent attributable to the SF BART startup); and 4) station start-up appurtenances (to the extent necessary for the SFO BART station start- up). FAA/Kurland letter at 9-10. 204 OIG Audit Report: Use of Audit Revenue for the Bay Area Rapid Transit District Extension to San Francisco International Airport (Feb. 18, 1999).

25 PFC funds were to be used for any of the segments of the project. Because they would be used by airport passengers exclusively, the airport proposed to fund the entire cost of the on-airport stations. And, because at least 51% of the LRS riders would be air- port patrons who used at least one of the airport sta- tions, MSP proposed to fund 51% of the cost of the tunnel extending for 2,795 feet under the north run- way to the Lindberg terminal and for 5,025 feet from under the south runway.210 As with the SFO request for guidance to fund the on-airport portion of the BART extension, the prin- cipal issues regarding the MSP Metro LRS were the appropriate use of airport revenue and revenue diversion. Although the applicable statutory and regulatory rules had not changed, it is significant that the FAA had, in the time period between the projects, issued a new Policy and Procedure Con- cerning the Use of Airport Revenue.211 As discussed earlier, the 1999 Revenue Policy stated the rules on the use of airport revenue for the development of intermodal facilities. Specifically, airport revenue may be used for the portions of ground access capital projects or of a local facility owned or operated by an airport that are directly and substantially related to the air transportation of passengers or employees.212 The facility must also be located on airport property and be used exclu- sively by airport patrons.213 In an April 25, 2000 letter, the FAA’s Minneapolis ADO provided guidance to the airport regarding its interest in funding with airport revenue an airport intermodal facility.214 Without citation the ADO fol- lowed the rules contained in the 1999 Notice. It, therefore, cautioned that airport revenue not be diverted for non-airport purposes in violation of the airport’s grant assurances in 49 U.S.C. § 47107(b) and the statutory prohibition contained in 49 U.S.C. §47133, but stated that airport revenue could be used for the portions of capital and operating costs for airport ground access projects that can be consid- ered an airport capital project, or for the capital and operating costs of a local facility that is owned or operated by the airport and that is directly related to the air transportation of passengers.215 210 FAA/Nistler letter dated April 25, 2000 at 5. 211 64 Fed. Reg. 7696 (Feb. 16, 1999). 212 Id. at 7718. 213 Id. at 7719. 214 FAA/Nistler letter dated April 25, 2000. 215 Id. The FAA letter confirmed that the airport could, consistent with the agency’s revenue diversion policy, offer airport land at no charge to the public transit agency for use for the LRS line if 1) the system remains publicly • Airport revenue may be used to fund “sys- tems elements” such as transit-related installations and operations equipment. C. The MSP Metro Light Rail System The Minneapolis Metro Transit LRS travels 12 miles from the city center to two airport stations and then continues south to the Mall of America. The Minneapolis St. Paul Airport (MSP) is located seven miles south of the Minneapolis city center. The airport is operated by an airport commission (MAC). MAC operates MSP and six reliever air- ports. MSP has two terminals—Lindberg and Humphrey and, in 2016, had 18 million enplane- ments. The population of the Minneapolis-St. Paul area is 3.6 million. In the early 1990s planning began for a 12-mile LRS constructed by Metro Transit (Metro) that would connect the Minneapolis city center in the north to the Mall of America in the south. The sys- tem anticipated three airport stations; later the design changed to just two stations at terminal 1 (Lindberg) and terminal 2 (Humphrey). The LRS enters the airport at its northern boundary, travels under its north parallel runway to the terminals, then travels under the airport’s south runway and exits above-grade to its southern boundary. In a series of correspondence to the FAA’s Airport Dis- trict Office (ADO) the airport proposed to use air- port revenue to fund the portion of the LRS system located on airport property.208 The airport explained its expectation, based on consultant studies, that 51% of the users of the LRS would be airport patrons.209 About three-fifths of those patrons would use the system to travel to the airport, while two-fifths would use the LRS to travel between terminals 1 and 2 (for which there would be no charge). Consequently, the airport expected the LRS to eliminate (eventually) shuttle bus service between the terminals. Other benefits included sup- plementing airport access when airport roadways and parking garages reached capacity. The airport proposed to fund with airport reve- nue the construction of the LRS facilities located on airport property, including the two airport stations that would be used by airport patrons exclusively and the rail tunnels under the runways. No AIP or 208 MAC/Hamiel letter dated May 25, 1999; MAC/ Finney letter dated; Aug. 31, 1999; MAC/Finney letter dated Sept. 17, 1999.Through these letters to the FAA the airport engaged in an informal guidance process similar to that used by SFO for the BART extension project. 209 ARF Consulting Group LRS Forecasts, dated Aug. 18, 1999 at 11 (attached to MAC/Finney letter dated Aug. 31, 1999).

26 inseparable part of the primary structure.”219 Although the agency did not object to the off-airport portion of the tunnel, it did not identify its length and the agency did not specifically reference the roadway overpass analogy used to justify the off- airport portion of the bridge at SFO. Despite the fact that the MSP LRS represented the second use of airport revenue to fund an on-air- port intermodal project, Delta Airlines objected to the FAA ADO’s letter of guidance. Delta argued, principally, that the airport’s funding of the LRS constituted revenue diversion and was significantly different than the case of SFO’s funding of the BART extension.220 Citing the 1999 Notice, Delta argued that the on-airport LRS development was neither substantially nor directly related to actual air trans- portation. Rather, similar to the objections raised in opposition to the JFK AirTrain PFC request, Delta argued that funding the project with airport reve- nue constituted general economic development because the system was (unlike BART and the AirTrain) designed to carry non-airport passengers and was a through-track system (as opposed to a closed airport system or spur). Finally, Delta argued that the airport was diverting revenue to support the development of an entirely new (as opposed to a connection to an existing system) LRS that would serve the region rather than the airport. The FAA’s Director of Airport Safety and Stan- dards responded to Delta’s objections.221 Delta’s com- parison of the AirTrain to the MSP Metro was inappropriate because one case used PFC funding and the other used airport revenue; the rules appli- cable to each are different.222 Rather than limiting the circumstances in which airport revenue could be used to fund an airport ground access project, the agency’s SFO BART extension guidance was simply an early example of such a use of airport revenue. The FAA’s response to Delta’s complaint about the 51% prorated share of the airport use of the LRS was more significant. 219 FAA/Nistler letter at 6. 220 Delta made it clear that it did not object to the air- port’s participation in the LRS development, it only objected to the share of project funding that the airport and the FAA had determined were appropriate. 221 FAA/Bennett letter dated Nov. 21, 2000. 222 PFC funding requires AIP eligibility which requires exclusive use of ground access projects by airport patrons. The use of airport revenue is allowed for capital and oper- ating costs of portions of a ground access project that can be considered an airport capital project, or that part of a local facility owned or operated by the airport and directly and substantially related to the air transportation of pas- sengers. 64 C.F.R. § 7718-19. As was now becoming its practice, the FAA asked the FTA to review the airport’s ridership forecasts and that agency confirmed that 51% of the LRS users would be airport patrons. The FAA considered this statistic “significant” and also confirmed as ben- efits to the transportation of passengers the LRS’ relief of expected airport congestion (both on road- ways and in parking facilities), the elimination of shuttle buses and use of the LRS as an intra- terminal mode of transport.216 Because the use of the LRS by airport patrons determines the pro-rata share of airport revenue that an airport can contribute to an LRS, the FAA engaged in an analysis of the forecasted ridership for each segment of the project. The station, which would be used exclusively by airport patrons, could be funded with airport revenue without any reduc- tion. The tunnels, however, would be used by airport and non-airport patrons and required a prorated reduction for such use217. The agency’s analysis of the tunnels is as follows. It agreed that the airport’s 51% ridership forecast for all airport use was the relevant yardstick, but observed that not all airport patrons using one station would use the second sta- tion or the tunnel running between them. Although the agency thought the airport’s forecast data was not “precise enough to determine what the (airport passenger) use might be,” it nevertheless considered it reasonable to regard an airport patron using one station to be using the tunnel as well because it viewed the stations and the tunnel as part of a “uni- fied system.”218 Finally, similar to the off-airport section of the SFO BART extension that traveled over a state highway and was neither owned by, nor subject to, a right-of-way in the airport’s favor, the MSP Metro tunnel was designed to travel for a short distance under a piece of property that was not owned or con- trolled by the airport. Without citation, the agency paraphrased an FAA policy that allowed it to “extend funding to small sections of a project that extend off airport property, if the structure is primarily located on the airport and the off-airport portion is an owned and operated and 2) the system is substantially related to the air transportation of passengers. 216 As will be seen in the next section, Delta Airlines argued that, when compared to the congestion at other airports (most notably SFO and JFK) the congestion at MSP was not significant. 217 FAA/Nistler letter at 4-5. 218 FAA/Nistler letter at 5. The airport conceded and the FAA agreed that the short section of the tunnel exiting the Lindberg terminal would only be used by 14% of air- port patrons. As a consequence, airport revenue could only be used for 14% of that expense.

27 depending on the airport’s percentage of use. • Continued, but made more explicit, the FAA’s policy statement made to SFO that “small,” off-airport sections of an airport intermodal facility may be funded with air- port revenue if the project is: 1) primarily located on airport property and 2) the off- airport portion is an inseparable part of the system. • Appears to show the FAA’s willingness to view the benefits from on-airport inter- modal projects in the context of the signifi- cance of an airport’s funding to that project. • Confirmed the FAA’s willingness to allow the use of airport revenue for an intermodal facility where the ridership for each of the component parts of the system is less than 50% of the ridership of the various parts of the line. D. PDX Max Light Rail System Spur A 5.5-mile Max LRS spur runs from an intermo- dal station at PDX to the Tri Met Red Line and then continues for another 4 miles to Portland’s city center. Portland International Airport (PDX) is located nine miles northeast of the Portland city center. The airport is operated by the Port of Portland which also operates Portland’s marine terminal facilities. In 2016, the airport had 8 million enplanements; the Portland area has a population of 3.5 million. The Portland MAX LRS began service in 1986 and, in 2010, was operating on 52 miles of track in the three-county area. The MAX system is operated by Tri Met—a municipal provider of transit services that includes buses, commuter rail and light rail. The Max Red Line ran past PDX in the early 1990s and, although an airport spur had been planned, funding was not anticipated for another 30 years. In 1987, however, Bechtel, a private construction, engi- neering and development firm, proposed to build and finance a significant portion of the airport spur in exchange for the right to develop certain airport property (known as the Cascade Station develop- ment) located along the path of the spur. Although the intermodal facility at PDX was financed with PFC-supported bonds, the Max spur leading to the station was constructed and funded as part of a public-private partnership between the airport, Tri Met, the City of Portland and Bechtel. The airport spur meets the Red Line at the Gateway Transit Center and then travels toward the airport into an urban renewal area (URA) owned by the air- port; it is in the URA that Bechtel planned to Delta had criticized the on-airport LRS construc- tion, particularly the airport’s construction of the tunnel joining the stations, as an attempt to connect the city center to the Mall of America rather than to construct a system that would be of use to airport patrons. It was this characterization that Delta argued supported its claim of revenue diversion. While the FAA agreed with its ADO’s articulation of the several benefits of the on-airport LRS, and even the ADO’s use of less than precise forecast data, it agreed with Delta that the calculation of the pro- rated airport use of at least one component of the on-airport project was erroneous. The FAA analyzed again the number of airport patrons boarding the LRS at each of the airport stations and calculated that 46%, rather than 51%, of airport patrons would actually use the tunnel. As a result of this recalcula- tion the FAA determined that the pro rata share of airport revenue funding for the on-airport LRS should be divided into three parts with three differ- ent pro rata shares: 1) 100% for the stations used exclusively by airport patrons; 2) 46% of the tunnel portion between the terminals; and 3) 14% for the tunnel portion between the airport’s northern boundary and the Lindberg terminal station.223 Conclusion and Rules The MSP Metro LRS intermodal facility project took place during the latter time period of the SFO BART extension. Although it differed significantly from the SFO project because it was an entirely new LRS designed as a through-track system rather than a spur off of an existing line, many of the same issues discussed in the FAA’s SFO guidance applied directly to the MSP project. There were, however, several new issues and further rules developed by the guidance issued by the FAA’s ADO and Director of DASS. • Demonstrated the importance of an air- port’s ridership data in supporting its calcu- lation of its pro rata share of airport funding for an airport intermodal facility.224 • Demonstrates the FAA’s willingness and interest in dividing projects into individual components in order to analyze the pro rata share of funding for each airport component 223 An audit conducted of the LRS, including the MSP portion of the project, did not reveal any significant issues regarding the use of airport revenue on the project. FTA, Review of the Hiawatha Corridor LRS Project; Report No. IN-2002-078 (Feb.12, 2002). FAA/ADO letter at 5-6; FAA/ Bennett letter at 4; see generally, Bannard, supra note 192 at 1. 224 The MSP project also demonstrates the agency’s willingness to accept less than precise supporting data in some cases.

28 commercial development. Accordingly, airport rev- enue could be used to fund this segment, but only for the pro rata share of the facility used by airport patrons. The FAA ADO calculated the proration based on the rate of airport passenger use at the Cascade Station segment only “rather than averag- ing airport use and airport contribution across the entire Airport Max line.”228 Finally, the terminal segment would be located entirely on airport prop- erty and would be used exclusively by airport patrons, and, therefore, presented no barriers to PFC funding. PDX’s data demonstrated that 65% of the passen- gers traveling on the Cascade Station segment would be airport patrons traveling to or from the PDX terminal. Accordingly, 65% of the cost of that segment (or $14.95 million) could be funded with airport revenue. This calculation was important because the plan for the transaction required the airport to provide Bechtel with a rent-free, 85-year lease on 120 acres of the Cascade Station property— the fair market value of which was $14.75 million. As a result, because the amount of airport revenue that could be used to fund the Cascade Station seg- ment ($14.95 million) was more than the fair mar- ket value of the leasehold for the Cascade Station property ($14.75 million), the airport could offer the property to Bechtel at no rental without violating its grant assurance obligations.229 The FAA’s review of PDX’s PFC request for the terminal segment of the airport spur was straight- forward. The entire segment and station are located on airport property; the LRS line is a spur serving only airport patrons at its terminus and would, therefore, be used exclusively by airport patrons. The FAA noted that the airport’s enplanements were forecasted to increase at a gradual rate, ground access by automobile was expected to be constrained in the future and the MAX extension would relieve these constraints and delays by serving 1.3 million passengers annually by 2015 with a maximum of 7 million passengers annually. The FAA, therefore, approved the PFC request with the familiar condi- tion that operations, maintenance and storage equipment are generally ineligible for PFC funding. 228 FAA ADO letter at 4 (italics added). The ADO’s ratio- nale was that the Gateway terminal segments were irrel- evant to the proration for the PIC/Cascade Station seg- ment because the Gateway segment was located off airport property and the terminal segment would be used entirely by airport patrons. This analysis would be revived by MWAA in its PFC application for funding of the IAD through-track system and its comments in support of the FAA’s 2016 Draft PFC Notice. See infra Section E. 229 Id. at 4-5. construct the Cascade Station development for light industry and other commercial uses. Bechtel planned to construct three stations to serve the Cascade Station development before the Max line reached PDX. In return for development rights to the Cascade Station property, Bechtel contributed $28.2 million to and constructed a six-mile spur from Tri Met’s Red Line to the airport station. The airport contributed $28.3 million for the portion of the track on airport property (and over airport rights-of-way), as well as constructing the station at the terminal. The City of Portland contributed $23.8 million and Tri Met contributed $45.5 million. PDX first contacted the FAA ADO about the air- port intermodal project in late 1988. The airport was concerned that its proposed deal with Bechtel for a long-term (85 years), no-rent lease in exchange for significant contributions to the construction of the airport spur might raise federal statutory and grant assurance issues—specifically the grant assurances pertaining to revenue diversion and the self-sustaining airport requirements.225 The FAA ADO divided the PDX spur extension project into three segments: 1) the “Gateway” segment; 2) the “PIC” or Cascade Station segment; and 3) the ter- minal segment.226 The Gateway Red Line segment begins at the Gateway Station where the spur first begins to divert from the Red Line and travels toward PDX and then continues to the airport boundary. This segment was ineligible for airport funding of any kind because it was not located on airport property.227 The PIC/Cascade Station seg- ment begins at the airport border and continues on airport property for 1.4 miles. Although this seg- ment of the line was necessary to reach the airport terminal, it would serve the two stations con- structed by Bechtel for use by its Cascade Station 225 The airport “revenue” at issue in the transaction was thought to be the value of the work provided by Bechtel in constructing a portion of the spur and the “diversion,” of course, would have been the fair market value of the rental for the 120 acres of property on which Bechtel planned to construct the Cascade Station develop- ment. 226 One additional development, the Cascade Inter- change, located on airport property, was a straightforward application of the same principals but was complicated by the multiple sources funding the project. The Cascade Interchange is an overpass located on airport property that would have affected Bechtel’s development of Cascade Station. Although the overpass served airport property it also would serve Bechtel’s development. Bechtel and the airport agreed that the airport would pay a majority share and that Bechtel would absorb any costs for its construc- tion that exceeded 65% of its estimated costs. The FAA ADO accepted this allocation of funding. FAA ADO letter at 5. 227 FAA ADO/PDX letter dated Feb. 26, 1999 at 4.

29 • When a transaction requires the exchange of an airport property interest for services, the airport property interest will be quanti- fied by some formulation of its fair market value. E. The Washington Dulles Metro Silver Line Extension The Metropolitan Washington Airports Authority is constructing a 23.2-mile extension of the Metro Silver Line from Washington D.C. to Dulles Inter- national Airport. Dulles International Airport (IAD) is located in Chantilly, Virginia, some twenty-six miles west of Washington, D.C. The airport operates four remote terminals and several gates connected to its main passenger receiving area. In 2016, IAD had 10.8 million enplanements. The airport has been without rail public transportation since it opened in 1962. The population of the Washington, D.C. metropoli- tan area is 6 million. An extension of the Washington, D.C. Metrorail System (Metro) linking National (DCA) and Dulles (IAD) Airports has been contemplated since the Metro system began service in 1976. In 2000, plan- ning began on a 23.2-mile extension of the Metro Silver Line linking the two airports.231 Phase I would consist of an 11.7-mile segment from the line’s departure from its joint run with the Orange Line to Reston East Station in Fairfax County, Virginia. Phase II would consist of an 11.5-mile segment from Reston into Loudon County. Phase II would run on a through-track into and out of Dulles Airport to points beyond the airport. Phase I of the Silver Line was funded with $900 million in federal grants (43%); a special Value Cap- ture tax on commercial property along the Silver line (28%); and increases in tolls on the Dulles Toll Road (28%). Phase II is funded by $1.9 billion in multi-jurisdictional TIFIA loans (awarded to Fairfax and Loudon Counties) and $222 million in PFC funds from the Metropolitan Washington Air- ports Authority.232 231 For historical information about the Washington Metro and its Silver Line, see, http://dullesmetro.com/ project-status/project-timeline-history/ and https://en. wikipedia.org/wiki/Silver_Line_(Washington_Metro). 232 How did an airport authority come to own and oper- ate a toll road and become responsible for constructing a 23- mile Metro extension for $3.6 billion? When the Dulles toll road was up for sale in 2005, rather than sell it to a private operator then-governor Tim Kaine decided that MWAA was the most likely source of the funds and exper- tise to construct the Metro extension to Dulles and Loudon County and that the toll road might provide a source of funds for the project. MWAA was given control of the toll Comments to the PFC application were, by now, predictably straightforward. The airlines criticized the airport’s failure to provide a cost/benefit analy- sis as part of its PFC request. Although none was required. Nevertheless, such an analysis is often the easiest way to demonstrate the justification for an intermodal project.230 Conclusion and Rules The PDX Max Red Line extension project is the first project to use multiple sources of funding that include private capital. It is also the first intermodal facility that uses a public-private partnership and a transaction that exchanges an airport property interest (a long-term, no-rent lease) for construction services for all or part of various project segments. Despite this unusual hybrid funding scheme, how- ever, there is no record of an audit of the MAX exten- sion to PDX. This case also demonstrates the FAA’s flexibility and its apparent willingness (at both the district and national levels) to work with airports on chal- lenging projects that test the boundaries of the agency’s existing guidance and past experience. Finally, this case demonstrates, once again, the necessity of credible ridership and airport roadway constraint data and forecasts in order to support adequate justification and pro rata calculation anal- yses. Although a cost/benefit analysis is not required by any statute or regulation, the PDX Max case sug- gests the agency’s interest in, if not a preference for, such an analysis. • The FAA reiterated and emphasized that operations (including fare collection equip- ment), maintenance and storage facilities are not eligible for PFC funding. • An exchange of an airport property interest (such as a long-term, no-rent lease) for ser- vices (here, construction services) primarily gives rise to a self-sustaining rates issue, rather than a revenue use issue. 230 FAA PDX Max ROD at 9. The FAA based its justifi- cation finding on its review of the airport’s MAX passen- ger forecasts. The FTA agreed that MAX would relieve congestion and decrease delays in ground access to the airport. Another airline argued that MAX users generally, rather than airport patrons in particular, would be the most significant beneficiaries of the line’s extension to PDX. The extension had been designed as a spur to serve exclusively airport patrons and those parts of the system that served non-airport users were subject to only pro rata funding. FAA ROD at 10. The FAA will not dictate the method of funding an airport chooses for its selected proj- ects (ROD at 10); nor will it interfere with an airport’s exercise of discretion when selecting airport development projects that otherwise meet eligibility standards (FAA/ ROD at 13).

30 Several months later the FAA addressed the issue of the prorated funding with PFCs of intermodal facilities not used exclusively by airport patrons by proposing a revision of its PFC policy. The FAA’s pro- posed 2016 Notice offers three possible solutions, all of which would permit prorated funding with PFCs of the IAD through-track outside the station.238 First, IAD would be allowed to use PFC funding under the rules that currently exist for the use of airport revenue by applying a pro-rata formula based on airport use.239 Second, the “incremental cost” comparison method compares the cost of a sys- tem that bypasses the airport with the cost of a system that deviates from the bypass in order to serve the airport. PFC funding would be allowed up to the “incremental cost” of constructing the system that deviates from the bypass in order to serve the airport.240 Third, the “separate system” method would require a comparison of the cost of a through- track system and the cost of an APM that would be needed to transport airport passengers to and from an off-airport station. PFC funding, under this method, would be allowed if the through-track was less than the cost of the APM.241 MWAA’s 2014 PFC Application received few com- ments. The airlines generally protested the collec- tion of PFCs at DCA for the funding of an intermodal facility at IAD. But there is no rule or regulation prohibiting such a practice. Also, the FAA has con- sistently stated that it generally regards the airport as (within certain boundaries) the ultimate author- ity on the use of its PFC revenue.242 The airlines also contested MWAA’s passenger and ridership data, but that data had been analyzed and confirmed by the FTA and supplemented by the FAA’s own data.243 Although the DOT’s OIG has now conducted two audits of the Dulles Metro extension, neither of those audits have criticized PFC funding at IAD.244 Conclusion and Rules The outcome of the IAD Metro extension PFC request for the through-track portion of the project will depend on the resolution of the policy amend- ment contained in the 2016 Notice. If that Notice proceeds and is adopted as the agency’s policy, then the through-track portion of the MWAA PFC request 238 2016 Notice supra note 55 at 26615. 239 2016 Notice, supra note 55 at 26615. 240 Id. at 26613. 241 Id. at 26614. 242 FAA/IAD FAD at 25. 243 Id. 244 DOT OIG Audit Report: MWAA’s Financial Manage- ment (January 16, 2014); DOT OIG Audit Report: MWAA’s Weak Policies and Procedures (November 1, 2012). In March 2014, MWAA filed a request for PFC funding for the IAD through-track system and Metro Rail Station located on airport property. The intermodal project consisted of 1,165 feet of elevated track entering and 998 feet of track exiting an ele- vated station and its track (915 feet long) located adjacent to the terminal.233 Along with its PFC Application MWAA presented ridership forecasts and congestion data for IAD roadways. The data demonstrated that roadway congestion would increase rapidly (within 10 years) without the inter- modal facility and would become much worse by 2040. While the airport’s airside capacity is 55 MAAP, its roads would become congested at only 28 MAAP in 2025 and severely congested at 38 MAAP in 2040. MWAA’s ridership forecasts showed that Metro would carry 10% of the airport’s passengers by 2025.234 The Final Agency Decision issued by the FAA is brief and withheld for a later date MWAA’s request for PFC funding for the through-track leading into and out of the IAD Metro station.235 The agency’s analysis regarding the request for PFC funding for the IAD Metro station is straightforward because the project easily satisfies AIP and PFC require- ments. Further, the project is adequately justified because MWAA’s data demonstrates classic ground access constraints beginning in 2025 on IAD’s road- ways, by which time the Metro extension will be car- rying a respectable 10% of the airport’s passengers. And the station, because it would be used exclu- sively by airport patrons, fits squarely within the agency’s policy and precedent for PFC funding of intermodal ground access rail facilities. Neverthe- less, because the 1,165 feet of track extending into the station and the 998 feet of track extending out of the station would not be used by airport patrons exclusively, existing policy and regulations do not allow for pro rata funding from PFC funds.236 Conse- quently, the FAA approved PFC funding for the sta- tion but withheld consideration of the funding for the track into and out of the station for resolution in a supplemental FAD.237 road and later the responsibility for construction of the Silver Line to Dulles. Trevor Baratko, How did MWAA receive control of the Silver line project? loudoN timeS mirror, May 29, 2012. 233 MWAA PFC Application dated March 2014 at Attachment B: Comments to FAA. 2016 Notice at supra note 55 at 2. 234 MWAA PFC application Attachment B at 16. 235 FAA/IAD FAD dated July 11, 2014 at 21-22. 236 Id. at 21. 237 Id. at 22.