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Suggested Citation:"II. WHAT ARE CFCS?." National Academies of Sciences, Engineering, and Medicine. 2023. Airport Customer Facility Charges: Analysis of Laws, Regulations, and Case Law. Washington, DC: The National Academies Press. doi: 10.17226/27049.
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Suggested Citation:"II. WHAT ARE CFCS?." National Academies of Sciences, Engineering, and Medicine. 2023. Airport Customer Facility Charges: Analysis of Laws, Regulations, and Case Law. Washington, DC: The National Academies Press. doi: 10.17226/27049.
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ACRP LRD 45 3 AIRPORT CUSTOMER FACILITY CHARGES: ANALYSIS OF LAWS, REGULATIONS, AND CASE LAW Sarah E. Wilbanks and Steven L. Osit, Kaplan Kirsch and Rockwell LLP, Denver, CO I. INTRODUCTION For many U.S. airports, customer facility charges or CFCs are an integral component of maintaining an overall system of rates and charges that is sufficient for the airport to satisfy ongoing operations and maintenance expenses, as well as to support robust capital programs for the improvement of land- side facilities (i.e., non-airfield areas of the airport, including passenger terminals, access systems, and parking facilities and lots). Typically, an airport proprietor imposes a CFC on the end- user of a nonaeronautical service available at the airport, and the nonaeronautical service provider collects the CFCs on the airport proprietor’s behalf. Most commonly, CFCs are imposed on rental car customers and collected by rental car companies (referred to herein as RACs)1 authorized to do business at or near the airport, and then periodically remitted to the airport proprietor for its use in connection with the operating and capi- tal expenses of rental car facilities (e.g., ConRACs) and support- ing infrastructure. As discussed in this report, CFCs may also be used in support of other types of projects, and vary, from airport to airport, in their amount, programming flexibility, and other key characteristics. This digest analyzes state and federal law, regulations, report- ed cases, and other similar legal authorities concerning the im- position, collection, use, and treatment of CFCs. Unlike many other aspects of airport finance, there is very little regulation of CFCs at the federal level and, thus, less uniformity in the ap- proaches taken by airports with respect to CFCs than with other aspects of airport management. More often than not, legal con- siderations with respect to the imposition, collection, and use of CFCs are a function of state and municipal law, the many varia- tions and unique aspects of which are too numerous to fully detail in this digest. While we endeavor to identify the types of legal issues that may arise under federal, state, and local law with respect to CFCs, this digest is intended only as a starting point for practitioners seeking to learn more about CFCs; the authors strongly advise reviewing applicable state and municipal law in any specific instances. This digest is organized into four primary sections. Section II, What are CFCs?, elaborates on the defining characteristics of CFCs and distinguishes their treatment under applicable law from other types of charges that may be imposed by an airport 1 This digest also discusses instances where airport proprietors have imposed CFCs, or similar charges, on the end users of entities other than traditional RACs (e.g., non-traditional rental car businesses like Turo). However, the vast majority of CFCs are imposed on traditional RAC customers, and we use this term throughout to describe the enti- ties subject to CFCs. See also, infra, at Section V.A.3 (discussing treat- ment of non-traditional and off-airport rental car operations). proprietor or RAC. This section also summarizes the types of projects that CFCs may be programmed toward. Section III, State-Level Regulation of CFCs, summarizes the laws enacted by those ten U.S. states that have adopted CFC-specific provisions at the state level. At the time of this writing, most states do not have state-level legislation addressing CFCs; however, it is critical that practitioners in those jurisdictions that have adopted CFC- specific requirements be familiar with applicable limitations and procedures. Section IV, Local Imposition of CFCs, describes the various mechanisms—resolutions and ordinances, bond inden- tures, and lease and concession agreements—and the essential features thereof, which typically operate to impose CFCs at air- ports. Finally, Section V, Treatment of CFCs Under State and Federal Law, analyzes the treatment of CFCs in several different legal contexts, including various challenges to the imposition of CFCs and other types of airport fees, bankruptcy, public financ- ing, and consumer protection. Because there is relatively little case law directly addressing CFCs, this section discusses several ancillary, but instructive, matters regarding airports’ imposition of other types of charges and ground access fees. II. WHAT ARE CFCS? CFCs may be generally defined as charges imposed by an airport proprietor on the end-user of a nonaeronautical service available at the airport (most commonly, a rental car customer), collected by the nonaeronautical service provider (most com- monly, a rental car company operating at or near the airport), in trust and as an agent for the airport proprietor. Although there may be substantial variations among airports with respect to the particular mechanisms used to impose CFCs and the way they may be used, CFCs generally share certain key characteristics, which are further detailed below: (1) they are charges imposed directly on customers of RACs, not the RACs themselves; (2) RACs are obligated to collect CFCs from their customers on the airport’s behalf; and (3) the revenue from the CFCs is gen- erally programmed for specific ground access-related projects, which are often prescribed by state and/or local law. A. CFCs Are Imposed and Controlled by the Airport Proprietor It is important to distinguish CFCs from other charges im- posed by the airport proprietor on RACs or by RACs on their customers. RACs conducting transactions on or around an air- port are typically required under the terms of their concession agreements with an airport to pay some form of compensation for their use of the airport or the privilege of conducting their business on the airport, whether a fixed rental fee, a percentage

4 ACRP LRD 45 of the RAC’s gross receipts, a minimum annual guarantee, or a combination of these and other fees. Airport proprietors impose fees on RACs to not only recover costs that the airport incurs in providing, maintaining, and operating the facilities used by the rental car companies but, importantly, to raise nonaeronautical revenues that may be used in support of the airport’s overall op- erating and capital expenses, including contributions to aero- nautical cost centers to reduce airlines’ rate base. RACs, in turn, charge their customers for the services they provide. Often, in addition to regular rental charges, RACs will impose “concession recovery” or other types of separately delin- eated fees on their customers to recoup the costs of operating at an airport. Unlike CFCs, which may also appear as a separate charge on the customer’s itemized receipt, a concession recovery fee is imposed by the rental car company (as opposed to the airport). As discussed below, a concession recovery fee may be subject to certain disclosure obligations to clearly distinguish it from a fee imposed by the airport. CFCs are fees established by an airport proprietor and im- posed directly on the rental car customers for their use of airport facilities. Some CFC statutes or ordinances expressly determine the amount that an airport can collect per customer as a CFC (and whether that is per day or per transaction). Others autho- rize the airport proprietor to adjust this amount on an ongoing basis, including sometimes by setting parameters on the CFC maximum that align with the cost of what the revenue is in- tended to finance.2 Still others, like California’s state scheme, set detailed requirements for the circumstances under which an airport may obtain authorization to charge more than the state- prescribed amount authorized in the statute.3 To date, the range of CFCs generally falls somewhere between $2 and $10 among airports that collect such charges. B. CFCs Are Collected from End-Users by RACs and Held in Trust for the Airport Proprietor Because CFCs are imposed by an airport proprietor on a RAC’s customers, which typically have no direct contractual re- lationship with the airport, CFCs are collected by the RAC from its customers on the airport’s behalf. To ensure that CFCs are not considered revenue accruing to the RAC, indistinguishable from rental charges, concession recovery fees, or other similar charges, legal instruments imposing a CFC should clearly define the CFC as the airport’s trust property. C. CFCs Are Generally Used to Support Specific Ground Access Projects Federal, state, and local law govern the use of CFCs. CFCs are considered general airport revenue and, as discussed further 2 See, e.g., Bd. of Cty. Commrs of Lee Cty. (Fl.), Ordinance No. 01-19 (Nov. 14, 2001) (included sunset provision that nullifies CFC obligation upon date certain or date when certain improvements and facilities are fully funded and substantially complete). 3 See infra Section III.B (explaining California’s statute that authorizes an “alternative” CFC if justified based on project expenses by the airport). below, their use must comply with the FAA’s Policy and Pro- cedures Concerning the Use of Airport Revenue.4 However, it is relatively common for state and local law to confine the use of CFCs to an even narrower subset of projects than what would be permissible under the Revenue Use Policy. Specifically, CFCs are often pledged exclusively toward ground access-related projects, including the construction or improvement of a rental car facility; operation and maintenance of existing rental car facilities; debt service on rental car and related facilities; or costs associated with supporting facilities, such as roadways, utilities, or multimodal transportation5 systems. Whether one or more of these uses are permissible is often determined by state or local law and/or negotiated with and embodied in the contractual agreement imposing the CFC obligation. With respect to the use of CFCs for the payment of rental car facilities and associated costs, we note that in recent years airport proprietors, especially those of larger and/or space-constrained airports, have moved toward using consolidated rental car facili- ties (referred to as a ConRAC). In that case, the airport propri- etor develops facilities where multiple rental car companies lease or share space (including areas/facilities such as vehicle ready/ return space, maintenance facilities, fueling stations, or customer service counters) rather than maintaining individual facilities or leaseholds throughout the airport area. Though there are effi- ciencies and other potential benefits from consolidating similar operations in this manner, the construction of such facilities is a large financial undertaking. Many airports have turned to CFCs in some manner to pay for the asso ciated costs of the ConRACs at their airports. CFCs are often programmed for the design, planning, and construction costs of proposed ConRAC.6 Com- monly, CFCs are also used to cover operations and maintenance costs of these facilities on an ongoing basis, though some airports only use this revenue for capital costs.7 D. CFCs Are Distinct from Passenger Facility Charges It is also important to distinguish CFCs from passenger facil- ity charges (PFCs). Like CFCs, PFCs are also charges imposed by an airport proprietor on individual consumers of airport- related services (in this case, airline passengers), collected by 4 FAA, Policy and Procedures Concerning the Use of Airport Revenue, 64 Fed. Reg. 7696, 7716 (Feb. 16, 1999) (“Revenue Use Policy”); see also infra Section V.C (discussing federal restrictions on the use of CFCs). 5 See, e.g., Cal. Gov. Code § 50474.3 (authorizing use of CFC rev- enue for common use transportation systems). For further discussion on the funding sources for and case studies of multimodal facilities, see T. Karaskiewicz, ACRP LRD 35: Legal Considerations in the Funding and Development of Intermodal Facilities at Airports, Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, Washington, D.C., 2018. 6 See, e.g., 625 Ill. Comp. Stat. 5/6-305(j). 7 See, e.g., Memphis-Shelby Cty. Airport Auth. (Tenn.), Res. 01-4267 (July 19, 2001) (implementing CFC); see also Memphis-Shelby Cty. Airport Auth. (Tenn.), Res. 09-4485 (Sept. 17, 2009) (revising CFC ordinance to authorize broad use of CFCs to rental car related costs, including operation and maintenance of the ConRAC, and directing airport management to negotiate agreements with RACs consistent with such terms).

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Customer facility charges (CFCs) are imposed by airport proprietors on customers of rental car companies at airports to pay for capital and operating costs of rental car facilities. CFCs have relatively little federal regulatory oversight, and most are implemented through local municipal acts and/or contractual arrangements. Recently, challenges to the imposition and use of CFCs and other airport fees and charges have been mounted in several states.

ACRP Legal Research Digest 45: Airport Customer Facility Charges: Analysis of Laws, Regulations, and Case Law, from TRB's Airport Cooperative Research Program, examines legal issues arising under state and federal law from the imposition and use of CFCs. The digest includes an inventory of state-level authorizing legislation in jurisdictions that regulate CFCs. Judicial decisions regarding the collection and use of CFCs and related issues are also analyzed.

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