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Airport Customer Facility Charges: Analysis of Laws, Regulations, and Case Law (2023)

Chapter: III. STATE-LEVEL REGULATION OF CFCS

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Suggested Citation:"III. STATE-LEVEL REGULATION OF 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:"III. STATE-LEVEL REGULATION OF 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:"III. STATE-LEVEL REGULATION OF 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.
×
Page 7
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Suggested Citation:"III. STATE-LEVEL REGULATION OF 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 5 The ten states that have adopted CFC-specific legislation as of the aritime of this writing are Alaska, California, Colorado, Hawaii, Illinois, Nevada, New York, Pennsylvania, Rhode Island, and Washington. We summarize each state’s law below, and the citations for these state statutes, as they relate to CFCs, are also collected in Appendix A to this digest for reference.13 To varying degrees, seven of the state statutes14 discussed below establish substantive limitations on-airport propri- etors’ authority to impose, collect, and use CFCs. For example, Pennsylvania law establishes a maximum dollar amount that may be imposed by the City of Philadelphia as CFCs in its op- eration of the Philadelphia International Airport, in the absence of an express agreement among the RACs operating there.15 Pennsylvania law also limits the types of projects that the City of Philadelphia may program CFC revenue for without an agree- ment and provides the city with specific enforcement author- ity should a RAC fail to properly collect and remit CFCs.16 By contrast, Illinois law generally authorizes an airport proprietor to collect CFCs for certain enumerated purposes, subject to the approval of the airport’s “local government corporate authori- ties or its airport authority,” but leaves it to those authorities to establish more specific conditions on the imposition or use of CFCs.17 It is important for practitioners to understand the ex- tent to which state-level law imposes restrictions on the author- ity to impose CFCs. Three other state statutes summarized below—those of Colorado, Nevada, and New York—do not contain provisions directed at airport proprietors but do directly regulate RACs. These states (like some of the states that do regulate airport pro- prietors’ imposition of CFCs) have required certain disclosures and other consumer protections regarding a RAC’s collection of CFCs. Practitioners should also be familiar with these sorts of statutory requirements to ensure the consistency of RAC concession agreements with state law. A. Alaska Alaska Statutes § 02.15.090. Alaska law distinguishes between (1) CFCs required of users and occupants of CFC-backed facilities that will be used to pay 13 Appendix A contains citations to the (current, as of the time of this writing) provisions of state law which impose or otherwise explicitly and substantively reference an airport’s imposition, collection, or use of CFCs. However, practitioners should be aware there may be collateral references to CFCs in statutory provisions not included in this digest. We have not included in the Appendix reference to statutory provisions that are not pertinent to the general imposition, use, and collection of CFCs, even if they may be relevant in particular circumstances (e.g., a budget bill which may impact the use of a particular jurisdiction’s CFC but standing alone has no significance or relevance to our discussion in this digest). 14 These states are Alaska, California, Hawaii, Illinois, Pennsylvania, Rhode Island, and Washington. See Appendix A. 15 74 Pa. C.S.A. § 5933. 16 74 Pa. C.S.A. § 5933. 17 625 Ill. Comp. Stat. 5/6-305(j). the service provider (the airline) at the point of sale on behalf of the airport proprietor, and ultimately remitted to the airport proprietor. However, PFCs are specifically authorized and regu- lated by federal law as a Congressionally-authorized exception to the Anti-Head Tax Act, which generally prohibits the imposi- tion of fees or taxes on air travelers, as discussed further below.8 Among several substantive restrictions imposed by federal law, the amount and level of PFCs are capped, the FAA must approve the imposition of PFCs pursuant to regulatory procedures, and PFC revenue may only be used in support of PFC-eligible projects.9 As a result, the use and imposition of PFCs is sub- ject to substantial FAA oversight and is more generally uniform among airports. Comparatively, federal law does not expressly authorize the imposition of CFCs. Rather, CFCs are imposed through a variety of mechanisms, pursuant to state and local law. This results in substantially greater variation in airport proprietors’ approaches to the imposition and use of CFCs, and the poten- tial for a wider array of potential legal challenges and pitfalls, as discussed below. III. STATE-LEVEL REGULATION OF CFCS In most jurisdictions, CFCs are imposed pursuant to the state laws that generally authorize political subdivisions of the state to operate and maintain airports, including by establishing fees for the use of airport property or the provision of airport- related services.10 However, at the time of this writing, several states have adopted legislation that specifically addresses the imposition, collection, and disposition of CFCs. The approach taken by many of these jurisdictions reflects a policy determi- nation by their respective legislatures that there should be a uniform approach to implementing CFCs by those airports that choose to levy CFCs. In other jurisdictions, the CFC-specific state-level legislation provides clear and explicit authorization to levy CFCs in order to provide adequate assurances to financ- ing partners or participating agencies that revenue streams from CFCs will continue uninterrupted by future provisions of law.11 None of the state statutes that we reviewed mandate the collection of CFCs by airport proprietors within those states. Notably, in Alaska and Hawaii, CFCs are regulated at the state- level largely because of the number of state-owned and operated airports within those states. For example, the laws of Hawaii re- quire all CFCs to be deposited into a special fund administered by the Hawaii Department of Transportation.12 8 See 49 U.S.C. § 40116(b); see also infra Section V.A.1. 9 See 49 U.S.C. § 40117; 14 C.F.R. Part 158. 10 State laws generally authorizing airports to develop, operate, and maintain airports are outside the scope of this digest. While we have identified those jurisdictions which specifically regulate CFCs through provisions of state law, practitioners are encouraged to review the enabling statutes for any particular airport proprietor to determine whether generally applicable limitations on-airport rate-setting may limit authority to collect or use CFCs. 11 See, e.g., 74 Pa. C.S.A. § 5933(j). 12 See H.R.S. § 261-5.6.

6 ACRP LRD 45 debt service on the facilities18 and (2) a “customer facility main- tenance charge” that the Alaska Department of Transportation and Public Facilities may require of users or occupants to cover the cost of maintaining and operating the facilities, including insurance and maintenance reserves.19 The relevant provision states that “[t]he commissioner may impose charges authorized by this subsection for the international airports [Fairbanks Inter national Airport and Ted Stevens Anchorage Inter national Airport] by order or by negotiated or competitively offered contract.”20 If by order, there is a public notice and comment period. All CFCs must be held in trust for the entity that in- curred the debt (whether the state, on behalf of the department, or a third-party entity). Both types of CFCs may be adjusted periodically by the commissioner of the department to reflect changes in the expenses or usage of the facility. The statute is silent as to how (or whether) CFCs or customer facility mainte- nance charge may be imposed at any of the other state-owned airports. B. California California Government Code §§ 50474.3, 50474.21, 50474.22 California Civil Code §§ 1939.01, 1939.17, 1939.19 California law establishes a more comprehensive regulatory framework for the imposition of CFCs than any other juris- diction.21 First, the law distinguishes between CFCs that may be charged by airports (which generally may not exceed $10 per rental car transaction), and “alternative” CFCs (which, under certain conditions, may be calculated per rental day and can exceed $10 per rental car transaction). While the authorized uses of the revenue from both CFCs are the same, the two types of fees are mutually exclusive and may not be collected at the same time.22 The standard CFCs authorized by the California scheme, which have a standard cap of $10 maximum per rental car con- tract, may be used for the “reasonable costs of financing, de- signing, and constructing the facility and financing, designing, constructing, and operating any common-use transportation system, or acquiring vehicles for use in that system, and are not used for any other purpose.”23 Only on-airport RACs may be charged for the costs of a ConRAC; however, if CFCs are im- posed in connection with both a ConRAC and a common-use transportation system, they may be assessed against off-airport RAC customers in a proportionate manner.24 The “alternative” CFCs authorized by the statute are more complicated and allowed only under specific conditions. This option allows airports to initiate a procedural process to charge 18 Alaska Stat. § 02.15.090(h). 19 Id. § 02.15.090(i). 20 Id. § 02.15.090(h)-(i). 21 See Cal. Gov. Code § 50474.3. 22 Id. § 50474.3(b)(2). 23 Id. § 50474.3(a)(6). 24 Id. § 50474.3(a)(5). alternative CFCs if revenue from the standard $10 per trans- action CFC would not be sufficient to finance the anticipated costs of a ConRAC and/or common use transportation system, as determined by the airport after a public hearing.25 Essentially, the statute allows an airport to assess per day (rather than per transaction) CFCs (i.e., such that a customer who rented a car for three days would be charged this “alternative” CFC rate three times, potentially making the total amount charged per transac- tion higher than $10). However, the airport proprietor may only do so if it establishes the amount of revenue necessary for the project costs, as well as demonstrates that the standard $10-per transaction CFCs otherwise permissible “will not generate suf- ficient revenue to finance the reasonable costs” of the project and the project costs require the revenue to be generated by the proposed alternative CFC rate.26 An airport seeking to impose alternative CFCs must also show it has taken steps to limit costs and considered alternatives to meeting its revenue needs rather than collecting alternative CFCs, including showing how RACs and other users will con- tribute to the project costs apart from CFCs.27 These CFCs can only be collected for up to five days from a customer and the airport must comply with additional transparency and audit require ments imposed by the law.28 C. Colorado Colorado Revised Statutes § 6-1-206 Colorado law does not expressly address the imposition of CFCs by airport proprietors. Rather, the above-referenced statute defines a CFC, along with other government-imposed taxes or fees, as an “additional mandatory charge” that may be collected by a RAC from its customers.29 Where CFCs or other “additional mandatory charges” have been imposed, the statute requires the RAC to “provide a good-faith estimate of the total charges for the entire rental, including all additional mandatory charges, whenever a quote is provided to a potential customer. . . .”30 D. Hawaii Hawaii Revised Statutes § 261-5 Hawaii Revised Statutes § 261-5.6 Hawaii Revised Statutes § 261-7 Hawaii Revised Statutes § 437D-3 Hawaii Revised Statutes § 437D-8.4 Hawaii law authorizes the Hawaii Department of Transpor- tation to “establish, levy, assess, and collect rental motor vehicle 25 Id. § 50474.3(b). 26 Id. § 50474.3(b)(1)(A)-(C). 27 Id. § 50474.3(b)(1)(D). 28 Id. § 50474.3(b)(3)(D), (4). 29 Colo. Rev. Stat. § 6-1-206(2)(a). 30 Id. § 6-1-206(1)(a).

ACRP LRD 45 7 months or less under the terms of a rental agreement”),40 subject to certain reporting and other requirements.41 E. Illinois 625 Illinois Compiled Statutes 5/6-305 Illinois law authorizes a public airport’s local government corporate authorities or its airport authority to approve CFCs imposed upon customers of rental car companies for the pur- poses of financing, designing, constructing, operating, and maintaining consolidated car rental facilities and common use transportation equipment and facilities.42 Illinois law also speci- fies that the CFCs must be held in trust by the rental car compa- ny who collects them and remitted to the airport at the airport proprietor’s direction.43 CFCs must be “uniformly” calculated on a per day or per-contract basis and charges must not “exceed the reasonable costs of financing, designing, constructing, oper- ating, and maintaining the consolidated car rental facilities and common use transportation equipment and facilities and may not be used for any other purpose.”44 The statute further lays out detailed requirements for how companies that collect CFCs must “clearly and conspicuously” disclose and display the CFC charge to customers. Any company that does not comply with these such requirements has committed an unlawful practice within the meaning of Illinois’ Consumer Fraud and Deceptive Business Practices Act.45 F. Nevada Nevada Revised Statutes § 482.3158 Nevada law does not expressly address the imposition of CFCs by airport proprietors. Rather, the above-referenced statute describes the circumstances under which the “short- term lessor of a passenger car may impose an additional charge” and thereby limits the types of fees a RAC may impose on its customers.46 The law expressly permits a RAC to im- pose a fee “to recover any fees paid by the short-term lessor on behalf of the short-term lessee, including, without limitation, a customer facility charge imposed on the short-term lessee by an airport … for the privilege of using the facility.”47 The remainder of the statute describes how the company must dis- close the charge to the customer and prescribes other limita- tions on certain fees.48 40 Id. § 437D-3. 41 Id. § 437D-8.4(a)(5). 42 625 Ill. Comp. Stat. 5/6-305(j). 43 Id. 44 Id. 45 Id. at 5/6-305(k)(6) (citing to 815 Ill. Comp. Stat. 505/1 et seq.). 46 Nev. Rev. Stat. § 482.3158 (1). 47 Id. § 482.3158 (1)(h). 48 Id. §§ 482.3158 (2)-(4). customer facility charges” at state-owned airports.31 The revenue collected from such charges must be deposited into a spe- cial fund (the “rental motor vehicle customer facility charge special fund”), administered by the director of the Hawaii Depart ment of Transportation, for use at any of the state’s air- ports (not necessarily that airport at which CFCs are collected or in proportion to the amount of CFCs collected at that airport).32 The “rental motor vehicle customer facility charge special fund” is separated from the state’s general airport revenue fund.33 In Hawaii, CFCs may be programmed toward a wide range of rental car related purposes, including the “enhancement, renovation, operation, and maintenance of existing rental motor vehicle customer facilities and the development of new rental motor vehicle customer facilities and related services.”34 The statute establishing the special fund enumerates a similarly broad list of CFC-eligible components of such projects, includ- ing planning, design, construction, operations, and mainte- nance; acquiring property rights; and operating a unified bus shuttle system from terminals to rental car facilities.35 The direc- tor of the Hawaii Department of Transportation must consult with rental car operators “who are using or who in the future may use the facilities and services” when programming the use of the special fund, and the director may authorize the expendi- ture of funds for purposes other than planning and design only after a rental motor vehicle concessions agreement has been awarded at an airport.36 Several other provisions of Hawaii state law address the CFC special fund, generally to explicitly exempt the fund from being used for other purposes or specify how the fund will be treated in state accounting practices (e.g., exempting the fund from having certain administrative expenses deducted from it and paid into the state’s general funds).37 There is also a state law provision that authorizes a lessor (defined as “any person in the business of providing rental motor vehicles to the public”)38 “to visibly pass on”39 the charges to lessees (who are “any person obtaining the use of a rental motor vehicle from a lessor for a period of six 31 Haw. Rev. Stat. § 261-7(h). 32 Id. § 261-5(b) (“Moneys in the rental motor vehicle customer facil- ity charge special fund shall be used for enhancement, renovation, opera- tion, and maintenance of existing rental motor vehicle customer facilities and the development of new rental motor vehicle customer facilities and related services at state airports”) (emphasis added). 33 Id. § 261-5(a)(2). 34 Id. § 261-5.6(b). 35 Id. §§ 261-5.6(b)(1)-(5). 36 Id. § 261-5.6(b). 37 See, e.g., id. §§ 36.27, 36.30. 38 Id. § 437D-3. 39 Id. § 437D-8-4. We have included citations to the language from this statute in Appendix B, though that version is not effective until December 31, 2027. The only addition or change from the currently effective version of the statute is the addition of a subsection (b): “A representation by the lessor to the lessee which states that the visible pass on of the charges in this section is mandatory or that it is a govern- ment assessment upon the consumer shall be a per se violation of sec- tion 480-2.”

8 ACRP LRD 45 G. New York New York General Business Law § 396-z The relevant statute broadly regulates rental car companies and their operations and contains many consumer protection provisions (e.g., mandatory disclosures and notices required by the rental car companies to its customers).49 These provisions address how a rental car company may impose, describe, and collect certain charges on renters. These identified charges in- clude a “consolidated facilities charge,” a term which the statute defines to include similar terms “that may be used by airport authorities … such as … ‘customer facility charge.’” The statute further describes the charge as one that may be collected from renters “for the finance, design, construction and operation of consolidated airport facilities and or the finance, design, con- struction and operation of common use transportation systems that move passengers between airport terminals and consoli- dated airport car rental facilities.”50 The aggregate amount to be collected may not exceed the reasonable costs, as determined by annual independent audits, to finance, design, construct, and operate such facilities and common use transportation systems.51 H. Pennsylvania Title 74, Pennsylvania Consolidated Statutes Chapter 59, Airport Operation and Zoning Section 5933 – Customer Facility Charge Pennsylvania law expressly authorizes first class cities (cur- rently, only the City of Philadelphia)52 to impose CFCs of not more than $8 per day on a vehicle rental company doing business at an airport, unless otherwise agreed to by contract with eighty percent (80%) of all rental car companies using airport property, in which case CFCs may be higher.53 CFCs may be increased no more than once per year by written amendment to an existing rental car facility agreement signed by the parties.54 CFCs may only be used for the planning, development, financing, construc- tion and operation of a rental facility and rental facility improve- ments; transportation system costs; or rental facility operations and maintenance expenses.55 49 See, e.g., NY Gen. Bus. Law §§ 396-z(4)-(5). 50 Id. § 396-z(1)(f). 51 Id. 52 Notably, although some state statutes explicitly authorize specific cities or entities to impose a CFC (like here), such specific reference does not necessarily mean that other airports within the state cannot impose CFCs; rather, such authority may be conferred under general airport powers acts and/or other state laws that may vest in airport authorities and municipalities those powers necessary to act as an air- port proprietor. 53 74 Pa. Const. Stat. S.A. §§ 5933(a)(1), (c)(1). 54 Id. § 5933(a)(2). 55 Id. § 5933(g). While the City of Philadelphia may impose CFCs even if not provided for by airport regulations or concessions agreements,56 its use of CFCs is limited to planning and design costs for a maximum of two years unless an agreement is earlier executed. At that point, the revenue may be used for capital and operating costs of rental car facilities and transportation systems).57 I. Rhode Island Rhode Island General Laws § 1-2-1.1 Rhode Island’s state-owned airports, of which T.F. Green Airport (PVD) is the primary airport with commercial service, are operated and maintained by the Rhode Island Airport Cor- poration (RIAC). The above-referenced statute authorizes RIAC to impose charges on customers of RACs who “directly or indi- rectly use Warwick Station58 or the PVD, at the rates that [it] may deem necessary to provide adequate revenue to pay all costs of constructing, reconstructing, expanding, reconfiguring, operat- ing, and maintaining Warwick Station regardless of whether those charges may have an anticompetitive effect.”59 The state statute also provides that the CFCs constitute a trust enforceable against the RAC, and certain other persons, on behalf of RIAC. A penalty for misappropriating CFCs is established by incor- porating certain state law provisions establishing penalties for misappropriation of sales and use taxes by retailers.60 J. Washington Washington Revised Code § 14.08.120 Washington law authorizes municipalities61 operating an airport to impose CFCs for the purposes of “financing, design- ing, constructing, operating, and maintaining consolidated rental car facilities and common use transportation equipment and facilities.”62 CFCs may not exceed the reasonable costs of these authorized purposes. The airport operator may require the rental car companies to collect the CFCs, which must be de- posited in a trust account for the benefit of the airport operator and remitted at the direction of the airport operator. The statute also provides that an airport operator that makes use of its own funds to finance a ConRAC and common use transportation facilities may use the funds earned from the collection of CFCs for purposes other than those associated with the ConRAC and common use transportation equipment and facilities. 56 Id. § 5933(a)(3). 57 Id. § 5933(d)(1)-(2). 58 “Warwick Station” refers to the intermodal transportation hub providing connections to PVD that includes a ConRAC. 59 R.I. Gen. Laws § 1-2-1.1(a)(1)(i). 60 Id. § 1-2-1.1(d) (citing to R.I. Gen. Laws § 44-19-37); see also infra Section V.B for discussion of related bankruptcy and enforcement issues. 61 Wash Rev. Code § 14.08.12014.08.010 (defining municipalities as “any county, city, town, airport district, or port district”). 62 Id. § 14.08.120(1)(g).

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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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