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

Chapter: V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW

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Suggested Citation:"V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW." 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:"V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW." 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:"V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW." 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:"V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW." 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:"V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW." 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:"V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW." 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:"V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW." 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:"V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW." 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:"V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW." 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 11 pose CFCs; when subsequently implemented through con- tractual agreements, the parties can provide for a scheme for the order in which the airport will specifically use the revenue, depending on what is important to each entity. • Contingency payments in the event of CFC shortfalls. Many concession agreements will establish contingency provisions in the event CFC revenue generated by RACs’ operations at the airport is insufficient to cover the pledged financing obligations, or if the CFC is invalidated by liti- gation or repealed by the governing body. These types of arrangements are often heavily negotiated with the RACs operating at an airport, but they can be important when seeking CFC-backed bonds in particular, given that provid- ing for contingency payments by the RACs directly in the event of insufficient CFC revenue can give investors extra security. For example, provisions may be structured so that RACs agree to, upon certain triggers, pay additional con- tingency fees themselves that may later be reimbursed from a CFC surplus fund, if possible.75 In addition to the excerpts cited to above, Appendix B contains citations to several more samples of contractual provisions used by airports to implement and/or enforce CFCs through their rental car concession agreements.76 V. TREATMENT OF CFCS UNDER STATE AND FEDERAL LAW This section of the digest analyzes the treatment of CFCs under state and federal law, including challenges to the impo- sition of CFCs (and airport fees, more generally), bankruptcy, public financing, and consumer protection rules. However, there are relatively few cases directly challenging the imposi- tion or use of CFCs (with some notable exceptions, such as the rental car bankruptcy litigation arising during the COVID-19 pandemic, challenges brought by non-traditional commercial operators or off-airport operators, and some state constitutional challenges). Often, the implementation of CFCs is accomplished through concession agreements and/or is subject to public scru- tiny through the deliberations of an airport proprietor’s govern- ing body, which may effectively reduce the number of potential challengers. Additionally, there is a significant body of case law 75 See, e.g., id. at 22-23; Columbus Regional Airport Auth. (Ohio), Official Bond Statement – Customer Facility Charge Revenue Bonds, Series 2019, App. D at D-30-31 (April 17, 2019). 76 See The Port of Portland (Or.), Official Bond Statement – Series 2019 CFC Bonds, App. D (April 3, 2019); City of Chicago (Ill.), Official Statement – 2013 CFC Bonds, App. B (Aug. 6, 2013); Columbus Regional Airport Auth. (Ohio), Official Bond Statement – Customer Facility Charge Revenue Bonds, Series 2019, App. D (April 17, 2019). These doc- uments contain selected examples of form language or summaries of provisions related to CFCs from PDX, ORD, and CMH, respectively. Please note that these are not necessarily the final negotiated terms of any rental car concession agreements at these airports but are samples of contemplated provisions obtained from bond-related documents and/or legislative resolutions or ordinances and are provided for illus- trative purposes only. estab lishment of a trust and that the language of a conces- sion agreement conforms therewith. • Requirements that RACs must establish separate ac- counts for holding collected CFCs. Segregating CFC funds from other revenue and fees that the RAC collects from its customers may be required by the airport proprietor, with specifics in the contractual agreement as to how the fund should be managed. Again, state law and the intersection of a requirement that the CFCs be held in trust for the airport should be considered when drafting such provisions. • Directions on how and when CFCs must be remitted by the RAC to the airport proprietor, as well as reporting requirements on the collection of CFCs. Typically, CFCs are remitted no more than once a month to the airport pro- prietor, although contractual language may contain more specifics on how and when these remittances must occur. Reporting requirements may be included here, often with a standard form for RACs to use, given that CFCs are activity/ volume-based fees and airport proprietors will need to know how RACs are determining how to collect CFCs from applicable customers.71 These provisions may authorize the airport proprietor to impose audits on the RACs’ collection of the CFCs.72 • Default provisions providing that failure to collect or remit CFCs may give rise to termination of the agreement or other remedies for default. Contractual privity with respect to CFC-related obligations allows an airport propri- etor to hold a RAC in default and/or terminate its conces- sion agreement for failure to comply. These agreements may be drafted with intermediate remedies for default, in order to achieve compliance without disrupting operations.73 • Establishment of priority of uses for CFCs. As CFCs may be used by airports for varying purposes, RACs and airport proprietors may negotiate the RACs’ concession agreements such that RACs have some say in how airports prioritize the use of CFC revenue since generally it is the RACs’ facilities that are going to be financed.74 This may, for example, be especially important in jurisdictions where an ordinance or state statute grants broad authority for an airport to im- 71 See, e.g., City of Chicago (Ill.), Official Statement – 2013 CFC Bonds, App. B at B-11 (Aug. 6, 2013) (describing reporting require- ments in ORD form agreement); The Port of Portland (Or.), Official Bond Statement – Series 2019 CFC Bonds, App. D at Ex. I (April 3, 2019) (showing examples of reporting activity forms at PDX). 72 See, e.g., Columbus Regional Airport Auth. (Ohio), Official Bond Statement – Customer Facility Charge Revenue Bonds, Series 2019, App. D at D-26-27 (April 17, 2019) (excerpt from CMH form contractual provision that allows for airport to audit CFC collection and recover costs if CFCs are understated by certain percentages); City of Chicago (Ill.), Official Statement – 2013 CFC Bonds, App. B at B-11-12 (Aug. 6, 2013) (explaining similar form provisions at ORD). 73 See, e.g., id. at B-16-17 (language including default provisions for failure to comply with ORD CFC Ordinance in ORD form contractual agreement). 74 See, e.g., The Port of Portland (Or.), Official Bond Statement – Series 2019 CFC Bonds, App. D at 24 (April 3, 2019) (describing priority of use in PDX contractual agreement).

12 ACRP LRD 45 While the law governing such claims is complex, a general test has emerged to evaluate the constitutionality of a user fee under a Commerce Clause-type challenge. In general, the user fee must: (1) be based on some fair approximation of use of the facilities, (2) not be excessive in relation to the benefits con- ferred, and (3) not discriminate against interstate commerce.79 However, despite litigants’ various theories regarding how air- port proprietors have overstated or over-inclusively described their (and their customers’) usage of airport facilities, the ques- tion of what a ‘fair approximation of use’ of the airport or its facilities is has been interpreted broadly by courts largely in favor of airports. In one such case, the state court sided with the airport proprietor and quoted an Eleventh Circuit decision that sum- marized the principle that airports may typically approximate general use of airport facilities and charge fees accordingly: As the Eleventh Circuit observed, ‘Unquestionably, maintenance of the airport facility is a legitimate local public interest. Indeed, as- suring an adequate airport facilitates rather than burdens interstate commerce… Furthermore, any burden on interstate commerce is incidental rather than deliberately imposed. No greater fee is levied on interstate travel as distinguished from intrastate travel.’ Where, as here, a rental car company ‘enjoy[s] the indirect use of the entire air- port facility through the travelers it services,’ such a user fee ‘is a fair, albeit imperfect, approximation of use.’80 In this respect, therefore, airport proprietors are likely to enjoy a large amount of flexibility in structuring and setting CFC amounts. Courts have also reviewed Commerce Clause challenges to access fees by applying the market participant doctrine, a doc- trine providing that when a governmental entity properly acts as a participant in a particular market in a manner analogous to that of a private sector entity, rather than as a regulator, its ac- tions are immune from scrutiny under the Commerce Clause. For example, one court found no Commerce clause violation where an airport authority acted as a market participant “in entering into concession agreements with on-site rental car companies, and in operating its own parking facilities, in order to produce revenue to fund its operations, capital programs and bonding.”81 Subsequently, on appeal, the reviewing court rejected the plaintiff ’s claim that the lower court erred in apply- ing the market participant exemption but still reasoned that, if the airport authority was acting as a regulator, there was no objectionable burden on interstate commerce.82 79 Northwest Airlines, Inc. v. Cty. of Kent, Mich., 510 U.S. 355, 369 (1994); see also Evansville-Vanderburgh v. Delta Airlines, Inc., 405 U.S. 707 (1972) (standing for the general principle that under Commerce Clause analysis airport user fees may be premised on the value of an entire airport market). 80 People v. Turo, Inc., No. CGC-18-563803, 2020 WL 2108829 (Sup. Ct. Cal. Apr. 23, 2020) (quoting Alamo Rent-A-Car v. Sarasota- Manatee Airport Auth., 825 F.2d 367 (11th Cir. 1987)) (vacated in part on state law grounds). 81 Westover Car Rental, LLC v. Niagara Frontier Transp. Auth., 44 Misc. 3d 1226(A) (N.Y. Sup. Ct. 2014), aff’d in part, 21 N.Y.S.3d 510 (N.Y. App. Div. 2015), appeal denied, 51 N.E.3d 564 (2016). 82 Id. at 21 N.Y.S.3d 510, 512-513. rejecting challenges to other types of airport-imposed access fees and similar charges imposed on ground transportation pro- viders, the reasoning of which would, in many cases, also apply to challenges to CFCs. Because cases involving airport fees other than CFCs are likely instructive on how challenges to an airport proprietor’s imposition of a CFC may be evaluated, this section broadly dis- cusses challenges to and legal considerations involving ground access fees other than CFCs, in addition to those examples directly involving CFCs. Several important legal distinctions between CFCs and other fees and charges are also noted and considered. Examining CFCs in a number of different legal contexts provides insight into how CFCs are likely to be treated under the law of multiple jurisdictions; however, practitioners are advised to consider whether unique provisions of law in their respective jurisdictions could lead to contrary results. A. Challenges to the Imposition and Applicability of CFCs and Similar Fees The authority of airport proprietor to impose CFCs and other types of fees and charges has been tested under a number of different legal theories, on both federal and state constitu- tional and statutory grounds. The applicability of CFCs to off- airport RACs and non-traditional rental car business models, such as Turo, has also been challenged under similar theories.77 In general, reviewing courts have validated airport proprietors’ authority to impose CFCs in a wide variety of contexts. 1. Challenges Under Federal Law Opponents of CFCs and similar fees have frequently chal- lenged the imposition of these fees under the Commerce Clause of the U.S. Constitution. The Commerce Clause reserves to the U.S. Congress the power “[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes,” which is collectively and more commonly referred to as “interstate commerce.”78 Interpreting this Constitutional provi- sion, courts have generally invalidated state or local laws which discriminate against or unduly burden interstate commerce. In the airport context, both CFCs and airport ground access fees have been challenged under this doctrine, under the theory that state and local governments lack authority to impose a fee on an entity (such as a rental car agency) or its customers engaging in interstate commerce. 77 The most recent decision on this issue, as of the date of this digest, did come down in Turo’s favor. Turo Inc. v. Superior Court of S.F., No. A160200, 2022 Cal. App. LEXIS 564 (Ct. App. June 28, 2022). However, the court in that case was presented with a question of statutory inter- pretation under California state law, and held accordingly that Turo was not a “rental car company” or “rental company” as defined in those laws. While the implications of this decision may be significant for California state law (and, to a lesser degree, may be useful for jurisdic- tions considering drafting similar statutory language and/or that are also dealing with non-traditional business models such as Turo), the court did not address the broader issues discussed herein such as what a ‘fair approximation of use’ of the airport means. 78 U.S. Const. art. I, § 8, cl. 3.

ACRP LRD 45 13 ally declined to consider the issue altogether by finding that the AHTA does not confer a private right of action, which suggests that it would be equally difficult to bring such a claim based on CFC challenge.87 In the context of CFC-related cases specifically, at least one court has implied that the AHTA would not be relevant to the case (though the complainant was not a traditional rental car company and the case raised unique issues related thereto).88 In that case, the City of Los Angeles argued that the Com- merce Clause claim alleged by the plaintiff was foreclosed by the AHTA, among other things. The court did not consider this argument and noted that the AHTA and other statutes and regulations relied upon by the city for this argument focused on air transportation, or airport revenue in general, not ground transportation fees. Another category of potential federal claims arises under the Due Process Clause of the U.S. Constitution, which prohibits the deprivation of any person “of life, liberty, or property, with- out due process of law.”89 A procedural due process claim is es- sentially a claim that a state actor deprived the claimant of a life, liberty, or property interest without appropriate process in place to ensure that the state is acting fairly and not arbitrarily.90 In one case arising in the U.S. Court of Appeals for the Sixth Circuit, taxicab operators who had not been issued permits alleged they were denied their protected property interest in the right to use the outbound queue at the airport.91 The court disagreed, find- ing instead that “the loss in business suffered by the plaintiffs … was an indirect injury that did not create entitlement to due process” and the airport had acted fully within its authority to control cab operations at the airport.92 In a New York case, the court similarly denied a due process claim brought by off-air- port car rental companies and operators of off-airport parking lots challenging access fees to the airport, reasoning that there was no cognizable property interest in the alleged right to make a profit or activity of doing business.93 87 See Susquehanna Area Reg’l Airport Auth. v. Middletown Area Sch. Dist., 918 A.2d 813, 816-817 (Pa. Commw. Ct. 2007) (acknowledg- ing circuit split and siding with other courts that had found no private right of action in the AHTA because the “FAA contains its own compre- hensive administrative enforcement scheme to review alleged viola- tions of the AHTA”); but see Interface Group, Inc. v. Mass. Port Auth., 816 F.2d 9 (1st Cir. 1987) (finding Congress did intend to grant a private right of action under AHTA). Interface Group, Inc. is an outlier that has not been overturned by the First Circuit despite the later jurisprudence from other circuits discussing the issue at length and finding the opposite. 88 See Turo, Inc. v. City of L.A., 2019 U.S. Dist. LEXIS 6532, n. 2 (C.D. Cal. Jan. 14, 2019). 89 U.S. Const. amend. XIV, § 1. 90 Sisay v. Smith, 310 F. App’x 832, 838 (6th Cir. 2009). 91 Id. 92 Id. at 841-43. 93 Westover Car Rental, LLC v. Niagara Frontier Transp. Auth., 44 Misc. 3d 1226(A) (N.Y. Sup. Ct. 2014), aff’d in part, 21 N.Y.S.3d 510 (N.Y. App. Div. 2015), appeal denied, 51 N.E.3d 564 (2016). Courts have also rejected challenges to ground access fees (and suggested the same analysis would apply to CFCs) under federal law prohibiting the taxation of air passengers. The federal Anti-Head Tax Act (AHTA) generally prohibits state and local governments from imposing a tax on air passengers.83 While not directly applicable to rental car companies or CFCs necessarily, some legal challenges have been brought based on a theory that an airport has violated the AHTA for certain fees related to ground transportation. The AHTA also prohibits the levying or collecting of taxes, fees, or charges “exclusively upon any business located at a commercial service airport or operating as a permit- tee of such an airport” unless the revenue is wholly utilized for airport or aeronautical purposes.84 While the AHTA has pre- empted local taxation in some situations,85 courts have held con- sistently that access fees for off-airport transportation providers, such as rental car companies, are not subject to the AHTA. As noted above in Section II, PFCs are by contrast protected from such challenges as a Congressionally-authorized exception to the AHTA; CFCs, instead, could be theoretically subject to greater legal scrutiny under the AHTA, but because they gener- ally rely on a connection to ground transportation rather than air transportation, CFCs, like the ground transportation fees discussed above, seem unlikely to be invalidated on this basis. Though the line of cases confirming this position does not include a challenge to CFCs directly, several cases suggest that the AHTA does not limit local authority to impose CFCs, as courts have generally held that the AHTA does not apply and was not intended to apply to ground transportation services. For example, courts have held that taxes on parking transactions near the airport are not illegal head taxes and consistently have reasoned that the AHTA does not prohibit fees on ground trans- portation services. Several of the fees that have been at issue in these cases have similarities to CFCs, such as a tax collected from customers by parking lot operators at or near an airport who remitted the tax to the city and owed the tax themselves to the city if customers did not pay.86 Further, courts have gener- 83 See 49 U.S.C. § 40116(b). 84 See 49 U.S.C. § 40116(d)(2)(v). 85 See, e.g., Tinicum Twp. Privilege Fee Proceeding, No. OST-2007- 29341, Order (Mar. 19, 2008) (interpreting the AHTA at length and finding that landing fee imposed by non-airport owner or operator township was impermissible). 86 Burbank-Glendale-Pasadena Airport Auth. v. City of Burbank, 76 Cal. Rptr. 2d 297 (Cal. Ct. App. 1998) (city tax on parking transac- tions that mainly affected parking lots at or near the airport not pre- empted by AHTA because it was not a tax on air commerce and AHTA did not apply to taxes on ground transportation services); see also Salem Transp. Co. v. Port Authority of New York & New Jersey, 611 F. Supp. 254 (S.D.N.Y. 1985) (discussing legislative intent and holding that AHTA does not prohibit the imposition of fees on ground transporta- tion service); Alamo Rent-A-Car, Inc. v. Palm Springs, 955 F.2d 30 (9th Cir. 1992) (holding that nothing in the text or legislative history of the AHTA suggests that the prohibition on local head taxes on airline pas- sengers was intended to apply to fees on ground transportation service); Susquehanna Area Reg’l Airport Auth. v. Middletown Area Sch. Dist., 918 A.2d 813 (Pa. Commw. Ct. 2007) (tax on parking transactions is not a head tax).

14 ACRP LRD 45 The parties agreed that the question was whether the trip fees were a “transaction-based tax” prohibited by the amend- ment. The Arizona Supreme Court held that the city’s ordinance was constitutional, agreeing with the city that the fees imposed by the city were user fees and not transaction-based fees, and the provision only prohibited the latter.96 The “transaction” in ques- tion was the agreement between the transportation provider and the passenger, whereas the fee was imposed on the use of the airport and therefore was permissible.97 The court stated that the fee “reflect[ed] the fair value for accessing and using Airport property” and compared the trip fee to, among other things, landing fees, which the court said, “like the trip fees … are trig- gered by the use of Airport property and not the transactions between carriers and their passengers that gave rise to the trip.”98 CFCs themselves have also been the subject of recent litiga- tion at PHX. A class action was filed on June 12, 2018, on behalf of individual rental car customers alleging that the imposition of CFCs violated a different state constitutional provision, which prohibits taxes relating to the registration, operation, or use of vehicles from being used for anything other than street and highway purposes (the “Roberts lawsuit”).99 A related lawsuit was filed on behalf of the rental car companies themselves chal- lenging a city tax on the gross income related to the RACs’ busi- ness operations, relying on the same constitutional argument as the Roberts lawsuit (the “Pope lawsuit”).100 The claims in both the Roberts and Pope lawsuits relied on a third case101 that had been filed against the Arizona Depart- ment of Revenue challenging a car rental surcharge imposed by state statute for the benefit of the Arizona Tourism and Sports Authority (the “Saban lawsuit”). However, after a series of appeals, the Arizona Tourism and Sports Authority surcharge was upheld. The court in Saban distinguished, in sum, between taxes or fees that were a prerequisite to using a car on a public road which could implicate the anti-diversion provision from potentially permissible fees or taxes that are assessed in relation to the use of a vehicle in anticipation of using it on a public high- way (or for other purposes) such as for leasing a car or buying tires or other equipment. The Pope lawsuit filed by the rental car companies was subsequently dismissed on this same basis. The city then filed a motion to dismiss the CFC-related Roberts lawsuit on the same basis as the Pope and Saban law- suits. Among the city’s arguments for dismissal was the notion that the CFC was ultimately the legal obligation of the rental 96 Id. at 1206–07. 97 Id. 98 Id. at 1207. 99 Rachel Roberts v. City of Phoenix (Case No. 1-CA-TX 21-0004; Arizona Tax Court TX 2020-000833) (consol. 2021 with Case No. 1-CA-TX 20-0006); see also City of Phoenix Civic Improvement Cor- poration, Official Bond Statement – Rental Car Facility Charge Revenue Bonds Series, 2019A and Taxable Series 2019B (2019), at 32-33. 100 Daniel Pope v. City of Phoenix (Case No. 1-CA-TX 20-0006; Arizona Tax Court TX 2018-000759) (consol. 2021 with Case No. 1-CA-TX 21-0004). 101 Saban Rent-A-Car LLC v. ADOR, 246 Ariz. 89 (2019), cert. denied __ U.S. __, 140 S. Ct. 195 (2019). 2. Challenges Under State Law Because an airport proprietor’s authority to impose CFCs arises, if at all, under state and/or local law (whether through airport-specific statutes or laws generally conferring airport authorities, municipalities, or other entities with the power to act as airport proprietors), most challenges to the imposition of CFCs are based on state law theories. However, there remain relatively few reported cases challenging CFCs. In particular, challenges have been made to CFCs based on state constitu- tional provisions that limit the taxing powers of localities. Other sources of potential challenges may be state laws establishing or limiting the authority of the airport proprietor, the airport pro- prietor’s failure to follow procedures mandated by state law or local ordinance when imposing, modifying, or using CFCs. The cases that have arisen under some of these theories and airports’ responses to them are instructive to any airport seeking to im- pose CFCs, but also demonstrate the degree to which state law dictates how CFCs are viewed under the law. State constitutional laws may vary considerably state to state, including the limitations on fees and taxes and how those are defined. Practitioners should be aware of these limitations and how these limitations may affect the local authority of a political subdivision and/or airport proprietor and evaluate how, if at all, CFCs would be impacted by any such restrictions. A challenge to the “trip fee” imposed by the City of Phoenix on rideshare drivers picking up passengers at the Phoenix Sky Harbor International Airport (PHX) illustrates the type of state constitutional claims that may be raised regarding the im- position of CFCs. In 2018, the Arizona state constitution was amended by proposition to prohibit the state, cities, and other political subdivisions from increasing or imposing new taxes on services, including “any sales tax, transaction privilege tax, luxury tax, excise tax, use tax, or any other transaction-based tax, fee, stamp requirement or assessment on the privilege to engage in, or the gross receipts of sales or gross income derived from, any service performed in this state.”94 Subsequently, the City of Phoenix revised its municipal code provisions that required ground transportation providers, including ridesharing companies, to pay a “trip fee” each time a driver picked up a passenger(s) from PHX. The revisions added a new trip fee for dropping off departing passengers, re- portedly intended to “recoup the City’s costs for the providers’ ‘proportionate share of existing and future ground transporta- tion infrastructure, improvements, and operation/maintenance of this infra structure, including maintenance of the PHX Sky Train, and to comply with federal law requiring [the Airport] to achieve and maintain economic self-sufficiency.’”95 Pursuant to a special procedure under Arizona state law giving jurisdiction in this manner, the Attorney General responded to a request to determine the legality of the ordinance and then filed a special action with the state supreme court to resolve the issue. 94 Ariz. Const. art. 9, § 25. 95 State ex rel. Brnovich v. City of Phoenix, 468 P.3d 1200, 1203 (Az. 2020).

ACRP LRD 45 15 The various litigation was ultimately settled in mid-2020, with the port agreeing to pay around $6.6 million, including refunds to rental car customers, and to stop charging the fee, though it retained its right to impose a new version of it in the future. These cases illustrate the potential vulnerability of an air- port’s CFC revenue if legal challenges are brought, particularly where local airport proprietors may have less control over the imposition and use of the CFC and where state law issues such as the distinction between taxation and user fees may be more complex. Nonetheless, the majority of CFCs have not been chal- lenged and, with the tools discussed herein, airports may be able to bolster their protection against such risks. In addition to state constitutional and taxation questions,102 vagaries of state law may also pose unique or novel challenges for those seeking to challenge CFCs. As discussed above, there is a tremendous amount of variation in whether and, if so, in what manner, state law authorizes the imposition, collection, and use of CFCs. Moreover, the imposition of CFCs by an airport pro- prietor may also be subject to general requirements of munici- pal law, including the airport proprietor’s ability to negotiate and enter into contracts on its own or its authority to regulate local roadways and utilities. As such, it is not feasible to provide a comprehensive summary of the bases on which CFCs may be challenged under state and local law. However, several cases in- volving airport charges other than CFCs are instructive and are worth considering based on various theories about the airport’s rationalization for its authority under state or local law to collect and use CFCs, especially if similar laws exist in a practitioner’s own jurisdiction. The cases that we have seen related to ground transportation fees and restrictions have generally been held in the airports’ favor. These have included an individual customer’s challenge of an airport’s imposition of access fees on off-airport rental car companies, where, for example, the plaintiff unsuc- cessfully argued that passing the airport concession fees onto customers denied the public equal and uniform use of the airport;103 a rental car company’s claim that an airport author- ity’s imposition of an access fee and other requirements on off- airport rental car companies was unlawful interference with the use of public roadways;104 and a challenge by a rental car com- 102 In addition to those described herein, other representative cases involving state constitutional questions and taxation issues include Ace Rent-A-Car, Inc. v. Indianapolis Airport Auth., 612 N.E.2d 1104 (Ind. Ct. App. 1993) (access fee not an unauthorized income tax) and Thrifty Rent-A-Car Sys., Inc. v. Denver, 833 P.2d 852 (Colo. App. 1992) (reject- ing plaintiff ’s arguments that fees were unconstitutional income or excise taxes and rejecting plaintiff ’s argument that fees violated state constitutional provision regulating use of fees related to use of public highways). Like in most of the other similar cases, the airport’s imposi- tion of the fees was found permissible. 103 Branson v. Port of Seattle, 1010 P.3d 67 (Wash. 2004) (finding that airport concession fees did not deny the public equal and uniform use of the airport because the fees in no way impact public use of airport property). 104 Enterprise Mgmt. Inc. v. Huntsville-Madison Cty. Airport Auth., 601 So.2d 897 (Ala. 1992) (affirmed power of airport authority to impose access fee and other requirements on off-airport rental car companies). car companies and was not a prohibitive user fee assessed on a driver in the sense that it did not pose a barrier to the driver ac- tually using a public highway if they failed to pay the CFC. The court ultimately granted the city’s motion to dismiss the Roberts lawsuit in October 2020. Subsequently, the plaintiffs in both the Pope and Roberts lawsuits appealed and these dismissed cases were consolidated to be heard by the Arizona Court of Appeals. To date, briefing has concluded and an opinion is forthcoming. California’s CFC-related state statute has also been con- tested, though an airport proprietor was not a target of the chal- lenge. San Diego International Airport (SAN) is owned and operated by the San Diego County Regional Airport Authority (SDCRAA). In 2018, however, despite not being the entity that acts as the airport proprietor, the Port of San Diego began im- posing a $3.50 fee on rental car transactions at or near the air- port. The revenue from the fees was to be used to finance the construction of a non-airport-based parking structure. The Port called the fee a “user fee,” which was disputed by the rental car companies (and others) who viewed it as an illegal tax. Even the airport authority, which imposes its own CFC on-airport rental car companies, at one point objected: SDCRAA intervened in the ensuing litigation, largely to take issue with the Port’s lack of consultation with SDCRAA in enacting the CFC, though it later withdrew. Among the litigants’ arguments was the claim that the funds would primarily benefit the general public rather than airport users. Many airports do impose CFCs on the customers of off- airport RACs, but typically do so with the justification that the off-airport RACs’ customers’ trips are originating at the airport and the off-airport RAC is benefiting from the overall facility. California’s CFC-related state statute in particular specifies that off-airport RACs should be charged for common-use transpor- tation facilities in a specific manner related to their proportionate share of use of such facilities. Thus, the litigants argued that the port’s CFC was distinguishable for its seemingly general-purpose applicability even from these other types of off-airport charges. Several lawsuits were filed regarding the Port’s imposed fees: • Garvin v. San Diego Unified Port Dist., Case No. 37-2020- 00015054 (Sup. Ct. Cal.) (complaint filed May 26, 2020) (proposed class action seeking refunds from the Port for user fees paid by customers). • Enterprise Rent-A-Car Co. of Los Angeles, LLC, et al. v. San Diego Unified Port Dist., Case No. 37-2018-00028276-CU- MC-CTL (Sup. Ct. Cal.) (complaint filed June 8, 2018) (chal- lenging validity of user fee as improper tax). • Enterprise Rent-A-Car Co. of Los Angeles, LLC, et al. v. San Diego Unified Port Dist., Case No. 37-2019-00029137-CU- MC-CTL (Sup. Ct. Cal) (complaint filed June 6, 2019) ( action seeking refund of fees collected and remitted to the Port). • Garvin v. Payless Car Rental, Inc., et al., Case No. 3:20-cv- 0172-AJB-WVG (S.D. Cal.) (complaint filed Jan. 24, 2020) (class action alleging unlawful and deceptive trade prac- tices by rental car company defendants for charging cus- tomers the user fee).

16 ACRP LRD 45 a fixed rent and fees for on-airport companies [was] rationally related to its objectives of maximizing revenue and obtaining fees from all car rental companies regardless of whether they operate on the airport property. The Authority could rationally conclude that all car rental companies receive benefits from the presence of the airport.”110 That court also further determined that the Authority had a rational basis for treating on-airport companies differently than off-airport companies even if the airport’s schedule of fees had the effect of creating an economic disadvantage to the off-airport companies.111 In addition to CFCs, airports may use revenue sharing models to finance construction and maintenance costs of airport facilities. Rental car companies have challenged these models under the Commerce Clause, particularly when they are located off-airport and do not lease space in on-airport facilities that are financed by the revenue collected.112 However, few plaintiffs have been successful. As one court put it in a challenge brought by off-airport providers, the fees charged to them by the airport were not invalidated even by the fact that the revenue collected was much larger than the airport proprietor’s actual costs, be- cause the airport was “ the lifeblood of Plaintiff ’s business and the fee can be viewed as exacting a charge for the overall benefits conferred by the airport’s presence, not merely the depreciation of the physical plant caused by the use of the airport by the off- airport companies.”113 4. Bond Validation and Similar Proceedings Importantly, not all adjudications of an airport propri- etor’s authority to impose CFCs are adversarial. As discussed above, airports often pledge CFCs as security in order to obtain municipal bonds which may finance rental car related improve- ments at the airport. Particularly where CFCs are the only or primary source of pledged revenues for the financing, invest- ment considerations may include the likelihood that someone could mount a legal challenge to the imposition and collection of the CFCs (or already has). Bond validation proceedings may be available under special state proceedings114 and are occasion- ally invoked to obtain an advance opinion that CFCs are secure against such a challenge. These proceedings are usually very 110 Id. at 374-75. 111 Id. at 374. 112 See, e.g., General Rent-A-Car v. Roberts, 1988 U.S. Dist. LEXIS 18653, *3-11 (no violation of interstate commerce clause where airport charged off-airport rental car companies a fee based on its gross receipts in exchange for a permit to access the airport, where the fee helped defray the cost of construction, improvement, operation and mainte- nance of airport facilities in addition to other purposes); see also id. at *11-23 (also denying equal protection, due process, and antitrust claims related to the off-airport rental car company gross receipts fee). 113 Id. at *7. 114 See, e.g., Ohio Rev. Code § 133.70(B)(1) (“An issuer, at any time prior to its issuance or entering into of securities, may file a complaint for validation and thereby commence an action for the purpose of obtaining an adjudication of its authority to issue or enter into and the validity of, and security for and source of payment of, the securities, and of the validity of all proceedings taken and proposed to be taken in con- nection therewith…”). pany to the airport authority’s power to regulate a public road- way based on the authority’s powers conferred by state law.105 While each of these theories failed, they highlight the need to understand what sources of legal authority an airport proprietor has drawn on when structuring its CFC regime in order to avoid and withstand legal scrutiny. 3. Applicability to Non-Traditional and Off-Airport Rental Car Operations In addition to challenges to an airport proprietor’s author- ity to impose CFCs as a general matter, some challenges have focused on whether CFCs or other fees may properly be asserted against entities other than on-airport RACs. Courts have largely rejected claims from off-airport RACs that they should be un- encumbered by the same fees applicable to on-airport RACs. And, more recently, courts have generally rejected claims brought by non-traditional rental car business models, such as Turo, that they or their customers may not be regulated as RACs.106 Many of these challenges have been brought under the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution. In general, the Equal Protection Clause prohibits a state or political subdivision thereof from “[denying] to any per- son within its jurisdiction the equal protection of the laws.”107 In the context of CFCs and similar fees, where affected parties are generally commercial users and customers at airports (not what the law considers suspect, or protected, classes), a court will likely only ever review challenges to the imposition of such fees and related requirements with what is the lowest level of scru- tiny it has for such cases, referred to as rational basis scrutiny.108 This is not a difficult bar for governments to typically pass and means the airport proprietor (or state) must only show that the challenged statute be reasonably related to a legitimate govern- ment interest. Accordingly, courts have consistently upheld access fees and other user fees at airports against Equal Protection chal- lenges. For example, in a case where off-airport companies were required to pay privilege fees at the airport (like on-airport companies), the Eleventh Circuit found no violation of the Equal Protection Clause because the plaintiff failed to meet its burden of proving there was no rational basis for the airport’s system of classification for user fees.109 According to the court, “the Authority’s schedule of fees for off-airport companies and 105 Airline Car Rental, Inc. v. Shreveport Airport Auth., 667 F. Supp. 303 (W.D. La. 1987) (finding that state law authorizing airport authority’s powers conferred such right). 106 But see Turo Inc. v. Superior Court of S.F., No. A160200, 2022 Cal. App. LEXIS 564 (Ct. App. June 28, 2022) (finding in Turo’s favor on limited state law grounds). 107 U.S. Const. amend. XIV, § 1. 108 See Alamo Rent-A-Car v. Sarasota-Manatee Airport Auth., 825 F.2d 367, 370 (11th Cir. 1987) (discussing that legislation like that in question—imposing a user fee on rental car companies—which “does not impinge on fundamental rights or employ suspect classifications is presumed to be valid and will be upheld if it is rationally related to a legitimate state interest”). 109 Id.

ACRP LRD 45 17 robust state statute authorizing the RIAC to impose CFCs “at the rates that the Rhode Island Airport Corporation may deem necessary to provide adequate revenue to pay all costs of con- structing, reconstructing, expanding, reconfiguring, operating, and maintaining Warwick Station regardless of whether those charges may have an anticompetitive effect,” which must be held in trust. The court declined to issue an advisory opinion. How- ever, in dissent, Justice Flanders stated that he would answer the question in the affirmative, in that he believed the applicable law did not prohibit a uniform charge. B. Treatment of CFCs as Trust Property As discussed above, CFCs are generally imposed by an air- port proprietor on the end-users of a nonaeronautical service (typically, RAC customers) and collected in trust for the air- port proprietor by nonaeronautical service providers (typically, RACs). In practical terms, this is largely a distinction without difference; RACs are commonly required to remit CFCs on a monthly or other periodic basis, along with a report showing the number of rental days (or other metric upon which CFCs are calculated) for the period, just as it would for other types of charges assessed by an airport proprietor on the RAC. However, the status of CFCs as the airport proprietor’s trust property has significant legal implications when questions arise as to entitle- ment to CFC revenue. The most significant context in which such questions arise is in bankruptcy. While a comprehensive explanation of the U.S. Bankruptcy Code is well beyond the scope of this digest, the property comprising the debtor’s estate is a critical deter- mination in every bankruptcy proceeding, with important implications the moment a petition for bankruptcy protection is filed. Under the Bankruptcy Code, an “automatic stay” becomes effective upon the filing of a bankruptcy petition, which gener- ally prohibits any entity from pursuing an action to recover a debtor’s property or creating a lien thereon, including collecting on debts owed.120 Generally speaking, any account belonging to the debtor becomes part of the bankruptcy estate.121 The assets comprising the debtor’s estate are used to satisfy, if only partially, a debtor’s obligations to creditors under the Bankruptcy Code. However, property held by the debtor in trust for another is ex- cluded from the bankruptcy estate.122 Thus, it is critically impor- tant for airports to, in its agreements with, for example, rental car companies, to clearly establish CFCs as the trust property of the airport proprietor so that these assets are not subject to provisions of the Code governing the disposition of the debtor’s estate. An important part of this risk mitigation strategy is to 120 11 U.S.C. § 362. 121 See 11 U.S.C. § 541. 122 In re Columbia Gas Systems, Inc., 997 F.2d 1039, 1059 (3d Cir. 1993), EBS Pension L.L.C. v. Edison Bros. Stores, Inc. (In re Edison Bros., Inc.), 243 B.R. 231, 235 (Bankr. Del. 2000) (discussion about the fact that the exclusion from §541 property extended not just to funds held in express trust, but also to funds held in constructive trust); see also Beiger v. IRS, 496 U.S. 53, 55-67 (1990). state law specific and only available in certain jurisdictions, but may be a valuable tool for airports to consider when imposing a CFC or facing concerns about the security of such revenue. The Columbus Regional Airport Authority employed this approach in imposing CFCs at the John Glenn Columbus Inter- national Airport (CMH). Apparently aware of the Arizona liti- gation discussed in Section 2 and cognizant of a similar provi- sion in the Ohio Constitution, rental car concessionaires at CMH expressed concerns about the use of CFCs to pay costs associated with the ConRAC at the airport.115 Accordingly, the airport authority followed a state statutory procedure and suc- cessfully obtained a judgment from an Ohio court affirming that it had the authority to construct and operate the ConRAC, issue the relevant bonds to pay for constructing the ConRAC, and generally implement, collect, and use CFCs as intended for con- struction and payment of debt service on the bonds. The court’s order constituted a permanent injunction against challenges to the validity of the particular bonds and the CFCs as security by any person pursuant to certain state procedural rules.116 Similarly, the Port of Portland instituted CFCs to finance rental car facilities and project costs, as well as to secure bonds issued to finance such facilities. The port sought and obtained a validation judgment in 2017 from the Multnomah County Circuit Court that permanently enjoins persons from challeng- ing the validity of the bonds issued under its CFC bond or levy ordinances and confirming that the imposition, pledge, and use of CFCs to finance its ConRAC and related facilities did not violate certain provisions of the Oregon Constitution and was within the port’s authority.117 Similar to bond validation proceedings, some states have mechanisms that allow municipalities to obtain advisory opin- ions of a judicial body of the state’s attorney general.118 Of note is also Rhode Island’s request for an advisory opinion regarding the imposition of CFCs from its own supreme court. In this proceeding, the Governor of Rhode Island submitted a narrow request for an advisory opinion from the state’s supreme court. Specifically, the request asked whether, in implement- ing CFCs authorized by state statute, the RIAC could impose a uniform charge upon “all rental car customers who indirectly or directly use Warwick Station or the T.F. Green state airport, regardless of whether the customer chooses to rent from a com- pany that has chosen to locate inside the consolidated rental car facility or from a company based in another location that pro- vides customers with access by shuttle or other means to and from the consolidated rental car facility.”119 Rhode Island has a 115 Columbus Regional Airport Auth. (Ohio), Official Bond Statement – Customer Facility Charge Revenue Bonds, Series 2019, at 6-7 (April 17, 2019). 116 Id. at 6-7. 117 See The Port of Portland (Or.), Official Bond Statement – Series 26, at 41-42 (April 21, 2020). Many of these proceedings are summary proceedings without detailed analysis and/or are not publicly available online, but summaries are available in the related bond documents. 118 See, e.g., Ariz. Rev. Stat. § 41-194.01. 119 In re Request for Advisory Opinion, 812 A.2d 789 (R.I. 2002).

18 ACRP LRD 45 sidered revenue or income of the Debtors and all Trust Fund Charges collected by the Debtors shall be held in trust for the benefit of the applicable Airport Authority.130 Similar issues can arise under state law when entitlement to CFC revenue is contested. For example, if a RAC or other CFC- collecting entity is embroiled in a legal dispute with a third party, such third party may seek to place a lien on the RAC’s accounts. If CFCs are not properly established as the trust property of an airport proprietor, in accordance with applicable state law, there is a risk that a third party may have a superior claim to the CFC revenue. Moreover, as an evidentiary matter, it is important that CFCs be held in a separate account for the benefit of an airport proprietor. Otherwise, in such situations, it can be difficult to prove that certain amounts comprising a comingled account are, in fact, the property of the airport proprietor.131 C. Applicability of FAA Grant Assurances Airports which have accepted federal funding through the FAA’s Airport Improvement Program (AIP) must abide by a set of thirty-nine standard assurances which comprehensively regulate how the airport is to be operated and maintained. These conditions, referred to as the “Grant Assurances,” are imple- mented and enforced by the FAA.132 While the FAA exercises considerable oversight of airport sponsors in areas within its juris diction, it has limited direct enforcement responsibilities with respect to the imposition of CFCs. With respect to CFCs, the most significant grant assur- ances are Grant Assurance 24, Fee and Rental Structure, and Grant Assurance 25, Airport Revenues. The former requires that airport sponsors “maintain a fee and rental structure for the facilities and services at the airport which will make the airport as self-sustaining as possible under the circumstances existing at the particular airport.”133 Grant Assurance 25, Air- port Revenues, mandates that airport revenue, with very limited exceptions, must be spent on the capital or operating costs of the airport or “other local facilities which are owned or operated by the owner or operator of the airport and which are directly and substantially related to the actual air transportation of pas- sengers or property.”134 Together, these Grant Assurances make the airport essentially a closed fiscal system, which should gen- erate revenue that is then spent on maintaining, operating, and developing the airport. “Airport revenue” is defined broadly by federal law and in- cludes: 130 Id., Final Order (i) Authorizing, But Not Directing, The Debtors To Pay Certain Prepetition Claims Of Airport Authorities And (ii) Granting Related Relief (D.I. 563) ¶ 2. 131 See infra Section IV. 132 Interested parties may file complaints with the FAA pursuant to informal and formal administrative procedures alleging that airport sponsors are not in compliance with these obligations, or, additionally, the FAA may bring an enforcement action on its own if an airport has violated its Grant Assurances. See 14 C.F.R. Part 13; 14 C.F.R. Part 16. 133 Grant Assurances, ¶ 24. 134 Id. at ¶ 25. require that a separate account be created for the CFCs that are collected and remitted to the airport. This issue was recently addressed in bankruptcy proceedings which arose from the impact of the COVID-19 pandemic on air travel. The Hertz Corporation, which operates the Hertz, Dollar, and Thrifty rental car brands (collectively, the Debtors), filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code.123 In certain early motions, the Debtors sought authority from the Court to continue making regular payments to airport proprietors under their respective agreements, including the payment of CFCs.124 However, the Debtors’ description and pro- posed handling of CFCs drew a limited objection from several airport creditors.125 The Debtors narrowly defined CFCs as fees “instituted by ordinance and required under [c]oncession [a]greements,” which were “used to fund airport facility projects, including improvements to shared facilities and services for the benefit of the rental car industry,” and to service municipal bonds that [airports] issue to support facility projects.”126 A consortium of airports argued that this definition was too narrow and, among other things, could be construed to exclude CFCs that were im- posed by agreement, by operation of state law, or other means.127 Moreover, although the Debtors’ request to the Court acknowledged that CFCs were collected from their customers on behalf of airport proprietors, the Debtors stopped short of acknowledging that CFCs were the trust property of the airport proprietors for whom CFCs were collected, and would challenge any effort to classify CFCs as non-estate property.128 A consor- tium of airports argued that CFCs were not the Debtors’ prop- erty and requested an order stating as much. As the consortium of airports explained, the alternative would potentially allow the Debtors to pledge an interest in CFCs owed to their airports to secure financing throughout the bankruptcy proceeding or use CFCs to satisfy its obligations to other creditors.129 Ultimately, the Debtors agreed to a stipulated order resolving these issues, providing: [T]he Debtors are authorized to pay all customer facility charges and other charges characterized as trust fund charges in the applicable concession agreement or by applicable ordinance or other law (the “Trust Fund Charges”) whether such charges were collected pre- or post-petition or whether such charges are characterized as trust fund charges by applicable agreement, ordinance, or other law . . . . The Debtors are authorized but not directed to continue their practice of booking all Trust Fund Charges to a unique, singular use bal- ance sheet account on a daily consolidated basis by airport. No Trust Fund Charges collected by the Debtors from customers shall be con- 123 In re Hertz Corporation, et al., No. 20-11218 (MFW) (Bankr. D. Del. filed May 23, 2020). 124 Id., Motion for Entry of Interim and Final Orders (i) Authoriz- ing, But Not Directing, the Debtors to Pay Prepetition Claims of Air- port Authorities and (ii) Granting Related Relief Thereto (D.I. No. 23). 125 Id., Objection of the Consortium of Airports to Debtors’ Motions (D.I. No. 429). 126 Id. ¶ 17. 127 Id. ¶ 17–21. 128 Id. ¶ 22–29. 129 Id.

ACRP LRD 45 19 fore, the Grant Assurances do not provide a basis to challenge the imposition of a CFC.140 D. Public Financing and Taxation Municipal bonds are often utilized to finance substantial ground access development projects, including the construc- tion of CONRACs. One of the most common uses of CFCs is to back these bonds, particularly for rental car related facilities and costs. These arrangements will have implications for how an airport proprietor may use its CFCs, in addition to any other legal restraints already existing, including because an airport proprietor’s CFC bond indenture or CFC bond ordinance may govern and/or restrict the use of CFCs. CFCs may be pledged as security for such bonds in vari- ous ways. In some cases, CFCs are pledged in whole or in part in some manner as airport revenue under an airport’s general airport revenue bonds (GARBs), which are supported by vari- ous sources of funding that come from an airport’s activities. However, a CFC-backed bond is often a single-source pledge— meaning CFCs are essentially the only financing source. In such cases, these bonds are generally viewed as riskier by investors than GARBs. This may be not only because of the fact of a single financing source but because the legality of the imposition of the CFC is not as well-settled as the other streams of revenue that back GARBs and other airport-related bonds (e.g., PFCs or general airport revenue). When airports issue any such bonds, they must comply with federal securities law. While this body of law and its complexi- ties is largely outside the scope of this digest, several require- ments related to CFCs and CFC-backed bonds should be high- lighted. First, airports seeking municipal bond financing must comply with certain formal disclosure requirements, from a more thorough initial disclosure to continuing disclosures re- lated to triggering events.141 These filings alert investors and other stakeholders to the existence of circumstances that may affect the airport’s ability to repay its debt associated with the bond. The existence of litigation concerning the imposition of CFCs or a substantial decline in passenger traffic, for example, would be the type of threat an airport would need to disclose, if applicable. Airports must also consider all associated implications of federal tax law and regulations when considering these financ- ing options. Municipal bonds may be issued for airport pur- poses as exempt facility bonds (therefore on a tax-exempt basis and potentially greatly reducing costs).142 To be financed in this manner, however, a facility must meet certain requirements 140 Long Island Jet Center East, Inc., v. Cty. of Suffolk, N.Y., FAA Docket No. 16-04-05, Director’s Determination (Jan. 21, 2005) (car rental is non-aviation activity and agreements regarding same are not subject to federal requirements regarding such non-aviation activities). 141 Under SEC Rule 15c23-12, underwriters must obtain an under- taking from bond issuers to prepare initial disclosures and make certain continuing disclosures related to events that may affect the repayment of such a bond. See 17 C.F.R. § 240.15c2-12. 142 See 26 U.S.C. § 142(a)(1). All fees, charges, rents, or other payments received by or accruing to the sponsor . . . [including] . . . [r]evenue from air carriers, tenants, lessees, purchasers of airport properties, airport permittees making use of airport property and services, and other parties [and] all rev- enue received by the sponsor for the activities of others or the transfer of rights to others relating to the airport . . . .135 Pursuant to the Grant Assurances and associated federal law, revenue derived from CFCs is, therefore, considered “air- port revenue,” as it is derived from charges received by the spon- sor for the use of the airport. Restrictions that apply to the use of airport revenue under federal law therefore also apply to the use of CFCs.136 For example, CFCs spent on ground access projects which are on the airport, designed and constructed exclusively for airport use, and is integrated into the airport terminal may be considered a “capital” cost of the airport; however, other projects, especially if located off-airport, must be either an air- port capital project or part of a local facility (1) owned or oper- ated by the owner or operator of the airport and (2) directly and substantially related to the actual air transportation of passen- gers or property.137 “Directly and substantially related” in this context “means that the project [is] intended primarily for the use of airport passengers (air passengers, airport employees, airport visitors), i.e., it is designed and constructed for ground transportation to the airport; and is projected to be used pri- marily by airport passengers.”138 Improper use of CFCs could result in violations of the Grant Assurances or federal law, just as improper use of other types of airport revenue could. Other than the principles discussed above, however, the Grant Assurances do not generally impose any restriction or limitation on an airport proprietor’s authority to impose, collect, and use CFCs. Significantly, Grant Assurance 22, which requires airport sponsors to provide access to all aeronautical users on a reasonable basis and without unjust discrimination, does not afford similar protections to nonaeronautical users.139 The FAA has specifically held that RACs are not entitled to the same pro- tection as aeronautical users under the Grant Assurances; there- 135 Revenue Use Policy, at 7716, § II.B.1. 136 A comprehensive discussion of the limitations on the use of air- port revenue is outside the scope of this digest, but for a detailed analy- sis on the subject, see P. Kirsch, C. Alexander, ACRP LRD 40: Permissible Uses of Airport Property and Revenue, Transportation Research Board of the National Academies of Sciences, Engineering and Medicine, Washington, D.C., 2020. 137 See FAA, Bulletin 1: Best Practices-Surface Access to Airports (9/2006), available at: https://www.faa.gov/airports/resources/publications/ reports/#bestPractices. 138 Id. at 4-5 (emphasis in original); see also id. at 4 (“The portion of a ground access project that is on the airport, is designed and con- structed exclusively for airport use, and is integrated into the airport terminal complex may be considered a “capital project of the airport”…). 139 Grant Assurances, ¶ 22; see also BMI Salvage Corp., et al., v. Miami-Dade Cty., Fl., FAA Docket No. 16-05-16, Final Decision and Order on Remand (Apr. 15, 2011) (nonaeronautical activities not enti- tled to protections of Grant Assurance 22); see also Revenue Use Policy at 7721, § VII(b)(6) (“fees charged to non-aeronautical users are not subject to the reasonableness requirement”).

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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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