Sound Aircraft Services, Inc. v. Town of East Hampton - No. 16-14-07

Author:

Winsome A. Lenfert, Deputy Associate Administrator for Airports

Complainant(s):

Respondent(s):

Airport(s):

East Hampton Airport (HTO)

History:

Director's Determination (1/2/19)

Holding:

Abstract:

Complainant leased land for offices, hangars, aircraft parking, aircraft servicing, and other purposes as part of its Fixed-Based Operator (“FBO”) services to aeronautical users at the airport. (Director’s Determination, p. 2.) It alleged numerous allegations of violations of federal grant assurances in connection with Respondent’s increased landing fees and fuel flowage fees at the airport. Respondent (“Town”) provided multiple arguments to rebut the allegations and stated that the “new fees are necessary to keep the Airport self-sustaining given the Airport’s capital needs.” (Respondent Town of East Hampton, New York's Brief in Support of its Answer to the Complaint, p. 3.) The Respondent further denied violating Grant Assurance 24, Grant Assurance 25, the Revenue Use Policy, or the Rates and Charges Policy. The Director dismissed the case—and the Deputy Associate Administrator affirmed—as follows.

Landing Fees and Fuel Flowage Fees: Grant Assurances 24 and 25, FAA Rates and Charges Policy

First, the Director evaluated whether the Respondent’s increased fuel flowage and landing fees at the airport were unreasonable and violative of the airport’s self-sustainability requirement in Grant Assurance 24 and the FAA’s Policy Regarding Airport Rates and Charges. At the center of this issue was the Complainant’s assertion that Respondent gave airport users insufficient notice of an increase in landing fees and fuel flowage fees. (Director’s Determination, p. 10.)

The Town’s method of setting fees, by, for example, weight classification, was practiced throughout the industry, the Deputy Associate Administrator observed, and the Director found it amply shown in the record that the Town’s method of establishing its fees by analyzing its debt capacity, forecast of revenues, expenses, maintenance obligations, and contingency requirements was sound, reasonable, and acceptable. (Final Agency Decision, p. 13.) As applied, this method resulted in fees that were reasonable and not unjustly discriminatory, and the Town’s application of this process did not and would not be expected to result in an inappropriate revenue surplus, according to the Deputy Associate Administrator. (Final Agency Decision, p. 13.) “Grant Assurance 24, Fee and Rental Structure, ‘does not require airport sponsors to establish fees that will generate the greatest possible income. The airport sponsor is expected to make appropriate business decisions that will make the airport as self-sustaining as circumstances will permit while maintaining a fair and reasonable pricing structure for aeronautical users.’” (Final Agency Decision, p. 13-14.)

The Deputy Associate Administrator also found that the Town’s method of setting its landing and fuel flowage fees resulted in fees that were reasonable and not unjustly discriminatory, and did not result in an inappropriate revenue surplus. Accordingly, the Deputy Associate Administrator affirmed the Director’s findings regarding the Town’s alleged violation of Grant Assurance 24, Fee and Rental Structure, in setting its landing and fuel flowage fees. (Final Agency Decision, p. 14.)

According to the Deputy Associate Administrator, moreover, Complainant also failed to support its argument that the fees were unreasonable in the lower proceeding, and it did not on appeal show that the fees led to the accumulation of an unreasonable surplus, nor did Complainant quantify what an unreasonable surplus was or cite case guidance to prove that those amounts were unreasonable—“it simply seizes upon the Director’s comment that increase was ‘substantial.’” (Final Agency Decision, p. 14.) Consequently, Complainant failed to show that the Town acted unreasonably in its plan for change at the Airport.

The Deputy Associate Administrator further reasoned that a relationship existed between landing and fuel flowage fee revenues and the expenditures for which the Town planned in its budget, and that the rate-setting methodology the Town used appeared to be applied consistently to similarly situated aeronautical users and conformed with the requirements of the policies set forth in Grant Assurance 24, Fee and Rental Structure, and the FAA Rates and Charges Policy. “Neither the absolute nor the relative amount of the user fees appears to deny access. Nor does it appear that those user fees are applied in an unjustly discriminatory manner.” (Final Agency Determination, p. 14.)

The Deputy Associate Administrator also explained that the FAA will not ordinarily investigate the reasonableness of a general aviation airport’s fees absent evidence of a progressive accumulation of surplus aeronautical revenues—a feature absent from Complainant’s case. Relatedly, the Deputy Associate Administrator found no grounds to hold the fees unreasonable and so found the landing and fuel flowage fees to be reasonable and compliant with the City’s federal obligations. (Final Agency Determination, p. 15.)

Last, regarding notice to the airport users of the planned increase in landing and fuel flowage fees, the Director observed that the Town’s process for notifying and involving airport users of pending airport fee increases was somewhat lacking, but that no violation occurred because the stakeholders ultimately did participate in the process. (Director’s Determination, p. 16.) The Deputy Associate Administrator agreed: “the Rates and Charges Policy does not impose mandatory requirements on general aviation airports to provide notice of rate changes to its users – the Policy encourages direct consultation with airport users in setting new rates and charges.” (Final Agency Decision, p. 15.) The Town had done that, meeting with airport users who frequently participated in the Town’s Budget and Financial Advisory Committee’s meetings. (Final Agency Decision, p. 15.) Therefore, the Deputy Associate Administrator found that HTO users including Sound were provided adequate notice of the Town’s new rates and charges as intended by Grant Assurance 24, Rates and Charges, and the FAA Rates and Charges Policy. (Final Agency Decision, p. 15.)

Spending on “Outside Professional” Grant Assurances 25 and FAA Revenue and Use Policy

The Complainant also alleged that Respondent violated Grant Assurance 25 and the Rates and Charges Policy by: (1) creating an inappropriate revenue surplus through the increased landing and fuel flowage fees; (2) operating without regard for the FAA Revenue Use Policy; and (3) failing to maintain records to support the necessity of expending more than $228,000 on “Outside Professionals.” (Director’s Determination, p. 16-17.) The Complainant maintained that these violations occurred because the revised fees allegedly “deter the use of the Airport and/or in effort to generate inappropriate revenue surplus” and that “either motive is demonstrative of unlawful revenue diversion.” (Director’s Determination, p. 17.)

Respondent countered that: (1) Complainant made no allegation that airport revenue was used for an impermissible purpose; (2) Grant Assurance 25 does not prohibit the accumulation of airport revenue surpluses; (3) there is no evidence of future revenue diversion; and (4) Grant Assurance 25 does not require a compliance analysis before raising airport fees. (Director’s Determination, p. 17.) The Respondent also argued that a failure to provide invoices related to the Respondent’s procurement of outside legal services was not evidence of an impermissible expenditure of airport revenues, and that spending airport revenues on outside professional help is expressly permitted by the Revenue Use Policy. (Director’s Determination, p. 17.)

According to the Director, the Complainant’s argument was essentially identical to the argument it made under Grant Assurance 24: increasing landing and fuel flowage fees “without justification or even accounting for what the increased revenue would be used for creates a revenue surplus in violation of Grant Assurance 25 and the Revenue Use Policy.” (Director’s Determination, p. 17.) As with other of Complainant’s other allegations, the Director did not agree.

The Director also disagreed with the Complainant’s position that expending airport revenues on “Outside Professionals”—or a failure to produce documentation to that effect in accordance with New York state law—was revenue diversion in violation of Grant Assurance 25. (Director’s Determination, p. 17.) The Director noted that legal costs may cover many airport-related purposes, from general liability issues, airport master planning and environmental costs, to legal representation during legal challenges or administrative proceedings, including a 14 C.F.R. Part 16 Complaint. (Director’s Determination, p. 17.)

Complainant appealed, asserting that that airport resources were being expended on the use of “Outside Professionals” contrary to expenditures permitted under the FAA Revenue Use Policy. Complainant also asserted that the Town’s spending on “Outside Professional,” combined with the Town’s failure to provide documentation in support, was a violation of Grant Assurance 25 and the FAA Revenue Use Policy. (Final Agency Decision, p. 15.) According to the Deputy Associate Administrator, the issue on appeal boiled down to “whether using airport revenue to pay for legal fees—when such fees are related to airport-related legal issues—is an element of the ‘operating costs of an airport.’” (Final Agency Decision, p. 17-18.)

More specifically, according to the Deputy Associate Administrator, “Airport operations include management and administrative tasks: equipment costs, administrative/management costs, personnel costs, and legal costs. Legal costs may further airport-related purposes, covering anything from general liability issues, airport master planning and environmental costs, to legal representation during legal challenges or administrative proceedings, such as a Part 16 complaint.” (Final Agency Decision, p. 18.) As such, legal costs are valid and common cost-centers in businesses, units of government, and airports.

Thus, “[t]he Deputy Associate Administrator is not prepared to say that efforts to address airport noise, even those that ultimately run afoul of the law, fail to advance an airport purpose for purposes of analyzing a violation of Grant Assurance 25, Airport Revenues. As noted in our Final Agency Decision in NBAA v. Town of East Hampton, there are cases where legal fees could be incurred in a way that is so ‘frivolous’ or contrary to established legal and regulatory norms—such as, for example, ignoring a clear judicial directive—that they could be excluded from the definition of ‘operating costs.’” (Final Agency Decision, p. 18.) In this context, according to the Deputy Associate Administrator, the record failed to show what evidence Complainant based its argument on—“it simply wants the Director, and now the Deputy Associate Administrator, to investigate the Town's spending” while the Town had provided “‘persuasive evidence that its expenditures were reasonable and airport-related,’ including hundreds of pages of invoices showing as much.” (Final Agency Decision, p. 17.)

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