[Federal Register Volume 60, Number 23 (Friday, February 3, 1995)]
[Notices]
[Pages 6906-6918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2673]




[[Page 6905]]

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Part IV





Department of Transportation





_______________________________________________________________________



Office of the Secretary



Federal Aviation Administration



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14 CFR Part 302



Policy Regarding Airport Rates and Charges; and Rules of Practice for 
Proceedings Concerning Airport Fees; Notice and Final Rule

  Federal Register / Vol. 60, No. 23 / Friday, February 3, 1995 / 
Notices   
[[Page 6906]] 

DEPARTMENT OF TRANSPORTATION

Office of the Secretary
Federal Aviation Administration
[Docket No. 27782]


Policy Regarding Airport Rates and Charges

AGENCY: Office of the Secretary and Federal Aviation Administration 
(FAA), Department of Transportation (DOT).

ACTION: Policy statement; request for comments.

-----------------------------------------------------------------------

SUMMARY: This document announces DOT and FAA policy on the fees charged 
by Federally-assisted airports to air carriers and other aeronautical 
users. The statement of policy was required by the Federal Aviation 
Administration Authorization Act of 1994, Public Law 103-305 (August 
23, 1994). While the policy stated in this document is effective 
immediately, the Department is requesting further comment on the policy 
adopted because of substantial industry interest in the proposed policy 
and because the final policy adopted differs in several respects from 
the proposal, in response to comments received on the proposal.

DATES: Comments must be received by May 4, 1995.

ADDRESSES: Comments should be mailed, in quadruplicate, to: Federal 
Aviation Administration, Office of Chief Counsel, Attention: Rules 
Docket (AGC-10), Docket No. 27782, 800 Independence Avenue, SW., 
Washington, DC 20591. All comments must be marked: ``Docket No. 
27782.'' Commenters wishing the FAA to acknowledge receipt of their 
comments must include a preaddressed, stamped postcard on which the 
following statement is made: ``Comments to Docket No. 27782.'' The 
postcard will be date stamped and mailed to the commenter.
    Comments on this Notice may be examined in room 915G on weekdays, 
except on Federal holidays, between 8:30 a.m. and 5 p.m.

FOR FURTHER INFORMATION CONTACT: John Rodgers, Director, Office of 
Aviation Policy, Plans and Management Analysis, Federal Aviation 
Administration, 800 Independence Ave. SW., Washington, DC 20591, 
telephone (202) 267-3274; Barry Molar, Manager, Airports Law Branch, 
Office of the Chief Counsel, Federal Aviation Administration, 800 
Independence Avenue, SW., Washington, DC 20591, telephone (202) 267-
3473.

SUPPLEMENTARY INFORMATION: On June 9, 1994, the Office of the Secretary 
of Transportation (OST) and the FAA issued two related notices on the 
subject of Federal policy on airport rates and charges. A notice of 
proposed policy entitled ``Proposed Policy Regarding Airport Rates and 
Charges'' listed and explained the principles that the Department 
believes define Federal policy on the rates and fees that an airport 
proprietor can charge to aeronautical users of the airport. Docket No. 
27782 (59 FR 29874, June 9, 1994). Notice 94-18, a notice of proposed 
rulemaking entitled ``Rules of Practice for Federally Assisted 
Airports,'' proposed detailed procedures for the filing, investigation, 
and adjudication of complaints against airports for alleged violation 
of Federal requirements involving rates and charges and other airport-
related requirements (59 FR 29880, June 9, 1994).
    The FAA Authorization Act of 1994, Public Law 103-305 (1994 
Authorization Act) was signed into law on August 23, 1994. In response 
to provisions in the 1994 Authorization Act that specifically address 
airport rates and charges, the Department issued a supplemental notice 
of proposed policy with revisions to reflect relevant provisions of the 
Act. (59 FR 51835, October 12, 1994). The relevant provisions of the 
1994 Authorization Act were summarized in the October 12 notice.
    The 1994 Authorization Act also required that the Secretary issue 
two other documents relating to airport fees and finances: first, 
procedural rules for the resolution of disputes between air carriers 
and airport owners and operators regarding airport fees; and second, 
policies and procedures for the enforcement of Federal restrictions on 
the use of airport revenue. The procedural rules are being published in 
the Federal Register on the same date as this Policy Regarding Airport 
Rates and Charges; the policies and procedures on revenue use and 
revenue diversion will be published within the next several weeks.

Summary of Policy Statement

    The policy statement being adopted retains the structure of the 
proposed policy, and is organized into five general principles with 
supporting guidance for each. In brief, the first principle establishes 
the continued reliance on direct local negotiation between airports and 
aeronautical users. The Department is available to resolve the issues 
raised in a dispute when the airport and aeronautical users are unable 
to resolve disputes directly.
    The second principle restates the legal requirement that rates, 
fees and charges to aeronautical users must be fair and reasonable, 
with more detailed guidance on the practices and restrictions that 
define ``fair and reasonable.'' The guidance for this principle 
incorporates flexibility to deviate from the proposed policy guidance 
based on agreement with aeronautical users; recognition that both 
compensatory and residual pricing approaches are legitimate; standards 
for the valuation of airport property in establishing rates; 
prescription of the kinds of costs that can be reflected in the rate 
base for aeronautical users; and guidance on subsidization of other 
airports. The policy makes certain distinctions in the reasonable 
accommodation of air carriers versus other aeronautical users, and does 
not establish fee standards for rates and charges for nonaeronautical 
users or limit the amount of revenues generated by nonaeronautical 
rates and charges.
    The third principle restates the legal prohibition on unjustly 
discriminatory rates and charges.
    The fourth principle restates the legal obligation of the airport 
sponsor to maintain a fee and rental structure that makes the airport 
as self-sustaining as possible. Supplemental guidance encourages the 
sponsor of an airport that is not currently self-sustaining to 
establish long-term goals and targets to make the airport financially 
self-sustaining. While the requirement that an airport be as self-
sustaining as possible under the circumstances existing at the airport 
is required by statute to be included in each sponsor's grant 
assurances, and is subject to enforcement by the FAA in accordance with 
its grant compliance procedures, it is not the intent of the Department 
that this requirement alone be the grounds for a complaint as to the 
reasonableness of an airport fee.
    The fifth principle restates the basic legal requirements for the 
application and use of airport revenues. Supplemental guidance on the 
use of airport revenue has been deleted from the statement of policy on 
airport fees, and instead will be incorporated in a separate statement 
of policy on the enforcement of the revenue use provisions of the 
Airport and Airway Improvement Act of 1982 and the 1994 FAA 
Authorization Act.

Comments on the Notices of Proposed Policy

    The Department received more than 150 comments on the Notice and 
Supplemental Notice of Proposed Policy. Comments were received from all 
segments of the airport community, including airport operators and 
representative organizations; [[Page 6907]] associations representing 
air carriers and commuter airlines; representatives of other 
aeronautical businesses at airports; general aviation representatives; 
representatives of airport concessionaires; aviation consultants and 
law firms; and the staff of the Bureau of Economics of the Federal 
Trade Commission. Many of the comments from airport operators and 
representatives were similar, and all of the comments tended to focus 
on certain issues. Accordingly, the following discussion of comments is 
organized by issue rather than by commenter. Issues are grouped by 
their applicability generally or to one of the five principles stated 
in the policy. Airport proprietors and representatives who took the 
same position on an issue are collectively referred to as ``airports;'' 
the Air Transport Association (ATA) and other air carrier commenters 
are referred to as ``air carriers.'' The summary of comments is 
intended to represent the general divergence or correspondence in 
industry views on various issues, and is not intended to be an 
exhaustive restatement of the comments received. All comments received 
were considered by The Department even if not specifically identified 
in this summary.

Discussion of Comments Received

    The final policy statement includes an expanded introduction that 
reflects the discussion below.
1. General: Scope of Policy and Procedures
    A. Should the policy apply to all aeronautical users or just air 
carriers?
    Airports commented that policy and related procedures should apply 
only to rates and charges imposed on air carriers. The policy is 
mandated by Sec. 113 of the 1994 FAA Authorization Act; based on the 
terms of Sec. 113, the policy should be limited to air carriers. If new 
policy guidance is needed for fees assessed on other aeronautical 
users, the issue should be addressed separately. The American 
Association of Airport Executives (AAAE) and some individual airports 
specifically objected to the inclusion of foreign air carriers. 
Commenters suggested that automatic inclusion of foreign air carriers 
would provide them with valuable rights ordinarily secured through 
negotiation of intergovernmental agreements.
    General aviation commenters stated that the Department should 
provide the same rights and protections for all aeronautical tenants, 
not just air carriers. However, the policy should reflect differences 
in the relationships between air carriers and airports and those 
between other aeronautical businesses and airports. In particular, more 
access to evidentiary hearing procedures should be available to non-
carrier complainants than proposed by the Department.
    In the policy adopted, the Department has continued to apply the 
policy to rates and charges assessed against all aeronautical users. 
Existing grant assurances obligate airport proprietors to give access 
on fair and reasonable terms to all types, kinds, and classes of 
aeronautical uses. However, where differences exist as a practical 
matter between air carriers and other kinds of aeronautical users, 
those differences have either been reflected in the guidance stated in 
the policy, or the policy will be applied with sufficient flexibility 
to reflect those differences. Some commenters noted that Sec. 113 of 
the 1994 Authorization Act applies only to air carriers and argued that 
the policy statement should be similarly limited. However, Sec. 113 
relates only to the procedures for special handling of airport-airline 
fee disputes; it does not define limits on the applicability of policy.
    The policy adopted applies to foreign air carrier rates as well as 
those imposed on domestic air carriers. The principles and guidance 
contained in the policy statement are consistent with the provisions of 
bilateral air service agreements, and the application of the same 
policy on fair and reasonable airport fees to both foreign and U.S. air 
carriers is appropriate.
    B. Should the policy and procedures apply to rates excluded by 
section 113?
    Airports commented that the policy and implementing regulations 
should clearly exclude rates and charges specifically excluded by the 
statute, e.g., rates established by agreement; Congress directed that 
the policies and procedures not apply to such excluded rates; in 
addition, the policy should reflect Sec. 47129(f), which states that 
that section shall not adversely affect the rights of any party under 
any existing written agreement between an airport and air carrier or 
the ability of an airport operator to meet its debt obligations.
    Air carriers commented that the policy should recognize that it is 
common for airports to increase fees by asserting that the increase is 
a routine adjustment to a preexisting agreement, even if the agreement 
does not allow for such an increase; therefore; the policy should make 
clear that a dispute as to whether a fee increase is within the terms 
of a contract or not should be covered by the policy to the same extent 
as a fee increase imposed in the absence of any agreement.
    The policy statement adopted applies to all fees charged to air 
carriers for aeronautical uses, although the policy itself makes clear 
that carriers and airport operators have wide latitude to agree on 
alternate arrangements. The rules for implementation of the dispute 
resolution procedure provided in Sec. 113 of the 1994 Authorization Act 
clarify that expedited ALJ procedures will be not be applicable to 
rates and charges excluded by Sec. 113. However, The Department will 
consider claims that a fee is not covered by the exclusion because it 
was not in fact ``imposed pursuant to a written agreement,'' even if a 
written agreement is in effect. Also, claims that are not subject to 
the Sec. 113 dispute resolution procedure technically may still be 
brought under 14 CFR Part 13, which applies to complaints that an 
airport proprietor has violated the grant assurance that rates and 
charges for aeronautical users will be fair and reasonable.
    C. Should the policy and procedures apply differently to different 
uses of the airport facilities by air carriers?
    Several airports commented that elements of the policy may be 
appropriate when applied to the airfield and terminal, but would not be 
appropriate if applied to other facilities leased or used by carriers 
on the airport. The Department agrees, and the policy adopted makes 
distinctions, where applicable, between various kinds of facilities on 
the airport.
    D. What airport users/tenants are included within the term 
``aeronautical users''?
    Airport commenters in particular stated that the term aeronautical 
user was not clearly defined, and that it was not clear whether the 
policy applied to certain businesses commonly found on an airport but 
which arguably are not ``aeronautical'' in nature. Also, 
representatives of concessionaires who commented on the proposal 
conceded that concessions such as car rentals were not aeronautical 
activity, but argued that the rates and charges policy and dispute 
resolution procedures should apply to concessions.
    The final policy statement does not substantially differ from the 
proposal. The Department believes that in most cases it is immediately 
clear whether a particular airport business is an aeronautical activity 
or not within the definition given in the policy. Where an ambiguous 
situation exists, an airport operator or airport user may contact the 
FAA Office of Airport Safety and Standards, AAS-300, for a 
determination. [[Page 6908]] 
2. General: Proprietary Powers of Airport Operators
    Airports commented that the policy adopted must preserve the 
airport's right, as landlord, to set fees and charges when consensus is 
not possible. If the policy establishes narrow federal standards, it 
would eliminate incentives to set fees and resolve disputes at the 
local level. Policies should not be so rigid as to stifle innovation 
that may lead to more efficient financing and management of airport 
facilities.
    Airports argued that the Department especially should not allow 
carriers to invoke the policy to challenge the wisdom of particular 
infrastructure enhancement or airport expenditures. Such an outcome 
would be perceived in the capital market as shifting management 
prerogatives away from the airport and would result in higher financing 
costs. The policy, airports argued, should make clear that a fee to 
cover debt service for a completed project cannot be challenged as 
unreasonable after the project comes on line and the debt service costs 
are added to the rate base.
    Airports are operated by state or local governmental entities to 
meet community and national needs. Prior Department statements, 
including the Government's amicus curiae brief to the Supreme Court in 
Northwest Airlines v. County of Kent, Michigan (510 U.S. ______; 114 
S.Ct. 855; 127 L. Ed. 2d 183 (1994) ``Kent County'') and Secretary 
Pena's December 1993 letter, recognize that airport proprietors have 
latitude to set fees to meet immediate and longer-term needs of 
airports. Actions of state and local government are presumed at law to 
be reasonable and lawful. This same presumption, the airport commenters 
argued, should apply to the establishment of rates and charges, even 
when imposed unilaterally by a proprietor through ordinance or 
regulation. The Supreme Court, in the Kent County litigation, recently 
reaffirmed the standard of reasonableness first enunciated in the 
Evansville decision; this standard afforded substantial deference to 
the airport proprietor. Airport commenters further argued that in 
keeping with the presumption of validity, air carriers filing 
complaints under Sec. 113 of the FAA Authorization Act should bear the 
burden of proving unreasonableness.
    ATA stated that airports possess monopoly power, which in recent 
years has not been kept in check. Section 113 of the 1994 FAA 
Authorization Act was enacted to respond to this potential monopoly 
power by providing for active DOT involvement in airport-carrier 
disputes, ATA argued, and airports should not be permitted to adopt new 
fees unilaterally after failing to reach a consensus; such a policy 
would give airports carte blanche to impose an unreasonable fee.
    General aviation representatives commented that at hundreds of 
general aviation airports operated by local governments, unreasonable 
economic requirements can be imposed without effective challenge.
    In light of the enactment of Sec. 113, the Department believes that 
it is not at all clear that the presumption of validity normally 
associated with governmental actions applies to the imposition of 
airport fees on air carriers. Even before enactment of Sec. 113, some 
judicial decisions recognized that the traditional presumption may not 
apply in cases of airport rate-setting. See, for example, Raleigh-
Durham Airport Authority v. Delta Air Lines, 429 F. Supp. 1069, 1083 
(D.N.C., 1976); New England Legal Foundation v. Massachusetts Port 
Authority, 883 F.2d 157, 169 (1st Cir. 1989) (Massport II). In Kent 
County, the Supreme Court applied the relatively deferential standard 
of the Evansville decision in part because the parties invited its use, 
and the Court noted that the Secretary had discretion to ``apply some 
other formula (including one that entails more rigorous scrutiny).'' 
Kent County, at ______, n. 14. The policy adopted does not expressly 
affirm or displace the presumption of validity that may apply to local 
government actions. In response to comments relating to challenge of 
project decisions, the Department considers the dispute resolution 
process to apply to significant disputes actually related to fees, and 
do not intend to make the process available to challenge particular 
capital construction projects after the fact under the guise of 
challenging the reasonableness of associated rates and charges.
3. Local Negotiation and Consultation
    Air carriers requested that the final policy include a more 
specific description of the information that airports are expected to 
provide to carriers in connection with a fee increase, and one carrier 
suggested that consultations and information exchange be required 
rather than just encouraged.
    Airports commented that the statement that consultations should be 
conducted well in advance of changes to fees did not acknowledge that 
local governments must sometimes act quickly, to avoid revenue 
shortfalls or for other reasons.
    The Department has included, in an appendix to the final policy 
statement, a brief list of the information that the Department believes 
would provide carriers the justification for a particular fee and 
sufficient information to assess the reasonableness of the fee. The 
information, in summary, is historic financial information for the two 
years prior to the change in the fee at issue; economic, financial and/
or legal justification for the change; aeronautical cost information; 
numbers of passengers and aircraft operations for the two preceding 
years; and certain planning and forecasting information. The list is 
general, for adaptability to different airport and local government 
accounting and recordkeeping, and is not intended to include every 
category of information that may be relevant to each fee dispute.
    The procedural rules adopted for the resolution of airport-air 
carrier fee disputes address the exchange of information. Following a 
complaint under 49 U.S.C. Sec. 47129, if the airport proprietor has not 
previously made that information available to carriers, the rules 
provide for discovery. The Department has not acted to require 
disclosure of information on a fee increase by regulation, but the 
agency will reconsider that decision if experience indicates that 
airports are not providing sufficient information to carriers during 
consultation on fee increases.
    In the statement on the timing of consultations, the Department has 
inserted ``if practical'' in the language suggesting consultation well 
in advance of a fee change. Finally, in response to the recommendation 
by several commenters for arbitration or mediation clauses in leases, 
the Department has added language encouraging the use of alternate 
dispute resolution in lease and use agreements.
4. Fair and Reasonable Rates: Compensatory and Residual Costs 
Methodology
    Airport commenters generally supported the policy approach that 
recognizes the discretion of an airport proprietor to establish 
compensatory or residual methodology, or a combination of the two. 
Airports also generally accepted the policy that airports could not 
unilaterally impose a residual system absent carrier agreement, 
although two commenters suggested that Sec. 113 gives an airport 
proprietor a right to impose a residual costing methodology even absent 
agreement.
    Air carriers stated that the policy must deal realistically with 
the fact that excessive revenues can and will be generated by an 
airport's shifting of all costs to airlines and all profits to itself; 
the policy should not exclude from [[Page 6909]] consideration revenues 
derived from activities such as concessions and parking, which are also 
the product of aviation activities. Failure to consider such revenues 
to be ``aviation related,'' carriers argued, is inconsistent with the 
requirement in Sec. 110 to take all airport revenue into consideration 
in setting aeronautical fees.
    The Department has retained the policy as proposed. The approach 
requested by ATA was specifically rejected by the Supreme Court in the 
Kent County decision, and Sec. 113 expressly preserves an airport 
proprietor's right to use a compensatory methodology, which does not 
require carrier agreement or the cross-crediting of concession 
revenues. Moreover, Sec. 110 recognizes that airports may depend on 
revenue generated from non-aeronautical uses for airport capital 
improvements and other airport system purposes. Accordingly, the policy 
adopted does not define concessions and parking as aeronautical revenue 
or require the cross-crediting of concession revenue to carriers. 
However, as discussed below, terminal costs and other shared costs must 
be allocated fairly among aeronautical and nonaeronautical users.
5. Fair and Reasonable Rates: Allowable Capital Costs
    Airports commented that capital costs allowed in the rate base 
should specifically include such ``indirect'' costs as debt coverage, 
cash and capital reserves, and allocation of some airport capital 
expenditures, e.g., roadways, in the carrier rate base.
    ATA did not comment specifically on what capital expenditures 
should be allocated to aeronautical users, but expressed concerns that 
airport proprietors are seeking unconstrained rights to generate 
``excessive surpluses'' based on airport proprietors' assertions that 
adequate reserves are necessary.
    The final policy clarifies that the reserves and coverage required 
in bond indentures and other debt instruments, as well as reserves to 
cover normal income fluctuations and unforeseen contingencies, may be 
included in the rate base. The final policy statement also clarifies 
policy regarding what some commenters referred to as ``indirect'' 
capital expenditures, which the Department understands to refer to 
airport facilities that support aeronautical use of the airport but 
which also receive nonaeronautical use, such as airport roads and fire-
rescue facilities. The policy provides that costs allocable to both 
aeronautical and nonaeronautical uses, or shared costs, may be included 
in a particular rate base if the facility at issue supports the 
aeronautical activity being charged, and the allocation to aeronautical 
users is in proportion to the aeronautical purpose and use of the 
facility.
    For example, the costs of roadways on the airport that provide 
public access to the passenger terminal could not be charged entirely 
to any class of aeronautical users. However, a portion of roadway costs 
could be included in the rate base for the terminal building, for 
example, so long as the portion of the shared costs allocated to 
terminal users does not exceed an amount that reflects the respective 
aeronautical and nonaeronautical use of the same facility. The 
Department does not expect the use of any particular formula for the 
determination of aeronautical portion of shared costs, because the 
circumstances may vary. For example, an airfield crash-fire-rescue 
facility may exist primarily to support Part 121 air carrier 
operations, but may actually be used primarily for landside public 
emergency calls. An airport proprietor must be able to justify the 
reason for the allocation used.
6. Fair and Reasonable Rates: Imputed Interest and Rate of Return
    Airports argued that the final policy should expressly provide that 
while the rates charged to aeronautical users cannot exceed costs of 
providing services, those costs should be considered to include a 
reasonable rate of return on investment; the return should apply to all 
internally generated funds, regardless of source; a reasonable rate of 
return would permit an airport proprietor to accumulate cash reserves, 
which may be necessary as a condition of financing agreements and to 
compensate a proprietor for the risk of undertaking a particular 
investment; and allowance of rate of return will assure that the 
Department's policy is consistent with Article 10 of the United States-
United Kingdom Air Services Agreement (``Bermuda 2''), which permits a 
competent charging authority to recover a reasonable return. Airport 
commenters further argued that airport proprietors should be permitted 
to recover the implicit cost of capital for internally generated funds 
without regard to source, aeronautical or nonaeronautical; in addition, 
the rate allowed should be the highest of either the rates of return 
available on the proprietor's investment at the time of the capital 
expenditure (lost investment opportunity rates) or the cost of borrowed 
funds available to the airport proprietor at the time of the 
expenditure; rates prevailing on bonds at similarly-sized airports is 
not appropriate because other airports may have different credit 
ratings and, therefore, different capital costs.
    ATA argued that routine inclusion of ``implied capital costs'' is 
inconsistent with the concept of dedicated aviation resources; an 
airport should not be allowed to collect interest for use of its own 
reserves; allowance of implied capital costs is a device to generate 
more revenue than is needed for airport purposes in violation of the 
congressional direction that airports should not seek to accumulate 
excessive reserves.
     The final policy adopted by the Department continues to permit the 
charge of imputed interest on the expenditure of airport funds 
generated from non-aeronautical sources, but not on those generated 
from aeronautical uses. While ATA is correct that all reserves must 
generally be used for airport purposes, Federal law does not require 
that the funds be used for aeronautical activities. Therefore, an 
airport decision to fund an aeronautical activity is an investment 
choice that benefits aeronautical users, and the reasonable costs of 
that investment, including imputed interest, are appropriately 
recoverable in the aeronautical rate base. The policy provides that the 
borrowing rate, rather than interest obtainable, is the appropriate 
measure of reasonable imputed interest for a public entity.
    The Department does not agree with the comment that imputed 
interest should be allowed for the use of funds generated by 
aeronautical uses. First, a rate of return or imputed interest on the 
use of aeronautical revenues is not necessary for bond coverage and 
other reserves, because the policy adopted expressly allows the 
establishment of such reserves as a direct cost. Second, the use of any 
reserves generated from aeronautical revenues does not carry with it 
any implicit cost to the airport for the use of capital, since the 
reserve was generated by direct charge to users; the Department sees no 
justification for an additional charge for the use of these funds for 
the purposes for which they were collected.
    To the extent that airports would justify a particular rate of 
return policy on the basis of bilateral agreements such as Bermuda 2, 
that reliance is misplaced; Bermuda 2 does not obligate the United 
States to permit its airports to earn a rate of return; rather the 
provision requires that each country recognize the other's authority to 
permit its airports to earn a rate of return on assets, after 
depreciation, to the extent provided by the domestic law of each 
country. [[Page 6910]] 
7. Fair and Reasonable Rates: Allowable Environmental Costs
    Airport commenters stated that the proposed limitation of allowable 
costs to reasonable environmental costs should be stricken; the costs 
of compliance with all Federal, state, and local environmental 
mandates, including clean air and clean water requirements, mitigation 
required to obtain approvals for development projects, and all 
expenditures for noise mitigation should be includable in the rate 
base; the policy should clarify that mitigation (such as wetlands 
replacement) may occur on or off airports. Also, airports argued, 
because the airport proprietor is liable for noise damages, the 
sponsor's judgment in developing a noise mitigation program should be 
given deference. Airport commenters also argued that the limitation to 
current expenditures for environmental costs should be removed; 
airports should have discretion to include in the rate base reserves to 
fund any future liability for cleanup of environmental contamination 
likely to result from current operations.
    The carrier view is that airport proprietors should not be 
permitted to prefund future environmental liability for environmental 
remediation, other than through documented self-insurance requirements, 
subject to standard industry conventions and practices.
    The final policy statement adopted by the Department adds language 
clarifying that the following environmental costs, to the extent 
actually incurred by the airport proprietor, will be presumed to be 
reasonable costs:
     Costs of complying with Federal, state, and local 
environmental laws and regulations, provided that, in the case of local 
requirements, such requirements are applied to other similarly situated 
enterprises (to avoid possible impermissible use of airport revenues).
     Mitigation requirements on or off airport associated with 
airport development (for aeronautical use).
     Noise mitigation pursuant to an approved Part 150 program 
or other publicly-disclosed airport noise compatibility program;
     Costs of insurance or self-insurance for correction or 
cleanup of environmental damage. The Department agrees with carrier 
comments that considerations of forward financing of environmental 
cleanup costs do require some limitation on the charge to current 
users, and the policy limits self-insurance costs to costs incurred 
pursuant to a formal self-insurance program that meets applicable 
insurance industry standards.
8. Fair and Reasonable Rates: Facilities Currently in Use
    Airports asserted that the only restriction in current law is that 
costs must relate to the development or improvement of an existing 
airport; the restriction to the costs of facilities in use is overly 
restrictive and not supported by law. Airports argued that land and 
construction costs should be recoverable before a facility is in use; 
the proposed policy does not even clearly permit recovery of costs for 
borrowing to finance improvements until project completion, which could 
lower bond ratings and postpone land acquisition, thereby increasing 
project costs.
    Comair praised the currently-in-use limitation on the grounds that 
it would impose needed discipline on airport expansion policies that 
show little regard for airline profitability.
    The Department continues to believe that the traditional approach 
of limiting recovery of costs to facilities in use is clear, easy to 
administer, widely accepted, and supported by judicial decisions. 
Accordingly, the final policy statement continues to provide that only 
the costs of facilities currently in use may be included in the rate 
base; financing costs incurred for construction, including debt service 
and reserves, may be recovered at the time a facility comes on line. 
Users may, of course, agree to incur present costs for a future 
facility. The policy continues to provide that current costs of 
planning for future facilities may be recovered as they are incurred.
9. Fair and Reasonable Rates: Asset Valuation
    Airport comments: Airports commented that the proposed limitation 
on valuation of airport property to historic cost is unduly 
restrictive; is not required by existing legal interpretations; is 
inconsistent with existing airport practice and Department policies; is 
inconsistent with the objective of promoting efficient use of 
resources; and could interfere with the successful implementation of 
peak period pricing. Commenters stated that airports typically use 
various asset valuation methods for their assets, including current 
cost, fair market value, or the use of inflation indices (although few 
individual airport proprietors claimed to be using other than 
historical valuation). In addition, rates and charges for many 
aeronautical assets are based on percentage of gross revenue. The use 
of indices and gross revenue formulas is not generally expected to 
result in rates and charges that reflect historical cost asset 
valuation.
    For many assets that are fully depreciated, including terminals, 
the use of historic cost valuation would result in a subsidy to 
carriers in the form of rental rates that did not reflect the value of 
the facilities. In addition, a strict historic cost requirement could 
expose airports to claims of unjust discrimination if carriers using 
newer facilities are charged more than carriers using older facilities 
that are fully depreciated. At a minimum, some airports urge that the 
policy make clear that blending of asset values is permitted to avoid 
this problem.
    Further, airports claimed that the use of historic cost valuation 
may distort the perception of the relative value of existing and new 
facilities. A new facility may fail the test of economic feasibility 
based on the disparity between fees based on historic costs of the 
original facility and those based on current costs of a new facility. 
Moreover, in the case of gates and other terminal facilities and other 
facilities such as hangars or flight kitchens, air carriers themselves 
recognize the value of the facilities by subleasing at rates higher 
than historic value. A policy requiring airports to value their 
facilities at historic value would allow airlines to enjoy a windfall 
in the form of a differential between the market rates they can obtain 
for subleases and rates paid to the airport based on historic cost. The 
public interest would be better served, airports argued, if the airport 
proprietor were able to capture this appreciation through market-based 
rates and to apply the proceeds for the development of airport 
infrastructure.
    It was also argued that historic cost valuation could limit the 
effectiveness of peak period pricing. If an airport is unable to 
reflect the opportunity costs of its scarce assets in its rate base, 
the maximum peak price that can be charged may not be enough to cause 
traffic to shift away from the peak period.
    The proposed historic cost requirement, in the airports' view, is 
not supported in law or FAA policy. Decisional law is clear that 
results, not methodology, are significant in determining 
reasonableness. In addition, under the Evansville standard, a rate is 
considered reasonable if based on some fair approximation of use and 
not excessive in comparison with the government benefit conferred. A 
rate based on the standard of ``benefit conferred'' will in most cases 
be different from rate based on a facility's historic 
cost. [[Page 6911]] 
    Airports also pointed to FAA policy statements that apparently 
support alternative valuation methods. FAA's Order 5190.6A recommends 
that long term leases include automatic escalation provisions based on 
recognized economic indicators. In addition, the Order identifies a fee 
for use of landing areas based on a specified percentage of ticket 
sales to enplaning passengers as acceptable. Neither of these 
methodologies would produce rates based on historic costs.
    Finally, airports stated that the DOT Office of the Inspector 
General (DOT/OIG) has criticized the failure of airports to obtain fair 
market value for aeronautical rentals. The DOT/OIG position indicates 
that use of methodologies other than historic cost is at least 
permitted, if not mandated by assurances relating to maintaining a fee 
and rental structure that will make the airport as self-sustaining as 
possible.
    Air carrier comments: Air carriers considered the concept of using 
historic costs for asset valuation to be sound and consistent with 
Federal law. While parties might mutually agree to another valuation 
method, the policy must provide that only historic cost valuation may 
be unilaterally used, to protect against rampant overcharging and 
accumulation of excess surpluses by airports. Airports have access to 
capital for replacement of assets without generating excess revenue 
from other valuation methodologies. The use of historical cost 
valuation is quickly and easily verifiable and eliminates instability 
in the rate base.
    FTC comments: The staff of the Bureau of Economics of the Federal 
Trade Commission (FTC) submitted comments on the proposed policy, with 
the caveat that the comments do not necessarily represent the views of 
the Commission or of individual commissioners. FTC staff took the 
position that the requirement to use historic costs will not promote 
the efficient use of resources. Historic cost valuation will likely 
result in prices that are below the value of airport facilities. When 
prices are below the value of facilities, excess demand results. If a 
community is served by two airports built at different times and fees 
are based on historic costs, airlines will be attracted to the older, 
lower-cost airport and avoid the newer, more expensive one. Demand at 
the older airport would have to be rationed by nonprice means.
    Carriers compete by offering connecting service over various hubs. 
Because fees charged by hub airports are a determinant of air fares, it 
is important that competition between carriers not be distorted by a 
pricing system for airport services that reflects the age of 
facilities, rather than true economic costs.
    FTC staff recognized that airport services are not generally 
produced in competitive markets. Therefore, airport proprietors might 
possess monopoly market power in pricing their services. However, FTC 
staff maintained that there are effective means for the Department to 
regulate the pricing of airport services other than cost of service 
pricing based on historic costs.
    While cost-of-service regulation based on historic costs has 
typically been used in the United States, FTC staff commented that this 
approach has a number of defects. Failure to use a pricing system that 
reflects opportunity costs could lead to greater levels of airport 
capacity than is warranted by economic efficiency, as excess demand 
leads to congestion and delays which in turn lead to calls for new 
capacity.
    Even if a cost basis other than historic costs is used, FTC staff 
believed that cost-of-service regulation can be a source of economic 
inefficiency. One regulatory alternative that addresses some of these 
shortcomings is price-cap regulation. Under price-cap regulation, the 
regulator sets a price ceiling, but the firm is free to charge any 
price below this ceiling. The price ceiling is adjusted periodically by 
a factor that is independent of the firm. Price cap regulation has been 
used in the privatization of nationalized industries in the United 
Kingdom, including airports, and in the telecommunications industry in 
the United States.
    Final policy statement: The final policy retains the historic 
valuation principle proposed; for property other than airfield and 
land, however, the policy permits airport operators to use other 
valuation methods if the methodology does not result in total 
aeronautical revenues exceeding total aeronautical costs and if the 
methodology is applied consistently for similar facilities. If an 
airport proprietor uses valuation other than historic costs for 
establishing any aeronautical charge, the airport operator will be 
responsible for demonstrating that the methodology is justified, upon 
complaint by an air carrier or other aeronautical user. Where similar 
facilities have a different historic cost basis, the cost may be 
averaged across all similar facilities to produce a common rate.
    The Department recognizes, as many of the airports and FTC staff 
commented, that valuation based on other than historic cost may be 
justifiable in certain situations. Nonetheless, we continue to believe 
that the use of historic cost asset valuation methodology is consistent 
with the objectives and direction of the AAIA and Public Law 103-305, 
in addition to being the most widely accepted methodology under 
applicable standards for both public finance accounting and ratemaking. 
The financial and accounting standards issued by the Financial 
Accounting Standards Board and the Government Accounting Board, which 
form the basis of Generally Accepted Accounting Principles (GAAP), 
prescribe historic cost valuation as the accepted accounting convention 
for valuing the assets of local government enterprise functions such as 
airports. The valuation of assets for purposes of an accurate financial 
statement is somewhat different from the objective of establishing 
lease rates, but does indicate the longstanding general acceptance of 
historic cost valuation as the standard.
    As recognized by commenters on both sides of the cost valuation 
issue, historic cost has also been the standard for use in the 
establishment of rates in regulated industries. However, as several 
commenters noted, the rates charged by airport proprietors are not 
perfectly analogous to public utility rates, and the Department has not 
strictly applied the principles of public utility ratemaking law in 
developing the policy. Nevertheless, many of the reasons for the use of 
historic cost apply to both public and private enterprise activities. 
Historic cost is the simplest, most direct, and easiest-to-verify 
measure of cost. Moreover, in a regulatory system in which the 
proprietor's revenue is limited to the costs of providing services, 
historic cost valuation provides for full reimbursement of actual costs 
incurred by the proprietor. The airport fee policy adopted by the 
Department does limit the revenue that can be generated from 
aeronautical uses to the costs of providing services, and historical 
cost valuation is, therefore, both sufficient and appropriate for 
determining the amount of revenue (and the limit on reasonable fees) 
that can be collected for aeronautical uses. The use of an alternative 
methodology such as replacement cost valuation, for example, would 
generate funds in excess of past and current costs, and could result in 
the accumulation of excess funds that could be used for the replacement 
of the facilities being used or for any other airport purpose. The 
accumulation of surplus aeronautical revenues for replacement of 
facilities is not permitted by the policy adopted, which limits charges 
to recovery of costs for facilities in use. Nor are the surplus funds 
that [[Page 6912]] would be generated by replacement cost pricing 
needed for other purposes, since aeronautical users can be charged 
directly for the amounts needed to maintain debt service and coverage 
reserves, working reserves for normal operations, and contingency 
funds. Also, surplus funds for any airport purpose can be accumulated 
from revenues generated by nonaeronautical uses, which are not covered 
by the policy. In summary, historical cost valuation is the most widely 
used and accepted valuation methodology; it reimburses the airport 
proprietor fully for costs incurred; and it is consistent with the 
policy's provision that fees charged to aeronautical users are limited 
to the costs of services provided.
    The Department believes that many of the impacts of historic costs 
noted by airport commenters would not be as problematic as the 
commenters suggest. First, historic costs would result in rents 
substantially below market only where a facility has not been 
renovated, reconstructed, or replaced for many years. While there are 
such cases, it would be the exception for airport facilities. Second, 
increased use of shorter airport leases reduces the instance of 
potential windfall situations, in which a lessee who pays the airport 
proprietor a historic cost-based rate is able to sublease at market 
rates, because the airport proprietor can reallocate the property to 
the actual user after a shorter time. Third, the policy adopted 
expressly permits airport proprietors to average the historic cost 
basis of all property, new and old, in the same general category (e.g., 
terminal gates). Accordingly, lessees of similar facilities can be 
charged identical rates regardless of the age and original cost of each 
facility. Finally, the policy should not result in any significant 
disruption of existing practice. Historic cost is already the most 
widely accepted basis for asset valuation; also, existing airport-air 
carrier agreements and air carrier fees that were not in dispute as of 
August 23, 1994, are not subject to challenge under the special 
expedited procedures in any event.
    That said, as airport commenters and the FTC staff noted, rates 
based on historic cost can potentially result in inefficiencies and 
unintended subsidies. Accordingly, the Department believes that it is 
reasonable that airport proprietors, where justification exists, have 
some flexibility to use an asset valuation other than historic cost for 
the purpose of ratesetting. However, for overall aeronautical fees to 
be consistent with the provisions of the policy, several limitations 
will necessarily apply when asset valuation other than historic cost is 
used to determine some rates. First, aeronautical revenues in the 
aggregate cannot exceed the cost of aeronautical facilities (valued at 
historic cost) and services provided, and the use of a valuation higher 
than historic cost would not increase the total limit on aeronautical 
revenues since the total cost of aeronautical facilities would continue 
to be calculated using historic cost. Therefore, charging a market rate 
not based on historic costs for one category of leased aeronautical 
facility may require charging less than a full compensatory rate for 
other facilities used by the same aeronautical users. Second, only 
historic cost valuation will be considered reasonable for airfield 
facilities and land. Any potential effects of inefficiency or subsidy 
would apply particularly to terminal and other landside facilities, 
which may be exclusively leased. Accordingly, the Department will 
consider the possibility that a fee based on valuation other than 
historic cost could be reasonable, but only with respect to facilities 
other than the airfield, and only to improvements, not land. Finally, 
because historic cost valuation remains the standard in both public 
finance accounting and in ratemaking methodology, historic cost asset 
valuation methodology will be presumed to be reasonable for facilities 
other than airfield facilities and land. Subject to the general limit 
on total aeronautical revenue, for facilities other than airfield 
facilities and land an airport proprietor may demonstrate that an 
alternate valuation methodology is justified in the circumstances 
existing at the airport.
    The Department believes the policy adopted represents the most 
reasonable approach to valuation of airport assets, in consideration of 
the comments received and the policy direction in recent legislation. 
The policy applies a strict historical valuation standard to core 
aeronautical use facilities, i.e., the airfield and land. For terminal 
and exclusively leased areas of the airport the policy permits 
flexibility in rate methodology and avoids disruption of existing 
arrangements, while at the same time discouraging accumulation of 
excess revenues.
    The policy adopted is intended to cover the fees for use of 
aeronautical facilities, and is not intended for strict application to 
a transfer of assets. The policy applies the general rule that 
subsequent airport proprietors will acquire the cost basis of assets 
used in the rate base at the original airport proprietor's historic 
cost. However, requests for approval of the transfer of airport assets 
may include requests for deviation from this policy with justification.
    FTC staff acknowledged that the monopoly power of airport operators 
requires some pricing regulation. With respect to the use of price-cap 
regulation suggested by FTC staff, such an approach does not appear to 
be feasible. The examples cited by FTC staff represented monopoly or 
near monopoly regimes where a cap was being set for one, or at most a 
handful of firms. In contrast, there are more than 400 commercial 
service airports and thousands of obligated airports that may be 
subject to the airport fee policy. The Department cannot effectively 
establish a separate price cap regime for each regulated entity, and it 
is not clear that the benefits of a price cap regime would be available 
if the Department were to develop a single industry standard formula. 
In the U.K. airport context, the British determined different price-cap 
values for each of the airports covered by the price cap regulation. 
Finally, the U.S. Government's own experience with price cap regulation 
of airports in the United Kingdom demonstrates that in order to be 
effective in preventing excessive returns, price cap regulation must be 
implemented with care. Among other things, it is important to assure 
that the base prices relied on do not themselves reflect excessive 
profits, which in turn makes it necessary to undertake a cost-of-
service evaluation of each firm's costs and revenues.
10. Fair and Reasonable Rates: Multiple Airport Systems in the Rate 
Base
    Airports generally commented that it is unduly restrictive to 
require quantification of the benefits of the secondary airport for 
inclusion of subsidy costs in the first airport's rate base; benefits 
will be difficult to quantify, and should be presumed if the airport 
has been designated as a reliever in the FAA's National Plan of 
Integrated Airport Systems (NPIAS); also, the blending of rates of 
multiple airports is an accepted current practice and should continue 
to be considered reasonable.
    The Airports Council International-North America (ACI-NA) requested 
that common ownership not be a prerequisite of inter-airport cost 
sharing. ACI-NA notes that FAA permits the transfer of AIP entitlement 
funds between airports under different sponsorship; there is no reason 
to impose stricter standards on the airport's own funds, as the 
benefits of a reliever airport are the same regardless of ownership. 
AAAE and individual operators of airport systems, including Kansas City 
and the Metropolitan Washington Airports Authority, agree 
[[Page 6913]] with the Department proposal that common ownership be 
required, but urge that the system proprietor be given wide latitude to 
blend rates.
    Air carriers supported the proposed policy, arguing that while 
cross-subsidization has at times been troubling, airlines have 
generally been able to resolve issues at the local level. Carriers 
stated that the requirement of common ownership should not be 
eliminated; and commented that it is ironic that airports are 
interested in subsidizing other airports and at the same time claim 
insufficient funding to meet their own needs.
    The Department has retained the policy as proposed, but have added 
the clarification that an airport designated by the FAA as a reliever 
will be presumed to confer a reasonable benefit on users of the primary 
airport. The Department continues to believe that the best means to 
assure that benefits of cross-subsidy are commensurate with costs is 
where cross-subsidy is the result of agreement. In the absence of such 
an agreement or designation by the FAA as a reliever in the NPIAS, the 
Department is reluctant to presume that benefit is commensurate, and 
believe it is reasonable to require that the subsidy reflect a showing 
of actual benefits.
    The requirement for common ownership is retained. The basis for a 
reasonable fee is the compensation of the airport proprietor for the 
costs of facilities and services it provides; the proprietor is not 
providing facilities owned by another sponsor.
    The analogy to the transfer of entitlement funds argued by airport 
commenters is not persuasive. Entitlement funds are Federal funds 
provided directly to the airport under special criteria for grants, and 
are not subject to the same standard of reasonableness that applies by 
statute to any cross-subsidy charged to aeronautical users.
11. Unjust Discrimination: Peak Pricing
    Airports supported the recognition in the proposed policy that peak 
pricing is not per se impermissible; peak pricing can be an effective 
means of improving efficient use of existing infrastructure. FTC staff 
also argued that peak pricing would promote economic efficiency and 
avoid overbuilding of airport assets, and urged that rates during peak 
periods be permitted to reflect opportunity costs of using scarce 
resources during peak times.
    ATA and the International Air Transport Association (IATA) urged 
that all references to peak pricing be eliminated; in light of the 
already complex issues surrounding rates and charges, the Department 
should not further complicate matters by bringing in extraneous matters 
in this policy statement. The Regional Airline Association (RAA) 
commented that peak pricing provides a cloak for unjust discrimination 
against smaller aircraft operators, since smaller aircraft are less 
able to absorb the price differential on a per-seat basis; commuter 
carriers are especially affected because they cannot practically use 
reliever airports and must schedule during peak times to meet 
connecting banks of jet operators; peak hour pricing will not expand 
capacity, and airport operators favor peak pricing because expanding 
capacity involves facing difficult political and environmental issues.
    The National Air Transport Association (NATA) expressed concern 
that peak-hour pricing language will be used by airports to justify 
excessive fees to block or severely limit access by general aviation 
and on-demand charter operators.
    The Aircraft Owners and Pilots Association (AOPA) objected to peak 
pricing, which would only serve to limit and ration capacity. Airline 
scheduling practices would remain unchanged, with peak prices being 
absorbed by the airlines system-wide. Noncommercial general aviation 
operations could be priced out, even though general aviation does not 
contribute to congestion at most airports; general aviation represents 
5 to 10% of total flight operations at large hub airports and in many 
instances is able to use shorter parallel runways without affecting the 
long runways used by airlines.
    The National Business Aircraft Association (NBAA) also opposed peak 
pricing, which it argued should not be used as a substitute for 
capacity enhancement, and should not be imposed with discriminatory 
impact on small aircraft operators.
    The Department has adopted the policy statement essentially as 
proposed, although the term ``maximize'' efficient utilization of the 
airport has been changed to ``enhance'' efficient utilization, a more 
realistic standard. The peak pricing concept stated in the policy is 
adopted from the Department's decision in the Massport PACE decision 
(Order and Opinion, December 22, 1988), and represents no change in 
existing Department policy. Peak pricing is specifically included in 
the policy statement to clarify that the new policy language on unjust 
discrimination does not affect the existing policy on peak pricing.
12. Unjust Discrimination: Charging Differential Based on Status as 
Nonsignatory Carrier
    Airports argue that existing practices and policy recognize an 
airport proprietor's authority to establish reasonable classifications 
of carriers, for example signatory and non-signatory carriers, and to 
charge differential rates accordingly. This practice should not be 
overturned, even if the premiums assessed result in a rate that exceeds 
allocated costs.
    The Department acknowledges the existing practice, and the final 
policy statement clarifies that reasonable distinctions, such as 
between signatory and non-signatory carriers (i.e., carriers that 
respectively have and have not entered into a use agreement with the 
airport proprietor), are permitted. However, the limit on recovery of 
total costs would continue to apply.
13. Financially Self-sustaining: Requirement That General Aviation 
Airports be Self-sustaining
    General aviation commenters expressed concern that the proposed 
policy did not recognize that commercial circumstances at many airports 
would not support a rate structure that would both make the airport 
self-sustaining and permit commercial operators at the airport to earn 
a profit; the policy should not require proprietors of such airports to 
adopt unreasonably high fees.
    The Department agrees that the requested change is consistent with 
the intent of the proposed policy. The final policy statement includes 
language to clarify that Federal law does not require each obligated 
airport to be self-sustaining, and that the Department recognizes that 
some airports may not be able to achieve a self-sustaining condition.
14. Financially Self-sustaining: Generation of Surpluses
    In general, airport comments supported the approach of the policy 
statement and endorsed the treatment of Sec. 110 of the FAA 
Authorization Act as a matter under revenue generation, rather than as 
a matter relating to the reasonableness of fees. Airports note that 
some other provisions of the policy, for example the proposed historic 
cost requirement and limitation on rate of return, could hinder an 
airport in becoming as financially self-sustaining as possible. ACI-NA 
urged that the policy be modified to recognize that some airports may 
never be able to achieve self-sustaining status and that some 
aeronautical activities may be [[Page 6914]] beneficial to the public 
even though they do not produce enough revenue to pay fair market 
value. AAAE stated that the requirement to make the airport as self-
sustaining as possible should be treated as the paramount principle in 
the review of airport fees; the remaining principles and guidance would 
follow from that statutory directive.
    Air carriers found the statement of the self-sustaining principle 
in the proposed policy to be consistent with existing law, but urged 
that the requirement to be self-sustaining be defined in a manner that 
prohibited airports from accumulating massive surpluses.
    Several general aviation commenters stated that the requirement to 
be self-sustaining should be clarified so that airport proprietors are 
not compelled to adopt unrealistic fee schedules that preclude aviation 
businesses from operating profitably.
    The Department has retained the policy as proposed, but have 
modified the statement to clarify that an airport must only be as 
financially self-sustaining as possible; that this requirement does not 
permit an airport proprietor to establish fees that exceed costs 
associated with aeronautical users; and that an airport proprietor's 
decision to charge commercially feasible rates below what might be 
required to break even does not in itself violate the requirement to be 
as self-sustaining as possible. Language from Sec. 110 of the 1994 FAA 
Authorization Act regarding the policy on accumulation of surplus, 
which was included under the use of revenue section of the proposal, 
has been moved under the self-sustaining principle in the final policy 
statement.
    The Department does not agree with the AAAE comment that the 
requirement for an airport to be as self-sustaining as possible should 
be the primary principle for determination of airport fees, and the 
policy retains the general structure and emphasis of the proposed 
policy.
15. Use of Airport Revenues: General Approach.
    Airports commented that discussion of the use of airport revenue 
should expressly refer to the grandfather provision of 49 U.S.C. 
47107(b)(2); also, proposed paragraph 5.6 should be modified so that 
actions listed there are not considered to be revenue diversion per se, 
but only to warrant FAA inquiry about whether diversion is taking 
place. Airports further requested that the policy alluded to in the 
preamble--that FAA will consider accumulation of surpluses in awarding 
discretionary grants--should not be implemented; that policy is not 
required by Sec. 507(3) of the AAIA and would penalize airports for 
preserving a sound financial position.
    The City of Los Angeles Department of Airports commented that 
paragraph 5.6 should be clarified to permit airport revenue to be used 
to directly or indirectly influence use of the airport system, e.g., 
for promotional activity.
    AAAE commented that the detailed discussion of permissible and 
impermissible uses of airport revenues should be deleted from the 
policy statement on rates and charges, on the grounds that Congress 
mandated a separate policy statement; existing paragraphs should be 
replaced with a simple statement referring to applicable law and a 
separate FAA policy statement on revenue use. AAAE further requested 
that the policies and procedures on revenue diversion should be issued 
through notice and comment rulemaking, in keeping with the severity of 
potential penalties.
    Air carriers generally supported the proposal. IATA commented that 
paragraph 5.6 should be modified to state that listed practices are to 
be regarded as a minimum, and that more practices may be added.
    The Department agrees with the AAAE recommendation to state agency 
policy on use of revenue in a separate document dedicated to revenue 
diversion policy, and not in the statement on airport fees. 
Accordingly, much of the language in the proposal has been deleted from 
the final policy statement. The policy does retain a basic statement of 
the revenue use requirement and a reference to the statute, and also 
the statement that the FAA may inquire into a progressive accumulation 
of surplus. As noted previously, language from Sec. 110 of the 1994 FAA 
Authorization Act regarding policy on accumulation of surplus, which 
was included under the use of revenue section of the proposal, has been 
moved under the self-sustaining principle in the final policy 
statement.
    FAA is issuing a separate policy statement on policies and 
procedures for enforcement against illegal revenue diversion, as 
required by Sec. 112 of the 1994 FAA Authorization Act. That statement 
includes the practices that the Department considers to be diversion of 
revenue, including the four practices listed in Sec. 112. The 
Department interprets Sec. 112 as requiring the agency to define the 
listed practices as diversion, if not otherwise grandfathered, and not 
merely as a basis for inquiry as suggested by airport commenters. The 
revenue diversion policy statement includes a separate discussion of 
the ``grandfather provision'' of Sec. 511(a)(12) of the AAIA. The 
statement also indicates that FAA's policy will continue to be to 
consider accumulation of surplus funds as one factor militating against 
award of discretionary grants.
16. Use of Airport Revenues: Policy on Accumulation of Surpluses
    Airports commented that the provision that accumulation of reserves 
may warrant FAA inquiry should be deleted, as should the provision 
encouraging conversion of airport surplus into airport improvements, 
because accumulated surpluses provide tangible benefits to airports. As 
noted, AAAE requested deletion of the entire discussion of the use of 
airport revenue.
    Air carriers argued that an admonition that accumulation of surplus 
may warrant an inquiry is not strong enough; the provision should be 
modified to state that accumulation of surplus shall trigger an 
investigation; encouragement of the use of accumulated surpluses to 
fund non-AIP eligible projects will exacerbate the tendency of airport 
proprietors to seek excessive revenues for questionable purposes.
    The policy adopted includes the language in the proposal, which 
reflects existing FAA practice and represents a reasonable balance 
between the airport's interest in maintaining appropriate reserves and 
the Government's interest in preventing unnecessary accumulation of 
surplus funds.

Policy Statement Regarding Airport Fees

     For the reasons discussed above, the Department adopts the 
following statement of policy for airport fees charged to aeronautical 
users:

 Policy Regarding the Establishment of Airport Rates and Charges

Introduction

     It is the fundamental position of the Department that the issue of 
rates and charges is best addressed at the local level by agreement 
between users and airports. By providing guidance on standards 
applicable to airport fees imposed for aeronautical use of the airport, 
the Department intends to facilitate direct negotiation between the 
proprietor and aeronautical users and to minimize the need to seek 
direct Federal intervention to resolve differences over airport fees.

Applicability of the Policy

 A. Scope of Policy
     Under the terms of grant agreements administered by the FAA for 
airport improvement, all aeronautical users are [[Page 6915]] entitled 
to airport access on fair and reasonable terms without unjust 
discrimination. Therefore, the Department considers that the principles 
and guidance set forth in this policy statement apply to all 
aeronautical uses of the airport. The Department recognizes, however, 
that airport proprietors may use different mechanisms and methodologies 
to establish fees for different facilities, e.g., for the airfield and 
terminal area, and for different aeronautical users, e.g., air carriers 
and fixed-base operators. The Department will take these differences 
into account if we are called upon to resolve a dispute over 
aeronautical fees.
 B. Aeronautical Use and Users
     The Department considers the aeronautical use of an airport to be 
any activity that involves, makes possible, is required for the safety 
of the operations of, or is otherwise directly related to, the 
operation of aircraft. Aeronautical use includes services provided by 
air carriers related directly and substantially to the movement of 
passengers, baggage, mail and cargo on the airport. Persons, whether 
individuals or businesses, engaged in aeronautical uses involving the 
operation of aircraft, or providing flight support directly related to 
the operation of aircraft, are considered to be aeronautical users.
     In addition, the Department considers that the operation by air 
carriers or foreign air carriers of facilities such as a reservations 
center, headquarters office, or flight kitchen on an airport does not 
constitute an aeronautical activity subject to the principles and 
guidance contained in this policy statement with respect to 
reasonableness and unjust discrimination. Such facilities need not be 
located on an airport. A carrier's decision to locate such facilities 
is based on the negotiation of a lease or sale of property. 
Accordingly, the Department relies on the normal forces of competition 
for commercial or industrial property to assure that fees for such 
property are not excessive.
 C. Applicability of Sec. 113 of the FAA Authorization Act of 1994
    Section 113 of the Federal Aviation Authorization Act of 1994 
(``Authorization Act''), 49 U.S.C. 47129, directs the Secretary of 
Transportation to issue a determination on the reasonableness of 
certain fees imposed on air carriers in response to carrier complaints 
or a request for determination by an airport proprietor. Section 47129 
further directs the Secretary to publish final regulations, policy 
statements, or guidelines establishing procedures for deciding cases 
under Sec. 47129 and the standards to be used by the Secretary in 
determining whether a fee is reasonable. Section 47129(e) excludes from 
the applicability of Sec. 47129 a fee imposed pursuant to a written 
agreement with air carriers, a fee imposed pursuant to a financing 
agreement or covenant entered into before the date of enactment of the 
statute (August 23, 1994), and an existing fee not in dispute on August 
23, 1994. Section 47129(f) further provides that Sec. 47129 shall not 
adversely affect the rights of any party under existing air carrier/
airport agreements or the ability of an airport to meet its obligations 
under a financing agreement or covenant that is in effect on August 23, 
1994.
     The Department does not interpret Sec. 47129 to repeal or narrow 
the scope of the basic requirement that fees imposed on aeronautical 
users be reasonable and not unjustly discriminatory. Sections 47219(e) 
and (f) specifically apply the expedited hearing procedures mandated by 
Sec. 47129(b) and (c) to air carriers, but do not preclude the adoption 
of policy guidance applicable to fees imposed on aeronautical users 
other than air carriers.
     Therefore, the Department will apply the policy guidance in the 
case of a dispute over any aeronautical fee, including those described 
in Sec. 47129(e) and (f).
     In addition, as the statute provides, a dispute over matters 
described by Sec. 47129(e) and (f) will not be processed under the 
procedures mandated by Sec. 47129. Rather those disputes will be 
processed under procedures applicable to airport compliance matters in 
general.

Principles Applicable to Airport Rates and Charges

     1. In general, the Department relies upon airport proprietors, 
aeronautical users, and the market and institutional arrangements 
within which they operate, to ensure compliance with applicable legal 
requirements. Direct Federal intervention will be available, however, 
where needed.
     2. Rates, fees, rentals, landing fees, and other service charges 
(``fees'') imposed on aeronautical users for aeronautical use of 
airport facilities (``aeronautical fees'') must be fair and reasonable.
     3. Aeronautical fees may not unjustly discriminate against 
aeronautical users or user groups.
     4. Airport proprietors must maintain a fee and rental structure 
that in the circumstances of the airport makes the airport as 
financially self-sustaining as possible.
    5. In accordance with relevant Federal statutory provisions 
governing the use of airport revenue, airport proprietors may expend 
revenue generated by the airport only for statutorily allowable 
purposes.

Local Negotiation and Resolution

    1. In general, the Department relies upon airport proprietors, 
aeronautical users, and the market and institutional arrangements 
within which they operate, to ensure compliance with applicable legal 
requirements. Direct Federal intervention will be available, however, 
where needed.
    1.1  The Department encourages direct resolution of differences at 
the local level between aeronautical users and the airport proprietor. 
Such resolution is best achieved through adequate and timely 
consultation between the airport proprietor and the aeronautical users. 
Airport proprietors should engage in adequate and timely consultation 
with aeronautical users about airport fees.
    1.1.1  Airport proprietors should consult with aeronautical users 
well in advance, if practical, of introducing significant changes in 
charging systems and procedures or in the level of charges. The 
proprietor should provide adequate information to permit aeronautical 
users to evaluate the airport proprietor's justification for the change 
and to assess the reasonableness of the proposal. For consultations to 
be effective, airport proprietors should give due regard to the views 
of aeronautical users and to the effect upon them of changes in fees. 
Likewise, aeronautical users should give due regard to the views of the 
airport proprietor and the financial needs of the airport.
    1.1.2  To further the goal of effective consultation, Appendix 1 of 
this policy statement contains a description of information that the 
Department considers would be useful to the carriers and other 
aeronautical users to permit meaningful consultation and evaluation of 
a proposal to modify fees.
    1.1.3  Airport proprietors should consider the public interest in 
establishing airport fees, and aeronautical users should consider the 
public interest in consulting with airports on setting such fees.
    1.1.4  Airport proprietors and aeronautical users should consult 
and make a good-faith effort to reach agreement. Absent agreement, 
airport proprietors are free to act in accordance with their proposals, 
subject to review by the Secretary or the Administrator on complaint by 
the user or, in the case of [[Page 6916]] fees subject to 49 U.S.C. 
Sec. 47129, upon request by the airport operator, or, in unusual 
circumstances, on the Department's initiative.
    1.1.5  To facilitate local resolution and reduce the need for 
direct Federal intervention to resolve differences over aeronautical 
fees, the Department encourages airport proprietors and aeronautical 
users to include alternative dispute resolution procedures in their 
lease and use agreements.
    1.1.6  Any newly established fee or fee increase that is the 
subject of a complaint under 49 U.S.C. Sec. 47129 that is not dismissed 
by the Secretary must be paid to the airport proprietor under protest 
by the complainant. Unless the airport proprietor and complainant agree 
otherwise, the airport proprietor will obtain a letter of credit, or 
surety bond, or other suitable credit instrument in accordance with the 
provisions of 49 U.S.C. 47129(d). Pending issuance of a final order 
determining reasonableness, an airport proprietor may not deny a 
complainant currently providing air service at the airport reasonable 
access to airport facilities or services, or otherwise interfere with 
that complainant's prices, routes, or services, as a means of enforcing 
the fee, if the complainant has complied with the requirements for 
payment under protest.
    1.2  Where airport proprietors and aeronautical users have been 
unable, despite all reasonable efforts, to resolve disputes between 
them, the Department will act to resolve the issues raised in the 
dispute.
    1.2.1  In the case of a fee imposed on one or more air carriers or 
foreign air carriers, the Department will issue a determination on the 
reasonableness of the fee upon the filing of a written request for a 
determination by the airport proprietor or, if the Department 
determines that a significant dispute exists, upon the filing of a 
complaint by one or more air carriers or foreign air carriers, in 
accordance with 49 U.S.C. 47129 and implementing regulations. Pursuant 
to the provisions of 49 U.S.C. 47129, the Department may only determine 
whether a fee is reasonable or unreasonable, and may not set the level 
of the fee.
    1.2.2  In the case of fees imposed on other aeronautical users, the 
Department will first offer its good offices to facilitate parties 
reaching a successful outcome in a timely manner. Prompt resolution of 
these disputes is always desirable since extensive delay can lead to 
uncertainty for the public and a hardening of the parties' positions. 
Air carriers and foreign air carriers may request the assistance of the 
Department in advance of or in lieu of the formal complaint procedure 
described in 1.2.1.; however, the 60-day period for filing a complaint 
under Sec. 47129 is not extended or tolled by such a request.
    1.2.3  In the case of fees imposed on other aeronautical users, 
where negotiations between the parties are unsuccessful and a complaint 
is filed alleging that airport fees violate an airport proprietor's 
federal grant obligations, the Department will, where warranted, 
exercise the agency's broad statutory authority to review the legality 
of those fees and to issue such determinations and take such actions as 
are appropriate based on that review.
    1.3  Airport proprietors must retain the ability to respond to 
local conditions with flexibility and innovation. An airport proprietor 
is encouraged to achieve consensus and agreement with its airline 
tenants before implementing a practice that would represent a major 
departure from this guidance. However, the requirements of any law, 
including the requirements for the use of airport revenue, may not be 
waived, even by agreement with the aeronautical users.

Fair and Reasonable Fees

    2. Rates, fees, rentals, landing fees, and other service charges 
(``fees'') imposed on aeronautical users for the aeronautical use of 
the airport (``aeronautical fees'') must be fair and reasonable.
    2.1  Revenues from aeronautical fees (aeronautical revenues) may 
not exceed the costs to the airport proprietor of providing airport 
services and facilities currently in aeronautical use (aeronautical 
costs) unless otherwise agreed to by the affected aeronautical users.
    2.1.1  Aeronautical users may receive a cross-credit of 
nonaeronautical revenues only if the airport proprietor agrees. 
Agreements providing for such cross-crediting are commonly referred to 
as ``residual agreements'' and generally provide a sharing of 
nonaeronautical revenues with aeronautical users. The aeronautical 
users may in turn agree to assume part or all of the liability for non-
aeronautical costs, or an airport proprietor may cross-credit 
nonaeronautical revenues to aeronautical users even in the absence of 
such an agreement, but an airport proprietor may not require 
aeronautical users to cover losses generated by nonaeronautical 
facilities except by agreement.
    2.1.2  In other situations, an airport proprietor assumes all 
liability for airport costs and retains all airport profits for its own 
use in accordance with Federal requirements. This approach to airport 
financing is generally referred to as the compensatory approach.
    2.1.3  Airports frequently adopt charging systems that employ 
elements of both approaches.
    2.1.4  Federal law does not require a single approach to airport 
financing. Rates may be set according to a residual or compensatory 
rate-setting methodology, or any combination of the two, or according 
to a new rate-setting methodology, as long as the methodology used is 
applied consistently to similarly situated aeronautical users and as 
otherwise required by this policy. Airport proprietors may set rates 
for aeronautical use of airport facilities by ordinance, statute or 
resolution, regulation, or by agreement.
    2.2  The ``rate base'' is the total of all aeronautical costs that 
may be recovered from aeronautical users through aeronautical fees. 
Airport proprietors must employ a reasonable, consistent, and 
``transparent'' (i.e., clear and fully justified) method of 
establishing the rate base and adjusting the rate base on a timely and 
predictable schedule.
    2.3  In the absence of an agreement with aeronautical users, costs 
that may be included in the rate base (allowable costs) are limited to 
all operating and maintenance expenses directly and indirectly 
associated with the provision of aeronautical facilities and services 
(including environmental costs, as set forth below); all capital costs 
associated with the provision of aeronautical facilities and services 
currently in use, as set forth below; and current costs of planning 
future aeronautical facilities and services.
    2.3.1 Where airport proprietors have expended funds from 
nonaeronautical sources to finance capital investments for aeronautical 
use, the implicit capital cost of these funds may be included in the 
aeronautical rate base in addition to the cost of the asset. The 
Department considers it reasonable to use, as a measure of the implicit 
capital cost, the rate of interest prevailing on bonds issued for a 
comparable purpose at the time of the expenditure at that airport or at 
another airport with similar bond rating.
    2.3.2  Airport proprietors may include reasonable environmental 
costs in the rate base to the extent that the airport proprietor incurs 
a corresponding actual expense. All revenues received based on the 
inclusion of these costs in the rate base are subject to Federal 
requirements on the use of airport revenue. Reasonable environmental 
costs include, but are not necessarily limited to, the 
following: [[Page 6917]] 
    (a) The costs of investigating and remediating environmental 
contamination caused by aeronautical operations at the airport at least 
to the extent that such investigation or remediation is required by or 
consistent with local, state or federal environmental law, and to the 
extent such requirements are applied to other similarly situated 
enterprises.
    (b) The cost of mitigating the environmental impact of an airport 
development project (if the development project is one for which costs 
may be included in the users' rate base), at least to the extent that 
these costs are incurred in order to secure necessary approvals for 
such projects, including but not limited to approvals under the 
National Environmental Policy Act and similar state statutes;
    (c) The costs of aircraft noise abatement and mitigation measures, 
both on and off the airport, including but not limited to land 
acquisition and acoustical insulation expenses, to the extent that such 
measures are undertaken as part of a comprehensive and publicly-
disclosed airport noise compatibility program; and
    (d) The costs of insuring against future liability for 
environmental contamination caused by current aeronautical activities. 
Under this provision, the costs of self-insurance may be included in 
the rate-base only to the extent that they are incurred pursuant to a 
self-insurance program that conforms to applicable insurance industry 
standards for self-insurance practices.
    2.3.3  Airport proprietors are encouraged to establish fees with 
due regard for economy and efficiency.
    2.3.4  The airport proprietor may include in the rate base amounts 
needed to fund debt service and other reserves and to meet cash flow 
requirements as specified in financing agreements or covenants (for 
facilities in use); to fund cash reserves to protect against the risks 
of cash-flow fluctuations associated with normal airport operations; 
and to fund reasonable cash reserves to protect against other 
contingencies.
    2.3.5  The airport proprietor may include in the rate base capital 
costs in accordance with the following guidance, which is based on the 
principle of cost causation:
    (a) Costs of facilities directly used by the aeronautical users may 
be fully included in the rate base, in a manner consistent with this 
policy. For example, the capital cost of a runway may be included in 
the rate base used to establish landing fees.
    (b) Costs of airport facilities used for both aeronautical and non-
aeronautical uses (shared costs) may be included in a particular 
aeronautical rate base if the facility in question supports the 
aeronautical activity reflected in that rate base. The portion of 
shared costs allocated to aeronautical users should not exceed an 
amount that reflects the aeronautical purpose and proportionate 
aeronautical use of the facility in relation to nonaeronautical use of 
the facility, unless the affected aeronautical users agree to the 
allocation. Aeronautical users may not be allocated all costs of 
facilities that are used by both aeronautical and nonaeronautical users 
unless they agree to that allocation.
    2.4  Airport proprietors must comply with the following practices 
in establishing the rate base, provided, however, that one or more 
aeronautical users may agree to a rate base that deviates from these 
practices in the establishment of those users' fees.
    2.4.1  Airport assets included in the rate base must be valued 
according to their historic cost to the original airport proprietor. 
Subsequent airport proprietors generally shall acquire the cost basis 
of an asset at the original airport proprietor's historic cost.
    (a) For facilities other than airfield facilities and land, an 
airport proprietor may use valuation methodologies other than historic 
cost valuation as set forth above, so long as total aeronautical 
revenues do not exceed the total costs (based on historic costs) 
included in the aeronautical rate base, and so long as the valuation 
method is justified and applied on a consistent basis to comparable 
facilities.
    (b) Where comparable assets, e.g., two runways or two terminals, 
were built at different times and have different historic costs, the 
airport proprietor may combine the cost basis of the comparable assets 
to develop a single cost basis applicable to all such facilities.
    2.4.2  The costs of facilities not yet built and operating may not 
be included in the rate base. However, the debt-service and other 
carrying costs incurred by the airport proprietor during construction 
may be capitalized and amortized once the facility is put in service. 
The airport proprietor may include in the rate base the costs of land 
that facilitates the current operations of the airport.
    2.4.3  The rate base of an airport may include costs associated 
with another airport currently in use only if: (1) The proprietor of 
the first airport is also the proprietor of the second airport; (2) the 
second airport is currently in use; and (3) the costs of the second 
airport to be included in the first airport's rate base are reasonably 
related to the aviation benefits that the second airport provides or is 
expected to provide to the aeronautical users of the first airport.
    (a) Element no. 3 above will be presumed to be satisfied if the 
second airport is designated as a reliever airport for the first 
airport in the FAA's National Plan of Integrated Airport Systems 
(NPIAS).
    2.5  At all times, airport proprietors must comply with the 
following practices:
    2.5.1  Indirect costs may not be included in the rate base unless 
they are based on a reasonable, transparent cost allocation formula 
calculated consistently for other units or cost centers of government.
    2.5.2  The costs of airport development or planning projects paid 
for with government grants and contributions and passenger facility 
charges (PFCs) may not be included in the rate base.
    2.5.2(a)  In the case of a PFC-funded project for terminal 
development, for gates and related areas, or for a facility that is 
occupied by one or more carriers on an exclusive or preferential use 
basis, the fees paid to use those facilities shall be no less than the 
fees charged for similar facilities that were not financed with PFC 
revenue.

Prohibition on Unjust Discrimination

    3.  Aeronautical fees may not unjustly discriminate against 
aeronautical users or user groups.
    3.1  Unless aeronautical users agree, aeronautical fees imposed on 
any aeronautical user or group of aeronautical users may not exceed the 
costs allocated to that user or user group under a cost allocation 
methodology adopted by the airport proprietor that is consistent with 
this guidance.
    3.1.1  The prohibition on unjust discrimination does not prevent an 
airport proprietor from making reasonable distinctions among 
aeronautical users (such as signatory and non-signatory carriers) and 
assessing higher fees on certain categories of aeronautical users based 
on those distinctions (such as higher fees for non-signatory carriers, 
as compared to signatory carriers).
    3.2  A properly structured peak pricing system that allocates 
limited resources using price during periods of congestion will not be 
considered to be unjustly discriminatory. An airport proprietor may, 
consistent with the policies expressed in this policy statement, 
establish fees that enhance the efficient utilization of the airport.
    3.3  Relevant provisions of the Convention on International Civil 
[[Page 6918]] Aviation (Chicago Convention) and many bilateral aviation 
agreements specify, inter alia, that charges imposed on foreign 
airlines must not be unjustly discriminatory, must not be higher than 
those imposed on domestic airlines engaged in similar international air 
services and must be equitably apportioned among categories of users. 
Charges to foreign air carriers for aeronautical use that are 
inconsistent with these principles will be considered unjustly 
discriminatory or unfair and unreasonable.
    3.4  Allowable costs--costs properly included in the rate base--
must be allocated to aeronautical users by a transparent, reasonable, 
and not unjustly discriminatory rate-setting methodology. The 
methodology must be applied consistently and cost differences must be 
determined quantitatively, when practical.
    3.4.1  Common costs (costs not directly attributable to a specific 
user group or cost center) must be allocated according to a reasonable, 
transparent and not unjustly discriminatory cost allocation formula 
that is applied consistently, and does not require any air carrier, 
foreign air carrier or other aeronautical user group to pay costs 
properly allocable to other users.

Requirement To Be Financially Self-Sustaining

    4.  Airport proprietors must maintain a fee and rental structure 
that in the circumstances of the airport makes the airport as 
financially self-sustaining as possible.
    4.1  If market conditions or demand for air service do not permit 
the airport to be financially self-sustaining, the airport proprietor 
should establish long-term goals and targets to make the airport as 
financially self-sustaining as possible.
    4.1.1  Airport proprietors are encouraged, when entering into new 
or revised agreements or otherwise establishing rates, charges, and 
fees, to undertake reasonable efforts to make their particular airports 
as self sustaining as possible in the circumstances existing at such 
airports.
    (a)  Absent agreement with aeronautical users, the obligation to 
make the airport as self-sustaining as possible does not permit the 
airport proprietor to establish aeronautical fees that exceed the 
airport proprietor's aeronautical costs.
    4.1.2  At some airports, market conditions may not permit an 
airport proprietor to establish fees that are sufficiently high to 
recover aeronautical costs and sufficiently low to allow commercial 
aeronautical services to operate at a profit. In such circumstances, an 
airport proprietor's decision to charge rates that are below those 
needed to achieve self-sustainability in order to assure that services 
are provided to the public is not inherently inconsistent with the 
obligation to make the airport as self-sustaining as possible in the 
circumstances.
    4.2  In establishing new fees, and generating revenues from all 
sources, airport owners and operators should not seek to create revenue 
surpluses that exceed the amounts to be used for airport system 
purposes and for other purposes for which airport revenues may be spent 
under 49 U.S.C. 47107(b)(1), including reasonable reserves and other 
funds to facilitate financing and to cover contingencies. While fees 
charged to nonaeronautical users may exceed the costs of service to 
those users, the surplus funds accumulated from those fees must be used 
in accordance with Sec. 47107(b).

Requirements Governing Revenue Application and Use

    5.  In accordance with relevant Federal statutory provisions 
governing the use of airport revenue, airport proprietors may expend 
revenue generated by the airport only for statutorily allowable 
purposes.
    5.1  Additional information on the statutorily allowed uses of 
airport revenue is contained in separate guidance published by the FAA 
pursuant to Sec. 112 of the FAA Authorization Act of 1994, which is 
codified at 49 U.S.C 47107(l).
    5.2  The progressive accumulation of substantial amounts of airport 
revenues may warrant an FAA inquiry into the airport proprietor's 
application of revenues to the local airport system.

    Issued in Washington, DC, on January 30, 1995.
Federico Pena,
Secretary of Transportation.
David R. Hinson,
Administrator, Federal Aviation Administration.

Appendix 1--Information for Aeronautical User Charges Consultations

    The Department of Transportation ordinarily expects the 
following information to be available to aeronautical users in 
connection with consultations over changes in airport rates and 
charges:
    1. Historic Financial Information covering two fiscal years 
prior to the current year including, at minimum, a profit and loss 
statement, balance sheet and cash flow statement for the airport 
implementing the charges.
    2. Justification. Economic, financial and/or legal justification 
for changes in the charging methodology or in the level of 
aeronautical rates and charges at the airport. Airports should 
provide information on the aeronautical costs they are including in 
the rate base.
    3. Traffic Information. Annual numbers of terminal passengers 
and aircraft movements for each of the two preceding years.
    4. Planning and Forecasting Information.
    (a) To the extent applicable to current or proposed fees, the 
long-term airport strategy setting out long-term financial and 
traffic forecasts, major capital projects and capital expenditure, 
and particular areas requiring strategic action. This material 
should include any material provided for public or government 
reviews of major airport developments, including analyses of demand 
and capacity and expenditure estimates.
    (b) Accurate, complete information specific to the airport for 
the current and the forecast year, including the current and 
proposed budgets, forecasts of airport charges revenue, the 
projected number of landings and passengers, expected operating and 
capital expenditures, debt service payments, contributions to 
restricted funds, or other required accounts or reserves.
    (c) To the extent the airport uses a residual or hybrid charging 
methodology, a description of key factors expected to affect 
commercial or other nonaeronautical revenues and operating costs in 
the current and following years.
[FR Doc. 95-2673 Filed 1-31-95; 3:15 pm]
BILLING CODE 4910-13-P