Revenue Diversion: LA to return $21.2 million to LAX’s operator

L.A. to return $21.2 million to LAX’s operator
The City Council acts after the FAA had accused Los Angeles World Airports of improperly diverting funds to L.A. Inc., the city’s convention and visitors bureau. The Los Angeles City Council on Wednesday agreed to return more than $21.2 million to the operator of LAX to settle legal claims that airport funds were misappropriated in violation of federal regulations.

On its last vote of the year, the council unanimously approved a plan for the city to repay $18.1 million to Los Angeles World Airports, which had been accused by the Federal Aviation Administration of improperly diverting
the funds to L.A. Inc., the city’s convention and visitors bureau.

The other $3.1 million is money the city kept from the sale of land at Los Angeles International Airport that Caltrans had acquired in the early 1990s as right-of-way for the Century Freeway project.

For more than 14 years, the FAA and two national aviation associations contended that the proceeds of the sale should have been given to Los Angeles World Airports, the operator of LAX, LA/Ontario International and
Van Nuys airports.

“Our goal is to bring agencies into compliance with federal regulations and ensure than any improperly transferred money is repaid. This is exactly what the settlement does,” said Ian Gregor, an FAA spokesman in Los Angeles.

According to the plan, the city will reimburse the airport department by reducing the amount of money it will charge the agency during the next 10 years for municipal services, such as police officers and firefighters. The
reimbursements include interest.

Los Angeles World Airports also must develop a more clearly defined marketing plan that specifically relates to airport amenities, airlines and advantages for travelers as mandated by federal regulations. In addition, the agency is required to document those expenditures.

After a routine audit of airport funds in July 2008, the FAA questioned whether Los Angeles World Airports had illegally provided more than $38.8 million to L.A. Inc. for marketing services since 2002 and asked the agency
to justify the allocations. Airport officials said they eventually provided enough information to reduce the amount in question.

In 1994, the Air Transport Assn. and the Aircraft Owners and Pilots Assn. complained to the FAA that the city had placed the proceeds of the LAX property sale into its general fund. After years of dispute, the FAA
determined in June that the city should return the money to the airport department.

“You have these huge airports today. In many cases, public agencies view them as cash cows,” said Bill Dunn, a vice president at the Aircraft Owners and Pilots Assn. “They don’t seem to understand that airport funds must be
used for airport purposes.”

Editor’s Note: Checks and balances are usually required when it comes to how airport sponsors spend airport revenues.

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