How to Initiate an FAA Audit of an Airport – CalPilots Knowledgebase Series

When the Fox Guards the Henhouse
How to Initiate an FAA Audit of an Airport Sponsor
By Ronald J. Cozad
Director-at-Large
California Pilots Association

Airport sponsors typically use federal grants administered by the FAA to acquire airport property and to finance airport expansion projects (Note:“Airport Sponsor” is defined in several locations in the regulations as the municipality that owns and operates the airport and who applies for improvement grants…not the airport manager). In exchange for the money, the sponsor agrees to a list of operating rules called “Grant Assurances? that require, among other things, pledges to:

  • Keep the airport open for a defined period of time
  • Not grant any monopolies on the airport
  • Make it available on reasonable terms to all classes of aviation uses without unreasonable discrimination The FAA publishes its grant assurances at www.faa.gov/arp/financial/aip/airport_sponsor_assurances.pdf.

    If it appears an airport sponsor has violated an assurance, either the FAA?s compliance division or an individual or group directly affected by the violation, may initiate an investigation by filing a “Part 16 Complaint” with the FAA’s Office of General Counsel in Washington DC. The procedural requirements for filing a Part 16 Complaint are set forth at www.faa.gov/arp/ane/forms/far-16.txt

    Federal law prohibits an airport sponsor from taking money earmarked for, or derived from, federally sponsored airport operations. Nevertheless, a well-run airport may become an important local “economic engine” with reserves too attempting for the sponsoring agency to resist — especially when sponsor?s general funds are threatened as “their” airports are flourishing. Unfortunately, while it is unusual, a few airport sponsors have become expert at “diverting? airport funds for the sponsor?s general use. The FAA defines “revenue diversion” as ?the use of airport revenue for purposes other than the capital or operating costs of the airport, the local airport system, or other local facilities owned or operated by the airport owner or operator and directly and substantially related to the air transportation of passengers or property?? Typical diversion schemes may include:

  • Charging the airport fund excessive fees for city services such as police, fire and utilities; allocating the payroll of non-airport employees to the airport;
  • Using airport funds to pay for general promotion and advertising for the city;
  • Loans from the airport fund to the general fund at less than market rates or on preferential terms; the sponsor?s own aeronautical use of airport property for little or no rent and the use of non-aeronautical events on the airport.

    The FAA is charged with monitoring the sponsor’s compliance with revenue diversion regulations by requiring that Airport sponsors submit annual reports on revenue use pursuant to 49 U.S.C.?47107(a)(19). In practice, however, the required reports are sometimes not submitted or are not scrutinized. If an affected person or group believes an airport sponsor is engaged in diversion, it may request an audit by filing a Part 16 Complaint setting forth the basis of the allegations and attaching any supporting evidence. For an excellent discussion of revenue diversion audit procedures and standards, see, Department Of Transportation, Federal Aviation Administration, Policy and Procedures Concerning the Use of Airport Revenue, Federal Register / Vol. 64, No. 30 / Tuesday, February 16, 1999. www.faa.gov/arp/pdf/final.pdf

    If the audit substantiates the diversion, the FAA may then bring an enforcement action and may order that all diverted funds be repaid to the airport enterprise fund with interest (Diversion can take many forms and is usually done at a higher administrative level). In addition, the FAA may issue other sanctions for noncompliance that include withholding of pending or future federal airport funds and imposing civil penalties up to three times the amount of the revenues diverted.

    To begin the process, a potential California complainant should submit the following ?Public Record Act? (most states have similar statutes) to the sponsor:

    ?Pursuant to the California Public Records Act (CPRA), California Government Code Section 6250 et.seq., the undersigned requests copies of the immediately past three Annual Airport Financial Reports as required by Section 111(a)(4) of the 1994 Authorization Act, 49 U.S.C. ? 47107(a)(19), (FAA Forms 5100?125 and 126) stating (1) all amounts the airport paid to other government units and the purposes for which each payment was made, (2) all services and property the airport provided to other government units and compensation received for each service or unit of property provided.

    Under the California Public Records Act and its equivalent in other states, the sponsor must produce copies of the information as soon as it is reasonably available. It typically has up to 10 days and may take an additional 14 days to provide the documents if they are difficult to assemble. A helpful chart describing the Act is located at: www.thefirstamendment.org/publicrecordsact.pdf. If the sponsor refuses to provide the information, you can take it to court and apply for reimbursement of your attorney’s fees.

    Keep in mind that the annual reports are just the start and they may not be accurate. Any suspicious transactions should be cross-checked with the reports and other records from the sponsor, such as its annual budget, airport budgets and internal memos, emails and correspondence ? all of which are available under the Public Records Act. Finally, it is appropriate to assume that the airport sponsor is dealing with you in good faith and in a straight forward manner, always verify and be persistent.

    Ron Cozad

    Palomar Pilots Association
    Director-at-Large
    California Pilots Association

    About the author:
    Mr. Cozad is a litigation and aviation attorney at McClellan-Palomar Airport (KCRQ) in Carlsbad California. He is an active airport user advocate and represents pilots, airport businesses and airport users groups in dealings with Airport sponsors in the Western United States. He can be reached at (760) 716-1025 or at this email address.

    UPDATE:In our article, we advised that Assurance 26 directs airport sponsors to prepare and make available to the public annual financial reports. When diversion is suspected, we suggested that the reader demand production of the reports for careful review.

    Interestingly, one of our readers in Central California did just that but the sponsor refused to produce the reports claiming that Assurance 26 did not apply to smaller facilities. To resolve this discrepancy, we spoke with FAA Compliance Specialist Anthony Garcia who explained that sponsors must prepare, maintain and produce financial reports even if the FAA does not require they be filed with the FAA:

    ?The Federal Register qualifies Assurance 26: 61FR11078 dated March 18, 1996 states that financial reporting requirement applies to all obligated airport sponsors. To ease the reporting burden, the FAA directed that only commercial service airports are required to actually submit annual financial reports to the FAA. However, all other airport sponsors, including general aviation airports, although not required to submit annual reports, must prepare annual financial reports and make them available on request to the FAA, the public, and airport users.

    Caveat:

    Understandably, airport sponsors that do not have to submit annual financial reports believe that they do not have any financial reporting obligation. Therefore, they may object to a request for financial information. Contrary to their opinion, obligated airport sponsors must prepare and make financial reports available when requested even if the FAA does not require them to submit annual reports to the FAA. Furthermore, this information should also be available through the California Records Act.

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