NBAA Appeals FAA’s Part 16 Director’s Determination on SMO Financial Compliance

Contact: Dan Hubbard, 202-783-9360, [email protected]

Washington, DC, Dec. 11, 2019 – The city of Santa Monica, CA, operator of Santa Monica Municipal Airport (SMO), has for years engaged in unlawful revenue diversion, by entering into inadequately documented loans with SMO and collecting excessive landing fees from aviation users, among other compliance issues, the National Business Aviation Association (NBAA) asserted in a Dec. 9 appeal.

The association’s appeal comes in response to a Nov. 8, 2019, Director’s Determination from the Federal Aviation Administration (FAA), concurring with most – but not all – assertions made by NBAA and other parties in an administrative Part 16 complaint about compliance concerns at SMO filed more than three years ago.

“This is a complex Part 16,” said Alex Gertsen, NBAA director of airports and ground infrastructure. “Although the FAA did find that a significant number of loans between the city and the airport are invalid and/or charged excessive interest, further rulings by FAA are required and NBAA therefore is appealing other parts of FAA’s Determination that have not fully addressed the loan issues, or the airport’s high landing fees and the interconnected surplus in airport accounts.

“There is no question that an impermissible surplus exists, based on the record and public information,” Gertsen continued. “In the years during which the proceeding has been pending, the airport has accumulated a significant surplus – nearly $13 million at the end of FY2018. As the result of the FAA’s ruling, repayment and invalidation of at least certain loans will further increase the surplus.

“This is inconsistent with the city’s federal obligations, which include guidance stating that airports should not collect more revenue than required for current and reasonably anticipated needs. Accordingly, upon issuing its Nov. 8 Determination, FAA should have ordered immediate compliance measures, such as the suspension of landing fees until new calculations can be made to determine what, if any, new assessments to airport users are appropriate.”

NBAA’s appeal maintains that the excessive landing fees collected by Santa Monica must be refunded. The appeal notes that since the fees entered into effect in 2013, “the city has continued to charge airport users landing fees that are among the highest in the country.” The city rejected its own analysis of other airports’ landing fees demonstrating the inherent unreasonableness of the SMO fees, and refuses to account for non-aeronautical income, which is the airport’s principal income stream, while establishing and maintaining the rate base. Finally, the city maintains its high landing fees in the face of an enormous and growing surplus.

In further regard to loans, NBAA noted in its appeal that “the city has engaged in revenue diversion additional to that identified in the Director’s Determination.” The association documented transfers totaling more than $6.5 million, for which the FAA has accepted as valid but should also require reimbursement. The appeal also notes that there were mathematical and other errors in the Director’s Determination, which meant that additional reimbursement to the airport by the city should have been required.

“Corrective action on these issues must be taken by the FAA, not just to rectify the incorrect and possibly illegal actions at SMO, but also to maintain a consistent national policy that airport finances must be properly documented, and landing fees thoroughly justified,” Gertsen concluded. “NBAA will continue to advocate for proper and legal use of funds collected from aviation users, as well as compliance with federal grant-based and other obligations, at Santa Monica and airports across the country.”