EPA Announces Per- and Polyfluoroalkyl Substances (PFAS) Action Plan

Today, the United States Environmental Protection Agency (EPA) announced and published its nationwide Per- and Polyfluoroalkyl Substances (PFAS) Action Plan.  As airport sponsors are likely aware, FAA requirements compel Part 139 sponsors to use firefighting foam that contains PFAS, but doing so can release more of the chemicals into stormwater, groundwater, and soils.  A recent FAA CertAlert provided guidance on ways to mitigate the risks of PFAS contamination at airports, but there has been no formal regulatory action by FAA yet.

The EPA Action Plan is a comprehensive document summarizing all of EPA’s prior and ongoing actions with respect to research on, education about, and regulation of PFAS.  Of particular interest to airport sponsors, EPA announced that it “has initiated the regulatory development process for listing PFOA and PFOS as CERCLA hazardous substances.”  This process is already underway, and once completed, it would give EPA additional authority “to require responsible parties to carry out and/or pay for response actions.”  In the meantime, EPA expects to continue using its CERCLA and other federal response authorities to investigate sites when needed, and to continue supporting state and local authorities in enforcement of cleanup and response actions under state law.  Former and current PFAS users should carefully monitor these developments.

EPA also noted that it intends to publish “interim cleanup recommendations” to address contaminated groundwater and that it is currently conducting research “to identify performance and costs associated with treatment and remediation approaches to address PFAS in the environment.”  Both issues are important for airports, as they will likely give some insight into EPA’s expectations and cost estimates with respect to future potential cleanup actions.  EPA expects that both this guidance and the results of the research will be published in 2019.

The Action Plan discusses a wide variety of other strategies and topics, including setting new drinking water standards for certain PFAS chemicals, conducting various research and outreach activities, and cooperating with other federal agencies (though FAA is not specifically mentioned).

For more information about the Action Plan or any other PFAS-related issues, please contact Peter Kirsch or Polly Jessen.

Kaplan Kirsch & Rockwell publishes Airport Law Alerts to announce late-breaking developments in legislation, regulation, and policy for our clients and colleagues.  Nothing in our Alerts is intended as legal advice, and readers are reminded to contact legal counsel for legal advice on the matters that appear in our Alerts.

New FAA Guidance on Testing Equipment Used to Deploy Firefighting Foams Containing PFAS

On January 17, 2018, the FAA issued a CertAlert to all certificated Part 139 Airports providing new guidance to assist airports seeking to manage environmental, liability, and community risks associated with certain chemicals found in airport firefighting foams.  Airports have been in a bind because Part 139 currently requires the use and periodic discharge of these foams, even though doing so can release more of the chemicals into stormwater, groundwater, and soils.  All airports should carefully examine their current and past use of these foams and take steps to manage the environmental and liability risks associated with them.

The CertAlert provides an interim way to reduce potential environmental contamination from mandatory testing of Aircraft Rescue and Firefighting (ARFF) equipment using Aqueous Film Forming Foam (AFFF), which contains a class of chemicals known as per- and polyfluoroalkyl substances (PFAS).  Presently, FAA regulations require airport operators to use firefighting foams that contain PFAS.  Although foams with PFAS are highly effective at extinguishing fires, they also have come under increasing scrutiny from the EPA and state environmental regulators over concerns about groundwater contamination and risks to public health impacts.  The FAA Reauthorization Act of 2018 requires the FAA to stop mandating the use of PFAS in firefighting foams by October 4, 2021, but the FAA has not yet identified an equally effective substitute.

The FAA’s current requirements mandate that airport operators regularly test firefighting equipment, including by discharging foam that contains PFAS onto the ground.  If not properly managed, such discharges can result in PFAS being released into groundwater.

The FAA’s new CertAlert announces that airport operators may immediately begin using three new testing systems that do not involve dispensing foam onto the ground.

The CertAlert further recommends that airport operators:

• Consider establishing standard guidelines to identify a suitable location/storage container to discharge AFFF for training and/or testing.
• Consider establishing safe and environmentally effective handling and disposal procedures during testing and re-servicing.
• Periodically visit the FAA ARFF webpage for further guidance.

Although these latest recommendations are not legally binding, airport operators should carefully evaluate implementing these recommendations as soon as possible as part of an overall plan to manage risks associated with PFAS in AFFF.  For more information, please contact Polly Jessen.

Kaplan Kirsch & Rockwell publishes Airport Law Alerts to announce late-breaking developments in legislation, regulation, and policy for our clients and colleagues.  Nothing in our Alerts is intended as legal advice, and readers are reminded to contact legal counsel for legal advice on the matters that appear in our Alerts.

Colorado Governor Issues Electric Vehicle Executive Order

Newly inaugurated Governor Polis signed Executive Order B 2019 002, Supporting a Transition to Zero Emission Vehicles, on January 17, calling for extensive transportation electrification in Colorado.  As one of the first policy actions of Governor Polis’ tenure, this Executive Order complements his goal to pursue 100 percent renewable energy by 2040 to create meaningful reductions in greenhouse gas and local air pollution in the State.

ASPECTS OF THE EXECUTIVE ORDER

The Executive Order takes a multi-faceted approach to accelerate the adoption of electric vehicles and transit in Colorado.

First, it directs the Colorado Department of Public Health and the Environment to propose a Zero Emission Vehicle (ZEV) program rulemaking to the Air Quality Control Commission this spring for possible Commission adoption by October.  Although the Commission adopted a complementary Low Emission Vehicle (LEV) standard in a rulemaking last year—and has already signaled its intention to take up a ZEV rulemaking this year—the Executive Order provides additional momentum to keep the rulemaking on track.

Second, the Executive Order calls for the creation of an interagency working group to help coordinate electrification infrastructure and policy, and recommits Colorado to a 7-state initiative promoting electric vehicle infrastructure that was put into place by Governor Hickenlooper. The Order also directs the Colorado Department of Transportation to develop a plan that will align transportation investments and programs with strategies to support electric vehicle deployment and expand mobility options.

Finally, the Order revises the State’s spending plan for money obtained from the Volkswagen emissions settlement.  Whereas the money previously could be used to promote natural gas and alternative fuel vehicles, Governor Polis has directed all future spending to focus solely on supporting electrification of the transportation sector.

CLEAN TRANSPORTATION INITIATIVES IN COLORADO

Kaplan Kirsch & Rockwell’s energy and climate team engages on a variety of clean transportation and energy policy and other matters in Colorado.  Please contact Tom Bloomfield or Sarah Keane if you have any questions about this Executive Order or other clean transportation developments in Colorado.

Kaplan Kirsch & Rockwell publishes Energy + Climate Law Alerts to announce late-breaking developments in legislation, regulation, and policy for our clients and colleagues.  Nothing in our Alerts is intended as legal advice, and readers are reminded to contact legal counsel for legal advice on the matters that appear in our Alerts.

This Digest is a summary of the important developments in airport law in 2018, including: a list of principal cases decided last year; new FAA rules, policies, and guidance; and reports, studies, and articles of particular interest to airport legal professionals. The most significant change to the airport law landscape in 2018 came with the passage and enactment of the most recent FAA Reauthorization Act. The Reauthorization Act touches elements of airport funding, non-aeronautical development, airport noise, hazardous chemicals in ARFF foams, and other important issues for airport sponsors. With reauthorization legislation in the rear view mirror, sponsors now have longer-term certainty, but airports must wait to see how FAA will implement some of the trickier provisions of the law. There are dozens of new statutory requirements relevant to airports and to FAA regulation of airports – some of which are self-executing, some require new FAA regulations, others contemplate revised agency policies or guidelines, and, finally, some demand studies or reports (often with ambitious time deadlines). For a full summary of the FAA Reauthorization Act, see Kaplan Kirsch & Rockwell’s Airport Law Alert on the legislation, released in October 2018.

Entering 2019, the newly divided Congress and changes to committee chairpersons will affect airportrelated matters, though it is impossible to predict how or what changes might be in store. FAA will finally have a new permanent Associate Administrator for Airports: Kirk Shaffer, who is no stranger to airports (he previously held senior airport management positions) or to FAA management (he previously served in the same position for several years under President George W. Bush). With Mr. Shaffer’s appointment, we can expect changes in other senior FAA Airports Division assignments. As of yet, there is no indication of who may be named to the FAA Administrator post. Other topics that will continue to be hot issues in the new year include PFAS (fire fighting foam), litigation over Metroplexes, and potential TIFIA legislation. These and other issues are discussed in our July 2018 Semi-annual Airport Law Digest and our December 2018 Airport Law Alert.

We hope you find this Digest useful in your efforts to remain current in the always-evolving legal and regulatory framework that governs airports. If you have questions about any of the materials in this Digest, please contact editor Nicholas M. Clabbers or any other Kaplan Kirsch & Rockwell attorney who normally represents you.

L I T I G A T I O N

FEDERAL COURT DECISIONS

NEPA.  Informing Citizens Against Runway Airport Expansion v. FAA, No. 17-71536, 2018 U.S. App. LEXIS 35416 (unpublished 9th Cir. Dec. 18, 2018) (rejecting NEPA-based challenge to FAA’s decision to approve a runway extension at small airport in Hamilton, MT).

Metroplex/Next Gen.  Vaughn v. FAA, No. 16-1377, 2018 U.S. App. LEXIS 33827 (D.C. Cir. Nov. 30, 2018) (unpublished) (dismissing various NEPA, Clean Air Act, and procedural challenges to FAA’s redesign and implementation of the Southern California Metroplex).

Private Rights of Action.  Randel v. Parkland Homeowners Ass’n, No. 18-cv-00804-MEH, 2018 U.S. Dist. LEXIS 195015 (D. Colo. Nov. 15, 2018) (holding that the Federal Aviation Act contains no private right of action for plaintiffs alleging that HOA failed to file required Form 7480-1 for changes to local sport airpark).

Safety Authority.  Gyves v. City of Houston, No. H-18-0891, 2018 U.S. Dist. LEXIS 1285422 (S.D. Tex. Oct. 30, 2018) (finding no due process violations and no liability under § 1983 where pilot pulled a jetway emergency release lever in violation of airport rules and regulations and was subsequently banned from airport premises).

Rates and Charges.  Star Marianas Air, Inc. v. Commonwealth Ports Auth., No. 17-CV-122018 U.S. Dist. LEXIS 149507 (D. N. Mar. I. Aug. 30, 2018) (dismissing for lack of subject matter jurisdiction a claim that airport sponsor had breached its use and lease agreement with airline and holding that 49 U.S.C. § 47107 and FAA’s Rates and Charges Policy provides no private right of action).

Sponsor Liability.  Afoa v. Port of Seattle, 421 P.3d 903 (Wash. Jul. 19, 2018) (in case involving injured independent contractor employee, finding that sponsor was not jointly and severally liable for airlines’ portion of damages despite sponsor’s nondelegable duty to maintain a safe workplace).

Crash Liability.  Deutsche Lufthansa AG v. Mass. Port Auth., No. 17-CV-11702-DJC, 2018 U.S. Dist. LEXIS 119580 (D. Mass. Jul. 18, 2018) (where airline alleged claims against an airport sponsor for damage to an aircraft resulting from uncleared snow on the taxiway, granting motion to dismiss negligence per se claim but denying a motion to dismiss under breach of contract theory).

Drone Regulations.  Taylor v. FAA, 895 F.3d 56 (D.C. Cir. Jul. 6, 2018) (dismissing petition for review, which challenged FAA’s regulation of small UAS as beyond the agency’s statutory authority). Drones and Privacy. Elec. Privacy Info. Ctr v. FAA, 892 F.3d 1249 (D.C. Cir. Jun. 19, 2018) (dismissing challenge to FAA’s decision not to promulgate privacy-specific UAS regulations because petitioners failed to establish standing).

Airport Closure.  Nat’l Bus. Aviation Assn. v. Huerta, 737 Fed. Appx. 1 (D.C. Cir. Jun. 12, 2018) (dismissing challenge to FAA settlement agreement with the City of Santa Monica that permits closure of the airport in 2028 because preliminary agreement was not final agency action and thus was not reviewable); see also Scott v. City Council for the City of Santa Monica, No. 17-07329 (C.D. Cal. Dec. 15, 2017) (dismissing complaint alleging that City Council failed to hold a public hearing in violation of California state law before entering into settlement agreement).

Petition for Review.  Skydive Myrtle Beach Inc. v. Horry Cty. Dep’t of Airports, 735 Fed. Appx. 810 (4th Cir. Jun. 5, 2018) (dismissing as untimely a challenge to FAA decision in Part 16 matter where petitioner failed to submit petition within 60 days of service of the agency’s decision).

Air Carrier Permits.  Air Line Pilots Ass’n v. Chao, 889 F.3d 785 (D.C. Cir. May 11, 2018) (on the merits, rejecting challenge to Department of Transportation’s issuance of air carrier permit to Norwegian Air because nothing requires the Secretary to deny a permit on public interest grounds alone).

Preemption.  Bailey v. Rocky Mt. Holdings, LLC, 2018 U.S. App. LEXIS 11969 (11th Cir. May 8, 2018) (holding that the balance billing provision in Florida’s personal injury protection statute, which prohibits medical providers from charging in excess of a fee schedule amount, operates as a state-imposed regulation on air carrier rates and that the Airline Deregulation Act preempts the application of the balance billing provision to air carriers).

Airport Revenue.  Clayton Cty. v. FAA, 887 F.3d 1262 887 F.3d 1262 (11th Cir. Apr. 24, 2018) (dismissing petition for review for lack of jurisdiction where non-sponsor municipality challenged letter setting forth FAA’s interpretation of statute requiring taxes on aviation fuel to be used for airport purposes and the court did not find the FAA letter to constitute a final agency action).

Metroplex/NextGen.  Citizens Ass’n of Georgetown v. FAA, 886 F.3d 130 (D.C. Cir. Mar. 27, 2018) (dismissing petition for review of FAA’s NextGen flight patterns in DC Metroplex because challenge was filed more than 60 days after issuance of FONSI).

Subject Matter Jurisdiction.  Boneyard Acquisitions, LLC v. Bibb Cty., 2018 U.S. Dist. LEXIS 44956 (N.D. Ala. Mar. 20, 2018) (dismissing complaint for lack of subject matter jurisdiction where plaintiff alleged airport sponsor had extinguished easement in accordance with federal law).

Grant Assurances.  SPA Rental, LLC v. Somerset-Pulaski Cty. Airport Bd., 884 F.3d 600 (6th Cir. Mar. 7, 2018) (upholding FAA’s finding of no unjust discrimination where complainant was not similarly situated to other entities).

Labor and Employment.  Frungillo v. Bradford Reg’l Airport Operating, 2018 U.S. Dist. LEXIS 39739 (W.D. Pa. Mar. 12, 2018) (finding that co-defendant municipalities were not “joint employers” with their collectively incorporated airport authority for purposes of plaintiff’s FMLA and ADA claims).

Standing and NEPA.  Kaufmann v. FAA, 2018 U.S. App. LEXIS 1393 (6th Cir. Jan. 22, 2018) (finding that petitioners did not have standing nor a federal cause of action against airport sponsor engaged in tree trimming using solely state funds).

False Claims Act.  United States ex rel. Durkin v. Cty. of San Diego, 2018 U.S. Dist. LEXIS 5550 (S.D. Cal. Jan. 11, 2018) (dismissing complaint alleging airport sponsor made false statements in grant applications because plaintiff had not sufficiently alleged how the statements led to the sponsor securing federal funds or the Defendant’s knowledge of the falsity of the statements).

Noise.  BRRAM, Inc. v. FAA, 721 Fed. Appx. 173 (3d Cir. Jan. 9, 2018) (on NEPA appeal brought by airport neighbors, affirming FAA decision to use categorical exclusion to approve amendment to operating specifications allowing new air carrier to use airport).

First Amendment.  McDonnell v. City & Cty. of Denver, 878 F.3d 1247 (10th Cir. Jan. 4, 2018) (overturning district court’s grant of preliminary injunction against airport sponsor and finding that sponsor was not required to grant an exception to its regulations on speech-related activities for exigent circumstances).

PENDING CASES

Judicial Review.  Kisor v. Wilkie, No. 16-1929 (U.S. Sup. Ct. cert granted Dec. 10, 2018) (non-airport case implicating possible reconsideration of judicial deference to agency interpretations of its own rules (Auer deference)).

Metroplex/NextGen.  Howard Cty. v. FAA, No. 18-2360 (4th Cir. filed Nov. 14, 2018) (challenging flight procedures at Baltimore-Washington International Thurgood Marshall Airport).

Revenue Diversion.  Air Transp. Ass’n. of Am., Inc. v. FAA, Case No. 18-1157 (D.C. Cir. respondent’s brief filed Nov. 13, 2018) (petition for review of Part 16 decision finding no violation of Grant Assurance 25 where airlines alleged that airport sponsor had impermissibly charged them certain utility fees it then paid to the City of Portland).

Metroplex/NextGen.  Maryland v. FAA, No. 18-1302 (D.C. Cir. filed Nov. 8, 2018) (petition for review of FAA decision denying administrative petition for supplemental environmental assessment concerning DC Metroplex and BWI).

Drones.  Elec. Privacy Info. Ctr v. Drone Advisory Committee, et al., Civ. Action No. 18-833 (D.D.C. motion to dismiss filed Jul. 3, 2018) (complaint alleging that DOT’s Drone Advisory Committee is failing to make meetings open to the public).

Metroplex/NextGen.  Maryland v. FAA, No. 18-1173 (D.C. Cir. filed Jun. 26, 2018) (petition for review of FAA implementation of new approaches at Washington National Airport).

ADMINISTRATIVE DECISIONS

Rates and Charges.  Sound Aircraft Servs. v. Town of E. Hampton, FAA Docket No. 16-14-07, Director’s Determination (Jan. 2, 2019) (finding no grant assurance violations where complainant alleged that the Town impermissibly raised its rates and charges and violated FAA’s prohibition against revenue diversion when it raised both landing fees and fuel flowage fees).

Revenue Diversion.  United Airlines v. Port Auth. of N.Y. & N.J., FAA Docket No. 16-14-13, Director’s Determination (Nov. 19, 2018) (finding the Port Authority in violation of its grant assurance obligations regarding the fee methodology in place at Newark Liberty International Airport and its use of airport revenue because the Port failed to provide transparency as to the rate calculations and its own accounting practices).

Skydiving and Safety.  Kurtz v. City of Casa Grande, FAA Docket No. 16-16- 01, Final Agency Decision (Nov. 19, 2018) (affirming Director’s Determination and finding that sponsor violated Grant Assurances 22 and 23 by improperly prohibiting skydiving because the proposed operations could be safely accommodated with certain mitigation measures).

Labor Unions.  OBM Onsite Services-West, Inc., No. 19-RC-144377, 2018 NLRB LEXIS 550 (N.L.R.B. Nov. 14, 2018) (holding that independent baggage handlers at Portland International Airport fell under the jurisdiction of the National Mediation Board and the Railway Labor Act, not the National Labor Relations Act).

Gate Allocation.  In re Compliance with Federal Obligations by the City of Dallas, FAA Docket No. 16-15-10 (Notice of Investigation served Aug. 7, 2015, since dismissed without prejudice) (FAA investigation into possible grant assurance violations related to a failure to accommodate air carrier requesting gate space).

Standing.  Dover Development, LLC v. St. Louis Reg’l Airport Auth., FAA Docket No. 16-17-09, Final Agency Decision (May 23, 2018) (affirming Director’s Determination and holding that complainant did not have standing where it was neither an airport tenant nor had any aircraft based there and was only an occasional user of airport facilities). 

Revenue Diversion.  Air Transport Assn. of Am., Inc. v. Port of Portland, FAA Docket No. 16-16-04, Final Agency Decision (May 18, 2018) (affirming Director’s Determination finding no violation of Grant Assurance 25 where airlines alleged that airport sponsor had impermissibly charged them certain utility fees it then paid to the City of Portland).

Economic Discrimination.  Pelzer v. Michigan, FAA Docket No. 16-16-05, Director’s Determination (May 16, 2018)  (finding sponsor in violation of Grant Assurance 22 where lease negotiations generally lacked transparency or clarity about requirements to operate on the airport, and where sponsor provided no reasons for prohibition on temporary commercial operations).

Legal Fees and Airport Revenue.  Nat’l Bus. Aviation Assn., Inc. v. Town of E. Hampton, FAA Docket No. 16-15-08, Director’s Determination (Mar. 26, 2018) (finding that attorney’s fees and other costs paid by sponsor to defend use restriction was permissible use of airport revenue).

Exclusive Rights.  Atlantic Beechcraft Servs., Inc. v. City of Fort Lauderdale, FAA Docket No. 16-17-03, Director’s Determination (Mar. 7, 2018) (finding that no Grant Assurance 22 or 23 violations existed where a subtenant’s lease agreement with a sponsor’s lessee prohibited certain commercial maintenance activities within the leasehold area).

Acquisition of Property.  Boggs v. City of Cleveland, FAA Docket No. 16-16-15, Final Agency Decision (Jan. 26, 2018) (affirming Director’s Decision dismissing complaint alleging Grant Assurance violations where sponsor chose not to acquire private property shown on the Airport Layout Plan).

F E D E R A L   L E G I S L A T I O N

FAA Reauthorization Act of 2018, Pub. Law No. 115-254 (Oct. 5, 2018).

Consolidated Appropriations Act, 2018, Pub. Law No. 115-141 (signed Mar. 23, 2018) (extending FAA authorization through Sept. 30, 2018).

F E D E R A L   R U L E S,   O R D E R S,   A N D   G U I D A N C E

THE WHITE HOUSE

Memorandum of Understanding Implementing One Federal Decision Under Executive Order 13807 (eff. Apr. 9, 2018).

Press Release, Building a Stronger America: President Donald J. Trump’s American Infrastructure Initiative (Feb. 12, 2018); see also Legislative Outline for Rebuilding Infrastructure in America (Feb. 2018).

DEPARTMENT OF TRANSPORTATION AND FAA ORDERS, POLICIES, AND ADVISORY CIRCULARS

Advisory Circular No. 150/5370-10H, Standard Specifications for Construction of Airports (Dec. 21, 2018).

Draft Order 5090.5, Formulation of the NPIAS-ACIP (comments due by Feb. 15, 2019).

Standard Operating Procedure 11.00, Consultant Fee Analysis (Oct. 1, 2018).

Extension to Order, Operating Limitations at John F. Kennedy International Airport, 83 Fed. Reg. 46,865 (Sept. 19, 2018).

Response to Part 23 Issues/Recommendations Submitted by ACI-NA (Sept. 10, 2018).

Advisory Circular No. 150/5395-1B, Seaplane Bases (Aug. 31, 2018).

Advisory Circular No. 150/5200-38, Protocol for the Conduct and Review of Wildlife Hazard Site Visits, Wildlife Hazard Assessments, and Wildlife Hazard Management Plans (Aug. 20, 2018).

Advisory Circular No. 150/5360-13A, Airport Terminal Planning (Jul. 13, 2018).

Supplemental Guidance on the Airport Improvement Program (AIP) for Fiscal Years 2018-2020, FR Doc. 2018-14675 (Jul. 9, 2018).

Contract Provision Guidelines for Obligated Sponsors and Airport Improvement Program Projects (updated Jun. 19, 2018).

Draft Advisory Circular No. 150/5200-36B, Qualifications for Wildlife Biologist Conducting Wildlife Hazard Assessments and Training Curriculums for Airport Personnel Involved in Controlling Wildlife Hazards on Airports (Jun. 5, 2018).

Proposed Policy, Policy on the Temporary Closure of Airports for Nonaeronautical Purposes, 83 Fed. Reg. 24,438 (May 29, 2018).

Notification of Procedures, Notification to UAS Operators Proposing To Engage in Air Transportation, 83 Fed. Reg. 18,734 (Apr. 30, 2018).

Guidance Document, Compliance with Requirements for Timely Processing of [DBE and ACDBE] Certification Applications (Apr. 29, 2018).

Draft Advisory Circular No. 150/5345-43J, Specification for Obstruction Lighting Equipment (Mar. 21, 2018).

Draft Advisory Circular No. 150/5100-13C, Development of State Aviation Standards for Construction at Non-primary Public-use Airports and Use of State Highway Material Specifications for Individual Projects (Mar. 2, 2018).

Draft Advisory Circular No. 150/5345-54C, Specification for L-884, Power and Control Unit for Land and Hold Short Lighting Systems (Feb. 6, 2018).

Draft Advisory Circular No. 150/5345-26E, FAA Specification for L-823 Plug and Receptacle, Cable Connectors (Feb. 6, 2018).

Advisory Circular No. 150/5340-30J, Design and Installation Details for Airport Visual Aids (Feb. 2, 2018).

INTERNAL REVENUE SERVICE

Private Letter Ruling No. 201847001 (Nov. 23, 2018) (tax exempt bond compliance guidance).

R E P O R T S,   S T U D I E S,   A R T I C L E S,   A N D   O T H E R   P U B L I C A T I O N S

U.S. DEPARTMENT OF TRANSPORTATION

Office of Inspector General, Report No. AV2019005, Opportunities Exist for FAA to Strengthen Its Review and Oversight Process for Unmanned Aircraft System Waivers (Nov. 7, 2018).

Office of Inspector General, Report No. AV2018041, FAA Needs to More Accurately Account for Airport Sponsors’ Grandfathered Payments (Apr. 17, 2018).

Office of Inspector General, Report No. AV2018030, FAA Needs To Strengthen Its Management Controls Over the Use and Oversight of NextGen Developmental Funding (Mar. 6, 2018).

U.S. GOVERNMENT ACCOUNTABILITY OFFICE

Report No. 19-238R, Airport Funding: Alternative Methods for Collecting Airports’ Passenger Facility Charges and Implementation Factors to Consider (Dec. 20, 2018).

Report No. 18-110, Small Unmanned Aircraft Systems: FAA Should Improve Its Management of Safety Risks (May 2018).

Report No. 18-236, Aviation Security: TSA Uses Current Assumptions and Airport-Specific Data for Its Staffing Process and Monitors Passenger Wait Times Using Daily Operations Data (Feb. 2018).

CONGRESSIONAL RESEARCH SERVICE

Report No. R45404, Supersonic Passenger Flights (Nov. 14, 2018).

TRANSPORTATION RESEARCH BOARD, AIRPORT COOPERATIVE RESEARCH PROGRAM

Reports

Report 193:  Strategies for Airports to Reduce Local Stormwater Utility Fees (Dec. 2018).

Report 188:  Using Existing Airport Management Systems to Manage Climate Risk (Dec. 2018).

Report 190:  Common Performance Metrics for Airport Infrastructure and Operational Planning (Nov. 2018).

Report 187:  Transportation Emergency Response Application (TERA) Support Materials for Airport EOC Exercises (Nov. 2018).

Report 191:  A Primer to Prepare for the Connected Airport and the Internet of Things (Oct. 2018).

Report 189:  Design Considerations for Airport EOCs (Oct. 2018).

Report 186:  Guidebook on Building Airport Workforce Capacity (Sept. 2018).

Report 185:  Airport Air Quality Management 101 (Jul. 2018).

Report 184:  Executive Summary for the Guidebook on Understanding FAA Grant Assurance Obligations (May 2018) (individual volumes listed in Web-Only Documents).

Report 183:  User Guides for Noise Modeling of Commercial Space Operations – RUMBLE and PCBoom (Apr. 2018).

Report 182:  Guidance for Planning, Design, and Operations of Airport Communications Centers (Jan. 2018).

Synthesis Reports

Synthesis 93:  Sustainability’s Role in Enhancing Airport Capacity (Oct. 2018).

Synthesis 92:  Airport Waste Management and Recycling Practices (Sept. 2018).

Synthesis 91:  Microgrids and Their Application for Airports and Public Transit (Aug. 2018) (joint report with Transit Cooperative Research Program).

Synthesis 90:  Incorporating ADA and Functional Needs in Emergency Exercises (Jul. 2018).

Synthesis 89:  Clean Vehicles, Fuels, and Practices for Airport Private Ground Transportation Providers (Jul. 2018).

Synthesis 87:  Airport Participation in Oil and Gas Development (Apr. 2018).

Synthesis 86:  Airport Operator Options for Delivery of FBO Services (Feb. 2018).

Synthesis 88:  Airport Community, Water Quality Events, and the Aircraft Drinking Water Rule (Jan. 2018).

Web-Only Documents

Web-Only Document 36:  Enhanced AEDT Modeling of Aircraft Arrival and Departure Profiles, Volume 1: Guidance (Sept. 2018).

Web-Only Document 36:  Enhanced AEDT Modeling of Aircraft Arrival and Departure Profiles, Volume 2: Research Report (Sept. 2018). 

Web-Only Document 44:  Understanding FAA Grant Assurance Obligations Volume 1: Guidebook (May 2018).

Web-Only Document 44:  Understanding FAA Grant Assurance Obligations Volume 2: Technical Appendices (May 2018).

Web-Only Document 44:  Understanding FAA Grant Assurance Obligations Volume 3: Research Report (May 2018).

Web-Only Document 44:  Understanding FAA Grant Assurance Obligations Volume 4: Summary of AIP Grant Assurance Requirements (May 2018).

Web-Only Document 35:  State of the Industry Report on Air Quality Emissions from Sustainable Alternative Jet Fuels (Apr. 2018).

Web-Only Document 33:  Commercial Space Operations Noise and Sonic Book Modeling and Analysis (Apr. 2018).

O T H E R   P U B L I C A T I O N S

Airports Council International – Europe, Addressing the Future of Aviation Noise (Dec. 4, 2018).

National Academies of Sciences, Engineering, and Medicine, Assessing the Risks of Integrating Unmanned Aircraft Systems into the National Airspace System (Jun. 2018).

A PDF of this Semi-annual Airport Law Digest is available.

Click here to view the publication.

Several new developments in recent weeks could have significant implications for airports and their financial arrangements. This special Airport Law Alert addresses these recent developments. Of particular note, legislation was introduced in Congress and the Internal Revenue Service has issued a private letter ruling, each of which may be beneficial to airports. There have also been two recent decisions that have significant precedential importance for airports nationwide.

TIFIA FOR AIRPORTS

On November 15, Senators Duckworth and Perdue introduced the TIFIA for Airports Act, which would expand the types of projects eligible for inclusion in the TIFIA program to include airport capital projects that are eligible for funding with passenger facility charges. The Transportation Infrastructure Finance and Innovation Act (TIFIA) provides credit assistance for qualified surface transportation projects but airport projects have not been eligible for this program.

The bill would make $10 million available for subsidy costs of TIFIA credit assistance agreements entered into prior to September 30, 2020. If enacted, the TIFIA for Airports Act would leverage this subsidy to provide a valuable new tool for low-cost financing for airport projects. The Department of Transportation’s Build America Bureau, which administers the TIFIA program, has been seeking ways to broaden the program to support airport development. It is important to note that a number of multi-modal airport projects have already benefitted from TIFIA loans or loan guarantees. While it is always difficult to provide a prognosis for legislation in this Congress, the fact that it has bipartisan support gives the bill a greater-than-usual likelihood of being enacted. We will continue to monitor this proposal. For more information, please contact Dave Bannard.

TAX EXEMPT BOND COMPLIANCE GUIDANCE

A private letter ruling issued by the Internal Revenue Service on November 23 clarifies how airports can maintain compliance with private activity bond requirements when developing non-traditional revenue sources from terminal concessions. Tax exempt bonds issued to finance terminals at airports are typically issued as qualified airport private activity bonds under section 142(a)(1) of the Internal Revenue Code. That section requires that at least 95 percent of the net proceeds of the bonds must be applied to provide airport facilities, but certain types of facilities, such as a health club facility, a facility primarily used for gambling or a store, the principal business of which is the sale of alcoholic beverages for consumption off premises, are prohibited uses of such bond proceeds.

The airport sponsor that sought the private letter ruling anticipated that, as part of its concession program, it was likely to have one or more shops the principal business of which would be selling alcoholic beverages for consumption off premises, such as a wine store. The airport sponsor proposed to contribute a certain sum of funds generated from airport revenues, and not from its revenue bonds (“equity”), and allocate that equity to finance the capital costs associated with the build-out in the terminal for the prohibited use. The sponsor also noted that it expected that over the life of the terminal facility, it was probable that the shop selling alcoholic beverages would be relocated one or more times. The IRS looked to the statutory history of the original provision prohibiting such uses and found that the application of a reasonable allocation method, such as proposed by the airport sponsor would not cause the interest on the bonds issued to fund the remaining terminal improvements to become taxable.

The primary lesson from this private letter ruling is that airports would be prudent to consider allocating the airport sponsor’s own funds to pay a certain percentage of the cost of terminal improvements to ensure that the sponsor retains the flexibility to take advantage of new concession opportunities that might not otherwise be permitted if 100 percent of the costs of the terminal were funded from tax exempt bond proceeds. This allocation can be done on a floating basis, in other words, the equity contributed by the airport sponsor can be allocated to capital costs associated with a prohibited use, rather than a specific portion of the terminal, so that the prohibited use can be moved within the terminal.

Given the importance of generating concession revenues and the never-ending search for new concessions concepts, this is an important principle for airport sponsors to incorporate into their financial plans when funding terminal improvements with tax exempt bonds.

For more information on this IRS ruling, please contact Dave Bannard.

FAA FINDS THAT PORT AUTHORITY OF NY & NJ VIOLATED ITS GRANT ASSURANCE OBLIGATIONS IN ITS EXPENDITURES FOR NON-AIRPORT PURPOSES

On November 19, the FAA’s Director of Airport Compliance and Management Analysis issued a Director’s Determination in United Airlines v. Port Auth. N.Y. & N.J., finding that the Port Authority had violated its grant assurance obligations regarding the fee methodology in place at Newark Liberty International Airport (EWR) and its use of airport revenue. The Director’s Determination is particularly significant for sponsors whose historical use of airport revenue, like the Port Authority’s, enjoys grandfathered status under the airport revenue and highlighted the importance of airport sponsors having a transparent and well-documented rate setting methodology in place.

United Airlines alleged that certain fees imposed by the Port Authority at EWR were unreasonable and led to the accumulation of excess surplus revenues. The Port Authority assesses a “Flight Fee” based on the takeoff weight of aircraft whereby a derived markup is added to certain of the Port Authority’s actual costs attributable to EWR. The Port Authority intended that this combination of the actual costs and markup would recover the direct and indirect costs of operating EWR.

The Director held that the “application of a markup as a means to recover certain costs is not impermissible,” but emphasized that “the markup must be explained and justified” in order to satisfy the Port Authority’s obligation to allocate costs through a reasonable and transparent cost allocation formula. Here, the Director found that the Port Authority’s use of a single ledger for all of its facilities (i.e., JFK, EWR, LGA, as well as non-airport facilities) made it virtually impossible for the FAA or the airlines to understand and validate the Port Authority’s allocation of expenses to EWR. Even if EWR’s fees were ultimately reasonable and not unjustly discriminatory, the FAA found that the failure to provide transparency as to the rate methodology in place at EWR was, in and of itself, a grant assurance violation. Notably, the Director rejected the Port Authority’s argument that the rate methodology was not reviewable because it was embodied in an agreement between the parties.

United also alleged that the Port Authority was unlawfully diverting airport revenue to other projects, in violation of the FAA’s Revenue Use Policy and the terms of the Port Authority’s grandfathering agreement which allows the Port Authority to divert a portion of airport revenue to non-airport facilities owned by the Port Authority.

The Director concluded that the revenue use statute did not allow grandfathered airports to fund “facilities not owned or operated by the [sponsor], or [] facilities that merely support [sponsor] owned facilities or operation.” The Director also found that the Port Authority had committed funding for such ineligible facilities. But, because of the Port Authority’s accounting practices, the FAA could not determine whether airport revenue was used for such facilities. Indeed, the Director observed, “[i]t is probably true that not every dollar used on these projects was from revenue generated at the airport. However, because [Port Authority] funds are commingled, it is reasonable to conclude that airport revenues were used for impermissible purposes.” The Port Authority’s inability to clearly and transparently document the sources and uses of airport revenues, in other words, led the FAA to conclude that the Port Authority had unlawfully diverted airport revenue.

The Port Authority will have thirty days to submit a corrective action plan demonstrating how it will modify its accounting practices, as well as determine the total amount of airport revenues unlawfully diverted over the past six years and credit EWR accounts accordingly. The Port Authority may also appeal the Director’s Determination to the Associate Administrator.

The Director’s Determination stands as a sharp reminder of the importance of documenting the sources and uses of airport revenues, even for sponsors with grandfathered airport revenue uses. Further, the decision clarifies that revenue use statute does not permit the lawful diversion of airport revenue toward facilities that are not owned or operated by the airport sponsor.

For more information on this decision and its implication for other airports nationwide, please contact Eric Pilsk or Dave Bannard.

D.C. CIRCUIT REJECTS CHALLENGES TO SOUTHERN CALIFORNIA METROPLEX

On November 30, the D.C. Circuit issued an unpublished memorandum decision denying four Petitions for Review challenging the FAA’s implementation of NextGen arrival, departure, and en route procedures in Southern California, known collectively as the SoCal Metroplex. The case involved claims by Culver City, the Santa Monica Canyon Civic Association, and two individuals focusing on whether the FAA adequately addressed environmental impacts relating to noise, air quality, and climate change.

In a short, non-precedential decision, the D.C. Circuit rejected all of Petitioners’ arguments with only a brief discussion of each point. In summary, here are the Court’s principal holdings:

• Noise Impacts under Vision 100. Petitioners argued that the FAA failed to meet its obligation under Section 709(c)(1) of the Vision 100 Act, to “take into consideration, to the greatest extent practicable, design of airport approach and departure flight paths to reduce exposure to noise and emissions pollution…” The Court rejected that argument by pointing to evidence in the record that the FAA had made changes to the Metroplex procedures in order to address noise and emissions concerns while still providing airspace efficiency and safety enhancements as called for in the Vision 100 Act.
• Air Quality Conformity. Petitioners argued that the FAA had failed to comply with the Clean Air Act’s conformity requirements by concluding that the SoCal Metroplex could be presumed to conform to the Clean Air Act State Implementation Plan. Petitioners asserted that because most of the changes would occur below the 3,000-foot “mixing height” and would increase fuel burn, the FAA could not presume that the procedures would have only a de minimus effect. The Court rejected those arguments finding that, in fact, most of the changes would occur above 3,000 feet and that the FAA was justified in finding the changes below 3,000 feet were de minimus based on the multi-factor balancing test the FAA was authorized to use in connection with NextGen projects.
• Climate Change/Greenhouse Gases. Petitioners argued that the FAA had failed to adequately consider how the SoCal Metroplex would affect global warming because the FAA claimed that the project would increase greenhouse gas emissions by only a small amount. Petitioners argued that Council on Environmental Quality guidance did not permit dismissing climate change impacts based only on a comparison to global emissions. The Court found, however, that the project greenhouse gas emissions were so small they fell below the CEQ’s threshold for conducting further analysis.

Unlike in the Phoenix case, in which the FAA relied on a Categorical Exclusion for its environmental analysis of NextGen procedures, the FAA prepared an Environmental Analysis and Finding of No Significant Impact before implementing the SoCal Metroplex. On that record, the Court was willing to give the FAA considerable deference, with respect to both the FAA’s balancing of interests in designing the new air traffic control procedures and in the FAA’s construction of its own orders and guidance. This decision underscores how difficult it is to challenge FAA decisions regarding air traffic control and safety.

The case is Vaughn v. FAA, Case No. 16-1377 (D.C. Cir. Nov. 30, 2018) and a copy of the Court’s decision can be found here. For more information about the litigation, please contact Peter Kirsch.

CONGRESSIONAL LEADERSHIP CHANGES; LACK OF FAA POLITICAL LEADERSHIP

With the midterm elections and changes in Congressional leadership, there will be several changes that will affect airport-related matters in the Congress. While some formal appointments have yet to be made, we do know that Congressman Peter DeFazio, Democrat from Oregon will be leading the House Transportation and Infrastructure Committee. DeFazio is an outspoken opponent of privatization of the air traffic system and a supporter of greater infrastructure investment. Rep. Sam Graves of Missouri will be the ranking Republican on the Committee. The House Aviation Subcommittee will be led by Rep. Rick Larsen, Democrat of Washington.

On the Senate side, while there has not been a shift in party control, several members of the Commerce Committee have changed and the leadership of that committee will also be changing. At this writing, it is not entirely clear who will lead the aviation panel, though Sen. Roger Wicker of Mississippi will lead the Committee. Other appointments should be announced in coming weeks.

On the Administration side, there is no new definitive news from the FAA. There remains no permanent FAA Administrator or Associate Administrator for Airports, two positions that are key to airport sponsors. The Washington gossip mills are working overtime but the White House has not made any announcements. There are personnel acting in those and other senior FAA positions. There is no timetable for filling the political positions.

For more information about Washington political happenings, please contact Steven Osit or Peter Kirsch.

Kaplan Kirsch & Rockwell publishes Airport Law Alerts to announce late-breaking developments in legislation, regulation, and policy for our clients and colleagues. Nothing in our Alerts is intended as legal advice, and readers are reminded to contact legal counsel for legal advice on the matters that appear in our Alerts.

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On October 5, 2018, the President signed H.R. 302 into law as the FAA Reauthorization Act of 2018. This represents the first long-term reauthorization of FAA and AIP since 2012; the agency has been operating under interim- and short-term extensions for some time. In addition to the general reauthorization, the Act contains a number of changes to existing law that will have an effect on airport sponsors. This Alert provides detailed discussions of the most significant of those changes, including those concerning the Airport Improvement Program, Passenger Facility Charges, non-aeronautical development on airports, drones/unmanned aerial systems, and noise issues. A longer list of changes of interest to airport sponsors appears on the end of this Alert.

This Alert is not intended to be a comprehensive summary of all of the provisions that may be of interest to airports and their lawyers, but serves to highlight the provisions that most directly affect airports.

For more information on any of the provisions mentioned in this Alert, and to determine how it will affect a particular airport, please contact the attorney with whom you usually work or those noted at the end of each topical summary.

AIRPORT IMPROVEMENT PROGRAM

Section 111 of the Act appropriates $3.35 billion per year through fiscal year 2023 for the Airport Improvement Program, which represents no change from current levels. While the certainty of these AIP funds for the next five years is welcome, the lack of any increase is disappointing for airport sponsors.

Beyond the funding levels, the Act makes several other notable changes to the AIP. Section 132 mandates that medium and large hub airports maintain an area for nursing mothers to feed their infants in each passenger terminal building. Section 138 permits closed-circuit television systems in public areas to be eligible for AIP grants. Section 151 opens the door for certain airports to receive increased AIP entitlement funds: if an airport’s CY 2012 enplanements were at least 10,000, Section 151 directs FAA to apportion entitlement funds based on CY 2012 enplanements, even if those enplanements later fall below 10,000, as long as the airport maintains scheduled service for FYs 2018 through 2021. It also also provides an annual entitlement of $600,000 for each airport with annual passenger enplanements between 8,000 and 10,000.

For more information about the changes to AIP, please contact Katie van Heuven or Steven Osit.

PASSENGER FACILITY CHARGES

Despite considerable pressure from the airport industry groups to do so, Congress did not raise the cap on Passenger Facility Charges in the Act, and those PFCs remain capped at $4.50 per passenger. This is doubly disappointing for airport sponsors not only because there is no lifting of the cap but because the five-year length of the Act means a revisiting of the cap is not likely to occur until 2023 at the earliest. The Act does take two important steps in reducing the regulatory burdens on the sponsor’s ability to impose PFCs. First, Section 121 eliminates the “significant contribution” test, whereby airport sponsors were previously required to make a special showing to assess a $4.00 or $4.50 PFC. Under the Act, sponsors no longer need to make such a showing in order to receive PFC authorization from FAA at the $4.00 or $4.50 per passenger level. Second, that Section expands a previously existing pilot program to permit all airports (not just nonhub airports) to use a streamlined notice and 30-day waiting period process for imposing PFCs instead of securing affirmative FAA approval. While airports would have preferred an increase in the cap, these other regulatory reforms should allow for some relief in funding projects with PFCs.

For more information about PFC issues, please contact Dave Bannard, Eric Pilsk, or Peter Kirsch.

NON-AERONAUTICAL DEVELOPMENT

Many airports have battled FAA in recent years on the agency’s authority to regulate non-aeronautical development on airport property. In a win for airports, Section 163 of the Act takes two significant steps to limit FAA’s authority over non-aeronautical development. First, the Act explicitly limits FAA’s authority to “directly or indirectly regulate” non-aeronautical property transactions at an airport, except: (1) to ensure the safe and efficient operation of aircraft, or the safety of people and property on the ground, (2) to ensure the receipt of fair market value for the use or disposal of property, or (3) where the property was itself purchased with AIP grants or is subject to the Surplus Property Act. The Act also limits FAA’s authority to review and approve ALP amendments to only those amendments that “materially impact” safety and efficiency for aircraft operations, or that “adversely affect the value of prior Federal investments to a significant extent.” This is an important restriction because FAA’s position in some Airports District Offices has been that an ALP amendment and FAA approval is required for any non-aeronautical development (even on property which has been released from grant obligations), which often triggers environmental review and slows development efforts.

We expect that it will take some time for airports and FAA to reach an agreement on the precise impact of Section 163; however, these two changes should give airports much greater flexibility to develop non-aeronautical uses with only limited FAA regulation.

For more information about non-aeronautical development, please contact Peter Kirsch or Nick Clabbers.

NOISE

The Act contains several provisions related to airport and aircraft noise. Section 173 requires FAA to finish within one year its long-delayed evaluation of alternatives to its current noise metric and threshold, the Day Night Average Sound Level (DNL) and 65 dB limit. Section 175 requires FAA to consider using diverging departure flight paths or lateral spacing to address community noise concerns when proposing or adjusting departure procedures, if requested by the airport operator and community leaders. Sections 179 and 187 require FAA to undertake various studies about the health effects of noise on local communities, after which FAA would have to make recommendations within two years for revising land use compatibility guidelines (14 C.F.R. Part 150) to reduce noise exposure. Section 180 mandates that each FAA Regional Administrator designate an ombudsman to address public concerns about airport noise, though regional noise officers have likely already filled those positions.

For more information about these and other noise issues, please contact Peter Kirsch.

FIREFIGHTING CHEMICALS

In recent months, there has been an increasing awareness and concern regarding perfluorinated compounds (PFAS), a catchall term for certain ingredients in firefighting foams commonly used at airports. While these chemicals have been in use for decades as FAA-required elements of firefighting foam, recent research suggests that they are harmful to human health. Section 332 addresses this issue by mandating that within three years, FAA not require the use of fluorinated chemicals to meet the performance standards in Advisory Circular 150/5210-6D. Airport sponsors should still be aware of this issue, however, because, as possible past and current PFAS users, they may be liable for future regulatory requirements, potentially including remediation efforts, and claims by water system operators or individuals.

For more information about PFAS and related issues, please contact Polly Jessen.

PRIVATIZATION PILOT PROGRAM

The Act expands and makes changes to the Airport Privatization Pilot Program, which has now been retitled as the Airport Investment Partnership Program. The changes are likely the result of the lack of interest in the program, despite widespread interest in public-private partnerships in other spheres. To date, there are only four airports in the program, and FAA has only received twelve applications since 2001 (most of which were withdrawn). Section 160 of the Act, however, removes the previous cap of 10 airports in the program, perhaps in anticipation that other changes to the program may invite additional airports to participate. The most important of these changes is to allow privatization of a part of an airport, such as a terminal, consolidated rental car facility or parking (as opposed the entire airport). The Act also allows an airport operator to apply on behalf of multiple airports under its control in a single state (i.e., allows privatization of an airport system) and allows for a $750,000 planning grant to the airport sponsor. In addition, Section 160 mandates that if the application is approved, the sponsor and the leaseholder/private owner shall be exempt from repayment of federal grants, return of property acquired with federal assistance, and the use of proceeds from the airport’s sale or lease to be used exclusively for airport purposes (previously, FAA had discretion to grant these exemptions). These changes give airport sponsors greater flexibility in potentially privatizing all or parts of their operations and incentivize private parties to participate, though it should be noted that the Act retains the ability of airlines to object and stop a sponsor’s privatization efforts.

For more information about the changes to the privatization program, please contact Peter Kirsch or Steve Kaplan.

DRONES

The Act contains more than 40 separate provisions regarding drones or unmanned aerial systems (UAS). Most address regulation of UAS in flight and do not directly concern airports, but will nonetheless have an effect on airport operations. Section 348 requires FAA to issue safety regulations to authorize commercial delivery of goods using drones (Amazon and other online retailers were strong advocates for this provision). Perhaps the biggest regulatory shift is Section 349, which concerns recreational or “hobbyist” drones and repeals the previous exemption of “model aircraft” from FAA regulations. Section 349 now requires that recreational drones meet operating requirements, mandates that operators pass FAA-imposed aeronautical knowledge testing, establishes the qualifications for community-based organizations that may develop safety guidelines (previously, those organizations were not defined), and requires airspace authorization from FAA coextensive with that required of commercial drone operators. Section 373 requires the Comptroller General to undertake a study on the regulation of UAS and the appropriate role of local governments, and Section 351 codifies the DOT’s UAS Integration Pilot Program, which also endorses the concept of co-regulation between FAA and local governments.

Two additional provisions that specifically affect airports are worth mentioning. Section 383 requires FAA to test UAS hazard mitigation systems at public-use airports, which will then become eligible for AIP funding once approved. Section 384 makes it a crime to knowingly interfere or disrupt the operation of a manned aircraft with unmanned aircraft or knowingly operate an unmanned aircraft in a runway exclusion zone near an airport.

For more information about these provisions or other drone issues, please contact Eric Smith or Steven Osit.

PARTIAL LIST OF RELEVANT SECTIONS IN FAA REAUTHORIZATION ACT OF 2018

• Sec. 111 – Reauthorizes the Airport Improvement Program at $3.35 billion per year through 2023
• Sec. 121 – Eliminates Passenger Facility Charge “significant contribution” test and expands expedited review pilot program
• Sec. 122 – Requires DOT to engage an outside research organization for an independent study of airport infrastructure financing needs
• Sec. 123 – Directs FAA to issue a final policy on intermodal access projects and Passenger Facility Charge eligibility
• Sec. 132 – Requires mothers’ rooms in medium and large hub airports
• Sec. 133 – Contract tower reform, including revisions to cost-benefit analysis
• Sec. 138 – Eligibility of CCTV projects for AIP funding
• Sec. 143 – Requires the Government Accountability Office to conduct a study on repealing revenue diversion grandfathering provision
• Sec. 144 – Requires the Government Accountability Office to conduct a study on the use of proprietary exclusive rights
• Sec. 151 – Permits certain small airports to receive AIP entitlement grants based on 2012 enplanement data
• Sec. 158 – Authorizes $1 billion annually for supplemental discretionary grants
• Sec. 159 – Amends the Anti-Head Tax Act to prevent state or local government from collecting a tax, fee, or charge “upon any business located at a commercial service airport or operating as a permittee of such airport that is not generally imposed on sale or services by that state, political subdivision, or authority unless wholly utilized for airport or aeronautical purposes”
• Sec. 160 – Amends Privatization Pilot Program by eliminating airport cap, requiring FAA to waive grant reimbursement and take profit from operations, allow sponsor to have an interest in the purchaser, and allowing privatization of an airport system
• Sec. 163 – Non-aeronautical development land use regulatory reform
• Sec. 164 – Allows commercial service airports with 8,000 passenger boardings and receiving only seasonal service to qualify as primary
• Sec. 173 – Requires DNL alternatives study to be issued within 1 year
• Sec. 174 – Requires updates to noise exposure maps for significant changes to operations
• Sec. 175 – Requires consideration of dispersal headings on community request for RNAV departures
• Sec. 176 – Requires FAA review of community involvement practices for Metroplex
• Sec. 179 – Requires FAA study on relationship between aircraft speed and noise
• Sec. 181 – Requires FAA study and rule by March 2020 on supersonic aircraft standards, including noise, and ad hoc consideration of supersonic type certification in the interim
• Sec. 187 – Requires completion of noise exposure study within two years
• Sec. 189 – Mandates a higher education study of the impact of airport noise on community health
• Sec. 190 – Environmental mitigation pilot program
• Sec. 349 – Complete overhaul of regulation of recreational drones
• Sec. 373 – Requires Comptroller General to study role of federal, state, and local governments in regulation of UAS
• Sec. 383 – Requires FAA to test UAS hazard mitigation systems at airports, and makes approved design eligible for AIP funding
• Sec. 384 – Criminalizes certain flights of UAS near airports
• Sec. 570 – Study on whether an airport Federal credit assistance program would helpful
• Sec. 451 – Increases to Essential Air Service funding through 2023
• Sec. 452 – Requires Comptroller General to study EAS program for potential budgetary savings
• Sec. 455 – Includes reforms and appropriations to the Small Community Air Service Development Program

Kaplan Kirsch & Rockwell publishes Airport Law Alerts to announce late-breaking developments in legislation, regulation, and policy for our clients and colleagues. Nothing in the Alerts is intended as legal advice, and readers are reminded to contact legal counsel for legal advice on the matters that appear in our Alerts.

SEC Adopts Amendment to Rule 15C2-12 Expanding Scope of Continuing Disclosure

On August 20, 2018, the Securities and Exchange Commission (“SEC”) adopted amendments to Rule 15c2-12 (the “Rule”)¹ adding two additional events that must be disclosed through a filing with the Municipal Securities Rulemaking Board’s (“MSRB”) Electronic Municipal Market Access (“EMMA”) system within ten (10) business days of the occurrence of either of the events. These amendments are effective 180 days after the amendments are published in the Federal Register. The two new events are:

“Incurrence of a financial obligation of the obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the obligated person, any of which affect security holders, if material;” and

“Default, event of acceleration, termination event, modification of terms, or other similar event under the terms of a financial obligation of the obligated person, any of which reflect financial difficulties.”

The term “financial obligation” is also newly added to the Rule by the amendments and means:

“a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with this rule.”

As a result of the amendments to the Rule, it is likely that both issuers of municipal securities as well as broker dealers that underwrite such securities will need to revisit and update their internal processes and procedures relating to continuing disclosure and due diligence.

BACKGROUND

Rule 15c2-12 as originally adopted by the SEC in 1989 and it regulates the issuers and borrowers of the proceeds of municipal securities (collectively “obligated persons”) by requiring that underwriters of municipal securities obtain and review an official statement relating to the debt being issued. Although the SEC is not permitted to directly regulate disclosure by issuers of most municipal securities, the SEC has been able to indirectly regulate such disclosure through its oversight of broker dealers for such securities. The Rule has been amended several times and now also requires underwriters to reasonably determine that obligated persons have undertaken in a continuing disclosure obligation to provide certain annual information and notice of certain events to the MSRB through a filing with EMMA.

The most recent amendments to the Rule are primarily intended to address the growth of direct placements of municipal securities, including bank loans and similar structures, by requiring that notice of such additional debt (if material) and the material terms relating to such debt be provided and that notice of financial difficulties relating to such obligations also be provided. However, the amendments to the Rule are to be read broadly, and both obligated persons and underwriters will need to understand their new obligations under the Rule.

UNPACKING THE AMENDMENTS

Financial Obligation. In order to be able to effectively understand the amendments to the Rule, it is important to focus on the defined terms and elements of the new events. The new term, “financial obligations” is at the heart of the amendments. As the issuing release makes clear, the term is intended to be read broadly and includes “debt, debt-like, or debt-related obligations”, whether they are short-term or long term obligations. In essence, if an obligated person enters into a financial obligation that could have an impact on the rights of the holders of outstanding debt or that competes with such debt for repayment, the obligated person should report the incurrence of such financial obligation and its material terms within ten (10) business days after the financial obligation becomes legally enforceable.

The term includes debt instruments, including bonds and notes, derivatives that relate to existing or planned debt instruments, and guarantees of either of the foregoing obligations. The SEC states that “the timely disclosure of both the incurrence of a debt obligation, if material, and the obligation’s material terms that affect existing security holders” are important to the proper functioning of the markets. The SEC has indicated that the term financial obligation should be read broadly and, although the term “lease” was dropped in the final rule from the definition of financial obligation, lease arrangements entered into by obligated persons that operate as vehicles to borrow money will constitute financial obligations and must be disclosed, if material. The SEC states that the term “debt obligation” is meant to be broader than many state law definitions of debt. Debt is deemed to be “incurred” when the obligation is enforceable against the issuer of the debt.

Derivatives subject to the event notice requirements of the Rule are also intended to be read broadly, but only as they relate to debt, even if the debt will be issued in the future. The determination is based on whether a reasonable person would view it as likely or probable under the facts and circumstances that the obligated person will incur the related yet-to-be-issued debt at a future date. Thus, for example, a forward starting interest rate swap relates to planned debt, because the swap has no economic purpose unless the debt is issued. In contrast, however, a derivative that is designed to mitigate investment risk would not be subject to the Rule’s disclosure requirements.

Lastly, a guarantee is intended to include a contingent financial obligation of the obligated person to secure the obligations or a third party or obligations of the obligated person and includes guarantees of both debt instruments and derivatives. In the context of a guarantee, both the guarantor and the party whose obligation is guaranteed should make an independent determination of whether such guarantee is material and should be disclosed to EMMA. Thus, in many cases, both parties will need to file an event notice.

Note that a financial obligation does not include any municipal security for which an official statement is filed with EMMA, but may include either a derivative or guarantee relating to or supporting such a municipal security. Thus, even if the official statement of an issue of bonds is filed with EMMA, if those bonds are guaranteed or a derivative is entered into with respect to such bonds, a separate filing likely should be made.

Obligated Person. The term “obligated person” is used in the Rule to describe the person who is actually responsible for the repayment of a municipal security. Thus, the issuer of a bond or note will often be the obligated person, but where the proceeds of such a debt obligation is loaned to another party, such as through a conduit issue, and the borrower is required to repay the loan, the borrower will be considered to be the obligated person.

Materiality. One of the most difficult and contentious issues relating to the Rule has been the proper definition of the term “material”. In the issuing release relating to the amendments, the SEC acknowledges that many commenters have noted that the term “material” has become “vague, ambiguous and unpredictable,” especially since the SEC’s Municipalities Continuing Disclosure Cooperation (“MCDC”) Initiative. In response, the SEC states that the type of analysis undertaken in connection with the MCDC Initiative is distinct from the analysis of whether a piece of information is material, and once again cites the TSC v. Northway standard that a fact is material “if there is a substantial likelihood that, under all the circumstances, the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information available.”² Thus, the SEC urges that the same standard used in determining what information should be included in an official statement in connection with the original issuance of a debt obligation should be used to determine whether a financial obligation, or its terms, is material and must be disclosed. Nevertheless, this issue is likely to one of the more difficult aspects of implementing the amendments to the Rule and will benefit from careful and thoughtful analysis on a case by case basis.

Agreement to covenants … or other similar terms. The second part of the new fifteenth event notice is a list of terms in a debt instrument that could have an impact on other debt obligations of the obligated person, such as covenants, events of default, remedies or priority rights. For example, in many directly placed obligations with banks, issuers are required to agree to a separate continuing covenants agreement that may contain additional or more stringent terms than the obligated person’s master indenture. In such case, a default under the continuing covenants agreement may allow the bank holding such debt to accelerate it, to the potential detriment of the holders of other debt obligations. Thus, when entering into any new financial obligation, the obligated person should consider whether any of its terms are different from those governing its outstanding debt and, if so, whether those terms could have an adverse impact on the current debt holders. If so, then disclosure is likely necessary.

Default, event of acceleration … or other similar events … any of which reflect financial difficulties. The second new event is intended to provide timely notice of any event relating to the obligated person’s debt obligations that may be indicative of financial stress. This is intended to be read broadly, as evidenced by the fact that a “default”, rather than a formal event of default is the chosen term. Thus, where a situation arises that, with the passage of time or the giving of notice, could ripen into an event of default, if indicative of financial difficulty, notice of such an event should be provided. An example of an event not constituting “financial difficulties” would be the failure to provide timely notice of a change of address of the obligated person, while a late payment may or may not reflect financial difficulties. Similarly, “other similar events” may include a waiver by a lender of a covenant due to the obligated person’s being in financial difficulty. Thus, where there is a change in the terms of an underlying agreement or other instrument due to financial difficulties, the obligated person should make a timely filing.

Filing Period. The new event notices must be filed within ten (10) business days of the occurrence of the event. The SEC noted that it had received many comments that noted that the new events would often be disclosed in annual financial statements as well as requesting additional time to make such filings. The SEC indicated that the Commission believes that it is important that notice of these events be made available to the markets in a timely manner. Thus, obligated persons will need to establish means to ensure that the person(s) responsible for making event notice filings are aware of these new events with sufficient time and resources to prepare and file a compliant notice within ten (10) business days of the occurrence of the event.

Effective Date. The amendments to the Rule will be effective 180 days after notice of the amendments is published in the Federal Register, or sometime in late February 2019. Until then, obligated persons and broker dealers are not required to comply with the amendments to the Rule and the MSRB will be working to update the EMMA system to accept these additional filings. Note that all bonds and other debt instruments issued before the effective date of the amendment will not be subject to the requirements of the amended Rule, but once a new continuing disclosure obligation is undertaken with respect to a series of bonds or other obligations that includes the new events, the requirements of event 16, requiring notice of default or other events reflecting financial difficulties, will be applicable to all financial obligations of the obligated person.

STEPS TO TAKE

In order to prepare for the amendments to the Rule, both issuers and underwriters of municipal securities should consider taking several steps, including the following:

• Updating existing internal practices and procedures to reflect these amendments. Disclosure policies should be reviewed and revised, if appropriate, to reflect the necessity of filing or, in the case of underwriters, obtaining and reviewing event notices for the incurrence of material financial obligations or occurrence of events that reflect financial difficulties.
• Additional training for appropriate staff may be prudent, both to familiarize them with the new requirements and to assist in identifying when these events occur and must be reported.
• Given the short (ten (10) business day) timeframe within which to file an event notice, making a filing a part of the incurrence of any debt obligation may be good practice, and in negotiating the terms of such an obligation, if they differ from those that govern existing debt obligations, the issuer will want to assure that the material terms will be disclosed in a timely manner (or conformed to the issuer’s standard terms).
• New continuing disclosure obligations entered into in connection with debt or other financial obligations issued after the effective date of the amendments to the Rule will have to include the new event notice requirements, and underwriters will need to review such continuing disclosure obligations to ensure that they incorporate these provisions.
• In addition, underwriters will also likely be forced to engage in more substantial due diligence in connection with new issues of municipal securities. In addition to the tasks previously performed, they may wish to obtain copies of all debt, debt-like or debt-related obligations of the obligated person and review them to be sure that such obligations and their material terms have been disclosed, if required. Furthermore, if there has been any change in terms of any financial obligation that reflects financial difficulties, underwriters will likely need to determine whether there has been timely filing relating to such events.

Given the complexity of the new amendments to the Rule, it is likely that both obligated persons and underwriters will not seek to implement its provisions substantially earlier than the effective date of the Rule.

CONCLUSION

The amendments to the Rule impose substantial new and complex requirements on both issuers and borrowers of municipal debt obligations as well as the underwriters of such obligations. Both sets of parties should familiarize themselves with the amendments and prepare for implementation of the amendments well in advance of the effective date of the amendments in February 2019.

Please contact David Bannard if you have any questions about the amendments to this Rule or any content in this Alert.

Kaplan Kirsch & Rockwell publishes Finance Law Alerts to announce late-breaking developments in legislation, regulation, and policy for our clients and colleagues. Nothing in the Alerts is intended as legal advice, and readers are reminded to contact legal counsel for legal advice on the matters that appear in our Alerts.

1. 17 CFR 24015c2-12. 
2. See TSC Industires, Inc. v. Northway, Inc., 426 U.S. 438, 440 (1976).