on the 22nd day of September, 1995
AIR TRANSPORT ASSOCIATION OF AMERICA, | et al., | | v. | | CITY OF LOS ANGELES, | Docket OST-95-474 CITY OF LOS ANGELES DEPARTMENT | OF AIRPORTS, and | LOS ANGELES BOARD OF AIRPORT | COMMISSIONERS |
INSTITUTING ORDER
SECOND LOS ANGELES INTERNATIONAL | Docket OST-95-474 AIRPORT RATES PROCEEDING |
The Department of Transportation, pursuant to 49 U.S.C. 47129(c)(2), has determined that a significant dispute exists regarding the complaint filed on August 25, 1995, by the Air Transport Association of America (ATA) and fifty-nine airlines against the City of Los Angeles, the City of Los Angeles Department of Airports, and the Los Angeles Board of Airport Commissioners (collectively the City), and thus the matter is assigned to an administrative law judge (ALJ) for an oral evidentiary hearing. The ALJ is directed to issue a recommended decision by Wednesday, November 22, 1995.
Introduction
On August 25, 1995, ATA and fifty-nine airlines (collectively the Complainants), filed a complaint with the Department of Transportation against the City. The complaint asks us to determine whether the increased landing fees charged at Los Angeles International Airport (LAX) are unreasonable and otherwise unlawful under 49 U.S.C. 47107, 49 U.S.C. 40116, and section 113 of the Federal Aviation Administration Authorization Act of 1994, P.L. 103-305 (August 23, 1994) (the Authorization Act), codified as 49 U.S.C. 47129. The complaint further requests that we accept the complaint and determine the lawfulness of the fees under the expedited procedures of section 113 of the Authorization Act and our regulations, 14 C.F.R. Part 302, Subpart F, adopted at 60 Fed. Reg. 6919 (February 3, 1995).
The airlines joining in the complaint are ABX, Inc., d/b/a Airborne Express; AOM Minerve d/b/a AOM Airlines; Aerovias de Mexico d/b/a Aeromexico Airlines; Air Canada; Compagnie Nationale Air France d/b/a Air France; Air New Zealand; Air Pacific; Alaska Airlines; Linee Aeree Italiane d/b/a Alitalia; All Nippon Airways; America West Airlines; American Airlines; American Trans Air; Aviateca Airlines; British Airways; Canadian Airlines International; Cargolux Airlines; Carnival Air Lines; Cathay Pacific Airways; China Airlines; Continental Airlines; Corse Air International b/d/a Corsair; Delta Air Lines; DHL Airways; El Al Israel Airlines; Emery Worldwide Airlines; Evergreen International Airlines; Federal Express; Garuda Indonesia Airlines; Hawaiian Airlines; Japan Airlines; Koninklijke Luchtvaart Maatschappij d/b/a/ KLM Royal Dutch Airlines; Korean Air Lines; Lufttransport Unternehmen d/b/a LTU International; Deutsche Lufthansa d/b/a/ Lufthansa German Airlines; Malaysian Airline System d/b/a Malaysia Airlines; Martinair Holland; Compañía Mexicana de Aviación d/b/a Mexicana Airlines; Nippon Cargo Airlines; Northwest Airlines; Philippine Airlines; Polar Air Cargo; Qantas Airways; Reno Air; Singapore Airlines; Skywest Airlines d/b/a Delta Connection; Southwest Airlines; Swiss Air Transport d/b/a Swissair; Taca International Airlines; Target Airways d/b/a Great American Airways; Thai Airways International; Tower Air; Trans World Airlines; United Airlines; United Parcel Service; USAir; Viacao Aerea Rio-Grandense d/b/a Varig Brazilian Airlines; Virgin Atlantic Airways; and American Eagle d/b/a Wings West Airlines.
American International Airways filed a complaint against the City on August 28.
In its answer the City of Los Angeles argues that its fees are reasonable and that the complaint should not be set for hearing under 49 U.S.C. 47129.
We have reviewed the complaint, the City's answer, and the Complainants' reply, as well as the other pleadings filed in this matter, and determined that a significant dispute exists within the meaning of section 113. Accordingly, the complaint will be referred to an administrative law judge for hearing under the terms of the statute.
The administrative law judge's recommended decision will be due no later than November 22. We have determined that we will review the judge's decision. Accordingly the parties should submit briefs and reply briefs, as set forth below, rather than petitions for review, after the decision is issued.
A. Statutory Background
The Authorization Act, signed into law on August 23, 1994, includes in section 113 specific provisions for the resolution of airport-airline disputes over airport fees. Before the enactment of section 113, an airline could seek an investigation into the lawfulness of any airport fee under the enforcement procedures adopted by the Federal Aviation Administration (FAA). Those rules, however, required no set deadline for a final decision by the FAA.
To provide airlines and airport operators with an opportunity to obtain a prompt decision on significant disputes about the lawfulness of new fees and increased fees, Congress enacted Section 113 of the Authorization Act. That section requires the Secretary to determine the reasonableness of a challenged fee within 120 days after the complaint is filed.[1] Although the statute created new procedures for examining the reasonableness of new or increased airport fees, it did not change the substantive rights and duties of the airports or the airlines. As we said in adopting the procedural regulations under this statute, "The new procedures replace existing procedures under 14 CFR Part 13, and impose no new substantive requirements on either carriers or airports." 60 Fed. Reg. 6919, 6927 (February 3, 1995). See also 59 Fed. Reg. 53380, 53386 (October 24, 1994).
Under the new statute, an air carrier may file a complaint against a new or increased fee (or fee in dispute on the date of enactment) within 60 days of the carrier's receipt of notice of the fee's imposition. Within 30 days of the complaint's filing, we must determine whether "a significant dispute" exists over the fee's reasonableness. If we find that such a dispute exists, we must set the case for hearing before an administrative law judge (ALJ). If we find that no such dispute exists, we must dismiss the complaint. If the case is set for hearing, the ALJ must issue a recommended decision within 60 days. We must issue our final decision on the reasonableness of the fee within 120 days of the filing of the complaint; if we fail to do so, the ALJ's decision becomes the Department's final decision.
In examining fee increases within this statute, we may determine whether the new fee is reasonable, but we may not prescribe a fee. 49 U.S.C. 47129(a)(3).
While the complaint is pending, the carriers must pay the new fee, albeit under protest, and the airport may not block the airlines from using the airport. Unless the airport and the air carriers agree otherwise, the airport must obtain a bond, letter of credit, or other credit facility that is sufficient to cover the amount in dispute that is due during the 120-day period the Department has to decide the matter. The airlines are entitled to a refund or credit if we ultimately determine that the new fee is unreasonable. 49 U.S.C. 47129(d).
The section 113 administrative dispute resolution procedure has the following limitations:
(2) a fee imposed pursuant to a financing agreement or covenant entered into prior to the date of the enactment of this section; or
(3) any other existing fee not in dispute as of such date of enactment.
(2) the ability of an airport to meet its obligations under a financing agreement, or covenant, that is in force as of the date of the enactment of this section.
The Authorization Act also required the Department to issue standards or guidelines that shall be used to determine whether airport fees are reasonable. In response to this statutory mandate, the Department issued its Policy Regarding Airport Rates and Charges, 60 Fed. Reg. 6909, on February 3, 1995 (the Policy Statement). The Department recently published proposed revisions to the Policy Statement. 60 Fed. Reg. 47012 (September 8, 1995).
There are limitations imposed by federal law on an airport's operations and fees. When an airport accepts federal grant money for an airport improvement, it must give certain assurances, including the assurance that the airport will be available for public use on fair and reasonable terms and without unjust discrimination. This requirement was contained in section 511 of the Airports and Airways Improvement Act of 1982, now recodified as 49 U.S.C. 47107. Section 511 also provides, with some exceptions, that all revenues generated by a public airport, and any local taxes on aviation fuel, will be expended for the capital or operating costs of the airport, the local airport system, or other local facilities owned or operated by the airport that directly and substantially relate to the air transportation of passengers or property. In addition, section 1113(b) of the Federal Aviation Act, the Anti-Head Tax Act, recodified as 49 U.S.C. 40116, allows the local airport authority to collect only reasonable rental charges, landing fees, and other service charges from aircraft operators for the use of airport facilities. See Northwest Airlines v. County of Kent, 114 S. Ct. 855 (1994).
B. Factual Background
Under a compensatory fee methodology, the fees charged by an airport for a facility or service will be based on the costs attributable to the users of that facility or service; for example, the landing fees charged for using the airfield and apron should be based on the airport's costs of operating the airfield and apron. Under a residual fee methodology, in contrast, the airlines' landing fees provide the revenue needed by the airport to offset the difference between the airport's total expenses and the revenues collected by the airport from other sources, such as concessions and persons using its parking lots. Under the residual fee system, the airlines' fees will be smaller than they would be under a compensatory fee system, if the fees paid by the airport's other users exceed the airport's costs of providing services for those users. On the other hand, since the airlines using an airport under a residual fee agreement are ultimately liable for any shortfall in the airport's revenues, those carriers have agreed that their landing fees will be high enough to ensure that the airport's overall revenues equal its total expenses. See Order 95-6-36 at 5.
For many years, LAX landing fees were calculated under a residual fee system under agreements with the airlines that expired in 1993. In the several years before 1993 the airport received so much revenue from other sources, such as its parking lots, that the airlines' landing fees at LAX were smaller than the airlines' share of the airport's operating and maintenance costs. See Order 95-6-36 at 5.
Since the airlines' residual fee agreements were expiring in 1993, the City decided to adopt a compensatory fee system, as it was entitled to do. See Order 95-6-36 at 5, citing 49 U.S.C. 47129(a)(2). The City and the airlines could not agree on a new fee system acceptable to all parties, so the City unilaterally established new landing fees at LAX. The City based the new fees on methodology developed by the John F. Brown Company. That methodology used five separate direct cost centers -- the terminal, the apron, the airfield, aviation, and commercial. It also used four indirect cost centers related to service functions supporting the direct cost centers; the costs of each indirect cost center are allocated between the direct cost centers. The landing fees reflected the City's calculation of the airfield and apron costs together with the indirect costs allocated to these direct cost centers. The landing fees charged for the 1993-1994 fiscal year were based on the airport's estimated expenses and were to be adjusted when the City determined what the actual expenses had been. See Order 95-6-36 at 5.
Many of the airlines serving LAX claimed that the new fees were unreasonably high and that the City intended to use the revenues for non-airport purposes. The airlines failed in their efforts to obtain a judicial order blocking the fee increase. The airlines and the City then agreed to a temporary settlement, whereby the airlines agreed to pay the new fees while reserving their rights to challenge the fees in a judicial or administrative action and the City agreed it would refund the fees to the extent that a court or agency determined that the new fees were unreasonable. See Order 95-6-36 at 6.
After holding a hearing, Chief Administrative Law Judge John J. Mathias issued a recommended decision that concluded that the fees were unreasonable in certain respects but that on most of the issues the airlines had failed to show that the City's calculation of the fees was unreasonable.
On review, we largely affirmed the Chief Judge's conclusions. Order 95-6-36. In two respects we found that the landing fees were unreasonable. First, we concluded that the City had improperly valued the airfield and apron land at fair market value rather than historical cost. Secondly, we found that the City had allocated an unreasonably high proportion of the cost of one fire engine company, Engine Company 51, to the airfield cost center. Order 95-6-36 at 42.
On the other issues, however, we found that the airlines had failed to show that the fees were unreasonable: the airlines had not shown that the City's inclusion in the rate base of amortization charges for capital expenses was unreasonable; that the City's allocation of the access road costs between the airfield and the other cost centers was unreasonable; that the airport had excess aeronautical revenues which should have been used to offset the airfield costs; or that the airfield should have been credited with a share of the interest income earned by the airport. Order 95-6-36 at 26-38.
Although the City was planning to charge the airfield cost center with a proportion of the cost of City services provided the airport like police and fire protection, the City had not made a final determination of the amounts that would be billed the airport and allocated to the airfield and apron cost centers. We reminded the City that the allocation of such costs must be reasonable and justifiable. Order 95-6-36 at 42, 44. While we held that it was generally premature to rule on the City's possible allocation of these costs, we also held that the City could not maintain its allocation of 84 percent of the costs of Engine Company 51 to the airfield, since the record indicated that the large majority of the company's work involved non-airfield incidents. Order 95-6-36 at 41-42.
After issuing our final decision on the reasonableness of the landing fees, we held a supplemental proceeding to determine the amount of the refund due the complainant airlines. Orders 95-6-37 (June 30, 1995) and 95-7-33 (July 25, 1995). In Order 95-7-33 we also granted the City's request for a stay pending judicial review of its obligation to make refund payments to the complainant airlines, noted that the City had not requested a stay of our determination that the landing fees could not be based on the fair market value of the airfield and apron land, and reaffirmed our ruling that the City could not lawfully charge a fee based in part on the fair market value of airfield and apron land.
The City and the airline parties in the proceeding have filed petitions for judicial review of our final decision. City of Los Angeles et al. v. Dept. of Transportation, D.C. Cir. Nos. 95-1344 et al. (filed July 7, 1995). The City, among other things, plans to challenge our finding that the fees may not be based on the fair market value of the airfield and apron land.
Moreover, like the fees adopted in 1993, the new fees include a charge based on the fair market value of the airfield and apron land, notwithstanding our determination that the use of such a charge in calculating the landing fees would be unlawful. However, the City agreed with the major airlines on an escrow arrangement for the portion of the new fee that represents the difference between a fee based on the fair market value of the land and a fee based on historic cost, $0.28 per thousand pounds landed weight. We granted the City an interim stay of our prohibition against the use of fair market value for the airfield and apron land in view of the City's acceptance of an escrow arrangement. Order 95-9-14 (September 13, 1995).
C. The Pleadings
The Complainants further charge that the fees are invalid because the City's procedures for adopting the new fees violated our Policy Statement in two respects. First, despite the Policy Statement's goal that an airport should consult with its airline users before adopting a new or increased fee, para. 1.1.1, the City allegedly adopted the landing fees at issue without consulting with the airlines, even though the airlines repeatedly asked for an opportunity to discuss the fees and the airport's proposed budget before the fees' adoption. Secondly, the City has refused to provide data and documentation relating to the calculation of the new fees on a timely basis, even though the Policy Statement states that airports should provide relevant data on fee increases to airline users. Policy Statement, para. 1.1.1 and 1.1.2. Complaint at 15-43. Because of these alleged violations of the Policy Statement, the Complainants urge us to set aside the new fees entirely, order the airport to engage in meaningful consultation and disclosure before it imposes any new fees, appoint an independent monitor to oversee the process of setting fees for LAX, bar the City from submitting any evidence in this proceeding in support of the current fees that has not been submitted to the airlines, and order the City to make available to the Complainants the information requested by them and not yet provided by the City. Complaint at 38-47.
The Complainants additionally charge that the City increased the fees at LAX in order to carry out its plan to divert airport revenues into its general fund. Complaint at 33-38.
The Complainants claim that the City's cost methodology is flawed in the following respects.
Airport Reimbursement for Services Provided by the City. The budget underlying the landing fee calculation includes excessive amounts for services provided the airport by the City. The amounts stated in the budget are $9,691,402 for Los Angeles Police Department expenses, $8,736,374 for crash, fire, and rescue services, $4,320,945 for "administrative" expenses, $1,497,000 for City Attorney expenses, $628,000 for "direct labor" expenses, $600,000 for "legislative consultant" expenses, and $10,000 for "data service bureau" expenses. Of these amounts, the airport has allocated $11,946,926 to the airfield and apron cost center. These costs are unreasonable since the City has not explained its basis for allocating these expenses to the airport and among the airport cost centers and because the City has failed to show that its treatment of these expenses is consistent with its treatment of the expenses charged other City departments. Complaint at 50-54.
The Complainants charge that several of these expense items are unreasonable for additional reasons.
First, the crash, fire, and rescue costs allocated to the airfield include ninety percent of the cost of Engine Company 51, a fire department company that serves LAX and neighboring areas. The Complainants claim that the City's allocation of that amount of the company's costs, $1,533,312, to the airfield is inconsistent with our decision in the earlier proceeding, where we held that the allocation of 84 percent of the cost to the airfield was unreasonable, Order 95-6-36 at 42, and unjustified by the engine company's activities, since far less than 90 percent of its activities involved airfield incidents. Complaint at 54-58.
Secondly, the City has failed to justify its allocation of police department expenses to the airport and has unreasonably denied the airlines timely access to the documentation requested by them showing whether the allocation could be justified. In addition, the City allocated the police expenses to the general administration cost center, an indirect cost center, thirty percent of whose costs are allocated to the landing fee rate base. To the extent possible, the City assertedly must allocate the police costs to the relevant direct cost centers. Complaint at 59-64.
Noise Mitigation Expenses. According to the Complainants, the City has improperly allocated $12 million in noise mitigation expenses to the landing fee rate base, even though the airport has collected $80 million in passenger facility charge (PFC) revenues from airline passengers at LAX that were dedicated to noise mitigation purposes. Complaint at 64-66. The Complainants additionally assert that they have been unable to obtain the information needed for determining whether these expenses are legitimate. Complainants' Reply Brief at 22-24.
Debt Service Coverage Expense. The Complainants challenge the reasonableness of the City's inclusion of a $1,324,594 charge for debt service coverage expense in the landing fee rate base. The expense represents the City's obligation under its airport agreements to ensure that the airport's net revenues, as defined in the bond agreement, will be no less than 125 percent of the aggregate annual debt service. The Complainants contend that no additional charge for the debt service coverage is proper, since the airport's revenues will significantly exceed the requirement imposed by the bond agreement, even if all of the expense items challenged by the airlines in this proceeding were invalidated. Complaint at 66-70.
Outside Attorneys Fees. The Complainants assert that the City may not impose the costs of its outside attorneys fees on them, costs budgeted at $1,500,000, since the attorneys are defending an allegedly unreasonable fee structure, since the outside attorneys are also defending the City on other issues unrelated to the legality of the landing fees, such as the City's efforts to divert airport funds into its general fund, and since the City would have no incentive to consult with the airlines before adopting new landing fees if it can charge the airlines with its cost of defending the fees. Complaint at 70-73.
Debt Service Charge for Uncompleted Projects. According to the Complainants, the landing fee rate base includes a $1,270,188 in debt service expenses related to two projects which the airport has not completed, the "Southside Taxiways" project and the phase two of the "Airport Signage and Lighting" project. In arguing that this charge is unlawful, the Complainants rely on the Policy Statement, which bars an airport from including in the rate base the cost of facilities not yet built and operating. Complaint at 73.
Van Nuys Airport Charges. The Complainants complain that the City unreasonably included $583,433 in "net" costs involved in the operation of Van Nuys Airport, owned and operated by the City, which the City contends is a reliever airport for LAX. Those costs largely consist of a $581,421 charge for the amortization of capital assets purchased before 1994, a charge which is assertedly unreasonable for the same reasons that a similar charge for the amortization of capital assets at LAX purchased before 1994 is unreasonable, a charge which the airlines also object to, as explained below. The Complainants additionally complain that a $2,013 charge for a debt service coverage expense is unreasonable, just as is the inclusion of a similar debt service coverage charge at LAX is unreasonable. Finally, while the Complainants note that the City has asserted that its airfield land costs at Van Nuys are based on historic cost, not fair market value, the Complainants state that they reserve the right to challenge any future use of fair market value in valuing the airfield land at Van Nuys. Complaint at 74-75.
Amortization Expenses. The Complainants charge that the City acted unreasonably by including a $12,388,515 charge in the landing fee rate base for the amortization of capital assets purchased while the airport used the residual system for calculating the landing fees. They argue that the amortization is improper because the airport already charged airport users for the costs of these capital assets when it acquired them. As the Complainants recognize, however, they had argued in the earlier proceeding that the same charge included in the landing fees from July 1993 through June 1995 was unreasonable, and we found that the airlines had failed to show that the charge was unreasonable. Order 95-6-36 at 26-29. The complainant airlines in the first case have sought judicial review of that determination. Complaint at 75-79.
Failure to Credit Rate Base with Net Aeronautical Revenues. As in the first LAX rate proceeding, the Complainants argue that the landing fees are too high because the City wrongfully failed to credit the landing fee rate base with the surplus revenues allegedly obtained by the airport from other aeronautical revenue sources, such as terminal leases. They contend that the Policy Statement requires each airport to offset its surplus revenues from other aeronautical sources against the landing fee rate base. As noted by the Complainants, in the first case we ruled against the airlines on this issue, Order 95-6-36 at 33-36, but the airlines are seeking judicial review of that determination. Complaint at 80.
The City's Admitted Errors. Finally, the Complainants assert that the City itself conceded that its landing fee calculation was inaccurate in some respects, yet the City has refused to adjust the fees. The mistakes conceded by the City involve its double-counting of expenses of the City Attorney's office, an error of $485,000, and $242,000 in other errors.
The Complainants ask us to direct the City to cease and desist from imposing the allegedly unlawful fees and to direct the City to refund the portion of the fees found unreasonable for the period beginning July 1, 1995. Complaint at 82.
To assist them in presenting their case, if a hearing is held, the Complainants seek an order directing the City to provide certain information which they have asked the City to produce but which the City has refused to provide. Complaint at 47; Attachment B to Certificate Required by 14 C.F.R. 302.605(c).
The Complainants also asked that we require the City to issue a letter of credit equal to the entire amount in dispute plus interest, which they initially estimated as $16 million for the 180-day period that began July 1, 1995. Complaint at 83-84.
With respect to three of the issues raised by the complaint -- the City's use of fair market value for the airfield and apron land, the amortization charge for capital assets purchased before the compensatory fee system was adopted in 1993, and the City's alleged failure to credit the landing fee rate base with excess aeronautical income obtained from other sources -- the City states that these issues were addressed and resolved by us in the first proceeding, that the City and the airlines, as the case may be, have asked the Court of Appeals to review those issues, and that no hearing accordingly should be held on those issues. Respondents' Brief at 14-15. With regard to the Complainants' claim that the City's ability to use PFC for noise mitigation expenses means that the City may not properly include those expenses in the landing fee rate base, the City alleges that it is planning to use the PFC funds for other purposes, subject to FAA approval, and that the airlines may not legitimately compel the City to use one source of funds rather than another for those expenses. Respondents' Brief at 27-34.
On other issues -- the City's inclusion of a debt coverage expense in the landing fee rate base, the City's allocation of police and fire protection expenses, and the City's inclusion of a charge for its legal expenses defending the landing fees -- the City claims that its position is reasonable. According to the City, for example, regulated public utilities are routinely allowed to include the costs of defending rate increases and other practices in their rate base. Respondents' Brief at 51-53. The City represents that the legal expenses will be the expenses for defending the landing fees, not for any other purpose. Respondents' Brief at 49.
The City admits that it made a few minor errors in calculating the fees which caused the fees to be higher than they should be. For example, as alleged by the Complainants, the Southside Taxiways project will not be completed during the current fiscal year, so the debt expense relating to that work should not be included in the rate base. The City proposes to make an adjustment for these errors at the end of the first six months of the fiscal year, and, as a result, contends that no hearing is required on those issues. Respondents' Brief at 54-56.
In response to the Complainants' charges that the City failed to consult with the airlines or give them adequate information regarding the fees' calculation, the City asserts that the airlines' charges are false. The City represents that it repeatedly met with the airlines before and after it adopted the new fees and that it has given the airlines virtually all of the information they have requested within a reasonable period of time. Respondents' Brief at 33-39. But, even if the City had failed to consult and provide the requested information, the City argues that neither the statute nor our rules would authorize an invalidation of the new fees, our oversight of the rate-setting process for any new fees, or any restrictions on the City's ability to introduce evidence. Respondents' Brief at 64-72.
The City also filed two motions objecting to some of the evidence submitted by the Complainants and one motion objecting to ATA's apparent wish to participate as a party in this case. Another motion opposed the Complainants' request that the City be required to submit a $16 million letter of credit for the amount of fees allegedly in dispute.
On September 14 the City filed a letter of credit in the amount of $5,883,309.
The City then submitted the agreement to us. While the City thought no action on our part was required, the City asked that we either ratify the agreement or stay our order barring the use of fair market value for the airfield and apron land. Response to Secretary's Order No. 95-7-33 (September 5, 1995), Docket 50176.
We granted the City an interim stay of our prohibition against the use of fair market value for the airfield and apron land. Order 95-9-8 (September 8, 1995).
Our order gave interested persons the opportunity to file comments on the City's submission. The original complainants in the first LAX case filed the only comment. They do not oppose the stay, which they consider unnecessary, but reaffirm their position that their acceptance of the escrow arrangement in no way waives their right to a decision under 49 U.S.C. 47129 on the reasonableness of the City's continued use of a charge based on the fair market value of the airfield and apron land.
D. The Department's Decision
After considering all of the parties' submissions, we have determined that the dispute over the LAX fee increases must be sent to an ALJ for a hearing under the new statutory procedures. We will first explain why the complaint is within our jurisdiction under 49 U.S.C. 47129 and why a significant dispute exists. We will also address the Complainants' demand that we invalidate the fees and monitor the City's future development of new rates. Thereafter we will set forth guidelines on the scope of the issues and on some of the principles that should be considered by the ALJ in analyzing the parties' arguments and evidence. We will also outline procedures to be followed by the ALJ. [4]
Given the short period allowed for the hearing in this case, we will not accept petitions for reconsideration of this order.
Our order instituting the first LAX case discussed the scope of our responsibility to examine the reasonableness of an airport's fees. As we explained then, Congress expects us to analyze the reasonableness of a new or increased fee under 49 U.S.C. 47129 when an airline or airlines show that there is a significant dispute over the reasonableness of the fee, and that analysis involves an investigation of each disputed element of the fee. Order 95-4-5 at 26-27.
In adopting the procedural rules for airport rates and charges proceedings, we set forth the purpose of the statute's limitation to "significant disputes": "Congress established the extraordinary dispute resolution program in section 47129 to ensure that carriers and airports can obtain a prompt decision when there is an important fee dispute." 60 Fed. Reg. at 6921 (emphasis added). The dispute over the reasonableness of the increased landing fees at LAX is an important dispute.
First, as we pointed out in the earlier case, Los Angeles is the nation's second-largest city, and LAX is the nation's third busiest airport. Order 95-4-5 at 17. Furthermore, this dispute involves a large amount of money. The Complainants estimate that the City will collect over $30 million more from the increased fees in the current fiscal year than can be justified by the actual costs of operating the airfield and apron. Complaint at 5-6. In addition, this dispute concerns a major increase in the airport's fees, since the current fees are about one-third higher than the fees in effect from July 1993 through June 1995. Furthermore, the arguments made by the Complainants on their face appear to be substantial and worthy of investigation. Finally, the dispute over the new LAX fees constitutes in several respects a continuation of the dispute over the fees adjudicated by us in our first LAX proceeding, which is an additional factor making it appropriate for us to refer this dispute to an ALJ for hearing under 49 U.S.C. 47129.
While the City asserts that this dispute is not significant, Respondents' Brief at 7-20, we find its assertion unpersuasive. The City's argument assumes that some issues, most notably the $12 million charge for noise mitigation expenses, should not be referred to an ALJ for hearing, and that the remaining issues have either already been decided by us (for example, the amortization charge), involve small amounts of money (for example, the debt service coverage expense), or concern matters where the City has conceded it made an error and has represented that a proper adjustment will be made when it adjusts the fees in its midyear adjustment. Our disagreement with the City's contention that no hearing should be held on the noise mitigation expense issue by itself invalidates the City's claim that there is no significant dispute.
Although the City claims that several of the issues raised by the Complainants do not warrant a hearing for other reasons, e.g., because such issues as the debt service coverage expense allegedly can be easily decided without a hearing, we find under the scheme created by the new statute that we should assign this dispute to an ALJ for hearing. Congress directed us to take such action within thirty days unless we found that no significant dispute existed. Given the opposing arguments made by the City and the Complainants, and the amount of evidence and argument submitted by each side in support of its position as to the reasonableness of the fees, we cannot conclude at this time that there is no dispute warranting further consideration at a hearing.
The City denies these allegations and claims that it promptly provided all the information needed by the airlines and held several meetings with the airlines on the budget and fees. According to the City, the airlines were not interested in good faith discussions with the City and instead are posturing in an effort to make the City's conduct appear unreasonable. Respondents' Brief at 60-62.
We are troubled by the airlines' allegations. One of the important goals in the Policy Statement is the encouragement for the negotiations between airports and airlines on the establishment of new fees. Policy Statement, para. 1.1.1. Although the City contends that it did consult with the airlines and enabled them to participate in the development of the airport's budget and fees, we note that the Complainants have shown that some errors in the fees' calculation could have been caught before the fees' adoption if the airlines had had an adequate opportunity to review the budget and fee calculation. Complaint at 31-33.
Nonetheless, since the City has shown that it met with the airlines and provided them with a significant amount of information, we are unwilling to invalidate the fees as demanded by the Complainants, assuming we have the authority to do so. Furthermore, we have determined not to ask the ALJ to examine the Complainants' charges that the City refused to consult with them or provide them with the data needed for an analysis of the budget and fees. This case must be heard and decided under an extremely expedited schedule that does not allow for the examination of issues not directly related to the reasonableness of the fees. And it is unclear that we could direct an airport under 49 U.S.C. 47129 to cancel a new fee or fee increase on the basis of the airport's refusal to consult, if the fees were otherwise reasonable.
If the ALJ determines that the Complainants are unable to present a portion of their case because of a refusal by the City to provide information to the airlines, the ALJ may impose appropriate sanctions on the City. If the ALJ believes that further action is warranted by the Secretary for the City's refusal to provide such information, the ALJ may recommend action to be taken by the Secretary. Otherwise, whether the Secretary should take additional action in the future under his other authority to require airports to make their facilities and services available to airlines on reasonable terms is an issue we will consider later if there is a need to do so.
a. The Foreign Carriers
The City's contention is wrong, as we explained in our final decision in the first LAX case. The statute must be construed as giving foreign airlines the same rights as U.S. airlines to file complaints and obtain relief under its provisions. Order 95-6-36 at 53-56.
No one has objected to its participation as a follow-on complainant. We will allow it to participate as a complainant, subject to limits of the kind imposed on the follow-on complainants in the first LAX case.
The Airports Council International - North America (ACI) has also moved to intervene. The Complainants have not objected to its request.
We will allow ATA and ACI to participate as intervenors, just as we did in the first LAX case. Order 95-4-5 at 21-22, 23. Their participation will be subject to the same limitations (for example, ATA may participate only jointly with the fifty-nine airlines that filed the complaint against the City in this docket).
a. Scope of the Issues
Three of the issues raised by the complaint were decided in the first LAX case -- the City's use of fair market value for the airfield and apron land, the City's ability to amortize the cost of certain capital assets acquired before the end of the residual fee system, and the lack of any obligation by the City to include a credit in the landing fee rate base for surplus revenues received from other aeronautical sources, such as terminal leases. The City is seeking judicial review of our decision on the first of these issues, and the complainants in the first LAX case are seeking judicial review of our decision on the other two issues.
As a result, we see no need for the ALJ to consider these issues at the hearing or in his decision. The parties fully briefed these issues in the first case and had ample opportunity to present any evidence available to them in that case. The parties themselves do not wish to relitigate the issues in this proceeding. See, e.g., Complainants' Reply Brief at 50; Respondents' Brief at 14. Our final decision in this proceeding will make findings on these issues.
The ALJ similarly should not consider the issue regarding the amortization charge for capital assets purchased for the Van Nuys Airport. That issue is governed by our conclusions on the amortization charge for assets at LAX, as the Complainants recognize. Complaint at 74-75. We will rule on that issue in our final decision in this proceeding.
As a result, the specific issues to be investigated at the hearing are the following issues set forth in the complaint:
(2) whether the City has improperly included noise mitigation expenses in the landing fee rate base;
(3) whether the City has improperly allocated debt service coverage expenses to the landing fee rate base;
(4) whether the City has improperly charged the cost of outside attorney fees to the airfield and apron cost centers;
(5) whether the City has improperly imposed a charge for the debt service expense of uncompleted projects; and
(6) whether the City has improperly included charges that the City admits are erroneous.
We also ask the ALJ for each of the separate issues listed above to make findings on the amount that should be refunded to the Complainants if we hold that the fees are unreasonable as to that issue. In the first LAX case we held a supplemental proceeding to determine the exact amount of the refund due the complainant carriers, since the parties had not fully addressed that issue in their briefs and since no findings had been made on the matter by the Chief Judge. See Order 95-6-37 (June 30, 1995).
Some of the issues raised by the Airlines -- for example, the debt expense for the Southside Taxiway and the double-counting of the City Attorney expense -- involve charges included in the landing fee rate base that the City concedes were wrong. Respondents' Answer at 30, 32. Given the City's concession, we assume that the parties will not need to introduce any evidence or argument on the validity of these charges and that the ALJ may summarily find whether the charges are unreasonable. Since we are referring the complaints to an ALJ for hearing on the basis of the more serious charges, we will ask the ALJ to make findings on these issues as well.
A few of the other issues require further discussion. First, the City contends that no hearing should be held on the Complainants' allegation that the noise mitigation expenses must be funded through the City's PFC revenues and therefore may not be included in the landing fee rate base. The City argues that any alleged noncompliance with the requirements applicable to the City's PFC funds should be handled by the FAA and not be included in this proceeding. While the FAA clearly is the appropriate agency to enforce its rules on PFC programs against the City, we agree with the Complainants that we should consider their claim that the availability of PFC funds allegedly dedicated to the noise mitigation expenses makes it unreasonable for the City to include those expenses in the landing fee rate base. Whether the Complainants can prevail on that claim will depend on the evidence at the hearing and the parties' arguments on the issue.
We are also asking the ALJ to hear the dispute over the City's ability to include the outside attorneys' fees in the landing fee rate base. The amount included in the fee calculation is a budgeted amount, not the actual expense, and the Complainants have not alleged that the budgeted amount is unreasonably high for the work of defending the City in the landing fee disputes. The City has also represented that it will not charge the landing fee rate base with any attorneys' fees for work unrelated to the landing fee dispute (in particular, the budgeted amount does not include fees on issues relating to the City's alleged diversion of funds from the airport). Given these facts, the ALJ should decide only whether the City may in principle include a charge for the defense of the landing fees in the rate base, not whether the budgeted amount is reasonable.
Although our final decision in the first LAX case held that the City could not allocate most of the cost of Engine Company 51 to the airfield cost center, the new fees again allocate most of the cost to that cost center. The City has provided a somewhat more detailed justification for this allocation. We have reluctantly decided that the ALJ may consider the City's new defense of the allocation.
The Complainants and the City have made other charges that we believe need not be examined further at the hearing. For example, the hearing should not consider such issues as the Airlines' claims that the City has been planning to increase fees so that the airport will generate surplus revenues that can be transferred to the City's general fund. While this allegation may be relevant to the extent that it shows that the City has a motive for increasing the landing fees as much as possible, the hearing should focus on whether the increased fees are justified by the airport's costs. Cf. Order 95-4-5 at 25. And, as explained above, the strict deadlines imposed by 49 U.S.C. 47129 make it impracticable for the hearing to consider whether the City refused to consult with the airlines on the adoption of new landing fees.
As we did in the first LAX case, we will allow the parties to argue in this proceeding that the Policy Statement should not be applied in determining whether the landing fees are reasonable. The ALJ should therefore consider the parties' evidence on the applicability issue, although we doubt that we would find the Policy Statement inapplicable without a strong showing that the special circumstances of this case would make its application to one of the issues unfair or unreasonable.
As shown, the statute imposes strict deadlines on our consideration of this case. We will therefore require the ALJ to issue the recommended decision by November 22, 1995. We will then have thirty days to review that decision and issue a final decision by our deadline, Friday, December 22, 1995. We will leave to the ALJ's discretion the establishment of all other procedural dates while the ALJ is responsible for the case.
While our rules for airport rate cases allow parties to file petitions for review five calendar days after the ALJ issues the recommended decision and to file answers in support of or opposition to any such petition within four calendar days after the service of the petition, we have determined that we will take review of the ALJ's decision. The parties therefore should file briefs rather than petitions for review. Each party may file an opening brief five calendar days after the ALJ issues the recommended decision and a reply brief three calendar days thereafter (the calculation of calendar days will exclude Thanksgiving Day, November 23). All such briefs must be served in accordance with section 302.617 of our procedural rules for airport rate proceedings, and the format of each brief must comply with our general rule governing briefs to the decisionmaker, 14 C.F.R. 302.31. We will not consider motions for oral argument, since the short period of time allowed for our review of the ALJ's decision will make an argument impracticable.
We will also impose special page limits for the briefs. The opening briefs filed by the Complainants and the City may each be no longer than fifty pages, the limit specified by 14 C.F.R. 302.31(c)(3), and their reply briefs may be no longer than twenty pages. The opening brief filed by any other party in this proceeding may be no longer than twenty pages, and any reply brief no longer than ten pages. We believe these limits are reasonable, since it will be difficult for us to make a final decision within the short amount of time available for our decisionmaking without limits on the length of the parties' briefs.
To assist us in meeting the statutory deadlines, our procedural rules require each party to submit its evidence in its complaint or its answer to the complaint, as the case may be. Sections 302.606(a), 302.607(b). The ALJ accordingly should not allow any party to introduce additional evidence except for good cause, for example, if a party was unable to submit relevant and material evidence earlier due to its inability to obtain it from an opposing party.
The City has moved to strike the affidavits of Richard Mooney and Charles Horngren submitted by the Complainants. We will refer that request to the ALJ.
The City also asked to strike the evidence incorporated by reference by the Complainants from the first LAX case. We will grant the motion, although the ALJ may reconsider the matter. This evidence in large part concerns the two issues on which we ruled against the airline complainants in the first case, that is, the amortization charge and the lack of a credit for alleged surplus aeronautical revenues. As noted above, the Complainants do not seek to relitigate those issues in a new hearing but to preserve their position in case the Court of Appeals reverses our findings in the first LAX case on these issues. We plan to issue a ruling on these issues in our final decision that will be based on our decision in the first case. As a result, we see no reason to allow the Complainants (or the City) to introduce evidence on these issues in this proceeding. According to the City, moreover, the Complainants wish to incorporate material that was stricken by the Chief Judge in the first case. To the extent that the Complainants wish to use other evidence from the first case, they could have included it with their complaint and reply (we note that those filings did include evidence from the first case).
Finally, the Complainants ask us to deny the City the ability to introduce any evidence in defense of its position if that evidence was unreasonably withheld from the airlines when they were examining the fees to determine whether to file a complaint under 49 U.S.C. 47129. Complainants' Brief at 21-22. The City objects to this request on the grounds that it provided the airlines with almost all of the material that they needed and that the Rules of Practice do not in any event provide for sanctions if an airport refuses to give airlines the data on a new or increased fee requested by the airlines. Respondents' Brief at 69-71.
We will deny the Complainants' request at this time. In their reply the Complainants cited no evidence that the City is introducing in this proceeding that was withheld from the airlines. Furthermore, we would be reluctant to grant the Complainants' request in any event, since the Rules of Practice do not expressly provide for sanctions and since the City alleges that it has not willfully withheld information and documents from the airlines. If, however, the ALJ determines that the City (or another party) has acted unreasonably in a manner which in other types of proceedings could cause an ALJ to limit the party's ability to introduce evidence or cause an ALJ to impose other sanctions on that party, the ALJ may take appropriate action in this proceeding.
a. The Complainants' Information Requests
We have determined to grant the Complainants' request in part. Attached hereto is a list of the evidentiary material that must be provided by the City, since we find that the information is relevant to the issues in this case. We are not referring this issue to the ALJ, since the tight procedural schedule for this case would make it difficult for the ALJ to require the production of the additional information if the ALJ determines it is necessary. We are requiring the City to submit this information within seven days. The ALJ may modify this directive for good cause shown.
We are not directing the City to provide the information on the police department expenses requested by the Complainants. We will refer that issue to the ALJ for his determination on whether the Complainants have a legitimate need to obtain more information.
However, we will deny the Complainants' request for documentation underlying the City's estimated expense for outside legal fees, since the amount at issue is a budgeted amount, not the amount of actual expenses, and since the key issue in this proceeding should be whether the City may include that expense in the landing fee rate base at all. In addition, we are not granting the Complainants' request for information on the amortization issue and the issue relating to surplus aeronautical revenues from other sources, since the parties agree that those issues should not be relitigated at the hearing in this case.
ACCORDINGLY:
[2] According to the City, the landing fees in the 1992-1993 fiscal year were unusually low due to a $16 million carry-over from the preceding fiscal year. Without the carry-over, the fee would have been $0.84 per landing fee unit. Order 95-4-5 (April 3, 1995) at 5, n. 3.
[3] The fee for cargo carriers is $1.88 per thousand pounds landed weight. Complaint at 2. To simplify the discussion in this order, we will assume that the fee at issue is the $2.06 figure.
[4] We have already ruled on the parties' disputes over the City's obligation to submit a letter of credit or other form of financial security in this proceeding by Order 95-9-14 (September 14, 1995), and we will address the continuation of the interim stay in a separate order.
[5] The Complainants have suggested that the City's belated delivery of documentation requested by the Complainants has handicapped their ability to provide all of the evidence needed for their case when they filed their complaint and reply. Complainants' Brief at 8-20. If the Complainants seek to introduce more evidence and contend that they were unable to do so earlier due to the City's recalcitrance, the ALJ should give careful consideration to their request.