City Council Report
City Council Meeting: March 24, 2015
Agenda Item: 8-A
To: Mayor and City Council
From: Marsha Jones Moutrie, City Attorney
Susan Cline, Interim Director of Public Works
Subject: The Santa Monica Airport And Future Options Regarding Its Operations And The City's Use Of The Land Now Occupied By The Airport
The possibilities and options for the Airport's future and the City's future use of the land now occupied by the Airport are significantly impacted by legal constraints and certain aspects of the Airport's history. Both the law and the history were summarized in the March 25, 2014 and April 30, 2013 staff reports. However, the background information is provided again here and in somewhat greater detail because of the importance of the facts and law to the intensifying community debate about Airport issues. This section also provides information about current operations at the Airport and developments occurring during the last year, including an update on litigation, a summary of input received from the community, and the recommendations made by the Airport Commission.
The Legal Constraints: Federal Laws, FAA Regulations, Court and Agency Decisions, and Contracts
The City of Santa Monica owns and operates the Santa Monica Airport ("SMO"). However, federal law imposes significant constraints on the City's authority to control Airport operations. A basic understanding of the law is necessary to assess the legal controversies about the Airport and the City's options as proprietor of the Airport and owner of the land now occupied by the Airport. The legal constraints fall into two general categories: laws and contracts.
The United States Congress has adopted various federal statutes that govern aviation. The most important ones are codified in Title 49 of the United States Code. They include the Federal Aviation Act (Section 40103), the Airline Deregulation Act (Section 41713), the Airport and Airway Improvement Act (Section 47101), and the Airport Noise Capacity Act ("ANCA", Section 47523 and following). Among other things, the federal statutes create the Federal Aviation Administration ("FAA") and delegate to that agency broad authority over a wide variety of matters relating to aviation safety and air commerce. The FAA's realm of control includes the use and management of navigable airspace, aviation safety, air traffic control, air navigation facilities and certain aspects of airport development and facilities, among other things.
The FAA exercises its authority under these statutes in several ways, including by promulgating a myriad of administrative regulations that implement the federal statutes and by enforcing those regulations on its own and in response to complaints from airport users. Regulations that have been particularly important to the City in recent years include the agency's Part 16 regulations, which establish a quasi-judicial procedure for challenging compliance with conditions attached to federal grants for Airport improvements, and the Part 161 regulations, which implement ANCA and establish procedures applicable to, among other things, changes in airport operations and noise management. The FAA's quasi-judicial proceedings generate a body of administrative decisions that interpret and apply the agency’s regulations.
In addition to promulgating administrative regulations and interpreting and enforcing them through quasi-judicial proceedings, the FAA also promulgates myriad directives and guidelines, which it treats as laws or binding regulations. One example is the Compliance Manual (FAA Order 5190-66), through which the FAA communicates its views as to how grantees should comply with FAA grant assurances, among other things.
In addition to adopting federal statutes that create the FAA and give it very broad powers, Congress has adopted other laws that constrain the City's authority over operation of the Airport. For instance, The Clean Air Act, 42 USC. Section 7573, provides: "No State or political subdivision thereof may adopt or attempt to enforce any standard respecting emissions of any air pollutant from any aircraft or engine thereof unless such standard is identical to a standard applicable to such aircraft under this part." This is an example of express federal preemption of local regulation: thus, the federal government fully occupies the field of establishing standards for aircraft engine emission.
Also, from time to time, courts issue decisions in cases involving the laws governing aviation and local control over airport operations. Like the federal statutes and regulations, this body of case law defines the rights and responsibilities of airport owners.
Despite establishing basic laws governing air transport and creating the FAA to protect the national aviation transportation system and promote aviation commerce, Congress has recognized that local airport owners have certain proprietary rights. However, Congress has not delineated the extent of those rights, leaving that task to the FAA and to the courts. Generally speaking, the courts have deferred to the agency’s view of proprietor’s rights, which is that such rights were, in the first instance, limited to noise regulation and that the field of noise regulation has been occupied by ANCA.
In addition to limits imposed on the City by statutes, regulations, court and agency decisions, and FAA directives and guidelines, the City's ability to control the use of the Airport (and the City land it occupies) is also subject to limitation by contractual obligations. Three particular contracts may currently impose such limitations.
The 1948 Instrument of Transfer is the form agreement that the federal government used to transfer its lease of the City's Airport back to the City after World War II. During the war, the City had leased its Airport to the federal government for a nominal sum in order to support the war effort. The leases eventually expired by their own when the war officially ended. But, before the actual expiration, the Instrument of Transfer was executed; and it contains language regarding future use of the land. The federal government claims that this language obligates the City to operate the Airport in perpetuity; and, if the City does not, then the Airport land "reverts" back to the federal government. The City strongly disputes this contention
The 1984 Settlement Agreement, which is also a contract between the City and the federal government, states that it resolved all legal disputes that existed between the City and the federal government in 1984. Among other things, the Settlement Agreement requires the City to operate the Airport until July 1st of this year, releases from exclusive aviation use certain land on the south side of the Airport, recognizes some local restrictions on flight operations (e.g., noise limits and prohibitions on two classes of patterned operations) and imposes certain leasing obligations on the City (e.g. maintaining a specified number of tie downs). The 1984 Agreement expires on June 30th of this year.
Additionally, the third contract which the federal government asserts limits the City's control over its land is the 1994 Airport Improvement Program grant agreement between the City and the FAA. Federal grants for airport improvements include standard grant conditions, known as "assurances", which impose restrictions that the grantee (the City) must abide for the useful life of improvements funded by the grant, not to exceed twenty years from the date of the acceptance of the grant. The conditions include the requirements that the City must operate the Airport and do so without unjust discrimination or "the creation of exclusive rights". The assurances are interpreted broadly by the FAA to protect the national air transport system and to restrict local control.
Under the 1994 grant agreement with the City, the FAA funded various improvements to the Airport, including a blast wall at the eastern end of the runway. In 2003, the grant agreement was amended to increase the amount of the grant to cover the actual construction costs of such improvements. Some contend that the 20-year grant assurance period runs from 2003, ends in 2023, and constrains the City's authority over the Airport and the City's land until then.
The Airport's History
The City has always owned the land used for the Airport. The City purchased the bulk of the land by grant deed in 1926. And, over the next 20 years, the City took title to the balance by grant and quitclaim deeds.
In 1941, with the war raging in Europe, President Roosevelt declared a national emergency. To aid in the war effort, the City executed two leases, conveying possession of the entire eastern portion of the current Airport to the United States for nominal rents for the duration of the emergency. At that time, Douglas Aircraft ("Douglas") operated a huge aircraft factory on the south side of the Airport. At the height of its war-time operations, Douglas employed over 40,000 workers, making Santa Monica a “company town”. Residential neighborhoods grew up immediately adjacent to the Airport to house Douglas workers.
Beginning in 1945, the federal government used City funds to condemn the land that is the current western portion of the Airport so that it could build a new and longer runway. Later, the federal government quitclaimed the land to the City, thus conveying it without restrictions. The following year, the federal government declared its leasehold interests to be "surplus", and the City resumed maintaining and operating the Airport, even though the war-time leases remained in effect (because the federal government had not yet declared the emergency to be officially over). And, in August of 1948, the United States officially surrendered its leasehold interests, along with certain improvements and other assets by executing the Instrument of Transfer – a standard form widely utilized by the War Assets office to convey property interests the federal government possessed but no longer needed.
In 1952, President Truman declared that the national war emergency no longer existed. Consequently, twelve months later, the two Airport leases to the federal government expired by their own terms, ending the federal government's leasehold interests that the United States had transferred back to the City through the Instrument of Transfer.
The post War years brought significant changes. Douglas cut back operations and later left the Airport. And, the fleet mix changed with the advent of jet aircraft and their impacts. These developments radically changed the community’s relationship to the Airport. Neighbors now perceived Airport operations, particularly very noisy jet operations, as highly destructive to their quality of life. They sued the City, and the California Supreme Court held that the City could be liable under legal theories including nuisance. Nestle v. City of Santa Monica, 6 Cal.3d 920 (1972).
The City Council responded to neighbors' complaints and liability risks by adopting local regulations restricting operations to protect neighbors' quality of life. "No jets" signs appeared around the Airport. Aviation interests and the Federal government challenged the restrictions. Litigation followed, most notably Santa Monica Airport Assoc. v. City, 659 F.2d 100 (1981) in which a coalition of Airport users challenged various City ordinances. All but one of the ordinances were upheld based on the City's powers as Airport proprietor. The decisions in that case do not define the full extent of those powers, but the court indicated that the City can regulate other adverse impacts in addition to noise. More litigation was filed, compelling the City to defend cases filed by the federal government, Airport neighbors, and Airport businesses.
Finally, in 1984, the City and the federal government entered into an agreement to settle all of their legal disputes. The 1984 Settlement Agreement allowed the City to make substantial changes in the operation of the Airport. For instance, the Agreement approved a new Airport Layout Plan that shifted a substantial portion of the aviation services from the south side of the Airport to the north side, where the businesses would be further from residences. This reconfiguration made available a substantial amount of land on the south side designated in the new layout plan as "parkland and residual land". Thus, the land was released from exclusive aviation use and identified for non-aviation uses. The City agreed to a new 30-year commitment to improve the Airport's layout as shown in the Layout plan and to operate and maintain the Airport as a "viable functioning facility … until July 1, 2015."
Also during the post War years, the City accepted several grants from the federal government for Airport improvements. The last grant agreement was signed in 1994. The City did not accept additional grant offers after that because it intended that all Airport leases and grant conditions would expire in 2014 or 2015, when the obligation to operate the Airport, established by the 1984 Settlement Agreement, would expire. In 1998, the FAA expressly acknowledged that the 1984 Settlement Agreement "makes clear that the City is obligated to operate the Airport only for the duration of the Agreement (through July 1, 2015)”; and, after that date, the future use of the Airport land would be "a local land use matter ".
The 1990's also brought new changes to the fleet mix with the proliferation of business jets. This sparked new rounds of controversy. Neighbors living at the runway’s eastern end sued the City claiming, among other things, that noise, fumes and jet blasts were destroying their quality of life, imperiling their health and impacting their property values.
In 2001, soon after a fatal crash in which a plane exploded into flames just across 26th Street from single family homes, the City Council commissioned a study to address the safety and liability risks inherent in the relatively short length of the Airport runway, the proximity of homes to the runway ends, and the increase of larger/faster Category C and D aircraft traffic. The study recommended and Council eventually approved an Airport Conformance Program which would restrict Airport usage to Category A and B aircraft, and be better suited to safe use of the runway facilities.
The City's Aircraft Conformance Program was intended to conform Airport usage to the Airport's physical constraints, particularly the relatively short length of its runway. Before implementing that plan, the City attempted to reach an agreement with the FAA about limiting Airport usage. Those attempts failed. And, in 2008, Council adopted an ordinance prohibiting Category C and D Aircraft. The FAA issued an Order to Show Cause ("OSC"), seeking to prohibit City enforcement of the ordinance. In the Order to Show Cause the FAA asserted that the Instrument of Transfer obligates the City to maintain the Airport "in perpetuity" and that the City's Airport land would revert to the United States if the City tried to close the Airport. A federal district court issued an injunction enforcing the OSC. The FAA determined that the Airport is "safe" and concluded that the jet ban violated the grant assurances. And, a federal appellate court upheld the agency determination.
In August of 2011, a student pilot overshot the runway on landing and crashed into the back of a home located about a block west of the runway end. Fortunately, the resident was not home. Workers who were on the property extinguished a fire. The homeowner subsequently sued the City. The crash exacerbated neighbors' concerns about runway safety.
Also in 2011, after a preliminary initial study by the Rand Corporation, the Council directed staff to undertake a three-phase, comprehensive visioning process to identify any and all options for the Airport's future that lay between the extremes of maintaining the status quo and total closure. Phase I, which consisted of a preliminary interview process, concluded with a report to Council on October 4, 2011.
Phase II began in early 2012. It included thirty community discussion groups. Over 300 community members and others participated, making this the largest, in depth public process ever undertaken by the City. The report on that process and the raw data were presented to the Council on May 8, 2012. In summary, the City's consultant distilled the community input into three different views about what the City should do:
(1) try to close the Airport unless the FAA agrees to operational limitations sufficient to significantly mitigate adverse impacts on surrounding neighborhoods;
(2) maintain the Airport only if operations and the Airport "footprint" are significantly reduced because it has outgrown its residential setting; and
(3) keep the Airport as a potential City asset if mitigation measures reduce adverse impacts because litigation results are uncertain, repurposing the land would likely include land development that would exacerbate traffic problems, and if Santa Monica Airport ("SMO") closes, Los Angeles International Airport traffic would potentially overfly the City at lower altitudes, increasing noise.
Phase III of the visioning process included, among other things, continuation of the community dialogue, assessment of possibilities for transforming SMO into a model "Green" airport, making physical improvements at the Airport, evaluating possible design improvements for the non-aviation land, and continuing communications with the FAA about any possibilities for mitigating adverse impacts. Staff's report on Phase III went to Council on April 30, 2013. That report described environmental improvements made at the Airport, re-evaluation of the noise contours, intermittent discussions with FAA personnel, testing of aftermarket exhaust mufflers, analysis of patterned flying and a landing fee study. Staff recommendations included, among other things, adopting a resolution increasing landing fees to make the Airport more self-sustaining, broadening their applicability to include all aircraft, and developing a pilot program for retrofitting with mufflers aircraft used in flight training. Council approved these recommendations and gave various directions including attempting to mitigate impacts through the City's own efforts and contacts with the FAA and obtaining resolution of legal issues, among other things.
In September of 2013, a business jet veered off of the runway on landing, crashed into a storage hangar located near the northwest Airport boundary, and exploded into flames. The pilot and all three passengers were killed. Neighbors living very near the runway and the crash site expressed renewed fears for their safety. The following month, the City filed suit against the FAA to clarify the City's authority, as proprietor, to control the use of the Airport land.
On March 25, 2014, staff reported on its work and the developments of the previous year. Staff sought direction on Airport leasing, planning, environmental and legal work that would enable the City to determine the future use of its land now occupied by the Airport, including possible closure of all or part of the Airport, among other things. Council gave staff various directions, including direction on leasing policy. Initially, Council authorized renewing all leases for three years because the legal disputes would take at least that long to resolve and, meanwhile, the Airport should not be a drain on the General Fund and should, instead, be supported by Airport users. However, Council later sought recommendations from the Airport Commission, which opposed three year renewals of all leases because of the adverse impacts on neighbors of aviation operations. Council did not make any decisions about the Airport's future. However, it did, among other things, direct staff to work on contingency plans for the Airport's future, continue its efforts to establish the City's right to control use of the land, and take other actions to enable the City to determine the future use of the land, including possible closure of all or part of the Airport.
Developments During The Last Year
Airport staff monitors operations on a calendar year basis. In 2014, total Airport operations declined. However, jet and helicopter operations increased. From January through December of 2014, there were a total of 83,324 operations, a 12% decline from the previous year. The most significant change was the decline in local operations, most of which are patterned operations associated with flight training. In the category of local operations, the decline was 38%. The vast majority of total Airport operations are propeller aircraft operations. In that category, there were almost 14,000 fewer operations in 2014 than in 2013. Last year's decline in operations continues a ten-year trend, which is depicted in the chart below.
However, jet and helicopter operations increased in 2014. Jet operations increased by 7% (940 more operations). Helicopter operations increased significantly from 2561 to 3719, an increase of 45%.
There was one accident in the last year. On March 5, 2015, as this report was being written, the pilot of a single-engine, vintage aircraft apparently experienced engine failure and performed a crash landing just west of the Airport on the Penmar Golf Course about 50 yards from homes. In covering the accident, The Los Angeles Times ("LA Times") reports on the accident included praise for the pilot’s handling of the emergency but noted that Airport neighbors felt that the incident illustrated Airport risks. The LA Times reported that: 42 aircraft accidents have occurred in the vicinity since 1982; 11 of them have involved crashes in residential areas of Santa Monica and West Los Angeles; 25 pilots and passengers have died and 16 more have been hurt, but no one on the ground has been seriously injured and only one of the crashes involved a jet. LA Times March 6 & 7 2015.
At present, there are a total of 207 leases at the Airport and 198 subleases, for a total of 405 tenancies (not including tie-down licenses). As to buildings, there are 122 tenants who lease from the City and 84 subleases. Some of the buildings are owned by the City; some others are owned by tenants but will become the City's property, free and clear, when the leases expire later this year. As to hangars, there are a total of 199 at SMO, most of which (114) are subleased from City tenants. All but one of the hangars are owned by the lessees.
There are six master leases at the Airport. They are with Atlantic Aviation and Gunnell Properties, American Flyers, Krueger Aviation, The Santa Monica Air Center (Barker Hangar), and Santa Monica Art Studios. These master lessees, in turn, sublease to and manage over 200 subtenants, mostly hangar subtenants.
Most of the City's tenants (102) are on land currently designated for other than aviation-related used. There are also 74 subtenants on the non-aviation land, twelve of which are hangars at Santa Monica Air Center.
During Fiscal Year 2014-2015, which ends June 30, 2015, the Airport continues to operate self-sufficiently. During the years when the Airport was not self-sustaining, loans were made from the General Fund, which totaled $13.6 million as of June 30, 2014. The Airport Fund continues to make interest payments to the General Fund on the existing loan. Additionally, during this fiscal year, the Airport Fund will pay down the loan principal by making a payment of $500,000. This will be the first repayment of principal.
The 2014 Election
Almost immediately after the Council gave staff direction last March, aviation interests prepared and circulated a ballot measure for the November 2014 election. It would have amended the City Charter to require voter approval in order to close all or part of the Airport, to change the use of the Airport Land, or to impose new restrictions on fuel sales or the use of aviation facilities. Thus, among other things, the measure would have taken away the City Council's authority to close the Airport and reduced its power to control aviation-oriented uses of leaseholds. The measure, (denominated “Measure D” for "development"), was touted as necessary to protect the community from over-development of the land now occupied by the Airport. Measure D qualified for the ballot, though many community members questioned the veracity of representations made by the signature gatherers, who were compensated at a flat rate per signature.
In response, the City Council placed a competing measure on the ballot, Measure LC (for "local control"). It proposed allowing Council to retain its authority to close the Airport but amending the City Charter to require voter approval of future uses of the Airport land other than park, recreational and educational uses. Many residents campaigned in support of the City measure, and it passed. The conflicting measure failed, despite heavy financial backing from national aviation interests. The Daily Press reported on March 10th that aviation interests expended $872,593 in support of Measure D. Opponents of the measure and supporters of LC spent $155,711.
The Status of Pending Litigation
As to the Airport and Airport-related issues, this has been an extremely litigious year.
Litigation About Control Of The Land:
In 2013, the City filed City of Santa Monica v. FAA in federal court to establish its right, as property owner, to control future use of the Airport land. The FAA moved to dismiss the case on procedural grounds. The motion was granted based on the court's conclusion that the City's main claim was barred by the statute of limitations and its other claims were not yet "ripe" (ready for adjudication). The City appealed, and the case is pending in the Ninth Circuit Court of Appeals. Briefing is complete. Based on experience in the Ninth Circuit, staff and outside counsel do not expect a decision until sometime in late 2016, after which the case may go back to the federal trial court or the losing party may petition the United States Supreme Court for review. The City is represented in this litigation by Morrison and Foerster, and their work is monitored by the City Attorney's Office.
City residents filed two lawsuits against the City, City officials and proponents of Ballot Measure D that were apparently intended to keep that measure off the ballot. The complaint in Redden v. Kokotakis, filed last May in state court, claimed that City officials violated state election law by improperly allowing the initiative to qualify for the ballot and by improperly preparing various required ballot materials. The City filed a special motion to strike, partly on the ground that the suit against City officials had no likelihood of success. Later, the initiative's proponents filed their own motion, using the same procedure. On August 19, the trial judge dismissed the lawsuit and later awarded attorney's fees against the plaintiffs and to the Measure D proponents. The plaintiffs appealed. And, in August of 2014, many of the same residents filed a second lawsuit, Hartley v. Logan, against many of the same defendants and the County, seeking to prevent the county from placing Measure D on the ballot. The trial judge refused to issue an injunction and dismissed the suit, and plaintiffs appealed. Both lawsuits recently settled after the City Council waived the City's right to attorney's fees, Council members individually asked the court not to award fees to the aviation interests, and staff did what it could to encourage the aviation interests to settle with the plaintiffs, which they did. The City Attorney's Office represented the City in these proceedings.
Part 16 Proceeding re Expiration of Grant Conditions:
Last July, national aviation associations and others initiated an administrative proceeding before the FAA under Part 16 of the agency's regulations. Petitioners assert that the City's grant obligations remain in effect and will not expire until 2023 (20 years after the 2003 amendment to the 1994 grant). The City responded to the petition by moving to dismiss the proceeding, petitioners filed a response, and the FAA did not rule on the motion. So, pursuant to FAA procedural rules, the City filed its answer to the petition, and petitioners replied. On February 23rd, the FAA requested supplemental information and briefing on the useful life of Airport improvements funded by the 2003 amendment to the 1994 grant. The Director's Determination, which was due on March 13th, may be available by the time Council hears this matter. Once issued, it will be subject to further FAA administrative review. A final decision from the FAA would likely be issued in late 2015 or early 2016. The Agency's final decision is reviewable in either the Ninth Circuit or the DC Circuit, a process which would likely take two years. The City Attorney's Office is representing the City in this proceeding.
Landing Fee Litigation:
In December, an Airport user filed Top Gun v. Vector Airport Solutions/City against the City and the City's contractor that administers the landing fee program. The complaint alleges errors or improprieties in the administration of the program, including imposing charges against aircraft that enter the SMO airspace but do not actually land. Soon after filing the complaint, plaintiff sought an injunction to halt imposition of the landing fees. It was denied. The City Attorney's Office is defending the City.
Airport Litigation Arising From Plane Crashes:
The City has also been litigating cases arising from two separate crashes. These cases involve various claims, including that the Airport constitutes a dangerous condition on public property. Twelve lawsuits arose from the fatal crash of September 2013, most of them filed against the estate of the pilot and the owner of the aircraft. These cases have been deemed related with Dupont v. Estate of Mark Benjamin designated as the "lead case", and assigned to a single judge. The City is being defended and indemnified in that litigation by its insurance carrier Phoenix Aviation. Additionally, the City is seeking compensation in the litigation for property damage and expenses arising from the crash. That work is being handled by the City Attorney's Office. And, finally, Blanchard v. Justice Aviation/ City, which was filed in 2012, has very recently settled. It involved a 2011 accident in which a pilot trainee crashed a plane owned by Justice Aviation into property in Sunset Park, damaging a resident's garage/retaining wall. Justice Aviation paid most of the settlement, which also included a small contribution by the City's insurance carrier. Outside counsel paid by the City's insurance carrier represented the City in this case.
The Airport Commission's Recommendations And Work
During the past year, the Airport Commission has addressed several important issues, provided a forum for community input and formulated recommendations for minimizing Airport impacts by controlling emissions and recommendations for moving into the future. The Commission's most significant recommendations and a few other aspects of its work are summarized here.
As to aircraft emissions, the Commission considered a detailed presentation by one of its members which conveyed, among other things, a substantial amount of information about the harmful effects of aircraft emissions and the results of studies done on the levels of ultrafine particles and black carbon near SMO. The Commission also heard a presentation by a private attorney who urged that, as airport proprietor, the City has the authority to "enact a reasonable ordinance mandating that aircraft may no longer use [SMO] unless they have engines that are rated to meet newly-set limits related to air pollution emissions." This legal conclusion rested on the distinction between the City's police powers and its proprietary powers and upon the attorney's belief that there is a "proprietary exception to federal preemption" and the Clean Air Act therefore does not preempt the City from regulating aircraft emissions at its Airport. Based on this information, the Commission voted to recommend an ordinance intended to limit emissions by phasing out use of the Airport by the most polluting types of aircraft.
In response to the Commission's recommended ordinance, the National Business Aviation Association ("NBAA") wrote to the Mayor and Council, conveying its opposition to the recommended ordinance. The NBAA letter argues that the measure would be illegal because, among other things, it would be preempted by federal law. Specifically, NBAA noted that the Clean Air Act gives the Environmental Protection Agency, in conjunction with the FAA, exclusive jurisdiction over aircraft emission standards. The NBAA letter also urges that: the grant conditions and Instrument of Transfer prohibit the City from imposing emission restrictions that would limit aircraft operations; ANCA applies and prohibits access restrictions on Stage 2 and 3 aircraft without submitting a study to the FAA in advance; and federal law bars airports that have accepted federal funds from granting exclusive rights and allowing access to some aircraft operators while denying access to others.
In addition to recommending an ordinance limiting emissions, the Commission also considered emissions reductions at a workshop conducted by staff on alternative aviation fuels. One of the assistant directors of the South Coast Air Quality Management District presented information about the challenge his agency faces in reducing nitrogen oxide emissions by 2023 and how the use of alternative aviation fuels could assist in reaching that goal. Representatives of two companies described their successes at formulating a "drop in" jet biofuel that will be available later this year. It blends directly with petroleum jet fuel, thereby obviating the need to modify aircraft, engines or fueling infrastructure. And, a representative of a third manufacturer discussed his company's participation in the Piston Alternative Fuels Initiative, which currently involves testing that will facilitate FAA evaluation of an unleaded fuel for propeller aircraft. He estimated that such products will be on the market by 2018.
Last month, the Commission approved and voted to recommend to Council a two part Action Plan for the Airport. Part I of the Commission's proposed plan calls for seeking the FAA's permission to remove the quitclaimed [western] parcel from aviation use, installing runway safety areas at each end of the runway, and [eventually] closing the remainder of the Airport. This recommendation is intended to “ripen” certain claims against the federal government. Part II recommends that Council act now to:
(1) recognize that the non-aviation parcel, south of Airport Avenue, was released from aviation use in 1984;
(2) renew the 166 leases on the Non-Aviation Parcel for any term at market rate through Council action; and
(3) adopt and implement the ordinance proposed by the Commission to limit emissions.
Additionally, Part II recommends actions to be taken after expiration of the 1984 Settlement Agreement:
(1) reclaiming the Gunnell and Atlantic buildings;
(2) entering into direct leases with ground lease subtenants on a month-to- month basis, at market rate - not a special aviation rate; and
(3) renewing leases with existing tenants on a month-to-month basis and at market rates – not lower aviation rates.
Input from the Community
Individual officials and community members offered many suggestions and comments during the last year, and staff has considered them all. Many were duplicative, and representative examples of the community input are provided here.
The Chair of the Airport Commission, acting as an individual, offered various suggestions and opinions. These include, among other things, that all leases should become month-to-month after July 1st to maximize planning flexibility, all rents should be at market rate, all fuel sales should be prohibited after July 1, 2015, and that City policy should not be driven by concerns about complaints filed with the FAA because, in his view, "the only penalty is no future airport improvement funds from the FAA."
Other community members continued to steadily express safety concerns. One resident noted that: the current runway was designed and built during World War II by the federal government to accommodate military aircraft built for wartime operations -- a context in which civilian safety was not a major priority; the Airport does not have adequate space for the runway safety areas that the FAA requires at new airports; and the cost of providing runway protection zones would be approximately $750 million (because it would require buying up and destroying hundreds of homes).
The recent crash on the Penmar Golf Course intensified the debate about the Airport's safety and its safety relative to other airports in the region. Since that accident, aviation interests have argued that the Airport is both objectively safe and comparatively safe relative to other airports but could become unsafe if the City were to change the layout by, for instance, removing the western portion of the Airport from aviation use and shortening the runway. Residents have continued to argue that the Airport is unsafe because of the lack of runway safety protections (safety areas or clear zones) and, most important, because of the unusual proximity of the runway ends to homes, a gas station, and other uses.
Community members expressed various views about leasing. One community member noted that the 1984 Agreement imposes certain leasing requirements, but the Instrument of Transfer and grant conditions do not explicitly state that the City must lease space to aviation tenants. So, he suggested simply adopting a leasing policy analogous to the low-density, Light Manufacturing Studio District policies and renewing any leases compliant with that policy at market rate, after July 1st. Alternatively, he suggested renewing leases only on a month-to-month basis.
Another community member presented a list of suggestions with commentary, which focuses on lease administration. It is detailed here partly because it is comprehensive, encompassing many suggestions advanced by others. The suggestions include, among other things:
· Separately considering and administering the non-aviation parcel, which was released from aviation use by the 1984 Settlement Agreement;
· Ending all aviation use of that parcel;
· Hiring a private leasing agent to lease property through a competitive bid process and to administer leases on both aviation and non-aviation land;
· Raising rents to market rate;
· Eliminating subleasing;
· Offering two different terms: month-to-month and longer term for tenants
that make specified concessions;
· Dedicating all net revenues from leasing to a special fund to prepare for financing future uses approved by the voters through Measure LC.
This list of proposals also acknowledged strategies suggested by other community members. Those proposals include:
However, the writer did not recommend any of these suggestions because each carries the risk of precipitating a Part 16 complaint.
While many community members focused their efforts on identifying specific actions that might be taken this year, others worked to advance their future goal of someday changing the use of all or part of the City's land now used for an airport to a regional park. Of course, members of the aviation community strove to preserve the Airport in its current form.
Other Developments: the FAA's Work On The Southern California Metroplex and Advances In Alternative Fuels
During the last year, the FAA continued its work on the SoCal Metroplex project, which is intended to improve the efficiency of air transportation in Southern California by, among other things, optimizing aircraft arrival and departure procedures throughout the region. The FAA has stated that the project may involve changes in aircraft flight paths and altitudes in some areas but would not result in any "ground disturbance" or increase in the number of aircraft operations.
Staff has been monitoring the FAA's progress on this project since the FAA tested a new departure heading (the 250 degree heading), which routed departing aircraft over Ocean Park, rather than directly to the coastline. At the time, the FAA explained that an adjustment in the departure heading was required to avoid an intersection of the LAX and SMO departure paths over the ocean. Many City residents protested against the 250 degree heading, and staff argued against it on the community's behalf. The FAA said, at the time, that it would defer action and address the issue, later, as part of the SoCal Metroplex project.
Staff has met with local FAA representatives several times in the last year. Earlier this year, FAA representatives stated that Metroplex proposals relating to procedures at SMO were not yet fully developed. FAA representatives stated that they anticipate providing details at the start of the FAA's Environmental Assessment and Safety Review (EA) process, which is scheduled to begin in June. There will be a number of community meetings after the draft EA is released on June 10th. Staff requested that at least one of the meetings be held in Santa Monica so that community members will have the opportunity to hear directly from FAA representatives and to voice concerns directly to them.
Elsewhere in the state, San Carlos Airport announced that, this summer, it will begin selling an unleaded fuel for use by aircraft. Also, the nonprofit Center for Environmental Health, based in Oakland, announced a recent legal settlement with aviation fuel companies, which lowers the maximum allowable lead content of airplane gasoline (avgas) sold at the state's largest airports. And, in Washington D.C., the White House is reviewing a plan by the EPA to regulate greenhouse gas emissions from aircraft.
Community debate and litigation have intensified with the approaching expiration of the 1984 Settlement Agreement and the leases at the Airport. Suggestions about what actions the City should take and when it should act have ranged from simple to highly nuanced. This section responds to the most significant suggestions and summarizes staff's recommendations.
For years, the City officials, the community, and City staff believed that the City could accomplish radical change in Airport operations and use of the land, this year, after the expiration of the 1984 Settlement Agreement. Some community members and neighbors still argue that the City should close all or part of the Airport immediately after July 1st. In support of this argument, some have noted that the former mayor of Chicago bulldozed the runway at Meigs Field and closed that airport and has characterized the FAA as a "paper tiger" with no real authority to stop the City from closing all or part of the Airport. This line of argument is appealing, but it does not withstand legal scrutiny.
If the City Council were to decide to close all or part of the Airport and attempted to do so this year, after July 1st, staff believes that the FAA would take immediate action based on its own views of the City's obligations. Likely, it would issue an administrative order prohibiting the action and seek a federal injunction enforcing that order. This is just what the FAA did in 2008 in its litigation challenging the City's ordinance banning Category C&D aircraft, even though the ordinance was adopted to promote runway safety. And, the federal courts would likely uphold such an order as they did in the prior litigation.
Thus, although the expiration of the 1984 Agreement and the leases are significant events, as a practical matter, they will not free the City to do as it pleases with the Airport. To the contrary, the City will not have full control of the land that is now used for the Airport unless and until the legal disputes about the Instrument of Transfer and the expiration of the grant assurances are resolved in court. That process is underway. It will continue to be hard fought; and it will likely take several more years. But, resolution will eventually come.
In the meantime, the City faces the problems of how to keep the Airport as safe as possible while attempting to reduce adverse impacts on residents and neighbors, and maintaining the Airport’s financial self-sufficiency, while minimizing legal risks and costs to the extent possible.
Possible City Actions
The practical reality that the City may not now be in the position to reduce or eliminate the Airport does not mean that the City is powerless to act to protect residents and the environment. Certain possible actions that may be taken for those purposes are discussed in this section.
Leasing While Awaiting Legal Resolution
The City’s most substantial opportunity for effectuating change this year is presented by the expiration of all Airport leases that currently remain in effect. (Many of the Airport tenancies are month-to-month.) However, using this opportunity presents challenges. The leases and subleases are numerous. Uses are diverse. The buildings are of varying ages and in varying states of repair. Given these realities, staff has endeavored to formulate recommendations that may be less than ideal but which are appropriate given the City's goals and the circumstances. And, in doing so, staff has considered the proposals made by community members and the recommendations made by the Airport Commission. Staff agrees with and recommends several of them.
First, staff recommends that any submarket rents should be increased to provide appropriate Airport revenues and meet legal requirements. Because of the number of leases, assessing each and effectuating appropriate increases is a large project. It will take time, and require negotiations. There are, and will continue to be, disputes about lease valuation, market rates and proposed increases. This is inevitable, partly because the airport leasing market differs significantly from other commercial markets and particularly from the office market. However, experience at SMO, particularly evidence of the profitability of subleases, indicates that the property is desirable to a range of tenants. Thus, it appears that the SMO market will bear higher rents on many of the Airport leaseholds. Moreover, the FAA generally requires that all non-aviation leases be at market rates; and the Council has committed to keeping the Airport financially self-sufficient and paying down its General Fund loan.
Second, staff recommends re-evaluating and re-negotiating the master leases in order to maximize revenue to the City and ensure accountability. Several of the master lessors are benefitting from historic low rents, which may have been appropriate once, but are no longer; and they are charging their subtenants current market rates, which are significantly higher, thus reaping substantial profits. Staff proposes two approaches to solve this problem: terminating some subleases and taking a share of the profit on the others through the incorporation of a percentage of rent provision into the master leases.
Staff believes this two-pronged approach is preferable to attempting to eliminate all subleases for several reasons. Eliminating all subleases and negotiating separate leases for each current subtenant or space occupied by a subtenant would be an enormous amount of work. The six master lessees currently manage the leases of more than 200 subtenants. If subtenancies were eliminated, wholesale, the City would be managing more than 400 Airport leases (not including over 200 tie-down license agreements). Negotiating all of them would take at least a year.
Moreover, a master lease with subleases to small businesses is the norm in airport leasing throughout the region and beyond. And, it has advantages for airport proprietors. Master tenants administer their own subleases and are responsible for maintaining the property. If subleases are prohibited, the City will have to absorb those costs and risks, which are significant. Some have suggested that the City should simply lease these properties out to office tenants. But, doing so would likely spawn a new Part 16 proceeding in which aviation interests will claim, among other things, that the grant assurances remain in place and that, while they do, the City must maintain basic aviation services and not discriminate against aviation services. And, the City should insist on compliance with all applicable environmental laws and make appropriate arrangements for clean-up of hazardous materials incidents, both past and future.
Staff concurs with the Commission and community that the master leases must be renegotiated. However, staff recommends that Council afford flexibility in the means of addressing the problem of how to maximize City revenues from sub-tenancies. This may include contracting for property management services. As to some properties, that approach may ultimately prove to be the best option. Accordingly, as discussed below, staff recommends a flexible approach to handling all the complex leasing renewals and updates.
Third, staff concurs and recommends that the non-aviation land should be devoted to non-aviation uses, including, perhaps, the recreational uses that have been previously considered for that property. In the short term, the City can begin this transition by replacing the aviation businesses on the non-aviation land with new tenants and, if necessary, relocating the aviation businesses and other aviation uses (tie downs).
Fourth, staff agrees and recommends that private, professional assistance should be secured to assist the City with Airport lease negotiations. This recommendation is based, in part, on the exceptional volume of leasing work occasioned by the expiration of all of the leases in a single year. Later this month, staff intends to issue a Request for Proposals for such services within staff's authority, and intends to work with the selected consultant to negotiate or renegotiate leases. This experience will inform any future recommendations about using private leasing agents for additional services.
As to the leasing of particular aviation parcels, many current tenants and subtenants have requested new leases. Other aviation and non-aviation tenants have advised that the present uncertainty has caused them to consider leaving the Airport. For now, staff is recommending that Council consider five leases in the context of this agenda item.
The Museum of Flying has requested renewal of its lease, noting that uncertainty about its future significantly hinders fundraising and impairs its ability to book future events (for which space is often reserved far in advance). Renewing the museum's lease will not only ensure the viability of the museum as a repository for Airport history, it will also serve the Council's goal of promoting the placement of educational and cultural uses on the south side of the Airport.
Atlantic Aviation (2800 Donald Douglas Loop North) and two of its current subtenants have each requested separate new leases. Granting their requests would serve the City's goal of eliminating subleases that divert revenue to "middlemen". The revenues that have been going to Atlantic Aviation as sublease rent from Volkswagen/Audi and Milstein, Adelman & Kreeger would flow directly to the City, significantly enhancing City revenues.
As to Atlantic's request for a new lease for the remainder of the leasehold, which actually is now used for its present operation, staff believes a new lease with Atlantic is practically prudent. Staff anticipates that, if the City were to deny a lease, the federal government will likely take action against the City, perhaps based on a claim of discrimination in violation of the grant assurances. Such action would likely be based on the FAA's belief that the type of aviation services provided on the leasehold must be provided so long as the Airport remains open or open to business jets, which it unavoidably likely will for the next few years. It probably will take that long to resolve the litigation about the Instrument of Transfer and grant conditions, and meanwhile the FAA would doubtless take the position that denying services for jet aircraft would violate the grant conditions. Moreover, Atlantic is located on the north side of the Airport, which has long been identified as the preferable location for aviation businesses. And, when the Atlantic lease expires, the City will own the building, and ownership will bring significant new maintenance costs and responsibilities. Additionally, Atlantic has indicated its willingness to work with the City on environmental issues such as alternative fuel sales; and specific environmental obligations could be incorporated into any new lease.
Krueger Aviation (2701 Airport Avenue), another of the master lessors, has also requested a new lease. Krueger subleases to three, small non-aviation businesses (a law office, an architect and an interior designer), subleases to an aircraft maintenance facility, and also subleases tie-downs. Airport staff is recommending negotiation of a new lease because the maintenance services provided on this leasehold promote safety and because the operation does not create particularly adverse impacts. And, any issues of revenue diversion can be addressed in negotiations.
As to each of these leases, staff is proposing three year terms with one year extensions at the City’s sole option. This proposal reflects the reality that it will almost certainly take that long to resolve the legal issues, and the revenue from Airport leases must be maintained in the meanwhile to maintain the Airport's financial self-sufficiency. In addition, staff anticipates undertaking negotiations with the other master lessees to, among other things, address issues relating to subleases and adverse impacts on neighbors.
Staff anticipates that, while it focuses on the master leases in order to maximize revenues and ensure accountability, other leases will continue on a month-to-month basis with lease rates increased as appropriate. Further, to adequately maintain the Airport Fund balance, staff requests authorization to re-negotiate individual leases on a case by case basis and then bring them to Council for approval.
Some of the disagreement over the last year about what the City can and should do with regard to emissions relates to a difference of opinion about the extent of the City's legal authority as Airport proprietor. A local attorney made a presentation to the Commission about the City's proprietary rights. Legal staff agrees with him that Congress and the courts have recognized that airport proprietors have rights not shared by non-proprietors. However, neither the Congress nor the courts have defined the scope of proprietors’ rights. And, the FAA vigorously enforces its belief that proprietors' rights were always limited to noise regulation and that Congress has now preempted new local regulation in that field by adopting ANCA, which establishes a federal procedure and requirements for changing local noise restrictions. The City certainly does not concur with the FAA's narrow interpretation of airport proprietors' rights. However, it is important to recognize that this is a complex area, very likely to engender litigation.
Nonetheless, the presentation to the Airport Commission included the argument that proprietor's rights are substantial enough to obviate federal preemption in the area of emissions controls. The presenter cited Engine Manufacturers Ass'n v. South Coast Air Quality Management Dist., 498 F.3d 1031 (9th Cir. 2007). In that case, trade associations and diesel fuel producers challenged fleet rules adopted by the California's Air Quality Management District, which required both public and some private fleet owners to choose vehicles meeting specified emissions standards or containing specified alternative-fuel engines when they expanded their fleets. Plaintiffs claimed that the state's fleet rules were preempted by federal law. The federal trial court ruled in favor of the District, holding that the rules were not preempted by the Clean Air Act. The federal appellate court affirmed, and the Supreme Court remanded the case back to the Ninth Circuit. It held that the fleet rules governing procurement by state and local governments were not preempted because the government entities were acting as market participants in purchasing vehicles, not as regulators.
This case does not stand for the proposition that a local governmental entity that owns an airport can impose emissions restrictions on private purchasers and owners of aircraft in contravention of the express language of the Clean Air Act which specifically prohibits such action. Rather, the case might mean that if City funds were to be expended to purchase aircraft, the City could require that certain performance standards be met, such as that the aircraft be able to operate on alternative fuels. However, as to privately purchased and owned aircraft, the case does not stand for the proposition that the City can ignore the Clean Air Act and regulate aircraft emissions.
Contingency Planning for the Future & And a Possible Ballot Measure
As litigation regarding the Instrument of Transfer and grant assurances proceeds, staff recommends that the City continue to devote resources to contingency planning for the future of the Airport and the City's land now used for the Airport. Substantial environmental work, CEQA review and planning actions would be necessary to significantly alter the use of the land. This would include a thorough investigation of the environmental conditions at the Airport to estimate the scope of the full investigational work that would be required in the future. Among other things, this preliminary work should include an initial cost estimate of what would be necessary to investigate potential contamination issues. Preliminary consideration of CEQA requirements for changes in use would help to prepare the City for a decision on the process and alternatives to be considered. Possible changes in the City's General Plan and zoning laws should also be considered.
Staff also recommends devoting City resources to consideration of a potential ballot measure for 2016 regarding possible future uses of the Airport land. The success of the City’s ballot measure in 2014 (and the defeat of the aviation interests’ measure) means that potential future use of all or part of the Airport land for recreational and cultural purposes would not require voter approval. However, it is possible that the City’s interests would be best served by allowing some other future uses at some locations on the land. For instance, it might be beneficial to the community to situate certain City government improvements at the Airport, such as an environmental center. Also, certain community serving uses, such as restaurants, and certain commercial uses, such as office uses on the north side, could continue to generate revenue to fund community amenities.
At least theoretically, a wide range of alternatives exist for Council's direction to staff on leasing strategies. For instance, at the extremes, Council could instruct staff to simply maintain all current tenancies on a month-to-month basis during this time of legal uncertainty in order to maintain maximum flexibility. Or, Council could instruct staff to end the tenancies of all current tenants after July 1st and simply rent the leaseholds to the highest bidders. However, the former alternative may jeopardize revenues because uncertainty may induce some tenants to leave and may reduce rents paid by future tenants. Moreover, more litigation will likely ensue if aviation services provided by current tenants are not replaced. So, staff recommends against these extremes.
Council could also direct staff to return with leasing guidelines, so that individual leases conforming to the guidelines would not require Council approval. However, any guidelines that appear to disfavor aviation uses will likely be challenged; and Council approval of leases maximizes transparency.
Another alternative would be to maintain all tenancies, except the master lessees', as month-to-month. This is one of the Airport Commission's recommendations. However, staff recommends against this approach in order to keep the Airport financially sound, so long as the City must operate it. Leases have the potential to generate significantly more rent than month-to-month tenancies because tenants value stability. Also, offering leases gives staff the leverage to negotiate conditions that curtail adverse Airport impacts. Thus, staff recommends against prohibiting all new leases. Moreover, authorizing staff to negotiate individual leases, as appropriate and for Council review, will not impair future flexibility because staff proposes that all leases should end by July 1, 2018, at the latest, with any annual extensions beyond that date to be at the City's sole discretion.
The Commission has also recommended eliminating all uses of Airport land that are incompatible with surrounding residential uses and eliminating fuel sales that are not required by contracts. For example, the Commission has recommended eliminating all fuel sales except those which the City is contractually obligated to allow. However, establishing a City policy of eliminating uses that the federal government likely views as essential to Airport operations may trigger yet more litigation. Thus, staff recommends addressing adverse impacts and promoting compatibility mainly through negotiated lease provisions.
Restrictions on Land Uses
Also, in 2013, the Commission recommended eliminating aviation use of the western parcel of the Airport. Again, adopting this as City policy would likely provoke more litigation. However, it may be possible to work towards this goal through negotiations with tenants.
Funding Future Uses
The suggestion that net revenues from leasing be set aside to fund future, non-aviation, use of the land, such as a park, is an alternative that should be noted because it will likely appeal to many. However, given the federal government's demands about the use of leasing proceeds, staff does not recommend this possibility at this time.
As to reducing aircraft emissions, Council could direct staff to return with an emission control ordinance, such as the one recommended by the Commission. But, as explained above, such an ordinance will likely be challenged immediately as preempted by federal law; and a favorable outcome is doubtful. Addressing emissions through negotiated lease terms or practices that require or encourage the provision of alternative fuels and increase efficiencies in operations is therefore a better alternative.
Future of the Airport
As to directions relating to the Airport’s future, the range of alternatives is broad. For instance, the Council could make a decision, now, to close all or part of the Airport as soon as that becomes possible. However, that action would only be symbolic because, as explained above, during the pendency of the litigation about the grant assurances, any radical change undertaken by the City will likely be enjoined.
Many have hoped that offering to repay grant money to the FAA would resolve the dispute over grant assurances or at least better position the City in litigation. However, as a practical and legal matter, the City cannot shorten the duration of that litigation by simply offering to or actually paying back the grant money received in 2003.
Likewise, as recommended by the Airport Commission, the City could ask the FAA's permission to close all or part of the Airport. Based on the FAA's positions to date, such a request would certainly be denied. The Commission recommended the request in order to "ripen" certain issues for litigation. However, there is no immediate need for that action. The current Ninth Circuit appeal in the City's case and the aviation interests' Part 16 case remain pending, and these cases are likely to provide answers to some key legal questions. Second, should circumstances change, such a Council decision could be made at any time in the future. Finally, there is much contingency environmental, CEQA and planning work that needs to be done before such a decision would be meaningful in terms of actually changing use of the land.
Depending upon Council’s direction, staff foresees bringing the remainder of the master leases, and perhaps other individual leases, to Council within the next six months. Also, staff will return to Council with a written report on progress with leasing, contingency planning for the future, and further recommendations regarding a possible ballot measure before the end of the year.