Bylined Articles

Avoiding Improper Use Of CARES Act Airport Grants

By Alan Kessler, Jamie Brown and Rachel Kubasak
May 18, 2020
Law360

Like much of the transportation industry during the COVID-19 pandemic, America's airports are experiencing significant losses in revenue. Airports Council International predicts that the U.S. airport industry will lose $23 billion as a result of COVID-19[1].

The "world's busiest airport," Hartsfield-Jackson Atlanta International Airport, reported a revenue decrease of 50%-60% from the exact same time last year, which has been typical across the United States[2].

Title XII of Division B of the Coronavirus Aid, Relief, and Economic Security, or CARES, Act[3] addresses these significant economic disruptions by providing approximately $10 billion to U.S. airports "to prevent, prepare for, and respond to the impacts of the COVID-19 public health emergency." The funding is somewhat discretionary, with a requirement that it be used for any purpose for which airport revenues may lawfully be used, so long as the use of funds is related to the airport[4].

This allows airport sponsors[5] and administrative authorities to exercise some discretion in making relief allocations to various airport-affiliated business entities affected by the pandemic, as well as to debt service and construction projects.

CARES Act Through a Local Government Lens

In Seattle, the Port of Seattle Commission aid package offered assistance to airport-based businesses that included barring eviction for tenants and offering emergency financial relief in the form of rent and fee deferrals for airport tenants and concessionaires[6]. This type of relief is consistent with Federal Aviation Administration guidance for airports, and allows the business owners to continue paying workers and covering their health insurance, which was the congressional intent behind the CARES Act[7].

Other cities, such as Chicago, have released similar local ordinances via City Hall that would provide rent deferrals to concessionaries to offset the financial impact of the COVID-19 pandemic, which has disrupted operations and revenue streams[8].

Juneau International Airport is making a unique choice by putting its entire CARES Act allocation towards the airport's operating budget — even though this puts the airport at risk of not using the entire grant and leaving money unspent[9]. The $21.9 million for which the airport qualifies under the CARES Act could be used for capital projects, but the airport board is concerned about investing in such projects while the future of the travel industry is uncertain.

Airport tenants, airline representatives and the airport gift shop operators agree with the decision, citing use of CARES Act funds as a means to free up the current operating budget to assist other airport stakeholders, such as themselves. These stakeholders have not received other assistance from local authorities.

As billions of dollars in revenue have been lost for both tenants and airlines, the FAA provides local airport authorities the ability to offer impactful immediate assistance, in the form rent renegotiation from tenants, including airlines[10]. Hartsfield-Jackson Atlanta International Airport has planned to take the action of deferring airline payments for landing fees and terminal rent for April, May and June, in addition to similar relief already provided to concessionaires and rental car companies[11].

The action by these cities demonstrate how swift action by local authorities, in tandem with the use of CARES Act grants, are a valuable and necessary tool in ensuring the continued financial success and stability of airports, tenants and vendors.

Avoiding Pitfalls of CARES Act Grants

Before rushing to action, sponsors should recognize that there are a number of nonallowable uses of CARES Act airport grants, and should exercise caution to avoid pitfalls.

Funds Must Be Spent, Not Saved or Invested

As the FAA administers the grants from the CARES Act, only invoiced expenditures with underlying documentation are acceptable, so that the FAA can ensure that sponsors use funds in accordance with CARES Act requirements.

Deposits and investments could ultimately be spent on any variety of expenditures, free from oversight by the FAA. As such, those expenses may fall outside of the CARES Act requirement that the use of funds relate to the airport[12].

No Double-Dipping

Sponsors should be careful not to double-dip. If a sponsor has already been reimbursed for an expenditure under another government program — including any federal, state or local program — it may not invoice those same expenses under its CARES Act airport grant.

Payroll, Operations and Debt Service Payments

With the CARES Act making key changes to how FAA grants have traditionally been spent, airports are now permitted to use funding money on payroll, operations and debt service payments. This includes prepayment of long-term contracts for shuttle bus operators, janitorial services and security services[13].

Prior to the CARES Act, entitlement funding was generally appropriated for infrastructure projects on airport grounds. As FAA guidance notes, the simplified agreement under the CARES Act makes those funds available immediately for expenses, and sponsors should utilize such funding for those purposes[14].

Spending on Airport Development and Construction Allowed — With a Caveat

Although airport development and construction projects are permissible uses of CARES Act grant funding, airport district offices or regional offices must approve such uses. Similarly, purchases of aviation or avigation easements using grant money may be considered airport development, and thus subject to specific approval. Acting without following the proper approval process could result in the FAA rejecting a reimbursement request.

Advance Payments

Sponsors may prepay long-term contracts, accelerate structured settlement agreements, or pay penalties for early defeasance of debt with CARES Act grant funds. As with all CARES Act grant expenditures, these payments must be related to the airport.

Such prepayments must provide some additional value to the airport beyond the value of the underlying agreement. Early payment without a corresponding demonstration of value might exclude such payment from falling under the CARES Act.

Local Government

Finally, CARES Act grants cannot be used to fund the local government's pension fund, although an airports' district or regional office may grant an exception if the airport has historically supported the fund, and the support is proportional to the share of the fund paid to airport retirees[15].

When in doubt, a sponsor should seek approval or further guidance from its airports district office or airports regional office, to ensure that its expenditures are reimbursable under its CARES Act grant. Airports should also note that the CARES Act requires airports to retain at least 90% of their employees as of March 27, through Dec. 31, 2020, in order to receive aid.

Conclusion

As long as the COVID-19 pandemic continues to disrupt travel, airports will continue to lose revenue. The $10 billion provided to airports in the CARES Act is an essential boost to airport operation sustenance — for now.

Sponsors should be prepared to meet payroll, fund operations and make debt service payments in the immediate future. There is no doubt that the travel industry and airports will return to their former glory. But the American Association of Airport Executives returned to Congress on May 6, to ask for more relief aid to bridge the gap.[16]

As additional relief is distributed by Congress, it will be up to airport sponsors and local authorities to act responsibly in spending grant money to ensure that the congressional intent of the legislation is met, and that all expenditures are within CARES Act guidance provided by the FAA.

Notes

[1] Airports Council Int'l, Economic Impact of Coronavirus on U.S. Commercial Airports, April 6, 2020, https://airportscouncil.org/wp-content/uploads/2020/03/Economic-Impact-of-Coronavirus-on-U.S.-Commercial-Airports.pdf.

[2] Khushbu Shah, 'Mostly empty': Covid-19 has nearly shut down world's busiest airport, The Guardian, April 13, 2020, https://www.theguardian.com/world/2020/apr/13/atlanta-hartsfield-jackson-coronavirus-airport-shut-down.

[3] Coronavirus Aid, Relief, and Economic Security Act, Publ. Law 116-137, 134 Stat_ (March 27, 2020).

[4] Fed. Aviation Admin., CARES Act Airport Grants — Frequently Asked Questions (April 17, 2020), https://www.faa.gov/airports/cares_act/media/cares-act-airport-grants-faqs.pdf. See also Policy and Procedures Concerning the Use of Airport Revenue, 64 Fed. Reg. 30, 7696 (Feb. 16, 1999).

[5] The term "sponsor" includes private owners of public-use airports and public agencies with control of public-use airports. Fed. Aviation Admin., Assurances (March 2014), https://www.faa.gov/airports/aip/grant_assurances/media/airport-sponsor-assurances-aip.pdf.

[6] Port of Seattle, Port Bars Evictions, Offers Emergency Financial Relief to Airport Tenants with Rent and Fee Deferrals, April 1, 2020, https://www.portseattle.org/news/port-bars-evictions-offers-emergency-financial-relief-airport-tenants-rent-and-fee-deferrals. See also Port of Seattle, Motion 2020-07 to Provide Relief and Support (April 1, 2020), https://meetings.portseattle.org/index.php?option=com_meetings&view=meeting&Itemid=358&id=1900&active=agenda.

[7] CARES Act. "To provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic."

[8] Quig, A.D., Lightfoot proposes lifeline for airport concessionaires, Crain's Chicago Business, April 22, 2020, https://www.chicagobusiness.com/airlines-airports/lightfoot-proposes-lifeline-airport-concessionaires.

[9] Hsieh, Jeremy., Juneau Airport Board may leave millions of dollars of CARES Act funding unspent, Alaska Public Media, April 27, 2020, https://www.alaskapublic.org/2020/04/27/juneau-airport-board-may-leave-millions-of-dollars-of-cares-act-funding-unspent/.

[10] Fed. Aviation Admin., Information for Airport Sponsors Considering COVID-19 Restrictions or Accommodations (April 4, 2020). "If a sponsor (or airport tenant, whether aeronautical or non-aeronautical) desires to renegotiate rent, a reasonable basis for such an action might be established if the underlying basis for such rent has temporarily declined or materially altered due to COVID-19."

[11] Yamanouch, Kelly. With traffic down 95%, Hartsfield-Jackson plans to defer airline rent. The Atlanta Journal- Constitution. April 29, 2020, https://www.ajc.com/business/with-traffic-down-hartsfield-jackson-plans-defer-airline-rent/McmdFvjJntxM1oinLEjQjN/.

[12] Fed. Aviation Admin., CARES Act Airport Grants — Frequently Asked Questions (April 17, 2020), https://www.faa.gov/airports/cares_act/media/cares-act-airport-grants-faqs.pdf.

[13] Id. Q-U4: "Yes, provided the prepayment is a bona fide transaction where the sponsor receives the benefit of the prepaid services and receives some value in exchange for committing in advance."

[14] Id. Q-GA4: "The FAA will provide a simplified Grant Agreement shortly after it receives an application. This simplified agreement includes the requirements under the CARES Act and makes funds immediately available for expenses, other than April 17, 2020 airport development, including payroll, debt service, utility expenses, service contracts, and supplies."

[15] Id. Q-U6: "Generally, no. However, if the fund has historically been supported by the airport and the support is proportional to the share paid to airport retirees, then the airport should consult with its local Airports District Office or Airports Regional Office, to determine if such a use is appropriate."

[16] Shepardson, David, U.S. airports need $10 billion or more in additional government aid: group, Reuters, May 6, 2020, https://www.reuters.com/article/us-health-coronavirus-usa-aviation/us-airports-need-10-billion-or-more-in-additional-government-aid-group-idUSKBN22I2WQ.

Reprinted with permission of Law360.