oregon department of aviation€¦ · oregon department of aviation . ... federal aviation...

Produced by a cross-agency Management Review Team

May 2010

Management Review

OREGON DEPARTMENT OF AVIATION

ODA Management Review

TABLE OF CONTENTS

EXECUTIVE SUMMARY ........................................................................................................................ 3 PURPOSE .............................................................................................................................................. 3 GOALS .....................................................................................................................................................4 STRENGTHEN RELATIONSHIPS ............................................................................................................................................. 4 DEVELOP ADMINISTRATIVE TOOLS ....................................................................................................................................... 5 IMPROVE MANAGEMENT CONTROLS .................................................................................................................................... 5 FINAL COMMENT ................................................................................................................................ 11 ROADMAP TO PROGRESS ................................................................................................................. 12 APPENDICES ....................................................................................................................................... 13

Appendix A – ODA Aurora State Airport Lease Review, ODOT Audit Services Appendix B – Grant Assurance Template Appendix C – Recommended Organizational Structure Appendix D – Draft ROX Policy Appendix E – Federal Grant Review Process Appendix F – DCBS Insurance Review


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EXECUTIVE SUMMARY

Background In October 2009, Department of Administrative Services Director Scott Harra and Interim Oregon Department of Aviation Director Gregg DalPonte assembled a management review team to establish relationships with the ODA management team and provide mentorship and guidance in various administrative areas. Additionally, the review team produced this report, primarily for the incoming director, which provides observations and recommendations. The team performed its review and developed this report at the same time that ODA made many positive changes within the agency. ODA already has successfully accomplished many of the recommendations contained in this report and they continue to implement improvements.

The management review team consisted of the following members: Jeremy Emerson - Deputy Chief Administrative Officer for the Department of Human Services. His responsibilities include administration of personnel, facilities, procurement, collections, information technology and document management. Steve Ponce, CPM 3 - DAS Facilities Division, Senior Construction Project Manager. His responsibilities include oversight of acquisition, design, construction, and contract management of capital construction projects for DAS and other state agencies. Cindy Forest - Senior Human Resource Management Consultant in the DAS Human Resource Services Division. Her area of expertise is human resources and organizational development. Jenny Wilfong, MBA - Senior Fiscal Analyst for the DAS Operations Division. Her area of expertise is budget development, forecasting, financial planning and accounting. Paul Lucas - Contracts Coordinator for the DAS Facilities Division. His expertise includes soliciting, writing and administering contracts and translating program requirements into contract terms. He provides consultation, advice and direction to the Facilities Division and other agencies on contracting issues. Valerie McBride, Leasing Consultant for the Leasing Section of the DAS Facilities Division. She provides consultation and guidance on commercial real estate negotiations on behalf of state agencies.

Purpose This report describes a variety of observations and recommendations for strategic improvement in the administration of ODA. It outlines a combination of actions that will assist ODA succeed. ODA faces many challenges. This report is not intended to cast a negative reflection on the current staff, but rather point out areas needing improvement. The agency’s deficiencies were caused by years of high turnover, which led to a loss of institutional knowledge. Some of the challenges include lack of administrative tools, management controls, effective working relationships with regulatory agencies, and budget planning and execution. ODA already has met some of the challenges by taking several management actions that have had a positive effect. Examples of positive changes: monitoring utility charges; migrating to a new server; creating a grant close-out process and a process for federal grant draw-downs to match expenditures; beginning to use the state’s financial management system for accounts receivables; improving accounts payable processes; activating a safety committee; performing monthly reviews of ODA policies; training staff on new tools such as Brio; beginning to develop a project tracking system; and working with the Department of Revenue to improve ODA’s revenue collections.


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Strategy Highlights ODA can overcome many of its current challenges by accomplishing the following goals:

1. Strengthen relationships with the FAA, DAS, Legislative Fiscal Office, and Department of Justice. 2. Develop administrative tools. 3. Improve management controls.

Accomplishing these goals will require ODA to reallocate resources.

GUIDING PRINCIPLES The review team used the following principles to guide its work:

• Honor the agency’s staff for their talents and dedication to improving the current work environment. • Recommend alternatives to current business practices. • Consider current revenue and budget constraints.

GOALS AND STRATEGIES

1 – Strengthen Relationships To ultimately succeed, ODA must cultivate and sustain positive relationships with regulatory agencies. In addition, management must cultivate and strengthen internal relationships. Federal Aviation Administration: The review team found that ODA staff has consistently struggled with gaining written guidance or opinions regarding federal regulations. ODA should establish standing meetings with FAA officials in order to better manage expectations and improve understanding of how to operate within federal guidelines. Department of Justice: The review team found that in the past, ODA staff was limited in their ability to leverage DOJ resources because of direction from the agency’s administration. When ODA staff did seek counsel, DOJ found the advice was not always accepted. DOJ states that more recently this has not been the case. Additionally, DOJ provided advice to ODA that was inconsistent with its own advice on the same issue given to another state agency. This occurred because of a lack of communication among DOJ’s staff, which DOJ has rectified. ODA should establish monthly meetings with DOJ General Counsel in order to develop and execute a plan for moving forward with various actions, including rewriting administrative rules and regularly reviewing lease templates. Department of Administrative Services: The State Controller’s Division and ODA have had ongoing issues with accounting processes, which have caused negative opinions on both sides. These agencies should work together to re-evaluate their roles and responsibilities and make reassignments to improve accountability and controls. ODA does not readily contact the DAS Human Resource Management Consultation unit that performs ODA’s HR function under contract. Management has expressed distrust of HRMC, and staff has reported that they were told to contact another agency manager for all HR issues. ODA should include the appropriate HR manager from HRMC as part of the management team at ODA. Legislative Fiscal Office: ODA and LFO have experienced issues concerning the ODA budget, specifically regarding a shortfall. The agencies should establish monthly meetings to review actions taken and projected actions that will balance the budget. Internal Relationships: Strained relationships exist between ODA managers, managers and their subordinates and between employees. Layoff announcements further amplify these tensions. Additionally, turf appears important to some managers. Sharing information in order to accomplish work is not routine. The review team recommends the agency use its Employee Assistance Program to help employees deal with issues that affect their work and working relationships.


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2 – Develop Administrative Tools Tracking and indexing ODA’s assets is dire. To understand the agency’s current assets and projects in progress involves anecdotal information from staff members (based on what someone told them) or what is stored in the warehouse, if one ventures to look. The picture at left illustrates the current condition of the agency’s records and assets.

The Parks and Recreation Department uses an asset management system that may suffice for ODA’s purposes. The system stores the records of all equipment, buildings, and projects, and only appropriate employees have access. Parks and ODA have very similar business requirements such as multiple sites with unique characteristics, staff, projects, history, expenditures, equipment and information that employees need to do their jobs. These data are crucial to ODA’s development of a business continuity plan or emergency action plan, let alone the ability to efficiently run day-to-day operations. ODA should secure resources to implement Parks’ system or a similar asset management system. ODA’s use of the Oregon Department of Transportation’s online system for collecting fees is underway. Once implemented, ODA will better understand its fees collected and fees outstanding. ODA may need to implement new policy (via administrative rule) to support robust use of this new system. A welcoming environment improves staff moral. One area of a welcoming environment involves the facility. Improvement in this area is a worthwhile investment that is over due. ODA should review the current facility and at a minimum create a plan that improves the sidewalk in front of the building, promotes ergonomic considerations and investment in staff workstations, and improves accessibility of the rest rooms. 3 – Improve Management Controls Finance ODA does not have enough fiscal and accounting policies and procedures to manage the agency. Because of a pattern of staff turnover, ODA does not have the standards, policies or procedures to meet or exceed the Oregon Accounting Manual (OAM). The agency has begun to draft policies for accounts receivable and reduction of expenditure. ODA must continue this effort and draft a policy and procedure for every accounting and budget function currently in use. The lack of documented policies and procedures poses an internal control problem. The agency lacks direction and appropriate separation of duties for accounting and budget transactions. Policies and procedures would establish formal decision-making processes that may have been unethical or unprofessional in the past. Use and Recording of Expenditures (In Kind): ODA has received payment for services in the form of other services rather than currency. These payments may have involved a concession or special privilege such as a discount or benefit. Because a new ODA Temporary Administrative Rule allows in-kind transactions, a number of changes must occur to properly account for these transactions. ODA must base its accounting of nonmonetary transactions on the fair values of the assets or services involved. The difference between the service provided and the service received must be appropriately recorded in Statewide Financial Management Application as a revenue or expenditure. Future leases should not provide for in-kind consideration due to the amount of resources necessary to account for them and the high degree of effort necessary to justify the amount. However, if in-kind transactions are made part of a lease, the review team recommends that ODA pays for the service, and the lessor pays ODA for the lease, so the transactions will appear in the accounting system (SFMA).


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Additionally, for each situation that could be considered an in-kind exchange, ODA must obtain taxpayer identification and set up the individual in the SFMS system to receive form 1099 as appropriate. The Department of Justice has proposed a temporary administrative rule that states, “payment-in-kind value will be assigned upon determination of the value of the actual improvements, goods or services received. The determination of value will be based on an objective process which compares bids obtained by the Department from service providers for like services, goods or improvements.” Capital Improvements: Improvements to capital assets, such as land or remodeling of existing buildings, which increase the value of the asset by $5,000 or more and add one or more years to the useful life of the asset should be capitalized instead of expended. In the past, ODA has not capitalized all improvements. Proper Expenditure Documentation: Three ODA fiscal staff must sign off on coding sheets before sending them to DAS Shared Client Services, to ensure that the expenditure is coded correctly. Accuracy will reduce the number of billable hours that ODA pays for SCS services. According to SCS records, ODA paid for 1,095 hours in the 2007-09 biennium; 1,207 hours are estimated for 2009-11; and 2,400 hours are estimated for 2011-13. ODA must ask questions of SCS regarding expenditure coding, compliance with the OAM, and what best fits the agency’s financial position. ODA must communicate with SCS about the agency’s wants and needs, and look up to SCS staff as the accounting experts when it comes to coding recommendations and “alike” entries. Attention to proper accounting should considerably reduce the number of corrections and time spent on the accounting of ODA. Likewise, SCS must communicate with ODA about corrections. This also should reduce mistakes in the future. Reduction of Expense: In the past, ODA has not used reduction of expense consistently, nor has it applied consistent reasoning. For example, ODA coded revenue from the FAA as a reduction of expense because of cash flow issues. ODA had invoiced the FAA for $275,733 for the Aurora tower project. However, that grant was not set up in the accounting system. ODA paid the invoice from a cash fund with the knowledge that they would receive $450,000 from the Port of Portland for Mulino. When ODA received the Mulino revenue, the amount needed to cover that invoice was coded as a reduction of expense to free up limitation. This use does not fall in line with the definition of a reduction of expense in the Oregon Accounting Manual: “moneys received as a result of excess payments made on obligations.” See Appendix A for a recommended draft policy. Revenues: A current agreement between the State Controller’s Division and SCS states that ODA will deposit revenues and post them to the accounting system. However, it would best serve ODA if SCS were to make all cash receipting entries and activities. This would ensure that ODA meets the proper internal controls for depositing cash and entering transactions in the accounting system. It also would ensure that revenues post correctly, and in the correct accounting year. The Oregon Accounting Manual (10.20.00.101) states, “as a part of the required internal control documentation, each agency having the power to collect State moneys should design and document internal controls for cash”. ODA has not done this properly in the past, nor has the agency put in place appropriate policy or procedure for invoicing and collecting funds. A proper control would involve ODA completing the invoicing process and SCS completing the cash receipting of transactions. See Appendix B for a statement that ODA would experience no increase in service charges for the 2009-11 biennium if SCS were to take over all ODA cash receipting duties. Such a change would increase audit controls. The review team also recommends that another department perform the receipting tasks associated with collection of lease payments. Both ODOT and DAS have staff who could handle this workload, and if implemented, this too will increase audit controls. Appropriate transfers of cash between funds should be done on a monthly basis. This will ensure that transfers of cash are not just made on paper but also in SFMA, which further ensures that funds are not counted on to cover other obligations. In the past, ODA has not collected all fees. For example, the agency has not regularly or consistently collected tie-down fees and some fuel flowage fees from airport users. Further, ODA lacks proper controls to ensure that every Oregon aircraft and pilot are registered and have paid the appropriate fees. ODA is now considering Supreme Court Order No. 99-108, which would allow them to issue Uniform Citations to Oregon pilots or plane owners for not registering with the agency. ODA recently drafted an accounts receivable policy and procedure for collection of accounts. To achieve financial health, especially in the area of cash-flow, ODA must collect all applicable fees in a timely manner. Tracking accounts receivable is a very important part of that process.


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Maintenance: Currently, ODA dedicates a substantial amount of central resources and assets to maintaining its 28 airports. The review team recommends refocusing one or more staff to perform duties that increase fee collections. This might include outsourcing some tasks, such as mowing the grass, to other local governments, and having ODA staff issue citations to delinquent payees (pilots and aircraft owners). This will require training, but will save on capital investments and increase revenue. Such changes would allow ODA to eliminate at least one heavy truck, trailer, and mower, and potentially one FTE. Relationship between ODA and SCS: Historically, ODA and SCS have not clearly communicated about accounting activities and processes, which has caused many errors and a lack of trust. Open communication between these two groups is absolutely critical, and all parties must maintain transparency in transactions. SCS will have ultimate responsibility for making accounting entries and reporting the financial status of ODA accurately. ODA will present SCS with proper documentation for processing items in a timely manner. SCS will inform ODA of all corrections and transactions made during critical times such as year-end or during budget processes. Neither group should make entries without the knowledge of the other. Bi-weekly (or more frequent) meetings between the SCS and ODA should continue to ensure increased and open communication. Disputes of a technical nature that the parties cannot resolve should escalate to the Statewide Accounting and Reporting Services unit in the State Controller’s Division. Any other non-technical matters that the parties cannot resolve should escalate to the ODA Director. Increased Communication within ODA Management: ODA lacks sufficient communication among its managers. Additionally, all management should receive an update on the financial position of the agency on a monthly basis (or whatever frequency is deemed appropriate) and any other new information about the organization. Fiscal management also should provide monthly reports to the State Board of Aviation. Effective and continual communication will aid ODA management in the understanding of what is required operationally to live within the financial restrictions of the agency, as well as to create the future mission of the agency. Cost Allocation: In prior biennia, specifically 2005-07, SCS used a cost allocation method for a short period. This proved to be time intensive, and was not a viable tool for ODA because of uneven profitability per airport, and in some cases, complete lack of profitability. Although the review team does not recommend it at this time, cost allocation could be useful in the future, if ODA manages each profit center separately and accurately. Allocating overhead costs also could serve as a useful tool, after ODA establishes the profitability of state-owned airports. In many cases, ODA could charge its project management time, as well as other direct and indirect expenditures, to federal grants. ODA should take advantage of this benefit and thereby reduce expenditures charged to the operational portion of the agency. DAS prepares a Statewide Cost Allocation Plan (SWCAP), which the Federal Division of Cost Allocation approves. Staff has begun to research the usefulness of the SWCAP concerning FAA grants. ODA’s direct and indirect administrative costs, if approved by the FAA, could be charged to FAA grants through an indirect cost rate or cost allocation plan. Applying for Federal Grants: In the past, ODA has not followed the process required by the Legislative Fiscal Office to gain approval to apply for a federal grant, nor has it submitted an agency request letter to the DAS Budget and Management Division to appear before the Emergency Board (the body that grants limitation once the federal government awards a grant to a state agency). See Appendix C for the state’s Federal Grant Review Process. ODA must follow this procedure in the future to gain sufficient federal fund limitation as well as other-fund match limitation and funding for all grants received by the agency. Currently, ODA’s grant awards that are not part of an entitlement or a specific capital construction project, use remaining federal fund limitation. This is not appropriate and deviates from the original legislative intent of the limitation. For every federal grant ODA receives, there is generally a five-percent other-fund match. If the Legislature has not approved a federal grant, the agency will likely lack sufficient other-fund limitation and inappropriately use its operating funds to fund the grant. Budget: ODA has lost credibility with the Legislative Fiscal Office because of repeatedly returning to request additional limitation for capital construction projects. The review team recommends that future requests for a Policy Option Package (POP) include costs for engineering, design, procurement, project management and consulting costs, and that stakeholders review the entire project, along with a risk assessment, cost estimates and any associated options. This will considerably reduce large deficiencies in limitation for capital construction projects. A recent example involves the POP awarded for the Joseph Airport Runway (2009 legislative session) for $1.5 million total funds. ODA originally planned for only partial rehabilitation and a full overlay on the runway. After an engineer conducted design work, ODA learned that FAA requirements would require full reconstruction of the runway. ODA now estimates that the Joseph project limitation will fall short by approximately $1 million.


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After much research into the budget process, and the process to budget capital construction and other smaller projects, the review team has concluded that no avenue exists to allow a line item within ODA’s “base budget” for small construction projects or under-estimates on large projects. The review team strongly recommends that ODA involve its DAS Budget and Management analyst in budget-building activities and rely heavily on their expertise. The budget analyst serves as a resource for information and tools related to budget and cash flow, a resource that ODA must use. Financial Reporting: DAS offers a financial reporting tool (REFBPS) that interacts directly with SFMA, which ODA does not currently use. The system provides actual expenditure and revenue data, along with a financial planning tool for future projections. It also allows users to view summary data of actual expenditures. A numeric reference associates the data with back-up materials that staff scan and save in a shared drive for record retention and other uses. DAS has estimated the cost for ODA to use the REFBPS system to be in the range of $4,000 per month. ODA currently does not have the budget or cash flow to cover this cost; however, if possible, they should seek a partner-agency to cover the cost. One of the major points of contention among stakeholders and regulatory entities is the agency’s inability to stay within budget on various projects. The review team recommends that ODA adopt the approach used by the DAS Facilities Division (described below). Use of this model would help ODA mitigate the risks of its current system. The model works for funding both types of projects, capital improvement and capital construction.

Capital Improvement Projects typically cost less than $500,000. DAS Facilities keeps an ongoing list of projects and selects projects for the current budget-cycle based on a number of life-cycle cost criteria. Funding comes from a single “Capital Improvement fund.” DAS has the discretion to fund projects and defer others based on fund balances, staffing and many other operational factors.

Capital Construction Projects typically cost from $500,000 to $30 million. Facilities often moves forward on these projects as follows:

• Request funds for a feasibility study or a site or building assessment in a legislative budget request (which includes the cost of the procurement, consultants and project management).

• An architecture or engineering firm performs the study or assessment, which includes the following: o Options for stakeholders to review and consider o Risks, code-compliance challenges and any issue that could nullify the project such as

property rights, adverse soil conditions, etc. o Cost estimates for the various options, and return on investment

• Project stakeholders then select an option, and present the expected costs to the Emergency Board or full Legislature for funding (this allows the project to be publicly bid and for the project team to then secure the real-time construction costs).

• Project team then assembles hard costs and presents a request to the Emergency Board or full Legislature for adequate funding, including contingencies. This visit to the Legislature is planned and expected rather than an unexpected request due to cost overruns.

This process generally extends a project’s timeline, but it increases the success rate and provides valuable confidence to stakeholders.

Staffing within the Finance Unit: The ODA finance unit currently holds three Full Time Equivalent (FTE) positions: Fiscal Manager (FA3), Fiscal Analyst (FA1), and Fiscal Assistant (AT2). This report previously recommended that DAS SCS complete all accounting duties except invoicing. As a result, coding of expenditures and invoicing would lie with the Fiscal Analyst position. The Fiscal Manager would oversee coding and invoicing as well as analysis, financial reporting and budget building. Elimination of the Grant Coordinator position (#1211078) will affect the workload in the finance unit. The Fiscal Manager should assume the duties around grant tracking and partner with SCS to complete grant reconciliations at least quarterly. The review team’s recommendations suggest elimination of the Fiscal Assistant position (#3152001). Additionally, ODA should consider accepting assistance from DAS in finance. Public Contracting: Observations and Recommendations


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ODA is a small agency with 16 FTE and an estimated budget of approximately $9.3 million (for the 2009-11 budget period). Of that amount, approximately $2.5 million comes from federal grants, most of which require a 5-percent fund-match earmarked for various construction projects each year. ODA currently has 1.5 FTE dedicated to managing these funds. The type and size of the projects vary from infrequent large capital construction projects to smaller capital improvements and runway maintenance. ODA works with a small group of specialty aviation consultants that have provided solid architecture and engineering services over the years. Although these services are technically adequate, the review team finds that the agency has historically allowed consultants too much control over the design process and post-award project administration. In some circumstances, it can be advantageous for consultants to serve as the owner’s voice, but it can negatively affect the overall budget if the agency allows the relationship to become unbalanced. The review team finds these relationships somewhat out of balance. It appears that consultants frequently guide the process of decision-making without adequate discussion with the agency. When this occurs, the agency is unable to make decisions in the best interest of the project and the state. This statement is difficult to make across the board, but generally, the review team finds ODA’s consultant too often behind the wheel. Rather, consultants should advise ODA on various scenarios and the potential outcomes for selecting one option over another, based on their experience and the industry’s best practices. GENERAL OBSERVATIONS

• ODA lacks a filing system; individual filing systems appear to exist for each office. The review team recommends that ODA adopt standards for archiving e-mail and other electronic files.

• Not charging federal projects for allowable project management represents a lost opportunity to capture funds for the agency.

• The process of reviewing grant payments and invoices is fraught with errors. One person approves grant payments, and another person completes data entry, double checks, and reviews invoices. Even with two reviewers, DAS reports a high number of errors.

• ODA has apparently adopted OAR137 for architecture and engineering and public improvements. ODA can choose to work under DAS Rules. Note: The previous ODA Director adopted DOJ Model Rules (OAR137) during a past project when ODA determined, due to the project’s time sensitivity, it did not have the time to follow the procurement requirements of the DAS State Procurement Office. The review team requested a copy of this letter, but ODA has not located the document. One ODA manager has stated that ODA follows the DOJ Model Rules for some procurement processes and the DAS Rules (OAR125) for others. The review team is unsure which of ODA’s procurement processes are under DAS authority and which the agency has elected to adopt independent contracting authority under DOJ Model Rules.

Leases: The review team recommends that for a period determined by the ODA Director, DOJ review all leases. ODA’s existing administrative support staff could obtain signatures and distribute the leases. This will assist ODA in managing the implementation of its projects while capturing savings from another vacant position. Summary Many process issues have become apparent within ODA and the review team finds it difficult to identify and separate the individual, root causes. Until ODA can adequately fund one or more FTE with skills that are equal to the complexity of anticipated projects, the review team recommends the agency form partnerships with other agencies that have the required skill sets and can commit resources to assist ODA with projects from “cradle to grave.” ODA staff should work alongside these agency personnel in a mentoring relationship. Tasks would consist of assisting ODA staff with construction project management, coordinating and managing consultants, and task-related training. This hands-on mentoring approach will enable a structured and successful transition should the ODA Director decide to return construction project management in-house. Either DAS or ODOT staff has the required technical knowledge. The review team recommends that ODA establish an interagency agreement to support this effort. The review team sees the need for a mentoring-partnership to remain in place until ODA installs additional controls for procurement, legal sufficiency, management processes, and record keeping, and that all processes link to a recognized financial accountability system, and the agency maintains appropriate and adequate staffing. The review team does not understand all the financial implications of ODA forming a partnership with a sister agency to assume its current and future contracting duties. However, it is clear that infusing ODA with additional funds for in-


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house processes is not advisable at this time. During this period of agency restructuring, ODA should be free from the many challenges and daily details inherent in capital improvement and capital construction projects. This will allow ODA’s staff to refocus its energy on redefining and refining its core mission to Oregon’s aviation community. The review team also notes that temporarily or permanently reassigning tasks in this way would be a welcome change to the affected staff. Experience shows that two or more people (or agencies) working the same process from different locations can often increase the actual time required to accomplish the task. Only through practice and streamlining the processes, could a mentoring arrangement create efficiency and reduce overall costs. Nexus to successful implementation of improvement efforts is ODA accepting resources offered by DAS to develop financial processes and controls, which are effective and manageable. Understanding and working to align the agency’s existing contracting processes and records for possible audits by the Secretary of State also will consume many staff hours. ODA staff is the best resource for these efforts as staff knows the history of its projects better that anyone else, and will be the best resource for producing documents, if requested. CONTRACT MANAGEMENT As a small agency, ODA faces many challenges in the area of contract management, which includes the procurement process as well as contract administration. Responsibility for contract management for architecture and engineering services and construction services resides with the Planning and Projects Manager. This staff member is acutely aware of the conditions of the airport facilities and the projects that ODA needs to schedule for improvements and maintenance, a significant task considering the airport facilities are located throughout Oregon. The procurement of public contracts and the administration of these contracts present a challenge for him. The Planning and Projects Manager needs additional training, especially in the area of procurement statutes and rules. In all fairness, this job function creates personal and professional liability for him and Oregon state government. The additional responsibility of acting as a construction project manager for maintenance and public improvements projects, which appears to have exceeded his training, has stretched the ability of a talented person. The responsibility for construction project management and the active administration of the services under the construction contracts, in some cases, have shifted to the consultant by default. This has created situations in which the person responsible for the design provides active direction to onsite construction personnel instead of serving as the consultant who advises ODA and follows its direction. Contract management activities do not appear to have the active participation or collaboration of the Contracts and Leasing Manager. Her assigned tasks include managing a number of ongoing leases, managing the renewal process, reviewing applications and writing new leases. The leasing process requires a significant level of effort and appears to require most of her time. Recommendations ODA essentially has one staff member, the Planning and Projects Manager, who is responsible for contract management, construction project management, and planning projects at all state-owned airports. This arrangement appears to include more areas of “sole accountability” than the state normally requires of one position. ODA would benefit from a cooperative effort with a larger state agency for procurement and contracts, and construction project management. A trained professional buyer with specific experience should provide procurement and contract services for projects involving architecture and engineering and construction contracts. Additionally, a trained construction project manager with experience in horizontal or vertical construction should provide ODA’s construction project management. Ideally, the construction project manager would coordinate contract administration as a collaborative effort with the procurement specialist, the ODA Planning and Projects Manager and the architecture and engineering consultant. In the ODA budget, the total cost of each project would need to include the cost of obtaining these services from another agency. A procurement and contracts specialist and construction project manager from another agency could serve as mentors to ODA’s Planning and Projects Manager. The mentors could provide advice on specialized training, and guide the manager on when to request DOJ’s advice. Legal advice is necessary at times to protect the interests of the agency and the individual from potential liabilities. If the agency downsizes, it should review position functions to determine if the existing structure and talent is adequate to perform the work of the agency.


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Insurance Requirements: The review team recommends that ODA make the following changes to liability limits:

• Increase non-commercial minimum general liability insurance requirements from $500,000 to $1 million. • Increase commercial minimum general liability insurance requirements to $1.5 million, except for FBO

contracts, which should increase to $2 million due to the nature of fuel sales. For more information, see Appendix D for the Aviation Insurance Market Summary. Oregon Administrative Rules: None of ODA’s current staff oversee development of administrative rules, nor have any staff been through the process by which the state files and adopts administrative rules. The review team recommends that ODA ask for assistance from either DAS or ODOT regarding rules. In addition, ODA should establish a rules advisory committee to suggest rule changes that better support the progress recommended in this report. Conclusion ODA’s staff has demonstrated dedication to performing their jobs to the best of their ability. In the area of procurement and contract management, the experience of staff from another agency, and the infrastructure of a larger agency, would greatly benefit ODA. The review team recommends the following options for resourcing ODA’s various administrative activities:

1. Move ODA back to ODOT. Although some people have expressed concern that such a move will lessen ODA’s ability to effect change, the benefits include appropriate separation of duties, which would provide better protection for staff and a longer life cycle of institutional knowledge, and overall efficiencies due to improved use of existing business systems and processes.

2. Develop an interagency agreement with either ODOT or DAS for the same reasons as option one. 3. Develop interagency agreements with both ODOT and DAS for the same reasons as option one.

Final Comment

The review team acknowledges that ODA cannot accomplish all of the recommendations in this report at once. The Roadmap to Progress (see Page 12) offers a draft timeline of how ODA might stagger its actions and implement the improvements. In order for the agency to implement the recommendations in this report, ODA must leverage the resources available through regulatory agencies to the fullest extent possible. The review team recommends a full-time project manager assume the responsibility of managing the multiple projects necessary to carry out some or all of the recommendations in this report. The review team supports looking to the existing staff to determine if the necessary skill set exists before looking to another department for a resource.


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ROADMAP TO PROGRESS

Goal 1: Strengthen Relations

Goal 2: Acquire Tools

Goal 3: Improve Controls

Establish Regular Scheduled

Meetings w/Regulatory Agencies

…

… Establish joint expectations

with all regulatory agencies

Perform 360 Satisfaction

Survey

Revise

& Renew Strategic Plan

Implement

Shared Services

…Implement Registration Collection System

Acquire Asset Management

Tool

…Improve Administrative Rules

… Reorganize ODA Administrative Processes

Map new Org structure

… Perform Management Review of new

Structure and effectiveness

2010 2013


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APPENDICES Appendix A – ODA Aurora State Airport Lease Review, ODOT Audit Services Appendix B – Grant Assurance Template Appendix C – Recommended Organizational Structure Appendix D – Draft ROX Policy Appendix E – Federal Grant Review Process Appendix F – DCBS Insurance Review

Oregon Department of Aviation—

Aurora State Airport Lease Review

December 8, 2009

Julie Ratcliff, Senior Internal Auditor

FTILGNER

New Stamp

TABLE

OF

CONTENTS

SECTION PAGE

Summary 1

Inconsistent Rate Treatment Causes Disputes 2

Aurora Business Part 2

Aurora Airport Hangar Association 2

Columbia Aviation 4

TLM Holdings 4

Market Rate not applied as Presented in Recent

Appraisal

5

Accounting for In-kind Payments Requires

Further Review

5

Conclusion 6

Suggested Corrective Actions 6

Review Scope 6

Commendation 7

Endnotes 8

1

The Interim Director of the Oregon Department of Aviation (ODA)

requested that Oregon Department of Transportation (ODOT) Audit

Services to perform an independent review of leases at the Aurora

Airport. Audit Services identified the number of current leases at the

Aurora Airport and reviewed the lease applications for each to:

1. Identify the basis of consideration;

2. Verify that lease rates were at fair market value as determined

by appraisal or market rent analysis;

3. Analyze lease rates to determine if all similarly situated lessees

are paying similar rates for property types and access privi-

leges; and

4. Determine if ODA expended dollars for leased property im-

provements to be reimbursed by Lessee. If so, determine how

the state agency handled receipt of Lessee payment, i.e., was

payment treated as revenue or as reduction of expense.

There are 21 leases at Aurora Airport, many of which have been in

effect since the 1980’s, when ODA was part of the ODOT, and may

predate current statute and rules which became effective in 2002.

According to Oregon Administrative Rule (OAR), ODA must obtain an

application for commercial or non-commercial leases for ODA prop-

erty; however, none of the current leases at Aurora Airport have an

application on file. Compared to the long standing contracting and

leasing issues, the lack of a formal application is minor and ODA may

have all requisite information in other documents.1

In reviewing the lease files, it is evident that rates have been a con-

tinuous issue because contract management has been lacking. The

table below presents an analysis of current lease rates and shows

SUMMARY

Number of

Leases Type Consideration Appraised Value

Rate

Parity

5 Commercial Ground From 10 to 25 cents

per square foot. In-

cluding one lease for

in-kind payment only.

Two lessees are

paying appraised

value.

No

2 Non-Commercial

Ground

25 cents per square

foot.

Both lessees are

paying appraised

value.

Yes

2 Drain Field 5 cents per square

foot.

Not paying ap-

praised value.

Yes

2 Fuel Concessions Flowage Fees NA Yes

2 Tie Down $20 each NA Yes

8 Ingress/Egress According to OAR

Schedule

NA Yes

Table 1—Current

Land Lease Rates

at Aurora Airport

2

that rates for ground leases vary from $0.05 to $0.25 per square foot

based on whether or not the land is improved or unimproved and

several leases are currently expired with renewals in process. Les-

sees for land deemed unimproved, or not buildable, by ODA are cur-

rently paying a rate as low as $0.05, a rate that has been used in

many leases. As a result, ODA’s leasing practices are in violation of

both the OAR and federal grant assurances. It is common practice

for ODA to accept in-kind payment for leases on its 28 airports; cur-

rently, there is only one in-kind lease at Aurora Airport. According to

ODA’s fiscal manager, in-kind transactions are not recorded in finan-

cial records.

Rate inequity is not a recent occurrence and it does not appear that

there has been rate parity for ground leases at Aurora Airport in the

past 20 years. The main cause of this of the disparity is ODA’s failure

to adjust rates in accordance with contract terms over time. As a re-

sult, ODA regularly engages in rate disputes with lessees and where

over $88,000 per year could be recognized as additional lease reve-

nue at Aurora Airport. Further, inconsistent advice from the Depart-

ment of Justice (DOJ) further complicates the situation. Although

this review was limited to the Aurora Airport, discussions with ODA

staff indicate that this problem exists at many, if not all, state-owned

airports. Examples of rate disputes and inconsistencies at Aurora Air-

port are presented below.

The Aurora Business Park (Business Park) is currently leasing 77,385

square feet at the Aurora Airport. The current lease, which was exe-

cuted in 2007, is for $0.16 per square foot. In 2003, ODA sent the

Business Park a letter informing them that the rates would be in-

creasing from $0.16 to $0.22 per square foot in accordance with the

recent property appraisal. The Business Park disputed the increase

and ODA continued to allow the lessee to pay the below market rate

of $0.16 per square foot. There is an unexecuted lease showing in

increase to the market rate, and although unexecuted they paid

market rate in 2009.

The Aurora Airport Hangar Association (Association) is currently

leasing hangar space at the Aurora Airport under a lease that ex-

pired in 1996. Despite correspondence from the Association, ODA

did not inform the Association that the lease expired in 1996, nor did

ODA attempt to renegotiate rates until recently. Although the lease

Aurora Business

Park

INCONSISTENT RATE

TREATMENT

CAUSES DISPUTES

Aurora Airport

Hangar

Association

3

rate started at $0.04 per square foot, the Association currently pays

$0.10 per square foot and ODA loses $4,000 a year by charging the

Association less than the market rate. To remedy this situation, in

2009 DOJ and former ODA Director proceeded to negotiate a new

lease with in-kind consideration that would result in the Association

leasing airport property for another six years rent free, not even col-

lecting the $0.10 a square foot currently paid.

In 1991, ODA entered into a lease with the Association for $0.04 per

square foot for five years. Seven months after the lease expired in

1996, the Association contacted former Administrator of the Aero-

nautics Section of ODOT and they agreed to renew the lease on a

month-to-month basis until after the Aurora Master Plan was up-

dated. The Master Plan was completed but a new lease was not ac-

ceptable to the Lessee. Seven years later, in 2003, the then State Air-

port Manager sent the Association a letter erroneously stating that

the Associations lease would expire in 2021. ODA attempted to ob-

tain lease payments at current market value in 2007 when they sent

a letter to the Association informing them that the lease rate for

Aurora Airport was $0.16 per square foot. The Association refused to

pay the current rate, claiming the 2003 letter was binding. Two years

later ODA once again attempted to bring the lease rate current or

evict the Association.

In August 2009, DOJ reviewed the expired lease and subsequent

communications and informed ODA that they should be prepared to

evict the Association if they did not agree to a new lease at the cur-

rent appraisal value. ODA, DOJ, and the Association met to discuss a

new lease or eviction. During this meeting, the parties negotiated a

new agreement based on pavement improvements the Association

made in the past valued by the Association at $46,600 as in-kind

credit for at the current market rate for leased land. As a result of

the meeting, ODA prepared a spreadsheet showing that at the cur-

rent rate, this prior paving would be credited to the lease until 2015.

Essentially, ODA was prepared to evict the Association with DOJ sup-

port; and instead they offered the Association six rent free years to

sign a lease stating they would pay current market rates starting in

2015. According to the ODA Contracts and Leasing Manager, she in-

formed both DOJ and the ODA Director that this arrangement was

inappropriate but they insisted on carrying forward. When the Assis-

tant Attorney General (AAG) present at the meeting was asked

about his support for this arrangement, it was stated that there was

4

no prohibition against in-kind payments and, although explicit sup-

port for the negotiation wasn’t provided, he thought this arrange-

ment “may work.” Further correspondence with DOJ and review of

settlement documents shows that other AAG’s believe that in-kind

payments are prohibited by OAR. This inconsistent advice by DOJ is

contributing to an environment where questionable, and potentially

illegal, agreements are negotiated.

Columbia Aviation, AKA Columbia Helicopters, has had a ground

lease at Aurora Airport since 1986 and was informed in 1996 that

they were paying significantly below the market rate. Documents on

file indicate that in 1996 the Federal Aviation Administration was

concerned about varying lease rates and that ODA was not in com-

pliance with federal grant assurances. ODA attempted to increase

the lease rate for Columbia Aviation in 1996, but did not follow

through. In 2003, ODA once again attempted to increase Columbia

Aviations lease rate to market rate, but did not follow through. A

third attempt was made in 2006 to bring the lease rate to $0.22 per

square foot, yet the 2007 lease was executed with a rate if $0.16 per

square foot. When ODA again tried to increase the lease rate in 2008

to the current market rate of $0.25 per square foot, Columbia Avia-

tion again resisted and DOJ was brought in to assist in negotiations.

The result was an amendment to the Commercial Operations Lease.

The empty parcels that Columbia had been leasing at $0.05 per

square foot would be marketed by ODA and Columbia would get

right of first offer. If they took the offer, the current rate of $0.25

per square foot would start. If not, then the parcel would go to the

new lessee at the same rate. Two applications are pending for the

larger parcel, and all leasing activity has been frozen. In the mean-

time, Columbia Aviation pays $0.16 and $0.05 per square foot for

improved and unimproved land, respectively, and ODA will not real-

ize $68,000 a year in additional revenue by charging Columbia Avia-

tion less than the market rate. This failure to adhere to ODA policy

and requests has created an environment where lessees decide

what they will pay and ODA does not appropriately and equitably

address issues in a timely manner.

TLM Holdings, AKA Southend Airpark and Westwood Development

Corporation, has the only in-kind lease at Aurora Airport. Although

the in-kind lease is new, TLM Holdings and its associated entities

have been conducting business at Aurora Airport for a number of

Columbia

Aviation

TLM Holdings

5

years.2 The lease with TLM was executed in 2008 for 31,359 square

feet and, according to the lease, TLM provided paving for this area

as in-kind payment for the 25 year lease with one renewal for five

years. Invoices and cancelled checks show that TLM actually paid

$78,176 to pave 24,160 square feet. Based on the total lease area

TLM is paying $0.08 per square foot over 30 years; significantly be-

low the market rate. TLM has not been approached to amend the

contract to reflect the current market rate. ODA is losing $5,000 per

year in lease payments from TLM by charging less than the market

rate.

Oregon Administrative Rule states that at least every five years mar-

ket rates are to be set by an independent appraisal. The most recent

appraisal for Aurora Airport was completed November 2007 and

identified the current market rate as $0.25 per square foot. Lease

files demonstrated that ODA is not consistently charging the current

market rate for improved and unimproved land leases. Per ODA’s

request, the appraisal addressed lease rates for unimproved land

e.g. drain fields, and concluded that this unimproved land, which

was previously leased at $0.05 per square foot, should be leased at

the current market rate of $0.25 per square foot. Despite this as-

sessment, ODA continues to charge only $0.05 per square foot

claiming that the appraisers did not understand what a drain field

was and that this type of land could never be built on. Lessees pay-

ing less than market value for land deemed by ODA as unimproved

are Columbia Aviation and HDSE. By not charging the market rate for

unimproved land, ODA is collecting $76,000 a year less for land

leases at Aurora Airport.

Through evaluation of the legal claim, DOJ concluded that the TLM

Holdings lease violated OAR in various ways; specifically because

there is no provision allowing in-kind payments and that the prop-

erty wasn’t valued at the current appraised value. Although there is

only one 100 percent in-kind lease at Aurora Airport, in-kind credits

have been accepted as payment on other leases at the Aurora Air-

port and there are similar leases and agreements at the other air-

ports statewide. According to the Fiscal Coordinator, ODA financial

records do not contain accounting entries for in-kind arrangements.

Due to time constraints this issue was not investigated further but

warrants ODA’s attention.

MARKET RATE NOT

APPLIED AS

PRESENETED IN

RECENT APPRAISAL

ACCOUNTING FOR

IN-KIND PAYMENTS

REQUIRES FURTHER

REVIEW

6

Decades of inadequate contract management and lack of consistent

executive and legal support have contributed to the current environ-

ment at ODA. Aurora Airport is one of 28 state-owned airports oper-

ated and contracting and leasing practices are similar at all airports.

Since 1996, ODA has engaged in leasing practices that are in viola-

tion of federal grant assurances by charging lessees disparate rates.

Additionally, ODA does not charge the appraised market rates for

leases which is in violation of the OAR. ODA may be placing itself fur-

ther at risk by accepting in-kind payments and by having accounting

practices that may not adequately document these transactions.

We recommend that the Oregon Department of Aviation:

1. Request that the appraisers specifically address drain

fields in their market appraisal, and ensure lessees are

paying the current market rate for all leased land.

2. Consistently increase lease rates per contract terms.

3. Review leases at the other 27 state-owned airports to

identify additional issues.

4. Request that the Department of Justice make a final de-

termination on whether in-kind payments are permitted

by administrative rule.

5. Ensure that existing in-kind arrangements are properly

accounted for in financial records.

6. Update OAR and ODA policy to ensure they reflect cur-

rent practices.

The Oregon Department of Aviation requested that Oregon Depart-

ment of Transportation Audit Services to perform an independent

review of leases at the Aurora Airport. Audit Services identified the

number of current leases at the Aurora Airport and reviewed the

lease applications for each to:

1. Identify the basis of consideration;

2. Verify that lease rates were at fair market value as deter-

mined by appraisal or market rent analysis;

3. Analyze lease rates to determine if all similarly situated

lessees are paying similar rates for property types and

access privileges; and

4. Determine if ODA expended dollars for leased property

improvements to be reimbursed by Lessee. If so, deter-

mine how the state agency handled receipt of Lessee

payment, i.e., was payment treated as revenue or as re-

CONCLUSION

SUGGESTED

CORRECTIVE

ACTIONS

REVIEW SCOPE

7

duction of expense.

This review was performed in limited timeframe of approximately 80

hours between November and December 2009 and consisted of in-

terviewing staff and lessees and reviewing lease files; lease agree-

ments; lease cash receipts; current statue and rules governing ODA;

and confidential legal correspondence related to Aurora Airport. The

results presented in this report are based on matters that came to

our attention through review of this narrow list of files and docu-

ments for the Aurora Airport and should be not be considered a full

scope review of leasing practices.

This review was conducted on an accelerated schedule and despite

the circumstances ODA staff was helpful, informative, and under-

standing. This work could not have been completed in the short

timeframe without the support and cooperation of ODA; staff are

professional and their assistance and attitudes were appreciated

during the review.

COMMENDATION

8

1 Archived files were not reviewed to determine if applications were obtained when leases began.

2 TLM Holdings is also associated with Aurora Jet Center, Van’s Aircraft, Yellow Gate Corporate Hangars, HDSE,

and Metal Innovations.

Endnotes

Airport Assurances (3/2005)

___________________________________________________________________________________

ASSURANCES Airport Sponsors

A. General.

1. These assurances shall be complied with in the performance of grant agreements for airport development, airport planning, and noise compatibility program grants for airport sponsors.

2. These assurances are required to be submitted as part of the project application by sponsors requesting funds under the provisions of Title 49, U.S.C., subtitle VII, as amended. As used herein, the term "public agency sponsor" means a public agency with control of a public-use airport; the term "private sponsor" means a private owner of a public-use airport; and the term "sponsor" includes both public agency sponsors and private sponsors.

3. Upon acceptance of the grant offer by the sponsor, these assurances are incorporated in and become part of the grant agreement.

B. Duration and Applicability.

1. Airport development or Noise Compatibility Program Projects Undertaken by a Public Agency Sponsor. The terms, conditions and assurances of the grant agreement shall remain in full force and effect throughout the useful life of the facilities developed or equipment acquired for an airport development or noise compatibility program project, or throughout the useful life of the project items installed within a facility under a noise compatibility program project, but in any event not to exceed twenty (20) years from the date of acceptance of a grant offer of Federal funds for the project. However, there shall be no limit on the duration of the assurances regarding Exclusive Rights and Airport Revenue so long as the airport is used as an airport. There shall be no limit on the duration of the terms, conditions, and assurances with respect to real property acquired with federal funds. Furthermore, the duration of the Civil Rights assurance shall be specified in the assurances.

2. Airport Development or Noise Compatibility Projects Undertaken by a Private Sponsor. The preceding paragraph 1 also applies to a private sponsor except that the useful life of project items installed within a facility or the useful life of the facilities developed or equipment acquired under an airport development or noise compatibility program project shall be no less than ten (10) years from the date of acceptance of Federal aid for the project.

3. Airport Planning Undertaken by a Sponsor. Unless otherwise specified in the grant agreement, only Assurances 1, 2, 3, 5, 6, 13, 18, 30, 32, 33, and 34 in section C apply to planning projects. The terms, conditions, and assurances of the grant agreement shall remain in full force and effect during the life of the project.

C. Sponsor Certification. The sponsor hereby assures and certifies, with respect to this grant that:

1. General Federal Requirements. It will comply with all applicable Federal laws, regulations, executive orders, policies, guidelines, and requirements as they relate to the application, acceptance and use of Federal funds for this project including but not limited to the following:

Federal Legislation

a. Title 49, U.S.C., subtitle VII, as amended. b. Davis-Bacon Act - 40 U.S.C. 276(a), et seq.1

c. Federal Fair Labor Standards Act - 29 U.S.C. 201, et seq. d. Hatch Act - 5 U.S.C. 1501, et seq.2

FTILGNER

B

e. Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 Title 42 U.S.C. 4601, et seq.1 2

f. National Historic Preservation Act of 1966 - Section 106 - 16 U.S.C. 470(f).1

g. Archeological and Historic Preservation Act of 1974 - 16 U.S.C. 469 through 469c.1

h. Native Americans Grave Repatriation Act - 25 U.S.C. Section 3001, et seq.

i. Clean Air Act, P.L. 90-148, as amended. j. Coastal Zone Management Act, P.L. 93-205, as amended. k. Flood Disaster Protection Act of 1973 - Section 102(a) - 42 U.S.C.

4012a.1 l. Title 49 ,U.S.C., Section 303, (formerly known as Section 4(f)) m. Rehabilitation Act of 1973 - 29 U.S.C. 794. n. Civil Rights Act of 1964 - Title VI - 42 U.S.C. 2000d through d-4. o. Age Discrimination Act of 1975 - 42 U.S.C. 6101, et seq. p. American Indian Religious Freedom Act, P.L. 95-341, as amended. q Architectural Barriers Act of 1968 -42 U.S.C. 4151, et seq.1 r. Power plant and Industrial Fuel Use Act of 1978 - Section 403- 2 U.S.C.

8373.1

s. Contract Work Hours and Safety Standards Act - 40 U.S.C. 327, et seq.1

t. Copeland Anti kickback Act - 18 U.S.C. 874.1

u. National Environmental Policy Act of 1969 - 42 U.S.C. 4321, et seq.1

v. Wild and Scenic Rivers Act, P.L. 90-542, as amended. w. Single Audit Act of 1984 - 31 U.S.C. 7501, et seq.2

x. Drug-Free Workplace Act of 1988 - 41 U.S.C. 702 through 706.

Executive Orders

Executive Order 11246 - Equal Employment Opportunity1

Executive Order 11990 - Protection of Wetlands Executive Order 11988 – Flood Plain Management Executive Order 12372 - Intergovernmental Review of Federal Programs.

Executive Order 12699 - Seismic Safety of Federal and Federally Assisted New Building Construction1

Executive Order 12898 - Environmental Justice

Federal Regulations

a. 14 CFR Part 13 - Investigative and Enforcement Procedures. b. 14 CFR Part 16 - Rules of Practice For Federally Assisted Airport

Enforcement Proceedings. c. 14 CFR Part 150 - Airport noise compatibility planning. d. 29 CFR Part 1 - Procedures for predetermination of wage rates.1

e. 29 CFR Part 3 - Contractors and subcontractors on public building or public work financed in whole or part by loans or grants from the United States.1

f. 29 CFR Part 5 - Labor standards provisions applicable to contracts covering federally financed and assisted construction (also labor standards provisions applicable to non-construction contracts subject to the Contract Work Hours and Safety Standards Act).1

g. 41 CFR Part 60 - Office of Federal Contract Compliance Programs, Equal Employment Opportunity, Department of Labor (Federal and federally assisted contracting requirements).1

2


3

h. 49 CFR Part 18 - Uniform administrative requirements for grants and cooperative agreements to state and local governments.3

i. 49 CFR Part 20 - New restrictions on lobbying. j. 49 CFR Part 21 - Nondiscrimination in federally-assisted programs of the

Department of Transportation - effectuation of Title VI of the Civil Rights Act of 1964.

k. 49 CFR Part 23 - Participation by Disadvantage Business Enterprise in Airport Concessions.

l. 49 CFR Part 24 - Uniform relocation assistance and real property acquisition for Federal and federally assisted programs.1 2

m. 49 CFR Part 26 – Participation By Disadvantaged Business Enterprises in Department of Transportation Programs.

n. 49 CFR Part 27 - Nondiscrimination on the basis of handicap in programs and activities receiving or benefiting from Federal financial assistance.1

o. 49 CFR Part 29 – Government wide debarment and suspension (non-procurement) and government wide requirements for drug-free workplace (grants).

p. 49 CFR Part 30 - Denial of public works contracts to suppliers of goods and services of countries that deny procurement market access to U.S. contractors.

q. 49 CFR Part 41 - Seismic safety of Federal and federally assisted or regulated new building construction.1

Office of Management and Budget Circulars

a. A-87 - Cost Principles Applicable to Grants and Contracts with State and Local Governments.

b A-133 - Audits of States, Local Governments, and Non-Profit Organizations

1 These laws do not apply to airport planning sponsors. 2 These laws do not apply to private sponsors. 3 49 CFR Part 18 and OMB Circular A-87 contain requirements for State and Local

Governments receiving Federal assistance. Any requirement levied upon State and Local Governments by this regulation and circular shall also be applicable to private sponsors receiving Federal assistance under Title 49, United States Code.

Specific assurances required to be included in grant agreements by any of the above laws, regulations or circulars are incorporated by reference in the grant agreement.

2. Responsibility and Authority of the Sponsor.

a. Public Agenc y Sponsor: It has legal authority to apply for the grant, and to finance and carry out the proposed project; that a resolution, motion or similar action has been duly adopted or passed as an official act of the applicant's governing body authorizing the filing of the application, including all understandings and assurances contained therein, and directing and authorizing the person identified as the official representative of the applicant to act in connection with the application and to provide such additional information as may be required.

b. Private Sponsor: It has legal authority to apply for the grant and to finance and carry out the proposed project and comply with all terms, conditions, and assurances of this grant agreement. It shall designate an official representative and shall in writing direct and authorize that person


4

to file this application, including all understandings and assurances contained therein; to act in connection with this application; and to provide such additional information as may be required.

3. Sponsor Fund Availability. It has sufficient funds available for that portion of the project costs which are not to be paid by the United States. It has sufficient funds available to assure operation and maintenance of items funded under the grant agreement which it will own or control.

4. Good Title.

a. It, a public agency or the Federal government, holds good title, satisfactory to the Secretary, to the landing area of the airport or site thereof, or will give assurance satisfactory to the Secretary that good title will be acquired.

b. For noise compatibility program projects to be carried out on the property of the sponsor, it holds good title satisfactory to the Secretary to that portion of the property upon which Federal funds will be expended or will give assurance to the Secretary that good title will be obtained.

5. Preserving Rights and Powers.

a. It will not take or permit any action which would operate to deprive it of any of the rights and powers necessary to perform any or all of the terms, conditions, and assurances in the grant agreement without the written approval of the Secretary, and will act promptly to acquire, extinguish or modify any outstanding rights or claims of right of others which would interfere with such performance by the sponsor. This shall be done in a manner acceptable to the Secretary.

b. It will not sell, lease, encumber, or otherwise transfer or dispose of any part of its title or other interests in the property shown on Exhibit A to this application or, for a noise compatibility program project, that portion of the property upon which Federal funds have been expended, for the duration of the terms, conditions, and assurances in the grant agreement without approval by the Secretary. If the transferee is found by the Secretary to be eligible under Title 49, United States Code, to assume the obligations of the grant agreement and to have the power, authority, and financial resources to carry out all such obligations, the sponsor shall insert in the contract or document transferring or disposing of the sponsor's interest, and make binding upon the transferee all of the terms, conditions, and assurances contained in this grant agreement.

c. For all noise compatibility program projects which are to be carried out by another unit of local government or are on property owned by a unit of local government other than the sponsor, it will enter into an agreement with that government. Except as otherwise specified by the Secretary, that agreement shall obligate that government to the same terms, conditions, and assurances that would be applicable to it if it applied directly to the FAA for a grant to undertake the noise compatibility program project. That agreement and changes thereto must be satisfactory to the Secretary. It will take steps to enforce this agreement against the local government if there is substantial non-compliance with the terms of the agreement.

d. For noise compatibility program projects to be carried out on privately owned property, it will enter into an agreement with the owner of that


5

property which includes provisions specified by the Secretary. It will take steps to enforce this agreement against the property owner whenever there is substantial non-compliance with the terms of the agreement.

e. If the sponsor is a private sponsor, it will take steps satisfactory to the Secretary to ensure that the airport will continue to function as a public-use airport in accordance with these assurances for the duration of these assurances.

f. If an arrangement is made for management and operation of the airport by any agency or person other than the sponsor or an employee of the sponsor, the sponsor will reserve sufficient rights and authority to insure that the airport will be operated and maintained in accordance Title 49, United States Code, the regulations and the terms, conditions and assurances in the grant agreement and shall insure that such arrangement also requires compliance therewith.

6. Consistency with Local Plans. The project is reasonably consistent with plans (existing at the time of submission of this application) of public agencies that are authorized by the State in which the project is located to plan for the development of the area surrounding the airport.

7. Consideration of Local Interest. It has given fair consideration to the interest of communities in or near where the project may be located.

8. Consultation with Users. In making a decision to undertake any airport development project under Title 49, United States Code, it has undertaken reasonable consultations with affected parties using the airport at which project is proposed.

9. Publ ic Hearings. In projects involving the location of an airport, an airport runway, or a major runway extension, it has afforded the opportunity for public hearings for the purpose of considering the economic, social, and environmental effects of the airport or runway location and its consistency with goals and objectives of such planning as has been carried out by the community and it shall, when requested by the Secretary, submit a copy of the transcript of such hearings to the Secretary. Further, for such projects, it has on its management board either voting representation from the communities where the project is located or has advised the communities that they have the right to petition the Secretary concerning a proposed project.

10. Air and Water Quality Standards. In projects involving airport location, a major runway extension, or runway location it will provide for the Governor of the state in which the project is located to certify in writing to the Secretary that the project will be located, designed, constructed, and operated so as to comply with applicable air and water quality standards. In any case where such standards have not been approved and where applicable air and water quality standards have been promulgated by the Administrator of the Environmental Protection Agency, certification shall be obtained from such Administrator. Notice of certification or refusal to certify shall be provided within sixty days after the project application has been received by the Secretary.

11. Pavement Preventive Maintenance. With respect to a project approved after January 1, 1995, for the replacement or reconstruction of pavement at the airport, it assures or certifies that it has implemented an effective airport pavement maintenance-management program and it assures that it will use such program for the useful life of any pavement constructed, reconstructed or repaired with Federal financial assistance at the airport. It will provide such


6

reports on pavement condition and pavement management programs as the Secretary determines may be useful.

12. Terminal Development Prerequisites. For projects which include terminal development at a public use airport, as defined in Title 49, it has, on the date of submittal of the project grant application, all the safety equipment required for certification of such airport under section 44706 of Title 49, United States Code, and all the security equipment required by rule or regulation, and has provided for access to the passenger enplaning and deplaning area of such airport to passengers enplaning and deplaning from aircraft other than air carrier aircraft.

13. Accounting System, Audit, and Record Keeping Requirements.

a. It shall keep all project accounts and records which fully disclose the amount and disposition by the recipient of the proceeds of the grant, the total cost of the project in connection with which the grant is given or used, and the amount or nature of that portion of the cost of the project supplied by other sources, and such other financial records pertinent to the project. The accounts and records shall be kept in accordance with an accounting system that will facilitate an effective audit in accordance with the Single Audit Act of 1984.

b. It shall make available to the Secretary and the Comptroller General of the United States, or any of their duly authorized representatives, for the purpose of audit and examination, any books, documents, papers, and records of the recipient that are pertinent to the grant. The Secretary may require that an appropriate audit be conducted by a recipient. In any case in which an independent audit is made of the accounts of a sponsor relating to the disposition of the proceeds of a grant or relating to the project in connection with which the grant was given or used, it shall file a certified copy of such audit with the Comptroller General of the United States not later than six (6) months following the close of the fiscal year for which the audit was made.

14. Minimum Wage Rates. It shall include, in all contracts in excess of $2,000 for work on any projects funded under the grant agreement which involve labor, provisions establishing minimum rates of wages, to be predetermined by the Secretary of Labor, in accordance with the Davis-Bacon Act, as amended (40 U.S.C. 276a-276a-5), which contractors shall pay to skilled and unskilled labor, and such minimum rates shall be stated in the invitation for bids and shall be included in proposals or bids for the work.

15. Veter an's Preference. It shall include in all contracts for work on any project funded under the grant agreement which involve labor, such provisions as are necessary to insure that, in the employment of labor (except in executive, administrative, and supervisory positions), preference shall be given to Veterans of the Vietnam era and disabled veterans as defined in Section 47112 of Title 49, United States Code. However, this preference shall apply only where the individuals are available and qualified to perform the work to which the employment relates.

16. Co nformity to Plans and Specifications. It will execute the project subject to plans, specifications, and schedules approved by the Secretary. Such plans, specifications, and schedules shall be submitted to the Secretary prior to commencement of site preparation, construction, or other performance under this grant agreement, and, upon approval of the Secretary, shall be incorporated into this grant agreement. Any modification to the approved


7

plans, specifications, and schedules shall also be subject to approval of the Secretary, and incorporated into the grant agreement.

17. Construction Inspection and Approval. It will provide and maintain competent technical supervision at the construction site throughout the project to assure that the work conforms to the plans, specifications, and schedules approved by the Secretary for the project. It shall subject the construction work on any project contained in an approved project application to inspection and approval by the Secretary and such work shall be in accordance with regulations and procedures prescribed by the Secretary. Such regulations and procedures shall require such cost and progress reporting by the sponsor or sponsors of such project as the Secretary shall deem necessary.

18. Planning Projects. In carrying out planning projects:

a. It will execute the project in accordance with the approved program narrative contained in the project application or with the modifications similarly approved.

b. It will furnish the Secretary with such periodic reports as required pertaining to the planning project and planning work activities.

c. It will include in all published material prepared in connection with the planning project a notice that the material was prepared under a grant provided by the United States.

d. It will make such material available for examination by the public, and agrees that no material prepared with funds under this project shall be subject to copyright in the United States or any other country.

e. It will give the Secretary unrestricted authority to publish, disclose, distribute, and otherwise use any of the material prepared in connection with this grant.

f. It will grant the Secretary the right to disapprove the sponsor's employment of specific consultants and their subcontractors to do all or any part of this project as well as the right to disapprove the proposed scope and cost of professional services.

g. It will grant the Secretary the right to disapprove the use of the sponsor's employees to do all or any part of the project.

h. It understands and agrees that the Secretary's approval of this project grant or the Secretary's approval of any planning material developed as part of this grant does not constitute or imply any assurance or commitment on the part of the Secretary to approve any pending or future application for a Federal airport grant.

19. Operation and Maintenance.

a. The airport and all facilities which are necessary to serve the aeronautical users of the airport, other than facilities owned or controlled by the United States, shall be operated at all times in a safe and serviceable condition and in accordance with the minimum standards as may be required or prescribed by applicable Federal, state and local agencies for maintenance and operation. It will not cause or permit any activity or action thereon which would interfere with its use for airport purposes. It will suitably


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operate and maintain the airport and all facilities thereon or connected therewith, with due regard to climatic and flood conditions. Any proposal to temporarily close the airport for non-aeronautical purposes must first be approved by the Secretary. In furtherance of this assurance, the sponsor will have in effect arrangements for-

(1) Operating the airport's aeronautical facilities whenever required;

(2) Promptly marking and lighting hazards resulting from airport conditions, including temporary conditions; and

(3) Promptly notifying airmen of any condition affecting aeronautical use of the airport. Nothing contained herein shall be construed to require that the airport be operated for aeronautical use during temporary periods when snow, flood or other climatic conditions interfere with such operation and maintenance. Further, nothing herein shall be construed as requiring the maintenance, repair, restoration, or replacement of any structure or facility which is substantially damaged or destroyed due to an act of God or other condition or circumstance beyond the control of the sponsor.

b. It will suitably operate and maintain noise compatibility program items that it owns or controls upon which Federal funds have been expended.

20. Hazard Removal and Mitigation. It will take appropriate action to assure that such terminal airspace as is required to protect instrument and visual operations to the airport (including established minimum flight altitudes) will be adequately cleared and protected by removing, lowering, relocating, marking, or lighting or otherwise mitigating existing airport hazards and by preventing the establishment or creation of future airport hazards.

21. Compatible Land Use. It will take appropriate action, to the extent reasonable, including the adoption of zoning laws, to restrict the use of land adjacent to or in the immediate vicinity of the airport to activities and purposes compatible with normal airport operations, including landing and takeoff of aircraft. In addition, if the project is for noise compatibility program implementation, it will not cause or permit any change in land use, within its jurisdiction, that will reduce its compatibility, with respect to the airport, of the noise compatibility program measures upon which Federal funds have been expended.

22. Economic Nondiscrimination.

a. It will make the airport available as an airport for public use on reasonable terms and without unjust discrimination to all types, kinds and classes of aeronautical activities, including commercial aeronautical activities offering services to the public at the airport.

b. In any agreement, contract, lease, or other arrangement under which a right or privilege at the airport is granted to any person, firm, or corporation to conduct or to engage in any aeronautical activity for furnishing services to the public at the airport, the sponsor will insert and enforce provisions requiring the contractor to- (1) furnish said services on a reasonable, and not unjustly discriminatory, basis to all users thereof, and (2) charge reasonable, and not unjustly discriminatory, prices for each

unit or service, provided that the contractor may be allowed to make reasonable and nondiscriminatory discounts, rebates, or other similar types of price reductions to volume purchasers.


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c. Each fixed-based operator at the airport shall be subject to the same rates, fees, rentals, and other charges as are uniformly applicable to all other fixed-based operators making the same or similar uses of such airport and utilizing the same or similar facilities.

d. Each air carrier using such airport shall have the right to service itself or to use any fixed-based operator that is authorized or permitted by the airport to serve any air carrier at such airport.

e. Each air carrier using such airport (whether as a tenant, non tenant, or subtenant of another air carrier tenant) shall be subject to such nondiscriminatory and substantially comparable rules, regulations, conditions, rates, fees, rentals, and other charges with respect to facilities directly and substantially related to providing air transportation as are applicable to all such air carriers which make similar use of such airport and utilize similar facilities, subject to reasonable classifications such as tenants or non tenants and signatory carriers and non signatory carriers. Classification or status as tenant or signatory shall not be unreasonably withheld by any airport provided an air carrier assumes obligations substantially similar to those already imposed on air carriers in such classification or status.

f. It will not exercise or grant any right or privilege which operates to prevent any person, firm, or corporation operating aircraft on the airport from performing any services on its own aircraft with its own employees [including, but not limited to maintenance, repair, and fueling] that it may choose to perform.

g. In the event the sponsor itself exercises any of the rights and privileges referred to in this assurance, the services involved will be provided on the same conditions as would apply to the furnishing of such services by commercial aeronautical service providers authorized by the sponsor under these provisions.

h. The sponsor may establish such reasonable, and not unjustly discriminatory, conditions to be met by all users of the airport as may be necessary for the safe and efficient operation of the airport.

i. The sponsor may prohibit or limit any given type, kind or class of aeronautical use of the airport if such action is necessary for the safe operation of the airport or necessary to serve the civil aviation needs of the public.

23. Exclusive Rights. It will permit no exclusive right for the use of the airport by any person providing, or intending to provide, aeronautical services to the public. For purposes of this paragraph, the providing of the services at an airport by a single fixed-based operator shall not be construed as an exclusive right if both of the following apply:

a. It would be unreasonably costly, burdensome, or impractical for more than one fixed-based operator to provide such services, and

b. If allowing more than one fixed-based operator to provide such services would require the reduction of space leased pursuant to an existing agreement between such single fixed-based operator and such airport.

It further agrees that it will not, either directly or indirectly, grant or permit any person, firm, or corporation, the exclusive right at the airport to conduct any aeronautical activities, including, but not limited to charter flights, pilot training, aircraft rental and sightseeing, aerial photography, crop dusting, aerial advertising and surveying, air carrier operations,


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aircraft sales and services, sale of aviation petroleum products whether or not conducted in conjunction with other aeronautical activity, repair and maintenance of aircraft, sale of aircraft parts, and any other activities which because of their direct relationship to the operation of aircraft can be regarded as an aeronautical activity, and that it will terminate any exclusive right to conduct an aeronautical activity now existing at such an airport before the grant of any assistance under Title 49, United States Code.

24. Fee and Rental Structure. It will maintain a fee and rental structure for the facilities and services at the airport which will make the airport as self-sustaining as possible under the circumstances existing at the particular airport, taking into account such factors as the volume of traffic and economy of collection. No part of the Federal share of an airport development, airport planning or noise compatibility project for which a grant is made under Title 49, United States Code, the Airport and Airway Improvement Act of 1982, the Federal Airport Act or the Airport and Airway Development Act of 1970 shall be included in the rate basis in establishing fees, rates, and charges for users of that airport.

25. Airport Revenues.

a. All revenues generated by the airport and any local taxes on aviation fuel established after December 30, 1987, will be expended by it for the capital or operating costs of the airport; the local airport system; or other local facilities which are owned or operated by the owner or operator of the airport and which are directly and substantially related to the actual air transportation of passengers or property; or for noise mitigation purposes on or off the airport. Provided, however, that if covenants or assurances in debt obligations issued before September 3, 1982, by the owner or operator of the airport, or provisions enacted before September 3, 1982, in governing statutes controlling the owner or operator's financing, provide for the use of the revenues from any of the airport owner or operator's facilities, including the airport, to support not only the airport but also the airport owner or operator's general debt obligations or other facilities, then this limitation on the use of all revenues generated by the airport (and, in the case of a public airport, local taxes on aviation fuel) shall not apply.

b. As part of the annual audit required under the Single Audit Act of 1984, the sponsor will direct that the audit will review, and the resulting audit report will provide an opinion concerning, the use of airport revenue and taxes in paragraph (a), and indicating whether funds paid or transferred to the owner or operator are paid or transferred in a manner consistent with Title 49, United States Code and any other applicable provision of law, including any regulation promulgated by the Secretary or Administrator.

c. Any civil penalties or other sanctions will be imposed for violation of this assurance in accordance with the provisions of Section 47107 of Title 49, United States Code.

26. Reports and Inspections. It will:

a. submit to the Secretary such annual or special financial and operations reports as the Secretary may reasonably request and make such reports available to the public; make available to the public at reasonable times and places a report of the airport budget in a format prescribed by the Secretary;

b. for airport development projects, make the airport and all airport records and documents affecting the airport, including deeds, leases, operation and use


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agreements, regulations and other instruments, available for inspection by any duly authorized agent of the Secretary upon reasonable request;

c. for noise compatibility program projects, make records and documents relating to the project and continued compliance with the terms, conditions, and assurances of the grant agreement including deeds, leases, agreements, regulations, and other instruments, available for inspection by any duly authorized agent of the Secretary upon reasonable request; and

d. in a format and time prescribed by the Secretary, provide to the Secretary and make available to the public following each of its fiscal years, an annual report listing in detail:

(i) all amounts paid by the airport to any other unit of government and the purposes for which each such payment was made; and

(ii) all services and property provided by the airport to other units of government and the amount of compensation received for provision of each such service and property.

27. Use by Government Aircraft. It will make available all of the facilities of the airport developed with Federal financial assistance and all those usable for landing and takeoff of aircraft to the United States for use by Government aircraft in common with other aircraft at all times without charge, except, if the use by Government aircraft is substantial, charge may be made for a reasonable share, proportional to such use, for the cost of operating and maintaining the facilities used. Unless otherwise determined by the Secretary, or otherwise agreed to by the sponsor and the using agency, substantial use of an airport by Government aircraft will be considered to exist when operations of such aircraft are in excess of those which, in the opinion of the Secretary, would unduly interfere with use of the landing areas by other authorized aircraft, or during any calendar month that-

a. Five (5) or more Government aircraft are regularly based at the airport or on land adjacent thereto; or

b. The total number of movements (counting each landing as a movement) of Government aircraft is 300 or more, or the gross accumulative weight of Government aircraft using the airport (the total movement of Government aircraft multiplied by gross weights of such aircraft) is in excess of five million pounds.

28. Land for Federal Facilities. It will furnish without cost to the Federal Government for use in connection with any air traffic control or air navigation activities, or weather-reporting and communication activities related to air traffic control, any areas of land or water, or estate therein, or rights in buildings of the sponsor as the Secretary considers necessary or desirable for construction, operation, and maintenance at Federal expense of space or facilities for such purposes. Such areas or any portion thereof will be made available as provided herein within four months after receipt of a written request from the Secretary.

29. Airport Layout Plan.

a. It will keep up to date at all times an airport layout plan of the airport showing (1) boundaries of the airport and all proposed additions thereto, together with the boundaries of all offsite areas owned or controlled by the sponsor for airport purposes and proposed additions thereto; (2) the location and nature of all existing and proposed airport facilities and structures (such as runways, taxiways, aprons, terminal buildings, hangars and roads), including all proposed extensions and reductions of existing airport facilities; and (3) the location of all existing and proposed nonaviation areas and of all existing improvements thereon. Such airport layout plans and each amendment, revision, or modification thereof, shall


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be subject to the approval of the Secretary which approval shall be evidenced by the signature of a duly authorized representative of the Secretary on the face of the airport layout plan. The sponsor will not make or permit any changes or alterations in the airport or any of its facilities which are not in conformity with the airport layout plan as approved by the Secretary and which might, in the opinion of the Secretary, adversely affect the safety, utility or efficiency of the airport.

b. If a change or alteration in the airport or the facilities is made which the Secretary determines adversely affects the safety, utility, or efficiency of any federally owned, leased, or funded property on or off the airport and which is not in conformity with the airport layout plan as approved by the Secretary, the owner or operator will, if requested, by the Secretary (1) eliminate such adverse effect in a manner approved by the Secretary; or (2) bear all costs of relocating such property (or replacement thereof) to a site acceptable to the Secretary and all costs of restoring such property (or replacement thereof) to the level of safety, utility, efficiency, and cost of operation existing before the unapproved change in the airport or its facilities.

30. Civil Rights. It will comply with such rules as are promulgated to assure that no person shall, on the grounds of race, creed, color, national origin, sex, age, or handicap be excluded from participating in any activity conducted with or benefiting from funds received from this grant. This assurance obligates the sponsor for the period during which Federal financial assistance is extended to the program, except where Federal financial assistance is to provide, or is in the form of personal property or real property or interest therein or structures or improvements thereon in which case the assurance obligates the sponsor or any transferee for the longer of the following periods: (a) the period during which the property is used for a purpose for which Federal financial assistance is extended, or for another purpose involving the provision of similar services or benefits, or (b) the period during which the sponsor retains ownership or possession of the property.

31. Disposal of Land.

a. For land purchased under a grant for airport noise compatibility purposes, it will dispose of the land, when the land is no longer needed for such purposes, at fair market value, at the earliest practicable time. That portion of the proceeds of such disposition which is proportionate to the United States' share of acquisition of such land will, at the discretion of the Secretary, (1) be paid to the Secretary for deposit in the Trust Fund, or (2) be reinvested in an approved noise compatibility project as prescribed by the Secretary, including the purchase of nonresidential buildings or property in the vicinity of residential buildings or property previously purchased by the airport as part of a noise compatibility program.

b. For land purchased under a grant for airport development purposes (other than noise compatibility), it will, when the land is no longer needed for airport purposes, dispose of such land at fair market value or make available to the Secretary an amount equal to the United States' proportionate share of the fair market value of the land. That portion of the proceeds of such disposition which is proportionate to the United States' share of the cost of acquisition of such land will, (1) upon application to the Secretary, be reinvested in another eligible airport improvement project or projects approved by the Secretary at that airport or within the national airport system, or (2) be paid to the Secretary for deposit in the Trust Fund if no eligible project exists.


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c. Land shall be considered to be needed for airport purposes under this assurance if (1) it may be needed for aeronautical purposes (including runway protection zones) or serve as noise buffer land, and (2) the revenue from interim uses of such land contributes to the financial self-sufficiency of the airport. Further, land purchased with a grant received by an airport operator or owner before December 31, 1987, will be considered to be needed for airport purposes if the Secretary or Federal agency making such grant before December 31, 1987, was notified by the operator or owner of the uses of such land, did not object to such use, and the land continues to be used for that purpose, such use having commenced no later than December 15, 1989.

d. Disposition of such land under (a) (b) or (c) will be subject to the retention or reservation of any interest or right therein necessary to ensure that such land will only be used for purposes which are compatible with noise levels associated with operation of the airport.

32. Engineering and Design Services. It will award each contract, or sub-contract for program management, construction management, planning studies, feasibility studies, architectural services, preliminary engineering, design, engineering, surveying, mapping or related services with respect to the project in the same manner as a contract for architectural and engineering services is negotiated under Title IX of the Federal Property and Administrative Services Act of 1949 or an equivalent qualifications-based requirement prescribed for or by the sponsor of the airport.

33. Foreign Market Restrictions. It will not allow funds provided under this grant to be used to fund any project which uses any product or service of a foreign country during the period in which such foreign country is listed by the United States Trade Representative as denying fair and equitable market opportunities for products and suppliers of the United States in procurement and construction.

34. Policies, Standards, and Specifications. It will carry out the project in accordance with policies, standards, and specifications approved by the Secretary including but not limited to the advisory circulars listed in the Current FAA Advisory Circulars for AIP projects, dated _____ and included in this grant, and in accordance with applicable state policies, standards, and specifications approved by the Secretary.

35. Relocation and Real Property Acquisition. (1) It will be guided in acquiring real property, to the greatest extent practicable under State law, by the land acquisition policies in Subpart B of 49 CFR Part 24 and will pay or reimburse property owners for necessary expenses as specified in Subpart B. (2) It will provide a relocation assistance program offering the services described in Subpart C and fair and reasonable relocation payments and assistance to displaced persons as required in Subpart D and E of 49 CFR Part 24. (3) It will make available within a reasonable period of time prior to displacement, comparable replacement dwellings to displaced persons in accordance with Subpart E of 49 CFR Part 24.

36. Access By Intercity Buses. The airport owner or operator will permit, to the maximum extent practicable, intercity buses or other modes of transportation to have access to the airport, however, it has no obligation to fund special facilities for intercity buses or for other modes of transportation.

37. Disadvantaged Business Enterprises. The recipient shall not discriminate on the basis of race, color, national origin or sex in the award and performance of any DOT-assisted contract or in the administration of its DBE program or the requirements of 49 CFR Part 26. The Recipient shall take all necessary and reasonable steps under 49 CFR Part 26 to ensure


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non discrimination in the award and administration of DOT-assisted contracts. The recipient’s DBE program, as required by 49 CFR Part 26, and as approved by DOT, is incorporated by reference in this agreement. Implementation of this program is a legal obligation and failure to carry out its terms shall be treated as a violation of this agreement. Upon notification to the recipient of its failure to carry out its approved program, the Department may impose sanctions as provided for under Part 26 and may, in appropriate cases, refer the matter for enforcement under 18 U.S.C. 1001 and/or the Program Fraud Civil Remedies Act of 1986 (31 U.S.C. 3801).

38. Hangar Construction. If the airport owner or operator and a person who owns an aircraft agree that a hangar is to be constructed at the airport for the aircraft at the aircraft owner’s expense, the airport owner or operator will grant to the aircraft owner for the hangar a long term lease that is subject to such terms and conditions on the hangar as the airport owner or operator may impose.

39. Competitive Access. a. If the airport owner or operator of a medium or large hub airport (as

defined in section 47102 of title 49, U.S.C.) has been unable to accommodate one or more requests by an air carrier for access to gates or other facilities at that airport in order to allow the air carrier to provide service to the airport or to expand service at the airport, the airport owner or operator shall transmit a report to the Secretary that- 1. Describes the requests; 2. Provides an explanation as to why the requests could not be

accommodated; and 3. Provides a time frame within which, if any, the airport will be able

to accommodate the requests.

b. Such report shall be due on either February 1 or August 1 of each year if the airport has been unable to accommodate the request(s) in the six month period prior to the applicable due date


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Policy Title: Reduction of Expense Policy Number: ODA-001-001 Version: 1.0 Effective Date: 01/01/2010 Overview Purpose/Rationale: Use of appropriate classification is essential throughout budgeting, accounting and reporting processes. Proper recognition of revenues and expenditures is especially important to prevent distorting the true cost of services and to reasonably estimate the resources required to provide those services. The purpose of this policy is to ensure reduction of expense is used properly and is appropriately recorded. The legislatively approved budget is intended to be the maximum amount of appropriation and limitation authority needed to meet all biennial program requirements. Reduction of expense should be used only when doing so will not distort true program costs and budgetary need. Applicability: All ODA employees shall adhere to this policy. Failure to Comply: Using reduction of expense inappropriately may impede the agency’s ability to properly-

Estimate program revenues and/or expenditures; Allocate resources to achieve desired outcomes; Measure program/project outcomes and progress toward desired outcomes; Provide accountability at all levels for meeting program/project outcomes; Provide a credible, complete revenue and expenditure plan for ODA to reflect

approved legislative policy and programs/projects.

Failure to comply with any provision in this policy may result in disciplinary action up to and including dismissal. Policy This policy establishes uniform accounting standards for reduction of expense and provides consistent interpretation and application in conformance with generally accepted accounting principles (GAAP) and the Oregon Accounting Manual (OAM). 1. Authority

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ODA management and employees shall conform to this policy to ensure that proper planning, control and reporting of program financial activities are in compliance with GAAP and the legislatively approved budget. 2. Appropriate Use of Reduction of Expense Reduction of expense must never exceed the actual expenditure and must occur within the same budgetary period. If the reduction is not recorded in the same budgetary period, it is recorded as revenue. Reduction of expense may be used when:

An expenditure attributable to one fund is initially made from another fund; e.g., expenditure initially charged to the Federal Fund appropriation which should be charged to the Other Fund limitation in error.

Recording a repayment of an overpayment. Reimbursement from another state agency when it records an expenditure; e.g.,

job rotation. Recording reimbursements for specific costs associated with special events,

including conferences and training. Admissions or registration fees are recognized as revenue.

Insurance recoveries for state-owned equipment and property; e.g., recoveries for capital asset damage or impairments. Recovery for third party liability (client’s private insurance or other) generally should be recorded as revenue.

3. Inappropriate Use of Reduction of Expense The Governmental Accounting and Financial Reporting Standards provide that financial reporting should demonstrate whether resources were obtained and used in accordance with the agency’s legislatively adopted budget; it also should demonstrate compliance with other finance-related legal or contractual requirements. Once legal responsibility is established and collectability is assured or loss can be reasonably estimated, then monies received generally are recorded as revenue, not as a reduction of expense. Examples of external sources recorded as revenue are:

Fines, fees, licenses or permits; Donations, sale or trade-in of equipment; Receipts for third party liability (generally relating to health insurance and

medicare.) Interest and penalties; Final settlements and some interfund transactions.

Reference(s) Oregon Revised Statute 411.220 Governmental Accounting and Financial Reporting Standards

Governmental Accounting Standards Board (GASB), Statement No. 11 Oregon Accounting Manual, 20.10.00 and 20.40.00 Contact(s) Name: (Cindy Pease); Phone: (503-378-4881); Email: ([email protected])

mailto:[email protected]

LEGISLATIVE FISCAL OFFICE

900 COURT ST. NE, RM. H-178 SALEM, OR 97301

(503) 986-1828 FAX (503) 373-7807

JOINT COMMITTEE ON WAYS AND MEANS

SEN. MARGARET CARTER, CO-CHAIR

REP. PETER BUCKLEY, CO-CHAIR

SEN. BETSY JOHNSON, VICE-CHAIR REP. NANCY NATHANSON, VICE-CHAIR

To: Agency Heads and Agency Budget Managers From: Ken Rocco, Legislative Fiscal Office Date: January 16, 2009 Subject: Federal Grant Applications and Agency Reports The following is the process that will be used to deal with agency grant requests and other Emergency Board type issues (reports) during the 2009 regular legislative session.

• Submit an official agency request letter to the Budget and Management Division of the Department of Administrative Services (as is done during the interim for Emergency Board requests; 40 copies, three-hole punched; an advance draft copy can also be provided to the Legislative Fiscal Office at this time).

• The letter should be addressed to the Co-Chairs of the Joint Committee on Ways and Means, Senator Margaret Carter and Representative Peter Buckley.

• The Department of Administrative Services will review and forward approved requests to the Legislative Fiscal Office.

• Once an official agency request letter is received from the Department of Administrative Services, LFO staff will prepare a brief analysis and recommendation for the co-chairs of the Joint Committee on Ways and Means.

• The co-chairs will review the recommendation and request and, if approved, will authorize the appropriate subcommittee to schedule the item.

• LFO staff will work with the subcommittee chair to schedule a hearing and work session on the item.

• The request will be handled in subcommittee with a presentation of the item by the agency, followed by analyses and recommendations by the Budget and Management Division analyst and the LFO analyst (the same process used during the interim for Emergency Board action).

• The subcommittee will make a recommendation to the Full Committee. • The item will appear on the next possible Full Committee agenda with the

subcommittee’s recommendation. • If the item is a grant request, it only needs the Full Committee’s approval and it can

be submitted to the federal agency (with the timing exception discussed below). • If the item is a report, it is acknowledged by the Full Committee.

Agencies will be expected to submit federal grant request letters to the co-chairs with adequate time to meet federal grant submittal deadlines (i.e., there is no excuse for

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retroactive approval requests since the Legislature is in session). However, since Full Committee meetings are held sporadically at various points during the session, subcommittee approval to submit the grant will be considered sufficient for grant submittal in cases where the deadline occurs before the next scheduled Full Committee meeting. In such cases, the request to submit a federal grant will not be considered retroactive if the subcommittee process has been completed in a timely fashion. If the Full Committee subsequently decides to not approve the grant application request, the agency will be instructed to withdraw the application. Since the Legislature is in session, there should be no retroactive grant application approval requests submitted. Agencies will need to provide sufficient advance notice to the Joint Committee on Ways and Means to allow this process to work.

AVIATION INSURANCE MARKET SUMMARY 2-10 Cece M. Newell, CIC, APIR, Oregon Insurance Division Market Regulation Property Casualty Technician 503-947-7203 e-mail: [email protected] INSURANCE DIVISION RESEARCH The Oregon Insurance Division was asked to seek input from the insurance industry to assist the Board of Aviation. Our goal was to provide information regarding the availability and affordability of insurance that would potentially meet the new schedule of required liability insurance limits under the Oregon Tort Claims Act (OTCA). The research was limited to the exposure for premises liability for Commercial and Non-Commercial leases. This work did not address the availability and affordability of automobile liability insurance or aircraft liability. Our work was focused on tenants with hanger leases, not on business operations such as fixed base operators or other business ventures related to airport operations. We made contact with numerous insurers and brokers active in the aviation market. Industry representatives were helpful and offered their observations and willingness to work toward solutions if the requirements are increased. Premium information provided in this report is limited to estimates based on current rates THE AVIATION INSURANCE MARKET Aviation insurance, like all insurance, is subject to market volatility. Today, the market is stable and there are an ample number of strong, active carriers. Major events and losses can change that picture rapidly. The current snowstorm in the East has already caused one loss that is estimated at over $500,000,000 in physical damage coverage to business and pleasure use aircraft. The current weather could be a turning point in market availability and affordability. In 2002 when the Oregon Department of Aviation addressed insurance and bonding markets the marketplace was extremely limited and the $1,000,000 required limit was difficult to obtain. A turn around in the present market could potentially result in more limited availability of premises liability insurance coverage. The information provided here is based on the availability of premises liability coverage in the current stable market and is subject to change. We were asked to provide information on increasing premises liability to $1,000,000 for non-commercial leases and $3,500,000 for commercial leases. In addition, we provided the full scope of the OTCA changes to insurers in order to have a prognosis of how the picture might change if the full scope of the new tort liability incremental increases were required.

mailto:[email protected]

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The current requirements for insurance are being met in several ways. Each of these will create a different path to possible solutions for a higher premises liability insurance limit. PREMISES LIABILITY COVERAGE SOURCES NON-COMMERCIAL LEASES Liability insurance coverage written on a separate policy Industry representatives advised us that the aviation market is not as volatile for non-commercial exposures as it is for commercial tenants. If non-commercial lease requirements stay at $1,000,000, solutions should be available in the current market. Whether they are “affordable” will be a judgment call made by individual tenants. A standard liability policy for non-commercial hanger lease exposure is estimated at minimum premiums anywhere from $500 to $2,500. Limits of $1,000,000 or $2,000,000 are obtainable, but higher limits may be difficult to procure. Liability extended from the tenant’s Homeowner’s liability policy: Currently some leases are being supported by certificates of insurance reflecting an extension of coverage from the individual’s homeowner’s policy. We were unable to confirm that any carrier is knowingly extending coverage to an airplane hanger on the homeowner policy. Additional research may need to be done. Standard homeowner policy language excludes liability for aircraft, and the rates are not generally structured to extend coverage to locations other than owned residential property off the residence’s premise. The extension of coverage would have to be done as an exception. One exception may be dwellings built in “airpark” developments where the dwelling is adjacent to the airport property. An increase in the required limit to $1,000,000 would likely terminate any of these arrangements. Most homeowner policy rate plans offer base liability up to $500,000. In order to increase that amount the homeowner would purchase an umbrella policy. Most, if not all, insurance companies would be unwilling to extend coverage from a personal umbrella to the liability exposure of an airport hangar lease. These tenants would have to obtain coverage from another resource and the pricing would vary. Liability extended from an owned aircraft policy: A policy written for liability on an aircraft provides liability coverage for the premises occupied by the aircraft. Most policy forms include this coverage and will provide a certificate for the Department of Aviation as part of the basic premium. Technically, the extension of liability is limited to the area occupied by the aircraft, whether in the home hangar or at a distant airport. This is premises coverage only. It does not generally provide coverage as outlined in the sample lease agreement for “premises and operations of the lessee, including operation of mobile equipment.” Premium for aircraft liability is based on a myriad of factors, including aircraft types, number of seats, number and type of engines and pilot experience and history. Policy limits for loss are

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written for the aircraft liability to others, which would include the premises coverage. A separate limit, which is usually lower, applies for injury to passengers. In the current market a policy for liability at $1,000,000 for non-commercial, personal and business use aircraft is readily available. Limits up to $5,000,000 can be obtained from some insurers. One insurer provided me with this example based on today’s rates: For the best risk that qualifies and meets all of the underwriting requirements, using an example of a very basic 4 seat single engine plane, aircraft liability coverage would start at about $700 for a $1,000,000 limit. If you increase that limit to $2,000,000, expect the premium for the same risk to be $1,200-$1,300. For a $4,000,000 limit the premium would be $2,500. National Hangar Owners Association, Inc. The National Hangar Owners Association is a group coverage that provides liability up to $1,000,000 for non-commercial leases for as little as $135 annually. This program is selective, and currently has 43 policy holders in Oregon. As long as non-commercial lease requirements stay at $1,000,000 or below these tenants can remain in the program. If the required limit is increased, the tenants will have to buy separate policies. The broker estimated the individual policies at not less than $1,200 for $2,000,000. Limits higher than $2,000,000 may not be available. COMMERCIAL LEASES Premises liability coverage for commercial leases is available as insurance coverage written on a separate policy and liability extended from an owned aircraft policy. The basic outline does not vary from the premises liability coverage written on a separate policy and the premises liability extended from an owned aircraft policy that are discussed for non-commercial leases. However, when you move to the consideration of commercial leases, pricing is based on more than just a lease of premises, but in some cases also on the activities of the commercial operation. Industry representatives were concerned that the impact on small commercial operators would be significant, as many are buying only the required $1,000,000 limit. If a $3,500,000 is required the availability of the limit may be more of a factor than the pricing. If the tenant has business ventures that are completely unrelated to aviation and the lease is simply to house his aircraft, the premises liability could possibly be extended from a business liability policy in today’s market. One company indicated that for that basic exposure each additional $1,000,000 would be about $1300. Based on that, increasing the total limit from $1,000,000 to $3,500,000 would be about $3,300 additional premium. Several sources stated that $3,500,000 limits may not be available. The higher limit would be exceptionally difficult to obtain for commercial operations such as fixed base operators and repair facilities. If limits are offered, the rate could easily be 100-200% more for the higher limit when products and airport operations are involved.


Liability extended from the aircraft policy would have the same limitations as those extended from the policy on a non-commercial lease. There was a general concern that, with a requirement of $3,500,000, the higher limit on an aircraft policy might not be available. This would put the tenant in a position where they would need to obtain a separate premises liability policy and incur that additional cost. AVIATION MARKET ASSISTANCE The industry representatives that assisted us with information were helpful and almost without exception offered to take a closer look if a new requirement is set. The work of assessing the risk, reviewing actuarial resources and establishing rates to support the new requirement will take time. Once the industry develops the rates and related forms, the rates and forms must be filed with the Oregon Insurance Division. Rates must be reviewed but can be put to use when filed. Forms must be reviewed and approved which can take up to 60 days. If a change in requirements is established, it may be difficult for insurers to have new plans ready to go for a July 1 effective date.
