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RichardK.Simon,Esq.1700DeckerSchoolLaneMalibu,CA90265(310)503‐7286rsimon3@verizon.net

February5,2016

OfficeoftheChiefCounselAttention:FAAPart16AirportProceedingsDocketAGC‐610FederalAviationAdministration800IndependenceAve.S.W.WashingtonD.C.20591

Re: Part16Complaint

MarkSmith,KimDavidsonAviation,Inc.,Bill’sAirCenter,Inc., Justice Aviation, Inc., National Business AviationAssociation, Inc., and Aircraft Owners and PilotsAssociation,Inc.v.CityofSantaMonica,California

DearSirorMadam:

Pursuant to 14 C.F.R. § 16.23, Mark Smith, Kim Davidson Aviation, Inc., Bill’s AirCenter,Inc.,JusticeAviation,Inc.,NationalBusinessAviationAssociation,Inc.,andAircraftOwners and Pilots Association, Inc. (collectively “Complainants”) bring this complaintagainsttheCityofSantaMonica,California(the“City”),which istheowner,operatorandsponsorofSantaMonicaMunicipalAirport(“SMO”orthe“Airport”).

ThiscomplaintisbasedontheCity’scontinuingfailureandrefusaltoadheretoitsfederalstatutoryobligations,itsGrantAssurancesanda1948InstrumentofTransfer,andonthespecificactionsandconductallegedhereafter.

Summary

Asamatterofwell‐establishedpublicrecord,theCityhasformanyyearssoughttoclosetheAirportandtoconvertthelanditoccupiestonon‐aeronauticaluses.Unablesofarto achieve this goal directly, the City has adopted a program of financially “squeezing”AirporttenantsanduserswiththeexpectationthatthegrowingexpenseofoperatingattheAirport, combinedwith burdensome operational and leasing restrictions,will eventually

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renderitunattractivetoexistingandprospectiveusers,andprovideanexcuseforaviciouscircle of further restrictions and ultimately closure. The City has done this in part bydivertingmillionsofdollarsofAirport revenue to theCity’sgeneral fund,while chargingAirporttenantsandusersexcessivefeesandrentstocompensatefortheresultingartificialAirportdeficits.

Simply put, the City has created a financial structure which imposes enormous,ongoing,unsustainable–andclearlyimpermissible–financialburdensanddeficitsontheAirport,whichhistoricallyhasoperatedonabreakevenornearbreakevenbasis,andbutfortheCity’sactionswouldcontinuetodosotoday.

Inparticular:

The City has diverted Airport revenues by charging the Airport principal and/orinterestonpurportedloansfromtheCitytotheAirportwithoutvalid–orinsomeinstancesany–documentation;

TheCityhasdivertedAirportrevenuesbycharging interestonpurported loansatrates exceeding those allowable under Federal Aviation Administration (“FAA”)policy;

TheCityhasdivertedAirportrevenuesbychargingtheAirportforpurportedloansmademorethan6yearspriortoclaimedloandocumentation;

TheCityhas imposedexcessiveandunreasonable landing feesonbothbasedandtransient aircraft, calculated on the basis of an improper methodology,impermissibleexpensechargesandotherunallowableorinadequatelydocumentedcosts;

TheCity’s landing feeswereadoptedwithoutreasonablenoticetoAirport tenantsandusersoranopportunityforinformedcomment;

The landing fees imposedby theCityhaveresulted,andwillcontinue toresult, intheaccumulationofimpermissiblerevenuesurpluses;

The landing fees also are facially unreasonable, and for some tenants have thepractical effect of double‐charging them for services already paid for by othermeans;

The City has allowed, and continues to allow, Santa Monica College, a non‐aeronauticalAirport tenant, topaysubstantially less than fairmarketrent for theuseofaeronauticalproperty;

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The City has established – at most – short‐term leases of less than three years’durationforcommercialaeronauticaltenants,withoutanycognizablejustification;

TheCityhasdeniednewleasesandimposedmonth‐to‐monthleasetermsoncertaincommercialaeronauticalAirporttenants,alsowithoutanycognizablejustification;and

The City has unreasonably delayed all aeronautical lease policies, proposals,negotiations, documentation and approvals, leaving the Airport’s aeronauticalbusinesseswithoutanyleasessinceJuly2015.

All communications with respect to this complaint should be addressed to Richard K.Simon, 1700 Decker School Lane, Malibu, CA 90265; (310) 503‐7286;rsimon3@verizon.net.

Complainants

1. Mark Smith is a pilot andowner of aMooney231 aircraft based in a City‐leased hangar. He has been an Airport tenant since 1997 and flies frequently, payinglandingfeesasrequiredbytheCity.

2. Kim Davidson Aviation, Inc. (“Kim Davidson Aviation”), a Californiacorporation, is an FAA certified Repair Station and a factory authorized Cirrus AircraftservicecenterlocatedonthesouthsideoftheAirportintheso‐called“westernparcel.”1IthasbeenanAirporttenantsince1982,employingastaffofeleven,andisasub‐tenantofKruegerAviation,amulti‐year lesseewhichhasbeenofferednonewleasesinceJune30,2015.Accordingly,KimDavidsonAviationremainsonamonth‐to‐monthholdovertenancy.

3. Bill’s Air Center, Inc. (“Bill’s Air Center”) is a California corporation,whichhasoperatedanaircraft inspectionandrepair facilityonthesouthsideof theAirport, intheso‐called“mainparcel,”since1989.ItisatenantoftheCity.UntilMarch2014,ithadamulti‐year lease; since then, the City has refused to offer any new lease terms, and itremainsonmonth‐to‐monthholdover.

4. Justice Aviation, Inc. (“Justice Aviation”), a California corporation, is a fullserviceflightschoolandaircraftrentalfacilitylocatedonthesouthsideofSMO,alsointheso‐called “western parcel.” An Airport tenant for 23 years, Justice Aviation currently1Asmoreparticularlyallegedin¶144(f),infra,the“westernparcel”isadesignationadoptedbytheCitytodescribeaportionofthepropertyunderlyingtheAirport’sairfieldwhichwas,inpart,thesubjectofa1949deed between the federal government and the City. The balance of the Airport property is, in the City’sparlance,the“mainparcel.”

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employs eight flight instructors andmaintains between nine and eleven instruction andrentalaircraft.JusticeAviation’smulti‐yearleaseendedonJune30,2015andtheCityhasrefusedtoprovideanynewleaseterms;accordingly,JusticeAviationremainsamonth‐to‐monthholdovertenant.AtthetimeofthisComplaint,theCityhasrefusedtoacceptarentcheck fromJusticeAviation,statingthat theCity intendstoevict JusticeAviation,buthasexplicitlyrefusedtoprovideareasonforitsaction;onlythatasowneroftheAirport,itcandoso.

5. The National Business Aviation Association, Inc. (“NBAA”) is a District ofColumbia corporation that is the leading voice for companies that operate aircraft insupportof theirbusinessor areotherwise involved inbusiness aviation.NBAA regularlyactsasaspokespersonforbusinessaviationbeforetheU.S.governmentandincourtcasesand administrative proceedings, including prior disputes regarding the City.NBAA’smembershipincludesmorethan10,000companiesthatoperateaircraftinconnectionwiththeirbusinessorareotherwiseinvolvedinbusinessaviation,andthuscanordomakeuseofSMO,includingbutnotlimitedtoComplainantKimDavidsonAviation.NBAAactsasitsrepresentative in this proceeding, consistent with FAA precedent.See, e.g., BombardierAerospaceCorp.v.CityofSantaMonica,DocketNo.16‐03‐11,Director’sDetermination,at1n.1and22(January3,2005).

6. TheAircraftOwnersandPilotsAssociation,Inc.(“AOPA”)isanindependent,not‐for‐profit education and advocacy association incorporated in New Jersey andheadquartered in Frederick,Maryland. AOPA is theworld’s largest aviationmembershipassociation,representingapproximately370,000pilotswhoflyforpersonalandbusinessreasons.Morethan6,000ofitsmembersarewithina25‐mileradiusoftheCity,andmanyof those members base their aircraft at the Airport, including, but not limited to,Complainant Mark Smith. AOPA acts as his representative in this proceeding consistentwithFAAprecedent.See,e.g.,id.

SubjectoftheComplaint

7. TheAirportisapublic‐userelieverfacility,ownedandoperatedbytheCity,atwhichapproximately300generalaviationaircraftarebasedandapproximately85,000operationsareconductedeachyear.

8. TheCityisarecipientofAirportImprovementProgram(“AIP”)grantfundsby and through the Federal Aviation Administration (“FAA”), including $9.7million that

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wasdisbursed through2003,andremainsobligatedunder the termsandcovenants thathaveaccompaniedthosegrants(the“GrantAssurances”).2

9. TheCityisalsoapartytoanInstrumentofTransfer(“IOT”),datedAugust10,1948, by which SMO was transferred to the City by the United States War AssetsAdministration,andisobligatedunderthetermsandcovenantsofthatIOT.

10. The names and addresses of the responsible persons at the City are: RickCole,CityManager,1685MainStreet,Room209, SantaMonica,CA90401;Marsha JonesMoutrie,Esq.,CityAttorney,1685MainStreet,Room310,SantaMonica,CA90401;MartinPastucha,DirectorofPublicWorks,1685MainStreet,Room116,SantaMonica,CA90401;Nelson Hernandez, Senior Advisor to the City Manager on Airport Affairs, AirportAdministrationBuilding,3223DonaldDouglasLoopSouth,SantaMonica,CA90405;andSteliosMakrides,AirportManager,AirportAdministrationBuilding,3223DonaldDouglasLoopSouth,SantaMonica,CA90405.

Background

11. The following isa summaryof thecircumstances leadingup to the currentactionsof theCity,whichare thesubjectof thisComplaint.TheCity’sconsistentconductandexpressed intentionsoverthepastseveraldecades, reaffirmed inrecentmonths,areparticularly relevant to consideration of the City’s ongoing violations of its federalobligations, to the likelihood of future compliance and to the specific relief sought byComplainants.

TheCity’sContinuingRejectionofitsFederalObligations

12. TheCityanditselectedofficialsareoftheview,andhaverepeatedlystatedas amatterofpolicy: that theCity is a specialplacewhich is entitled tobe free fromall“adverse” impacts of airport ownership; that those impacts are uniquely burdensome totheCity,andareunlikethoseaffectingotherairportsandairportenvirons;thattheCity,astheowneroftheAirport,isentitledtoexerciseunbridledcontroloverthenatureanduseofthatfacilityanditsunderlyingproperty;thattheCity’sfederalcontractualobligationshavebeen exhausted or are otherwisenot binding upon it; that the FAAmust treat SMO in amanner different from other urban airports; and that the FAA has been derelict and/orobstructiveinthatregard.

2OnDecember4,2015,theFAAissuedaDirector’sDeterminationinDocketNo.16‐14‐04whichconfirmeditspriorguidancethatthemajorityoftheassurancesareeffectiveatSMOthrough2023.Buttheprohibitiononrevenuediversion–which isat thecoreof thiscomplaint– iseffectiveso longasSMOisoperatedasapublicuseairport.SeeFAAOrder5190.6B,§4.3.

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13. ThesecontentionshavebeenadoptedasCitypolicy,andwerereiteratedbythenCityMayorKevinMcKeownatameetingwithrepresentativesoftheFAAandothersonJuly8,2015:

Aircraft operations from Santa Monica, located amidst dense residentialneighborhoods, rain not only pollution but unacceptable levels of noise onmany thousandsofhouseholds.[3]Suchnoise is far from justanannoyance.Medical evidence shows that intermittent loud noise at this level andintensityisatriggerforsignificantstress,makingitarealhealththreat.

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Withtheexpirationofthe1984Agreement,SantaMonicanowdemandsthatyou stop evading responsibility for the airport. All complaints and evenlawsuitshavebeendirectedatSantaMonica,butitisyou,theFAA,whohavekeptusfromrespondingtolegitimateconcerns.

WeelectedofficialsinSantaMonica,andourstaff,havepatientlyattemptedtoworkwithyouragency formanyyears.At every turn, youhaveblockedour attempts to guarantee our residents and our neighbors what theydeserve: safety, clean air, good health, and protection from an outmoded,unsafefacilitythatdegradestheirqualityoflife.

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Yes,wedoownandoperate theairport.And I’mhere to letyouknowthatSantaMonica,freedofthe1984Agreement, ispreparedtoactontherightswehaveasownersofthelandandoperatoroftheairport.

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As Mayor, with the concurrence of our City Council, based on our voters’approvalof localcontrolunderoverwhelminglypassedballotmeasureLC,Iamfullypreparedtoproceedwithournewconceptplanfortheairportland.You shouldeitherhelpuswith thisprocess,or forthrightly tellus thatyouwon’t.Ourcity,ourresidents,andourneighborsposeonesimplequestion:Whosesideareyouon?

3ActualnoisefromSMOisnegligible.AsreportedontheCity’sAirportwebsite, forthemostrecentannualnoise analysis, the 60 dB CNEL contour is almost entirely on Airport property, and noise recorded at sixremotemonitoringsiteswasbarely,ifatall,abovethecommunityambient.

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We will fight to protect our residents. The FAA, so far, fights to protectcorporateaviation interests.Wehavenochoicebut tocontinuefighting forourlandandourresidents.Wewillnotbedenied.Wewillnotstop.Andwetrulybelieve that ultimately,wewill prevail.Wehave come to youhere inWashingtontomakeourcase,butwewillleavetomakeanewfuture,forourlandandourcommunity.

Ex.1.

14. Mayor McKeown reiterated the City’s intent to “take back” and close theAirportinanAugust24,2015pressrelease,asreportedinthepress:

“Thisunexplainedfurtherdelay[inissuingaDirector’sDeterminationinFAADocket No. 16‐04‐04] has no apparent excuse, and just underscores thedifficultywe have had in getting the FAA toworkwith us in good faith todeterminewhen SantaMonica can take back legitimate control of landweunarguably own,” said Mayor Kevin McKeown in a statement. “The CityCouncil is fullyawareofandtotallyhonorsthedirectiongivenusbyvoterslastyearwithMeasureLC.Wewillseeklegaladviceand,whentheCouncilasa whole can meet on this matter, determine if and how this changes ourcommittedcourseofactiontowardcontrolandpotentialclosure.”

Ex.2(emphasissupplied).

15. Mostrecently,onDecember4,2015,theCitynotifiedAirportFBOsthattheywould be required to immediately evaluate and possibly remediate fueling facilities inpreparationforAirportclosure.AsfurtherdescribedbytheMayor:

Wehavebeguntheprocessofcleaningupthedamagetoourlandwhileithasbeen in airport use, toprepare it for communityuse, such asparks, publicopenspaces,publicrecreationalfacilities,culture,artsandeducationuses.

Ex.3.

16. This“process”includesCityCouncilexaminationofrestrictionsonfuelsalesand“implementingsecuritymeasurestomakeairporttravellessconvenientandreducingthehoursofoperationoftheFBOswhichserviceaircraft.Thesearestepsthatshouldfall

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under the purview of our proprietor’s powers while we pursue the end game of localcontrolinthecourts.”Ex.4.4

17. TheMayor’sdepictionofCityvictimizationandspecialentitlement,aswellasthe City’s intent to close SMO, are not new. They have in fact been the foundation fordecadesofCityactionsanddecisions,allofwhichhavebeen,andremain,inconsistentwiththeCity’sresponsibilitiesandlegalobligationsasanairportsponsorandoperator.

18. TheCity’sposition isnot theproduct of ignorance; theCityhashad ampleopportunityoverthedecadestoinformitself–andinfacthasbeeninformedbythecourts,theFAAanditsowncounsel–astoitsrightsandobligationsasanairportsponsor.Norisitmere political rhetoric. The City’s contention that its ownership of SMO gives itentitlementsandprivilegesnotaffordedotherairportsponsors– includingtheunilateralrighttoclosetheAirport–underliesitspastandongoingeffortstoachievethatlong‐termend,andintheshorttermtorestrictAirportoperations.Italsounderliestheactionswhichare the subject of this complaint. As the Mayor hasmade abundantly clear, neither theCity’spositionnoritsbehaviorwillchangegoingforwardwithoutmeaningfulinterventionbytheFAA.

PastCityActions

19. From at least the 1960s, and continuing through the present, the City hasunwaveringlysought tocloseSMO,andhascandidlyacknowledged that closurewasandremains its primary objective. This objective was formalized by the Santa Monica CityCouncil’s(the“CityCouncil”)adoptionin1981ofResolutionNo.6296,whichprovided,inpertinentpart:

It is thepolicyof theCityofSantaMonicatoeffect theclosureof theSantaMonicaMunicipalAirportassoonaspossibleandtodevotethepropertyonwhichitislocatedtoitshighestandbestuse,consistentwiththeneedsoftheCityforacontinuousbaseofrevenue,forprovisionofaffordablehousing,forparks and open space, and for an environment consistent with the City’sgenerallyresidentialcharacter.

Ex.6.

20. In1962, theCityCouncil requested anopinion from theSantaMonicaCityAttorneyastowhethertheCitycouldunilaterally“abandontheuseof[SMO]asanairport.”TheCityAttorneyopinedthatitcouldnot.Ex.7.

4ThespecificCityCouncildirectivestostaffaresummarizedinExhibit5,pp.16‐18.

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21. In1975,theCityposedthesamequestiontotheCaliforniaAttorneyGeneral,whoalsoopined that theCity’s federalobligationsprecludedsuchanaction.58Ops.Cal.Atty.Gen.345(May30,1975).

22. PreventedfromclosingtheAirportbyfederalobligationsandregulations,asenforced by the FAA and the courts, the City turned instead to measures to restrictoperationsofjetaircraft,flightschoolsandotherairportbusinessesandusers.

23. In 1977‐1978, the City adopted a series of ordinances designed to limitoperations at the Airport, including onewhich simply banned all jet aircraft operations.ThatordinancewasstrickenasunconstitutionalbyafederalDistrictCourtinSantaMonicaAirportAssociationv.CityofSantaMonica,481F.Supp.927(C.D.Cal.1979),aff’d659F.2d100(9thCir.1981).

24. InMarch1982,theCitybegantoimplementResolutionNo.6296byissuingNotices of Termination of leases to Airport tenants, including Fixed Base Operators(“FBOs”). Several tenants filed lawsuits, and the City Council was eventually forced torescindtheterminations.See,e.g.,Ex.8.TheCityneverthelessremainedadamantthat itsgoalwasclosure.Asstatedbythen‐CityAttorneyRobertMyers:

They[theCityCouncil]wouldliketoclosetheairportattheearliestpossibletime.Theearliestpossibletimemaybe2015anditmaybeearlierthan2015.

Id.

25. In 1984, as a result of the tenant lawsuits, and following extensivenegotiations, the City and the FAA entered into an agreement (the “1984 Agreement”)which,interalia,obligatedtheCitytomaintaintheAirportthroughJuly1,2015.Ex.9.

26. AsalludedtointhecommentsofMayorMcKeown,supra,theCityhastakenthepositionthatit isnotobligatedtomaintaintheAirportoncethe1984Agreementhasexpired.ThispositionwasstatedformallyintheCity’sportionoftheJointRule26Reportof Early Meeting of Counsel filed on January 16, 2014 in CityofSantaMonicav.UnitedStatesofAmerica,etal.(C.D.Cal.No.13‐8046):

A 1984 Settlement Agreementwith the Federal Government confirms thattheCity’sobligationtooperatetheAirportPropertyasanairportwillendinJulyof2015.5

5ThiscontentionwasfirmlyrejectedbyJudgeWalter inhisFebruary13,2014OrderGrantingDefendants’MotiontoDismiss(at13).Seealsofootnote2.

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27. Under the 1984 Agreement, principal aeronautical facilities were to berelocatedandconsolidatedonthenorthsideoftheAirport.By1990,twofull‐serviceFBOshadbeendevelopedandopenednorthoftherunwaysofferingramps,hangars,serviceandfuelforbothjetandpistonaircraft.

Post‐1984Actions

28. Following the opening of the north‐side FBOs in 1990, in disregard of theintentofboththe1984AgreementandtheIOTthattheCityoperatetheAirportfortheuseandbenefitof thepublic inanon‐discriminatorymanner, theCitybeganto takesteps tolimittheactualutilizationofthoseFBOsandtorestrictAirportoperationsgenerally,withparticularemphasisonlimitingjetactivity.

29. Asanexample,inthefallof1994,KruegerAviation(“Krueger”),anexistingAirporttenant,begannegotiationswiththeCitytotakeoveritsneighboringFBO,CaliforniaAviation,whichhadgoneoutofbusiness.CaliforniaAviationhadprovidedbothJetAandavgas fuel. After severalmonths of negotiations, the City tenderedKrueger a draft leasethatrestrictedfuelsalestoavgas,precludingsalestoeitherjetorturbopropaircraft.Cityrepresentatives explained to Krueger that the Airport’s neighbors were upset over jetnoise,ajustificationconfirmedbyKruegerdecliningtoacceptthisrestriction,whichmadethe proposed lease uneconomic for it. The facilitywas instead acquired and is currentlyoperatedbyAmericanFlyers,whichacceptedtheCity’sfuelingrestriction,despiteitsnon‐compliance,anddispensesonlyavgas.

30. TheSantaMonicaAirportCommission(“Commission”)wasestablishedasanadvisory board for the City Council. Beginning in the early 1990s, the City Council: a)selectedonlyanti‐Airportadvocatestositonthefive‐personboardoftheCommission,b)directed the Commission to review all Airport Commercial Operating Permits (“COPs”),whichwererequiredofallAirportbusinesses,andtorecommendacceptanceorrejectionthereof to the City Council and c) rubber‐stamped all such recommendations, therebyeffectively empowering the Commission with decision‐making authority over Airportbusinessesandoperations.

31. TheCOPprocesshassincebeenrepeatedlyutilizedbytheCommissionandthe City to restrict the types of business and operations allowed at the Airport, and inparticulartobarorlimitjetoperations.

32. As intended, theCity’sCOPdecisionshavediscouragedprospectiveAirporttenants,includingthoseoperatingjetaircraft,fromlocatingattheAirport.

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33. InJuly2002,theCommissionrecommendedtotheCityCouncilthatitadoptanordinanceprohibitingCategoryCandD(jet)aircraftfromoperatingattheAirport(the“C/Dban”).IntheMatterofCompliancewithFederalObligationsbytheCityofSantaMonica,California,FAADocket16‐02‐08,Director’sDetermination,at4(May27,2008).

34. In October 2002, the FAA issued a Notice of Investigation regarding theproposedC/Dban,andextendednegotiationsbetweentheFAAandtheCityensued.Id.at5.

35. InJune2003,whilediscussionswiththeFAAwereongoing,theCityCounciladoptedanordinanceimposinga landingfeeonlyonaircraftweighing10,000poundsormore.TheOrdinancewaschallengedinaPart16Complaint(BombardierAerospaceCorp.v.CityofSantaMonica, FAADocketNo.16‐03‐11), and inaDirector’sDetermination,datedJanuary3,2005,wasfoundtoviolateGrantAssurances22and23,aswellastheIOTandthe1984Agreement.TheCitythereafterrescindedthelandingfeeordinance.

36. In March 2008, over the objections of the FAA, the City Council formallyadoptedtheC/Dbanordinance.TheC/Dbanwaschallenged,firstbeforeafederalDistrictCourtwhichgrantedaninjunctionbarringitsimplementation,theninanFAA‐initiatedPart16proceeding(FAADocketNo.16‐02‐08).TheFAAfound, inaDirector’sDetermination,Hearing Officer’s Determination and Final Decision that the City’s ban violated GrantAssurance22.In2011,theFAA’sFinalDecisionwasaffirmedbyafederalCourtofAppealsinCityofSantaMonicav.FederalAviationAdministration,631F.3d550(D.C.Cir.2011).

37. In2011,theCitycommenceda“visioning”processtoconsiderthefutureofthe Airport, predicated on the assumption that some or all of the Airport could bedecommissionedaftertheexpirationofthe1984SettlementAgreementonJuly1,2015.Ex.10.

TheCity’sContinuingImplementationofItsClosureAgenda

38. TheCity’seffortstoclosetheAirportandtoavoiditsfederalobligationshavecontinued. In October 2013, the City filed a federal court action, CityofSantaMonicav.UnitedStates,etal.(C.D.Cal.No.13‐8046), inwhich itassertedthat it isnotboundbytheprovisions of the IOT. The City is currently appealing an adverseDistrict Court decision(2014WL1348499,February13,2014)–holdingthattheclaimisuntimely–totheNinthCircuitCourtofAppeals(No.14‐55583).

39. More recently, with all Airport leases expiring on July 1, 2015 (see¶ 142,infra), theCity allowedat least one full‐serviceFBO to remainona short‐termholdoveronly if it agreed, as it was forced to do, towaiveany right to challengeCity conduct

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beforetheFAA.Exs.11a,¶6and11b,¶6.WhilenotasubjectofthecurrentComplaint,thiskindofbullyingandintimidationischaracteristicoftheCity’scontinuingdisregardofitsobligationasanairportsponsortodealfairlyandreasonablywithtenantsandusers,asmore fullyallegedhereafter. It isalso itselfa facialviolationoftheGrantAssurances.SeeMaximUnitedv.BoardofCountyCommissioners,Director’sDetermination,No.16‐01‐10,at18 (April2,2002) (“[t]heRespondent cannotavoid itsFederalobligationby securinganagreementtothecontraryfromthetenant,whenthatagreementisrequiredasaconditionofreasonableaccesstotheairport.”).

Moreover,theCityhascontinuedtoconfirmthatitsspecificdesireandintentistoshutterSMO.InitsJanuary8,2016appealoftheFAA’srecentDirector’sDeterminationindocketNo.16‐14‐04,SantaMonicare‐assertedits“long‐expressedpolicytoseekclosureoftheairport.”Andina“StateoftheCity”presentationgiventotheSantaMonicaChamberofCommerceonJanuary28,2016,theCityManagerstated:“TheCouncil’snextstrategicgoalislocalcontrolofourairport.…SantaMonicavotershavespokenandwewillassertlocalcontrolandwewillre‐usethosebuildingsandhangarsforcreativebusinessusesandwillgeneratetherevenueweneedtobuildagreatpark.”Seehttps://youtu.be/GCcsDXSFGNQat23:15.

40.

41. And, as alleged in ¶ 4, the City now has announced its intention to evictJusticeAviation,theoldestofthefewflightschoolsoperatingattheAirport,withnocauseorevenanexplanation.

42. Insum,theCityhasexpendedenormousamountsoftime,moneyandotherCityandAirport resourcesover thepastdecades,andhasadoptedavarietyof legalandpoliticalstrategies,alltoavoidornegateitsfederalobligationsasanairportsponsorandtoadvanceitsunwaveringcommitmenttoclosingSMO.Asallegedhereafter,itcontinuesonthesamepathtoday,andthereisnoreasontobelievethatitwillnotremainonthatpathinthefuture.

ThePresentViolations

I. TheCityHasKnowinglyDivertedAirportRevenuesbyCharging theAirport forQuestionableand ImproperlyDocumentedLoans

43. TheCitycontendsthattheAirportiscurrentlyindebtedtoitintheamountofapproximately $16million. Ex. 12. A significant portion of this amount bears interest,whichhasbeenpaidannuallybytheAirporttotheCity’sgeneralfund.Asallegedhereafter,both the underlying documentation and the interest computations for these loans areinconsistent with federal requirements. These deficiencies have resulted in ongoing

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revenue diversion and are violations of statute (49 U.S.C. § 47133), the City’s GrantAssurances(No.25),anditsdeed‐basedobligations.

A. TheCityLoans

44. TheCity’srecordsconcerningitspurportedAirportloansarefarfromclearor consistent, but an Airport loan summary, entitled “Advances from the City to theAirport” (the “City Loan Summary”), provided by the City in response to a 2013 PublicRecordsAct(“PRA”)requestonbehalfofNBAA,Ex.13, identifies the followingadvancesfromtheCity’sgeneralfundtotheAirport:

FY1987–88 $575,000FY1988–89 $1,035,200FY1989–90 $857,236FY1993–94 $1,889,322FY1998–99 $2,000,000FY2002–03 $414,155FY2004–05 $2,839,575FY2006–07 $115,000FY2008–09 $400,000FY2011–12 $3,309,6486

B. Deficient,MissingandQuestionableLoanDocumentation

45. SectionV.A.4.a of theFAA’s Policies andProceduresConcerning theUse ofAirport Revenue, 64 Fed. Reg. 7696 (the “RevenuePolicy”) requires that a loan from anairportsponsortoitsairportbe“clearlydocumentedasaninterest‐bearingloanatthetimeitwasmade”(emphasissupplied).TheRevenuePolicyand49U.S.C§47107(l)alsoprovidethat“[a]nairportowneroroperatorcanseekreimbursementofcontributedfundsonlyifthe request is made within 6 years of the date the contribution took place” (emphasissupplied).MostoftheCity’sloansviolateoneorbothoftheseprovisions.

46. TheCity’sloansweredocumentedbytheCityintwosetsofostensibleloanagreements,attachedheretoasExhibits15(a‐g)and16(a‐d).

6Citydocumentsalsoindicatethatanadditionaladvanceof$89,444wasanticipatedforFY2014‐15,butitisnotevidentwhetherthatactuallyoccurred.See,e.g.,Ex.14.

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1. FY1987‐88–FY2004‐05

47. Thefirst loan‐relatedexhibit,Exhibit15,comprisessevendocuments,eachentitled“InterfundLoan/GrantAgreement,”purportingtocover loansthroughfiscalyear2004‐05 – a total, based upon the figures used in the City Loan Summary (Ex. 13), of$9,610,488.

48. Each of these documents is manifestly insufficient to support the subjectloans:

a) Two of the “agreements,” identifying purported loans of $2,000,000 effectiveDecember1,1999,and$414,154effectiveJanuary1,2002,containnosignatures,nointerestrates,andnosubstantiveterms.Exs.15eandf.

b) The other five “agreements” comprising Exhibit 15, Exs. 15 a‐d and g, all bearidenticalCitysignaturesdatedinJune2005andAugust2005forloanspurportedlymade in June 1988, March 1989, April 1990, June 1994 and November 2004. Inadditiontotheobviouspost‐dating,thesedocumentsalsocontainnointerestratesorsubstantiveprovisions.

c) It is not clearwhether there is any loan documentation at all for the advance of$1,889,322 identified in the City Loan Summary as having beenmade in June of1994;noloaninstrumentreflectsthisamount.

2. FY2005‐06–FY2012‐13

49. Thefourdocumentsinthesecondloan‐relatedexhibit,Exhibit16,appeartobemoreformalagreements.Theyincludetermsandinterestrates. Importantly,themostrecentofthesealsoincorporate,andbytheirtermsoperateto“supersede,”theearlier(FY1987‐88–FY2005‐06),deficientloandocumentation.

a) Exhibit16a,anInterfundLoanAgreement,whichisundatedbutexecutedinJuneand July 2005 (the “June 2005 Interfund Loan Agreement”), is for the amount of$2,414,000, which “the City’s General Fund (01) shall advance . . .” (emphasissupplied). This is in direct conflict withExhibits15eand f, aswell aswith theCity’sLoanSummary(Ex.13),allofwhichidentifytheamountsof$2,000,000and$414,154ashavingbeenadvancedyearsearlier,in1999and2002respectively.

b) In Exhibit 16 b, the next Interfund Loan Agreement executed in July 2009, buteffectiveJuly1,2008,theCityapparentlyattemptedtoaddresstheinadequacyofitsearlierloandocumentationby“bundling”aportionofitsearlierloanstogetherwithanewadvanceof$400,000.Itprovides:

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ThisAgreement sets forth the termsunderwhich theCity advancescertain funds to theAirport and the terms underwhich theAirportwill repay theCityandsupersedesagreementsentered intoprior toJuly 1, 2008, relating to an installment made in November 2004totaling $2,839,729 and an installment made in June 2005 totaling$2,414,000.

Theonlyagreementrelatingtothefirstamountof$2,839,729isExhibit15g,whichidentifiesaloandateofNovember30,2004,isretroactivelysigned(respectivelyonJune23,2005,June25,2005,andAugust3,2005)andidentifiesnointerestchargeorrate.Exhibit16b thus: isexecuted in2009;effective in2008;andpurports tochargeinterestona2004loanforwhichnointerestwaschargedintheapplicable2005loanagreement.

Aspreviouslyalleged,thesecondamountof$2,414,000identifiedinExhibit16bisthesubjectofconflictingdocumentation.

c) Exhibit16c,anInterfundLoanAgreementeffectiveJuly1,2011,butexecutedmorethan a year later in October 2012, not only incorporates the more recent loansidentifiedinExhibits16aandb,but“advancestotaling$3,745,759madepriortoJune30,1999”(emphasissupplied). Italsochangesthe interestrateontheentirepost‐1999loanbalanceto7.5%.(ItisnotclearifExhibit16cisitselfintendedasanewloanagreement.Itdoesnotidentifyanynewloandirectly,butsimplydescribesthetotal loanbalance“afteranadditionaladvanceof$3,309,648.”Thedateofthatpurportedadvanceisunknown.)

d) Exhibit16d, an InterfundLoanAgreementeffective July1,2012but, aswith theotheragreements,executedmonthslaterinMarch2013,incorporatesandchangestheinterestrateagainontheentirepost‐1999loanbalanceto5.4%.

50. None of the documents in either Exhibit 15 or Exhibit 16 meets therequirementsofRevenuePolicy§V.A.4.athatloansfromanairportsponsortoitsairportbe “clearly documented as an interest‐bearing loan at the time it wasmade” (emphasissupplied).Infact,theloanagreementscomprisingExhibit16appeartobelittlemorethanpost‐facto fig leaves created by City in a flawed attempt to make up for the lack ofcontemporaneousdocumentationofearlierpurportedloans.Indeed,giventhedubiousandinconsistentdocumentation, itmayevenbereasonabletoquestionwhetherthoseearlierloanswereeveractuallymadetotheAirport.

51. TheExhibit16 loanagreementsalsoclearlyviolate therequirementof theRevenuePolicy(§V.A.4)and49U.S.C.§47107(l)that“[a]nairportowneroroperatorcan

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seekreimbursementofcontributedfundsonlyiftherequestismadewithin6yearsofthedate the contribution took place,” because they purport to memorialize otherwise‐undocumentedorinadequatelydocumentedloansenteredintomorethan6yearsearlier.7

52. Moreover, it appears that the City continues to maintain the principalobligations of the early, insufficiently documented loans on the Airport’s books. WhileExhibit16basofApril1,2009incorporatesonlythetwo(questionable)loansdescribedin¶49(b), totaling$5,653,729,beginning in2012 the total loanbalance,asdescribed inExhibit16c,risesto$9,589,280,afigurewhichdoesnotincludeanadditional$3,745,759ofpre‐June1999loans.AlthoughExhibits16canddbothprovide(retroactively)thatthat$3,745,759amountwillnotbearinterest,thoseloanagreementsaresilentonthesubjectofprincipalrepayment.Presumably,therewouldbenopurposeinmaintainingaloanbalanceon the Airport and City books unless eventual repayment was intended – but suchrepayment on pre‐June 1999 loanswould clearly be barred under the 6‐year statute oflimitationsonloanreimbursement,andinanycase,theissueisripeforresolutionatthistime,givenitsrecurringandongoingconsequencesfortheAirport’sfinances.

53. The same statute of limitations problem is applicable to principal balancesexistingpriortothedateofExhibit16c.Theactualamountofthosebalancesdependsonwhetherthe6‐yearlimitationperiodrunsbackfromtheostensibledateofthatagreement–July1,2011–orfromthefirstsignaturedateitbears,October10,2012.GiventheCity’shabitualbackdatingofitsloanagreements,aspreviouslyalleged,Complainantsbelievethatonly the latter date has any possible credibility and should be used. Accordingly, theprincipal balances purportedly incurred between fiscal years 1987‐88 and 2004‐05,identified in ¶ 44, exceed the 6‐year statute of limitations and cannot be valid Airportobligations.

54. Insum,giventheCity’sdeficient loandocumentation,Complainantsbelievethatonlyastothe$3,309,648loanreferredtoinExhibit16cand¶49(c)couldtheCityarguethatitestablishedavalidobligationoftheAirport,withinthe6‐yearwindowoftheRevenuePolicyand49U.S.C§47107(l)–buteventhisagreementlackscontemporaneousdocumentation, having been executed more than a year after its effective date, and, asnotedin¶49(c),maynotbesufficienttoestablishthepurportedobligation.

55. Moreover, as ismore fully allegedhereafter,Airport budgetdocuments forthe period of the purported loans fail to reflect any of the foregoing loans or payment

7Totheextentthata6‐yearstatuteoflimitationalsoappliestotherecoveryofdivertedrevenue,see49U.S.C.§47107(m)(7),ComplainantsunderstandthatitdoesnotallowtheAirporttocontinuetomakepaymentsofinterestand/orprincipalonfaciallyinvalidloans,eveniftheloanwasincurredmorethan6yearsago.

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obligations.Neitherdo theCity’sownbudgetsprior to2013,which identifyonlymodestinterfund transfers from the Airport fund to the City general fund. A representativeexampleisExhibit17(identifying$294,330indebtserviceforbothinterestpaymentstotheCityandpaymentsonbondsandloanstotheCaliforniaDepartmentofTransportation).

56. In 2011, the City engaged HR&A Advisors, Inc. (“HR&A”) to conduct ananalysis of the Airport’s economic impacts. The resulting study (“Santa Monica AirportCampus–CurrentEconomicandFiscalImpactsintheCityofSantaMonica”),Exhibit18,evaluated,amongotherelements,“SantaMonicaAirportCampusFiscalImpactsontheCityBudget.” The Study found that in fiscal year 2010‐11, “the Airport Campus generatedenough revenue to offset nearly all operating costs.” Id. at 27. Again, no interfund loanobligationsorpaymentswereidentified.

C. TheIllegalInterestRates

57. The FAA’s Revenue Policy, § V.A.4.a, establishes the basis upon which asponsormaychargeinterestonloanstoanairportitowns:

Interest should not exceed a rate which the sponsor received for otherinvestmentsforthatperiodoftime.

Similarly,FAAOrder5190.6B,at§15.9(c),provides:

The interest rate may not exceed the interest rate on the sponsor’s otherinvestmentsforthattimeperiod.

58. TheCitywasawareof thispolicy. Specifically,Exhibit16a, the June2005InterfundLoanAgreement,provides:

Interest: Interest on the Loanwill be calculated on an annual basis at thesamerateofinterestearnedbytheCityonitsinvestmentportfolio.

59. DespitetheFAA’s interestratepolicy,andtheCity’sknowledgethereof,theCityhasinfactcharged,andreceivedfromtheAirport,interestbasedonratessubstantiallyinexcessofthoseearnedbyitsowninvestments.

60. InExhibits16candd,theCityrepresentsthatitisnotcharginginterestonloanbalancesprior to June30,1999.Because theCity’s loandocumentsare inconsistentwithrespecttothedatesadvancesweresupposedlymade,itisnotclearwhetherinteresthas in fact been chargedon that balance.However, under the June2005 InterfundLoanAgreement,Exhibit16a, interest on the $2,414,000 – although clearly not advanced atthattime,butasearlyasFY1998‐99(Ex.13)–wasproperlysetbasedontheCity’sown

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investment earnings. This was then changed in the 2009, 2012 and 2013 agreements,Exhibits16b,c,andd,to8%,7.5%and5.4%,respectively.

61. Exhibit19, a March 14, 2013memorandum from Gigi Decavalles‐Hughes,theCity’sDirectorofFinance,explainsthemethodologyusedbytheCityinestablishingtheinterestratesithasactuallychargedtheAirport:

Theaverageofthespreadof130basispointsbetweenaAAAtax‐exemptrateof2.9%andaBBBtax‐exemptrateof4.2%,and380bpsbetweena30yrUSTreasurytaxablerateof2.9%anda20yearBBBcorporatebondof6.7%,theaverage spread is approximately 250 bps. Taking these factors intoconsideration,we’veapplied theaverage spreadof250basispoints, to theAAArate,toreachaninterestamountof5.4%.

Thismethoddoesnotconsider,muchlesscomportwith,therequirementsoftheRevenuePolicy.8

62. In fact, throughout the time period of the City loans, the City’s owninvestmentshaveearned far less than the amounts charged to theAirport. For example,Exhibit21e–excerptsfromtheCity’sComprehensiveAnnualFinancialReport(“CAFR”)datedJune30,2012–showsthatinfiscalyear2011‐12,atthetimeitdocumentedthenewloanof$3,309,648atan interest rateof7.5%(as seen inExhibit15d), theCityearned$6,917,052oninvestedfundsof$766,036,731,or0.90%.Infiscalyear2012‐13,whentheinterestrateonAirportFundloanswasreducedto5.4%,theCity’sCAFRreportedthatitearned$1,442,576oninvestmentsof$680,989,708,or0.21%.Ex.21f.

63. Thus the City’s Interfund LoanAgreements from2009 forward on the onehand reset interest rates on earlier loans in excess of $6 million to impermissibly highlevels, and on the other hand charged similarly impermissible interest on new loans ofmorethan$4million.

64. Because the interest rates charged by the City to the Airport and its owninvestment earnings during the same period, reported in the City’s CAFRs,9wereconsiderably different, the Airport paid excessive interest to the City, assuming the

8Inanearlier,August3,2012email,theCityFinanceDepartmentdescribedtwodifferentmethodologiesforcomputinginterestontheAirportloans:“Therateof8%establishedinFY08/09wasconsistentwiththerateofinterestchargedresidentsforstreetassessments.InFY11/12,GF[GeneralFund]andAirportstaffagreedtoreducetheinterestrateto7.5%,toreflecttherateofinterestappliedbyCalPERStopaymentsagainsttheCity’s unfunded PERS liability.” Ex. 20. These methodologies are equally non‐compliant with FAA’srequirements.

9RelevantpagesfromtheCAFRsforthefiscalyears2008‐09through2013‐14areExhibits21a‐g.

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predicate validity of those loans. The following table sets forth the two sets of interestrates, the annual payments of interest recorded by the city in its CAFRs, and what theannual interest payments should have been if the rates earned by the City on itsinvestmentshadbeenappliedinstead:

FiscalYear

InterestRateChargedtoAirport10

RateofReturnonCityInvestments11

AirportInterestPayments12

AdjustedAirportInterestPayments

2008‐09 8.0% 3.15% $432,773 $170,404

2009‐10 8.0% 2.09% $455,283 $188,943

2010‐11 8.0% 1.24% $453,792 $70,338

2011‐12 7.5% 0.90% $486,954 $58,434

2012‐13 5.4% 0.21% $488,681 $19,004

2013‐14 5.4% 1.35% $530,170 $135,542

65. Basedupontheadjustedinterestpayments,overa6‐yearperiodtheAirportwasoverchargedbytheCityforinterestintheamountofatleast$2,278,008,assumingtheunderlyingvalidityofthesubjectloansandthattheCityisentitledtoanyinterestatall.

D. The City’s Land Swap Compounds its Improper LoanActivity

66. On July1,2015, theCitycompletedanexchangeof landamong itselfSantaMonicaCollege(“SMC”)andtheExpositionMetroLineConstructionAuthority,bywhich,insubstance, the City leased to SMC a 2.71 acre portion of income‐generating Airportproperty(the“AirportParcel”)fornocostinexchangefortheCity’sno‐costleasefromSMC

10Ex.16b‐d.11Ex. 21 b‐g (comparing annual investment earnings as reported in CAFRs against annual investmentholdings,includingcommonstock,asalsoreportedinCAFRs).12Ex.21b‐g. A separate document produced by the City in response to a PRA request, Ex.22, includesslightly higher figures for interest due for these fiscal years (totaling $2,867,843) – but a significantlydifferent figure for interest actually paid by the Airport (totaling $1,241,849). There is no explanation forthesedifferingfigures,buttheCity’sCAFRsarestatedtohavebeenpreparedaccordingtogenerallyacceptedaccounting principles, and are attested to by an independent auditor, and thus should be considereddefinitive.

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ofcertainnon‐Airportproperty.AsdescribedintheNovember27,2012CityStaffReport,Exhibit12:

BeginningJuly1,2015,theCitywouldnolongercollectleasepaymentsfromthe38tenantswhowouldbedisplacedfrom[theAirportParcel]whenSMCbeginsitslease.Theseleasepayments,whicharecountedasrevenuetotheAirportFund,wouldhavereachedanannualamountof$565,651inFY2014‐2015.Dependingonthecircumstancesatthetimeandthelawthatmaythenapply,onefutureoptionfortheCitymaybethat,iftheAirportFundhastobemadewhole for this loss in revenue, any lost revenue to theAirport Fundmay be accounted for and recovered as part of the repayment of the loanfrom the General Fund to the Airport Fund, which is expected to havereachedatotalofover$16millionbyFY2014‐15.

67. Consistentwith this Staff Report, the City in fact intends to reimburse theAirportFund for theamount itwouldhavereceived fromongoingrentalof theswappedAirportParcelandthereaftertoapplythatamounttocreditloaninterestallegedlyduetheCity.ThisisconfirmedintheCity’sfiscalyear2015‐17ProposedBiennialBudget,Ex.23,whichnotes:

33431.409230 3400‐3500 Airport Ave Reimbursement –Reimbursement/RepaymentofAirportLoanfromtheGeneralFundforlostrevenue from the properties at 3400‐3500 Airport Ave. due to the Expoland swap. FY 2015‐16 and FY 2016‐17 revenues are anticipated to be$630,349eachfiscalyear.

68. SettingasidetheproprietyoftradinganAirportassetfornon‐Airportlandtobenefit the City,13and assuming that the foregone Airport Parcel lease payments werepreviously at fair market value, the City’s proposal to credit the equivalent of thosepaymentsagainst theexcessive interestchargedondemonstrably improper loanscannotbea legitimateuseofAirportrevenue.Unless the leaseamountswhichwouldhavebeenreceivedfortheswappedAirportParcel,asproperlycalculatedandadjustedannually,arecredited against actual Airport operating costs, or used to offset landing fees, they willconstituteanothercontinuingdiversionofAirportrevenue.

13AlthoughtheuseofAirportlandtobarterforoff‐airportlandbenefittingtheCity’sotherinterests(herea“buffer”areaforalightrailfacility)isclearlyquestionable,the“swap”itselfisnotchallengedinthepresentcomplaint;onlythecomputationanduseoftherevenueswhichhavebeenlosttotheAirportisatissue.

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II. The City Has Imposed Excessive and UnreasonableLanding Fees on Both Based and Transient AircraftUsing Artificial, Unsupported Numbers and ImproperAccountingMethods

69. Inaspaceof30daysinApril2013,withvirtuallynoopportunityforpublicreview or input, and with constantly changing supportingmaterials, the City adopted aresolutionnearlytriplingAirportlandingfeesandimposingthemforthefirsttimeonbothbasedandtransientaircraft.ThejustificationfortheimpositionoftheselandingfeesstemsprimarilyfromartificialAirportdeficitscreatedbytherevenuediversionallegedsupra,aswellasbytheadditionalfinancialmanipulationdescribedbelow.Thelandingfeesarealsofaciallyunreasonable,contrarytotherequirementsofGrantAssurance22.

A. TheCity’sAdoptionofNewLandingFees

70. OnApril30,2013,theCityCounciladoptedaresolution,effectiveAugust1,2013, increasingtheAirport landingfeefrom$2.07to$5.48per1,000poundsmaximumgross landing weight (“MGLW”) and applying it, for the first time, to both based andtransientaircraft.Ex.24,pp.2‐4.

71. In2005,subsequentto theBombardierdecision(DocketNo.16‐03‐11), theCity had implemented a flat rate landing fee of $2.07 per thousand pounds MGLW,applicableonlytotransientaircraft.Id.

72. InMay2012,aspartoftheCity’s“visioning”process,theAirportCommissionrecommended that landing feesat theAirportbe increased,Ex.25,pp.4‐5,withoutanysupportingfinancialanalysis.14

73. InamemorandumdatedFebruary25,2013,staffoftheAirportsubmittedaproposed budget to the Airport Commission for fiscal year 2013‐14. Ex. 26. Theaccompanyingexecutivesummarystated that “[a]irportrevenuesareexpected toexceedoperationalexpensesforbothfiscalyears”(emphasissupplied).Thiswasconsistentwithpriorbudget submissions forearlier fiscal years. It also is consistentwith theOctober4,2011economicbenefitanalysisperformedbyHR&AfortheCity(Ex.18,¶56)aspartoftheCity’sAirport“visioningprocess.”

14The Commission’s rationale was simply the generality that “the City should, as soon as practicable,increase landing fees to cover the cost of aviation operations and maintenance of the airport property.CurrentlythecitysubsidizesaircraftoperationswithrentsfromfacilitiesandwithpublicfundswhicharenotrequiredundertheGrantAssurances.”Ex.25,p.4.

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74. At its April 1, 2013 meeting, the Airport Commission reviewed amemorandum,datedApril1,2013(Ex.27),andareportdatedMarch13,2013(Ex.28),both prepared by the City’s Department of PublicWorks, which purported to justify anincreaseinthelandingfeeattheAirport.TheAirportCommissiondeferredactionontheproposaluntilitsApril22,2013meeting.Ex.29.

75. OnApril18,2013,ameetingwasheldforusersoftheAirportatwhichtheDepartment of Public Works provided a revised version of the March 13, 2013 report,datedApril 17, 2013 (Ex.30),andexcerpts from theCity’s CAFRs (Ex.31).Notably, thedatainthetwoitemswasnotconsistent–forexample,thelatterindicatedthattheAirportearned approximately $140,000 less in revenue for FY 2010‐11 – FY 2012‐13 thanwasreported by the former, but had considerably higher expenses – yet no explanation orreconciliationwasprovided.ThiswastheonlymeetingaffordedaffectedpartiesbeforetheCityCouncilactedonthestaffproposal.

76. At its April 22, 2013meeting, the Airport Commission again reviewed theMarch 13, 2013 report and an additional memorandum, but ultimately did not vote torecommendthattheproposalbeadoptedbytheCityCouncil.Ex.32.

77. At its April 30, 2013 meeting, the City Council reviewed a furthermemorandum,Ex.33,Agenda ItemNo.11‐A, and a report nominally datedMarch 13,2013but incorporatingtherevisionsfromtheversionprovidedtoAirportusersonApril17, 2013, id., Agenda Item No. 11‐A, Attachment 2. The City Council then formallyadopted the proposed resolution increasing the landing fees to $5.48 per 1,000 poundsMGLWonbothbasedandtransientaircraft.

78. Theresolutionwasanticipatedtoincreasetheannualcollectionsof landingfees by about $1.4 million, id., Agenda Item No. 11‐A, and the City subsequently hasreportedthatfiguretobeaccurate.Ex.34.Onanaircraft‐by‐aircraftbasis, theeffectsaresignificant.Forexample,aHawker800XP,whichpreviouslywouldhavepaidnolandingfeeifbasedattheAirport,or$45.54iftransient,nowpays$120.56perlanding.AGulfstreamIV,whichpreviouslywouldhavepaidnolandingfeeifbased,or$122.13iftransient,nowpays$323.32perlanding.

B. The Landing Fee Increase Was Without EconomicJustificationandWillResultintheAccumulationofAnnualSurpluses

79. GrantAssurances24and25–togetherwith49U.S.C.§47107and§47133,theFAA’s“RatesandChargesPolicy”(78Fed.Reg.55330(September10,2013))andFAAOrder 5190.6B – require that all revenues earned from activities on airport property,

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whether from aeronautical or non‐aeronautical users, must (with a few non‐pertinentexceptions) be expended for airport purposes, and that airport fees must be “fair andreasonable.”Theyalsorequirethatanairportmustendeavortobeself‐sustaining.

80. Afurtherbedrockcomplianceprincipleisthatanairportcannotaccumulatea substantial revenue surplus. The creation of such a surplus is strong evidence thatlanding feesareunreasonable inviolationofGrantAssurance24(andrevenuediversionwouldfurtherbeaviolationofGrantAssurance25).AstheFAAhasexplained,airports:

[S]houldnotseektocreaterevenuesurplusesthatexceedtheamountstobeused forairport systempurposesand forotherpurposes forwhichairportrevenue may be spent. … [T]he progressive accumulation of substantialamountsofsurplusaeronauticalrevenuecouldwarrantanFAAinquiryintowhethertheaeronauticalfeesareconsistentwiththesponsor’sobligationtomaketheairportavailableonfairandreasonableterms.

FAAOrder5190.6B,at§17.9.

81. UntilAprilof2013, thereapparentlywasnoquestion that theAirportwasoperatingonanearbreakevenbasis,andthatnoadditionalrevenuefromlandingfeesoranyothersourcewasrequired.OnFebruary25,2013,theAirportmadeitsannualbudgetsubmission to the Airport Commission, which indicated that in fiscal year 2013‐14,revenueswereexpected tobe$4.4millionandexpenses tobe$4.3million.Therewouldthus be a minimal operating surplus, projected to decrease in the following fiscal year.Operating revenue also was expected to increase from an additional land lease for aparking lot (Ex.32,¶73).This isagoodexampleof thesustainabilityprincipleworkingwell,andthenumbersspeakforthemselves.

82. Similarly,asallegedin¶56,theHR&Astudy(Ex.18)foundthattheAirportrevenuesandexpenseswerecloselymatched,andthatinadditiontorevenueattributableto the Airport under FAA requirements, SMO also generated $1 million per year inadditional tax and license revenues for the City’s General Fund and had a total positiveeconomicimpactonthecommunityof$275millionperyear.

83. The reports provided to theAirport Commission (Ex.28) andCity Council(Ex.33,AgendaItemNo.11‐A)likewisesuggest(mostnotably,ifdataonp.6andp.9ofAttachment 2 of the latter are compared) that the overall airport revenue and overallairportexpensefigureswereinsync.However,thosereportsalsopostulatethattheairfielditself (rather than theAirport as awhole) generates considerably greater expenses thanrevenues, and thus argue that if the airfield is considered in isolation, an additional

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approximately$1.4millioninlandingfeesshouldbecollectedeachyearinordertoerasethedeficitbetweenairfieldrevenuesandairfieldexpenses.

84. TheCity’sreasoningisflawedinseveralrespects:

Asaninitialmatter,manyofthekeyassumptionslacksupport,suchashowtheCitydeterminedwhatpercentageofcostsshouldbeallocatedtotheairfieldcostcenterandtoothercostcenters.15

Further, the reports fail to count as revenues attributable to the airfield certaintypes of revenue that should be attributed to the airfield, such as tie‐down andhangarcharges;aircraftparkingisdefinedbytheFAAtobepartoftheairfield.See,e.g.,FAAOrder5190.6B,at§12.2(b)and§18.4(a).

Asaresult,thegapbetweenairfieldexpensesandairfieldrevenuesthatthereportspurport to exist is exaggerated at best, andmaynot exist at all; it is a product of“creativeaccounting”bytheCity.

85. Moreover, the purported airfield deficit cannot be analyzed in a vacuum.Even if the City reports were presumed to be factually correct, theirmethodology is toisolateairfieldcosts;omitallrevenuesfromnon‐airfieldandnon‐aeronauticalusesoftheAirport;anddividetheairfieldcostsbylandingweightstodeterminethelandingfee.Thismethodologytreatsnon‐airfieldandnon‐aeronauticalrevenuesasiftheywereearnedonCity property off the Airport, or as if they simply did not exist. But they do exist – andbecauseof them, theAirportasawholehasbeenreported tobeoperatingatbreakeven,evenifanairfielddeficitexistsonpaper.

86. Analyzing the airfield in a vacuum is nothing less than a completeabandonmentoftheprincipleofsustainability.Indeed,theFAAwarnedSantaMonicainapriorcomplianceproceedingthattheCitymustlooktoallsourcesofrevenueandnotjustlandingfeestoresolveanyallegeddeficit;adjustmentsto landingfeesonlyweredeemedinappropriatebecause:

[T]he record contains no information, financial or otherwise, that wouldindicate thataspartof thisbudgetaryprocess, theCityconsideredrevisingotherairportfeestobalancethedeficit.

15InresponsetoCaliforniaPublicRecordsActrequests,theCityprovidedonlylimitedinformationabouttheallocations,whichdidnotexplaintheunderlyingreasoning.Exs.35a‐d.TheCityrefusedtoprovidefurtherexplanation, citing a deliberative process privilege, Exhibits 36 a‐d, despite the FAA’s instruction thatadequateinformationmustbeprovidedtothepublictoallowtheevaluationofairportfeeincreases.See78Fed.Reg.at55332.

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Bombardier Aerospace Corp. and Dassault Falcon Jet Corp. v. City of SantaMonica, FAADocketNo.16‐03‐11,Director’sDetermination,at42‐43(January3,2005).

C. CityFinancialDocumentsUsedtoJustifytheLandingFeesAreneitherTransparentnorComplete

87. At the sole meeting with users of the Airport on April 18, 2013, the Cityattempted to “fix” the various problems in its reports by providing a second set ofdocuments – extracts from its CAFRs –which suggested that the Airportwas running apersistentoveralldeficit.Ex.32.NoeffortwasmadetoexplainthedifferentfiguresfortheAirportinthesedocumentsincontrasttothepreviously‐citedAirport‐specificdata,whichtold a much more favorable story about the Airport (for example, the CAFR assignsconsiderablyhighercostsforoverhead,materialsandsuppliestotheAirportthandidthereports). For that reason alone, data based on the CAFRs cannot bemixed‐and‐matchedwiththedifferentcalculationsinthereportsto justifya landingfeeincrease–andtotheextentthattheCityCouncilwasprovidedwithamemothatdidjustthat(Ex.33,AgendaItemNo.11‐A)theinconsistentdatafatallyunderminesitslandingfeeresolution.

88. Infact,noneofthefinancialanalysesprovidedbytheCityinsupportofthelanding fees offers a consistent picture of the true financial status of the Airport or anyevidence to contradict the Airport and City budgets, which reflect decades of Airportoperationsonabreakevenbasis.

89. Page6ofExhibit28,astatementofactualAirportexpensesforfiscalyears2010‐11onward(togetherwithbudgetedfutureexpenses)usedbytheCitytoexplaintheneed fornew landing fees, provides auseful snapshotof abasicproblemwith theCity’slandingfeerationale.Ofthelineitemspresented,fourstandout:

FY2010‐11 FY2011‐12 FY2012‐13(budget)

IndirectCostAllocation $799,455 $823,439 $864,611

ProfessionalServices $331,817 $441,817 $460,000

IndirectCostAllocation16 $68,994 $71,064 $74,617

Amortizationcharges $566,777 $745,744 $783,836

90. None of these line items has sufficient supporting documentation todeterminewhethertheinclusionoftheitemsinthelandingfeecalculationscomplieswith16NoexplanationisprovidedforthetwocategoriesofIndirectCostAllocation.

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FAA policy, and yet the line items together add between one and twomillion dollars ofannualexpensetotheAirport.

91. FAAOrder5190.6B,§§15.11and12andRevenuePolicy§V.B,togetherwithOffice of Management and Budget (“OMB”) Circular A‐87, Attachment A, establish thestandardsfordocumentationofreimbursementsmadetoairportsponsorsforbothcapitalandoperatingexpenditures.Thosestandardsrequireeitherappropriatejournalandledgerentries together with supporting invoices or other corroborating evidence or auditedfinancialstatementsidentifyingthespecificexpenditures.

92. None of the documents used by the City to justify the imposition of newlandingfeesmeetthesecriteria.

1. IndirectCostReimbursement

93. FAA Order 5190.6B, §§ 15.11 and 15.12, Revenue Policy § V.B, and OMBCircular A‐87, Attachment A, also establish the standards governing the allocation ofindirectsponsorcosts toanairport.Thesestandardsrequirethatsuchcostsbeallocatedunder “a cost allocation plan” which, in substance: does not result in disproportionateallocation of general sponsor costs to the airport; uses a methodology similar to othercomparableunitsofthesponsor;andemploysproperdocumentation,asdescribedin¶91.

94. TheCity justification for the landing fee increase did not include any “costallocationplan,”andtherecordsithasprovided,inresponsetoPRArequests,clearlyfailtomeettheaforementionedstandards.

95. Moreover,theCityhasbeenunabletolocateanyrecordsdetailingitsindirectcostallocationchargestotheAirportforthreecriticalfiscalyears:2009‐10,2010‐11and2011‐12:

a) On April 25, 2014, Airport tenant and Complainant Mark Smith served a PRArequest on the City seeking, among other items, a list of all Airport indirect costallocations from 1997 to the present. The City responded on May 15, 2014,providingagroupofdocumentsandthefollowingexplanation:

Enclosed are copies of the only lists of Indirect Costs paid fromAirportaccountnumber544340[theAirportFund]thattheCityhasinresponsetoyourrequest.

Ex.37(emphasissupplied).

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b) Thedocumentsprovidedby theCity cover fiscal years2004–05 through2008‐09and2012–13.Norecordswereprovidedforfiscalyears2009‐10,2010‐11or2011‐12.TheseweretheyearsinwhichAirportexpenses, includingindirectcosts,wereused as a basis for justifying landing fees and for computing the amount of thosefees.

c) In July 7, 2014, Mr. Smith again served a PRA request on the City requesting anitemizationofindirectcostschargedtoaccountnumber544340.OnJuly16,2014,theCityresponded:

TheCityalreadyprovidedyouwithresponsivedocumentsinourMay15, 2014 response to your previous request. The City has no otherlists responsive to your request. Please note that the City does nothave a duty to create a record or provide a copy of a record if therequestedrecordisnotonethatisprepared,owned,retainedorusedbytheagency.GovernmentCode§6252(c).

Ex.38(emphasissupplied).

d) OnJune29,2015,Mr.SmithservedanewPRArequestseekingadditionalmaterials,andreiteratedhisrequestfortheindirectcostinformationnotprovidedbytheCity:

12.PleaseprovideAirportAdmin Indirect FY2010‐2011.A requesthasbeenmadeforthisseveraltimesandthisdataseemstostilltobemissing.

Ex.39.

OnJuly23,2015,theCityresponded:

ResponsetoNo.12:TheCityhasrespondedtoyourrequestfortheserecordsmanytimesandhasprovidedyouwithallpubliclyavailablerecords.Nofurtherrecordsareavailable.

Ex.40(emphasissupplied).

96. Insum,theCityisunabletosupporttheindirectcostnumbersithasusedtojustifythenewlandingfees,andthesechargesshouldbedisallowedaspartofthelandingfeeratebase.

97. Additionally, as alleged in¶118, infra, theCity’sCAFRs show that indirectcosts allocated to the Airport have grown significantly and inexplicably – bymore than61%between fiscalyears2006‐07and2011‐12–andthatnootherCityenterprise fund

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bearsasgreatashareofCityindirectcosts.Thesefacts,standingalone,callintoquestionthe legitimacy of the allocation of such expenses and underscore the significance of themissingsupportingmaterials.

2. ImpermissibleLegalFeesandCosts

98. Asallegedin¶89,itappearsfromCitydocumentsusedtojustifytheAugust1, 2013 increase in landing fees that, among the expenses borne by the Airport, are“ProfessionalServices”intheamountsof$331,817(FY2010‐11)and$441,817(FY2011‐12).

99. At least a portion, andpossibly all, of these charges are comprisedof legalfees,whichwerenotincurred,asrequiredbyFAAOrder5190.6B§15.9(d),“forservicesinsupport of airport capital or operating costs that are otherwise allowable” (emphasissupplied).17

100. Over the course of several years, beginning (publicly) with the AirportCommission’s July 2002 recommendation, (see ¶ 33) the City developed, negotiated andlitigated the C/D ban on jet aircraft, which was found by the FAA, and thereafter by afederalCourtofAppeals,toviolatetheCity’svariousfederalobligations.

101. TheCity’sostensible justificationforthebanon jetaircraftwassafety,and,astherecordinFAADocketNo.16‐02‐08demonstrates,thisrationalewasrejectedbytheFAA from the beginning as unfounded and unnecessary, as well as beyond the City’sauthority.TheFAA’sposition,thattheproposedbanwassimplyanexcusetoeliminatejetaircraftoperationsat theAirportandwasnotsupportedby theCity’sownanalyses,wasmaintainedthroughitsnegotiationswiththeCity,throughPart16proceedingsandtotheultimatecourtdecision,whereitwasfoundtobesupportedbytheevidence.

102. ThroughthecourseoftheC/Dban,between2007and2013,theCitypaiditslegalcounsel,thefirmofKaplan,Kirsch&Rockwell,LLPatotalof$1,325,464.02.Exs.41‐42. At least $648,794.76 of this amount was paid to the firm from and after December2009.

17AseparatePart16proceeding,involvinganotherairport(FAADocketNo.16‐15‐08),requeststhattheFAAconfirmthatlegalexpendituresindefenseofimpermissibleeffortstorestrictaccesstoanairportarenotanallowable use of airport revenue. In addition to the authorities cited by the complainants thereto,seealsoOfficeoftheInspectorGeneralAuditReport,Augusta‐RichmondCountyCommission,No.AV‐1998‐093,at9‐10(March 12, 1998) (finding that the costs of an audit of revenue diversion at the airport could not bereimbursedfromairportfundsbecauseitdidnotcompriseanairportoperatingcost;theFAAconcurred).

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103. Additionally, a significant portion of the indirect costs that have beenassessed to the Airport are for City Attorney expenditures, and appear to have been, insignificant part, for the same impermissible purposes. In FY 2010‐11 (e.g., during thependency of the C/D litigation), the Airportwas assessed $480,721.56 for City Attorneyexpenses – in contrast, in FY 2012‐13, the indirect allocation to the Airport for the CityAttorneywas$187,431.45.Ex.43a‐b.18

104. At no time up through and including fiscal year 2009‐10 did the annualAirportbudgetsreflectanyprospectiveorpastpaymentsorobligationstotheCityforlegalfeesandcostsrelatingtotheC/Dban,oranysignificantlegalexpensesofanykind.

105. Unmistakably, theCity has includedmost, if not all, of these legal fees andcostsinthe“ProfessionalServices”componentoftheratebasejustifyingtheimpositionoflandingfees.Theymayappear,aswell,asabasisforaportionoftheloansadvancedtotheAirport by the City. Unfortunately, the intentional opacity of City financial documentsprecludesamorespecificanalysis,butwhateverthepreciseamountprovestobe,chargingtheAirportforthecostsofattemptingtobanClassCandDaircraftisnotapermissibleuseofairportrevenue,whetherviewedasrevenuediversion,asanimpropercomponentofthelandingfeecalculus,orboth.TheCitymustbearitsownexpensesforitsrepeated,quixotic,andunlawfuleffortstorestrictoperationsattheAirport.

3. AmortizationCharges

106. Included in the landing fee rate base computation is a charge entitled“AmortizationofCity fundedassets” in theamountof$442,081 forFY2013‐14 (Exhibit33,AgendaItemNo.11‐A,Attachment2,p.3).Thischargeispurportedlysupportedbyasummary prepared by the City entitled “Amortization Charges – Completed CapitalProjects,” id.atp.7, also excerpted asExhibit44,which attributes annual amortizationchargestotheairfieldandnon‐airfieldportionsoftheAirport.

107. Aswith other components of the landing fee rate base, these amortizationnumbersforFY2013‐14aremysteriousandunsupported.TheycannotbereconciledwithanyfiguresintheCity’sCAFRs(Ex.21)orintheAirportbudgets(Ex.45a‐c)forthatyearor other years forwhich actual andbudget data is provided inEx.44 – FY2010‐11, FY

18TheCityhasdeniedpublicrecordsrequestsformoredetaileddocumentationofitslegalexpenditures,butpursuant to its obligations to the FAA, can and should be required to produce more specific records forreviewbytheagency.See,e.g.,14C.F.R.§16.29(b).Ex.36c;seealsofootnote15.

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2011‐12andFY2012‐13.19Nordoes theCityprovideanexplanationas to its allocationbetweenairfieldandnon‐airfieldcapitalexpenditures.

108. In fact, the amortization charges appear to be no more than disguisedprincipal payments on the City’s improper loans to the Airport. No significant capitalexpendituresare identified inanyof theAirport’sannualbudgets(id.),and it is clear,asacknowledgedbytheCityand itsconsultantHR&A, that theAirportwasoperatingonanapproximately breakeven basis (Ex.18; seealsoEx.32). SMOhad no funds sufficient tounderwrite significant capital improvements, and the HR&A analysis identified no suchexpenditures(Ex.18).Thus it isclear thatallAirportcapitalprojectssinceat least2003werepaid forbyCity loans, andamortizationof thoseproject costs, however calculated,necessarilybecomesrepaymentofloanprincipal.

109. Moreover, asmost of the identified capital projects predate the purportedloanagreementsbymorethan6years, itwouldnotbeacceptableaccountingpracticetodepict suchpayments as amortization, and, as alleged in¶49 any formof repaymentofsuchloans,whetherdirectorthroughchargestousersthroughlandingfees,wouldviolatetheprovisionsoftheRevenuePolicyand49U.S.C§47107(l).

110. Further, the addition of amortization expenses for capital expendituresincurred in years prior to the institution of the landing fee should be understood toconstitute “intertemporal” discrimination between past users (i.e., that operated at theAirportwhenthecapitalexpendituresweremade)andcurrent/futureusersoftheairport(thataresubject to the increased landing feesresulting, inpart, fromtheamortizationofthosecapitalexpenditures).Ineffect,theCityissubjectingcurrentandfutureuserstotheliabilityofloansmadebytheCitytotheAirportthatdatebacktoFY1987‐88–1998‐99.

111. When anyor all of the amortizationpayments, unsupported indirect costs,andimpermissiblelegalfeesareremovedfromthelandingfeeratebase,thereisclearlynoeconomicjustificationfortheenormousincreaseinlandingfeesadoptedbytheCity.

19Forexample, theFY2011‐12Airportbudget estimatedoverallAirport capital expendituresof $130,760,and the actual capital expenditures for thatwere only $34,865 (Ex.45a‐b), yet the amortization chargessummary(Ex.45) recordscapitalamortizationpaymentsof$745,744 for that fiscalyear.Similarly,Ex.44budgets$783,836inamortizationpaymentsforFY2012‐13andforecast$902,273forFY2013‐14;Ex45cestablishes that the actual Airport capital expenditures in those years were only $71,387 and $15,410,respectively.

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D. TheLandingFeeWillResultinanImpermissibleDoubleChargetoBasedOperators

112. GrantAssurance22prohibits “unjustdiscrimination to all types, kinds andclassesofaeronauticalactivities.”

113. Previously, the City assessed landing fees only on transient aircraft, andexempted based aircraft. In a memorandum to the City Council, the City Attorney andDirectorofPublicWorksspecificallystated that: “[t]heexemption isbasedonthe theorythattheownersofbasedaircraftpayrentfortheiruseofAirportpropertyandthattheirrentalpaymentsincludethecostofrunwayusage.”Ex.46.

114. By imposing landing fees on based aircraft, the landing fee resolution isinconsistentwithGrantAssurance22,asunderstoodbothbytheFAAandtheCity’sownstaff.

115. InpastPart16proceedings,theFAAhasindicatedthatalthoughanairportisnotinherentlyprohibitedfromimposinglandingfeesonbothbasedandtransientaircraft,cautionmustbetakentoensurethatbasedaircraftarenoteffectivelydouble‐chargedbyhaving to pay both landing fees and other types of fees – such as tie‐down fees, hangarleases,andfuel flowagefees.SeegenerallyR/T‐182,LLCv.PortageCountyRegionalAirportAuthority, FAA Docket No. 16‐05‐14; Wadsworth Airport Association, Inc. v. City ofWadsworth, FAADocketNo.16‐06‐14.In this case, theCityadopted landing feeswithoutany considerationofhowbasedaircraft alreadycontribute to theAirport–andwhetherthe proposed landing feeswould result in them being double‐charged (ormore) – eventhough thereport thatwasprovided to theCityCouncil (Ex.33,AgendaItemNo.11‐A,Attachment2) establishes that the City was aware that the Airport had other revenuestreamsandthuswasonnoticeofthisdeficiency.

116. For example, in fiscal year 2011‐12 SMO revenues from based entitiesincluded$687,305 fromhangarrental,$616,224 fromoffice/shoprental,and$1,952,985fromlandleases.TheserevenuesfarexceedtheAirport’srevenuefromthelandingfeethenineffectortherevenuefromthenewfees.Ex.33,AgendaItemNo.11‐A,Attachment2,p.9.Theyshouldhavebeenevaluatedinaproperanalysisofthelandingfeeproposal,butweresimplydisregardedintheCity’srushtoadoptanewlandingfeeresolution.

E. AnalysisbyGRA,IncorporatedConfirmstheLackofJustificationfortheLandingFeeIncrease

117. In 2013, at the request of Complainants, aviation consultant GRA,Incorporated (“GRA”) conducted an analysis of the then‐proposed and since adopted

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landing fees, and the City documents used to justify imposition of the fees.Ex.47.GRAfound,inrelevantpart:

TheCityseparates theAirport into twoentities forratesandcharges,airfieldandnon‐airfield,andproposes that theairfieldoperateonabreakevenbasis.TheCitydefines the cost recovery base as direct operating expenses, allocations ofadministrative costs from other City offices, and amortization charges, includingundefinedamortizationofpastloansforcapitalexpenditures.

Even if the revenue and expense figures for the Airport in the reports actuallysubmitted to the City by its staff are accepted at face value, non‐aeronauticalactivitiesproduceanannualsurplusofatleast$400,000thatisnotcreditedagainstairfieldcosts.Asaresult,eveninthescenariomostfavorabletotheCity,thelandingfee increasewillgeneratean impermissiblesurplus;andthesurplus likely isevenlarger, given that various data cited in the reports appears to be unsubstantiatedandunreliable.

There is no supporting documentation for how the cost center allocation wasconducted. It is not evident if the allocationwasmade inmanner consistentwithFAApolicy.TheCity’sdatashowthattheairfieldreportsadeficitofapproximately$1millionfromFY2011‐2012toFY2012‐2013.

TherearedifferencesinhowtheAirport’sfinancialpictureiscapturedintheCity’sCAFRs and how they are captured in the Airport budget. The Airport budgetincludestheentireoperatingbudgetandcapitalbudgetforthecurrentyearaswellas current year revenues. The CAFR uses an accrual accounting approach andincludesannualoperatingcostsandrevenues,aswellasanallocationofinvestmentviadepreciationandamortization.

Thesedifferences inaccountingpoliciescannot

be tracedor reconciledwith theavailable information fromtheAirportbudgetortheCAFR.

Additionally,afootnotetotherevisedCityStaffReport–Exhibit33,AgendaItemNo.11‐A,Attachment2,p.5– states that the figure for indirectallocation to theAirportinfutureyearsis“32.9percentlowerduetorevisedassumptionsandcostanalysestobeincorporatedbeginningthatfiscalperiod.”Noexplanationisprovidedastowhytherevisedassumptionsandcostanalyseshavenotbeenappliedtopriorfiscalyears.IftheAirporthasbeenovercharged,theCityhasanobligationtocorrectthe calculations – which in turn likelywould requiremodifications to other datapoints,suchastheAirport’spurporteddebtandinterestobligationstotheCity,andinturnrequiremodificationstothelandingfeecalculations.

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Insum,despitethelackoftransparentdata,GRAconfirmedthattheAirportwouldhaveaconsistent annual surplus of more than $400,000, even after applying the assumptionsmostfavorabletotheCity.

118. GRAalsoreviewedtheCAFRexcerptsandadditionaldatafromCAFRsmadeavailable on the City website. While GRA was not able to provide a full analysis (orreconciliation),duetothegenerallackofspecifics,GRAdididentifyadditionalissuesthatshouldbeofconcerntotheFAA.Notably,theCAFRsshowthattheindirectcostsallocatedto theAirport grew significantly – bymore than61%between fiscal years 2006‐07 and2011‐12–andthat theAirportwasallocatedamuchgreatershareof indirectcosts thananyotherCityenterprisefund.AlthoughtheFAARevenuePolicydoesnotrequireidenticalallocationsamongenterprisefunds(see64Fed.Reg.at7707),thesignificantandgrowingallocations to the Airport, both in terms of dollars and percentages, should raisecomplianceconcernsandrequirejustificationfromSantaMonica.

F. TheLandingFeeIsFaciallyUnreasonable

119. Grant Assurance 22 requires a sponsor to make its airport available “forpublicuseonreasonableterms….”

120. TheCityhasadocumentedhistoryofusing,orattemptingtouse,landingfeesto achieve impermissible ends. The Director’s Determination in Bombardier AerospaceCorp.andDassaultFalconJetCorp.v.CityofSantaMonica,FAADocketNo.16‐03‐11,supra,examined the reasonableness of the City’s proposal to charge a sliding scale landing fee(onlyonaircraftweighing10,000poundsormore)rangingfrom$0.29per1,000poundsGLWforthelightestaircrafttoamaximumof$5.81per1,000poundsGLWfortheheaviest.In addressing the reasonableness of the proposed fees, as required by the City’s federalobligations,thedecisionobserved:

TheFAA recognizes that formanyairports, especially commercial airports,landingfeesarethemainsourceofrevenueusedtorecoverairfieldcapital,operationsandmaintenancecosts.However,fromthedatapresentedabove,it isclearthat landingfeesabove$3.00per1,000lb./arerare.The landingfeeat SMO foraircraftweighing60,000 lb. is $5.81per1,000 lb.whileLosAngeles InternationalAirportcharges$2.00per1,000 lb.WealsonotethatthelandingfeecollectedatJFKInternationalAirportinNewYorkis$5.25per1,000 lb, $.56 lower than the top scale in place today at SMO. While thiscomparison, by itself, is not sufficient to make a finding of whether thelandingfeesarereasonable, inthisparticularcaseitdoesillustratethattheSMOlandingfeemethodologyisnottheresultofgenerallyacceptedpracticesusedwithintheindustry.

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***

What becomes apparent from this analysis is that no other airport in theUnited States has amaximum landing fee rate per 1,000 lb. that equals orexceedswhatisinuseatSMO,regardlessofaircrafttypeorclassofairport.

121. ThecurrentAirportlandingfeeof$5.48per1,000pounds“acrosstheboard”isevenfurtherbeyondtheboundsofreasonablenessand,likeitspredecessor,exceedsfeesinplaceelsewhere,includingatcomparablegeneralaviationfacilities.

122. In its April 30, 2013 staff report to the City Council (Exhibit32), the Cityreportedonstaff’sevaluationoflandingfeesatotherairports:

Aspartofthelandingfeestudy,staffconductedasurveytoidentifyairportsthat have landing fee programs for general aviation aircraft. The researchanalyzedanextensiveFAAdatabase that identified443public‐use airportsthatcharge landing fees.Staffexcludedheliportsandseaports fromthe listandconcentratedon:

Airportslocatedinhighlyurbanizedareas;

Airportsthatareknownbystafftohaveanactivelandingfeeprogramforgeneralaviationaircraft;and

Airportsknowntochargelandingfeesforbasedtenants.

Out of the 58 airports thatmet the above criteria, seven have landing feeprogramsthatchargetheirbasedaircrafttenantslandingfees.

(Emphasissupplied.)

None of the seven given further review by staff was found to maintain a landing feeremotelyneartothatadoptedbytheCity.

123. TheCitystaffalsonotedthateventhefewairportsthatimposelandingfeeson both based and transient aircraft include a variety of exceptions, such as a weightthreshold belowwhich reducedor no fees are charged.Accordingly, the practices of theother airports identified by the City do not serve as an independent justification for theCity’sfeeregime.

124. Infact,thereisnobasisonwhichtheCitycouldhavejustifiedthelandingfeeasreasonable.InconnectionwithBombardier,theFAAreviewedthelandingvariousfeesatotherairports,andasdiscussedat¶120foundintheDirector’sDeterminationthateven

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theratesatlargecommercialairportswerelowerthanthefeethanatissueforSMO.Id.at38.Similarly,thecurrentlandingfeeatSMOalsoappearstoexceedthoseatthemajorityofthoseairports,basedoncurrentdata fromexamplesof theairports studiedmore thanadecadeago.20

G. The Landing Fee Was Adopted and Imposed withoutReasonable Notice or an Opportunity for Input fromAffectedParties

125. BoththeFAA’sRatesandChargesPolicyandGrantAssurance24makeclearthat airports must engage in “meaningful” discussions with their users beforeimplementing any changes to their rates and charges, and also specify that certaincategoriesofbackgroundinformationmustbeprovided.See78Fed.Reg.at55332(§1.1.1and§1.1.2)and55336(Appendix1)(September10,2013).SeealsoFAAOrder5190.6B,at§18.6(b).Inotherwords,theprocessmustbetransparent,openandcollaborative.

126. The City’s 30‐day rush to legislate, by contrast, was opaque, closed andunilateral.Asaninitialmatter,theAirportuserswereultimatelyprovidedonlytwelvedaysinwhich to review the last set of documents provided by SantaMonica before the CityCouncil voted upon the resolution – not nearly enough to review and understand them,evenlimitedandincompleteastheywere.ThestudiesprovidedtotheAirportCommission(Ex.28),CityCouncil(Ex.33,AgendaItemNo.11‐A,Attachment2),andultimatelythepublic relied on numerous assumptions that were never explained – such as themethodology used to determinewhat percentage of costs are attributable to the airfieldcostcenterandtoothercostcenters.WithoutexplanatoryinformationthattheCitynevermade available, users of the Airport could notmake ameaningful evaluation or providemeaningful input.Therequirementsof theRatesandChargesPolicy (and theunderlyingGrantAssuranceandstatute)weresimplyignored.

20Examples(seeEx.48a‐f)include:

BostonLogan,Massachusetts(BOS) $4.84DenverInternational,Colorado(DEN) $4.59Hanscom,Massachusetts(BED) $2.32RenoTahoeInternational(RNO) $3.15FortMyers,Florida(RSW) $2.62SantaFe(SAF) $0.00

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III. TheCityHasChargedSub‐MarketRentstoSantaMonicaCollege

127. There is substantial evidence that the City has for years charged, andcontinuestocharge,lessthanfairmarketrenttoSantaMonicaCollege(“SMC”)forAirportproperty.

128. The FAA repeatedly and continuously has emphasized that an airport’scomplianceobligationsrequiretherateschargedfornon‐aeronauticaluseofanairporttobebasedonfairmarketvalue.See,e.g.,Order5190.6B,§§17.11–17.12.

129. Not only was the City well aware of this requirement, but as part of itsdiscussionofprospectiveleaseratestobechargedbothaeronauticalandnon‐aeronauticaltenantsafter July1,2015(as then‐current leasesexpired),CityStaffandtheCityCouncilstressed the importance of charging fair market rent, especially for non‐aeronauticaltenants.Ex.49.

130. Beginning in 1988 and continuing to the present, the City has leasedapproximately110,547squarefeetofAirportaeronauticalpropertytoSMC(whichisnotaCityentity)foruseastheSMC’sAirportArtsCampus.

131. TheoriginalleasetermwasfortenyearsfromJuly1,1988andwasrenewedfor another ten years through June 30, 2008. Since that time, SMC has occupied thepropertyasamonth‐to‐monthholdover tenant.Theoriginal leasecalled forbase rentof$100,000peryear,triplenet,withannualConsumerPriceIndex(“CPI”)adjustments.

132. Exhibits50and51 listtheannualrentpaidSMCbetweenthebeginningoftheleaserenewalin1998and2013.

133. TheSMCleaserateasof2013was$21,411permonth($256,930annually),or $0.19 per square foot. This is substantially below a fairmarket rate, despite periodicCPI‐basedadjustments.

134. In September 2013, GRA conducted an analysis of the rents being chargedSMC.Ex.52. It found the $0.19 per square foot rate to be “substantially lower than thepricepersquarefootpaidbyall[Airport]tenants”otherthancertainuniquetenantssuchastheMuseumofFlyingandtheSantaMonicaAirportPark.Id.atp.4.SeealsoEx.53.21

21FAApolicy explicitly allows flightmuseumsandparkland tobe assessed less‐than‐market rent.See FAAOrder5190.6B,§§17.15(a),17.16(a).

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135. GRAalso compared the SMC rate to thoseof comparably large commercialspaceselsewhereintheCity,andfoundthoseratestorangefrom$1.50to$4.50persquarefoot.Smallerspacesrangedfrom$0.48to$3.20persquarefoot.Ex.52atp.5.

136. In short, the City and SMC have a continuing “sweetheart” deal,which theComplainantsunderstandcontinuestobethecasetoday.ThisarrangementbothviolatesGrant Assurance 25 and comprises a form of past and ongoing revenue diversion; theconsequencesredoundtothedetrimentofotherAirporttenantsandusers.

IV. The City’s Proposed Airport Leases and its LeasingProcessBlatantlyDisregardFederalRequirements

137. Asinthematterspreviouslyalleged, theCity’sconsiderationofrenewedornew Airport leases has been governed by considerations – in particular its continuingintention to close or substantially restrict the Airport – which are inconsistent with itsobligations as an airport sponsor and which have been extremely damaging toComplainants and to all Airport aeronautical businesses. In fact, the City Council hasabrogated its responsibilities as an airport sponsor both by unreasonably delaying leaserenewalsand inadopting restrictive, short‐term leasesbased solelyon theargumentsofhomeowner organizations and anti‐Airport advocates rather than on marketconsiderationsandtherequirementsoffederalpolicy.

A. Lease Renewals Have Been Delayed Unreasonably andWithoutJustification,totheDetrimentofTenants

138. The FAA’s Rates and Charges Policy encourages negotiation of all airportfees,includingleaserates,betweenasponsorandtenants,butstressestheimportanceoftimelyandopencommunication:

Airportproprietorsshouldconsultwithaeronauticaluserswellinadvance,ifpractical, of introducing significant changes in charging systems andprocedures or in the level of charges. The proprietor should provideadequate information to permit aeronautical users to evaluate the airportproprietor’s justificationforthechangeandtoassessthereasonablenessofthe proposal. For consultations to be effective, airport proprietors shouldgive due regard to the views of aeronautical users and to the effect uponthemofchangesinfees.Likewise,aeronauticalusersshouldgivedueregardtotheviewsoftheairportproprietorandthefinancialneedsoftheairport.

§1.1.1,78Fed.Reg.at55332.

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139. InPart16proceedings,theFAAhasconfrontedinstancesofintentionaldelayby airport sponsors in lease negotiations. As it emphasized inUnitedStatesConstructionCorporation v. City of Pompano Beach, Florida, FAA Docket No. 16‐00‐14 (Director’sDetermination),at18n.63(August16,2001):

[T]he extended period of time and delays in negotiating a lease between[applicant]andtheCity[ofPompanoBeach]...wasunjustlydiscriminatory[having]theeffectofgrantingexclusiverighttotheuseofthe[Airport].

140. The FAA has also cautioned that a sponsor’s desire (or even its pendingrequest)tocloseitsairportcannotbeusedtoaffectleasenegotiationsorterms:

While at no time were the Complainants denied access to their leasedhangars,theDirectorcautionstheRespondentthatthecontinuedpracticeofusing its closure petition as a means to dissuade, intimidate or otherwiseturnawaypotentialtenantscouldpotentiallybeaviolationofAssurance24inthefuture.

Jim De Vries, et al. v. City of St. Clair, Missouri, FAA Docket No. 16‐12‐07 (Director’sDetermination),at39(May20,2014).

141. Implicitintheseguidelinesanddecisions,andexplicitin§1.1.1oftheRatesandChargesPolicy,supra,isthepremisethatitistheairportsponsor,notoutsideinterestsorcitizensgroups,thatmusttimelyproposeandnegotiateleaseterms.

142. VirtuallyallAirportleasesterminatedbytheirtermsonJuly1,2015.YettheCity undertook little effort before, or even after, that date to develop leasing criteria,negotiateleasesorfinalizeleasenegotiationsandterms.Ultimately,theCitysimplycavedintoanti‐Airportgroups in lieuofexercising itsresponsibilitiesasanairportsponsorbyholdingoverallAirportbusinesstenants,withnonewleasesatall.

143. Thus, for example, Complainants Bill’s Air Center, Kim Davidson Aviation,and JusticeAviationhave formonthsbeen forcedtooperatetheirestablishedbusinessessolelyonaholdover,month‐to‐monthbasissinceJuly1,2015.Theadverseimpactsofthisuncertaintyonbusinessplanning,financesandtheretentionofemployeesareself‐evident.

144. Theintentional“go‐slow”andirresponsibleprocessleadinguptothepresent“no‐lease”impassecanbebrieflysummarizedasfollows:

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a) March2014

AStaffReportispresentedtotheCommissiononMarch24,2014andtotheCityCouncil on March 25, 2014. Ex. 54. The Staff Report devotes most of itsdiscussiontoAirportclosureoptions,butadvisesthatsuchoptionsmustawaittheoutcomeofpendinglegalandadministrativeactionsandsuggeststhat“leaserevenuesbemaintainedtopromotetheAirport’songoingself‐sufficiency,avoidfuturesubsidiesfromtheGeneralFund,andbeginrepaymentoftheprincipleonthe General Fund loan to the Airport Fund.” Id. at 22. Accordingly, staffrecommends:

Non‐aviation space be leased for 5‐year terms with five 1‐year renewaloptionsattheCity’sdiscretion;

Aviationspacebeleasedfor1‐yeartermswithtwo1‐yearoptionstorenewattheCity’sdiscretion;and

ExistingFBOtenantswouldbeofferedrenewalofnon‐aviationportionsforfive years with options as above and aviation portions for one year withoptionsasabove.

Staff’s justification to the City Council for the proposed maximum three‐yearaeronautical lease terms is that then‐current litigationandPart16proceedingwouldtakethreeyearstoresolve.

TheCityCouncilvotes tomodify thestaff’s recommendationsand torenewallcurrentleasesforthreeyearswithone‐yearoptionsattheCity’sdiscretion.Staffis directed to develop leasing guidelines for use in connection with the leaserenewals.Ex.55,p.5.

b) July2014

Staff presents proposed Leasing Guidelines (“Guidelines”) to the Commission,callingforthree‐yearleasesforallAirporttenants.Ex.49.

c) August2014

TheLeasingGuidelinesarepresentedtotheCityCouncil,whichvotestoreturnthemtotheCommissionforitsrecommendations.Ex.56,p.8.

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d) October2014

TheGuidelinesaremarkedupbyCommissionChairGoddardandentered intothe Commission record at its October 27, 2014 meeting, but the Commissiontakesnofurtheraction.Ex.57.

e) February2015

TheCommissionapprovesrevisionstotheGuidelinesprovidingforonlymonth‐to‐month leasesforallAirporttenants,tobebasedonundefined“commercial”rates.Ex.58.

f) March2015

OnMarch23,2015,theCommissionreviewsarevisedStaffReport(Ex.59)buttakesnoaction.

On March 24, 2015, the City Council reviews the revised Staff Report, whichrecommends renewal of existing FBO and other aeronautical leases for threeyears.Ex.60,p.1.TheCityCouncilvotesinsteadtodividetheAirportintotwosegments, purportedly reflecting the portions delivered to the City by the IOT(the “mainparcel”) and a1949deed (the “westernparcel”). Properties on themainparcel are tobeofferedapproximately three‐year lease renewals (not toexceed July 1, 2018); those on the western parcel (including aeronauticalbusinesses) are to be offered month‐to‐month tenancies. The City Councilapproveshavingstaffproceedwithnegotiationoffivespecifiedleaserenewals.Ex.61,pp.5‐7.

g) July2015

Staffpresents tentative lease termsnegotiatedwithAirport tenantsat the July14, 2015City Councilmeeting: twoFBO leases for three years, twomonth‐to‐month aeronautical leases on the so‐calledwestern parcel and various 3‐yearnon‐aeronautical leases. Ex. 62. The City Council approves only the non‐aeronautical leases, deferring action on the aeronautical leases and directingstafftostudywhethertheCityshouldtakeoveroneorbothFBOpropertiesandoperatethemitself.Ex.63,pp.15‐17.

h) August–October20,2015

NoAirport‐relateditemsareconsideredbytheCityCouncilinpublicsession.

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i) October27,2015

Staff presents the City Council with recommendations, inter alia, for addingrestrictions on fuel sales to aeronautical leases Ex. 64, and the City Councildirects staff to develop and present specific proposals to that end. No furtheractionistakenregardingAirportleases.Ex.5.

j) December3,2015

StaffmeetswithAirporttenants,includingFBOsandflightschools,andadvisesparticipants that staff is continuing to evaluate various lease provisions,including the fuelingrestrictionsrecommendedby theCityCouncilonOctober27,2015.Ex.3.

145. In sum, the City began the lease renewal process in March 2014 with aninherentlyunreasonableproposal–amaximumofthree1‐yearleasesforallaeronauticalbusiness tenants, based solely on the possibility of a favorable outcome in both federalcourtandbeforetheFAA–andthenfoot‐draggedforthenextyear‐and‐a‐half,afterwhichthoseaeronauticalbusinessesstillhadneitherleasetermsnorevenaglimmerofwhattheCitymightproposebeyondmonth‐to‐monthforwesternparceltenants.Thus,theCityandits City Council have engaged in no consultation with tenants, no negotiation withtenants,22and have proffered no lease policy, much less lease terms, beyond the CityCouncil’soriginalbare‐bones,patentlyinsufficientandstillnotfinalized3‐year/month‐to‐month“allocation”ofAirportproperties.23

146. Moreover,nowhereinanyofthestaffreportsorothermaterialspresentedtotheAirportCommissionandto theCityCouncil is informationprovidedorconsiderationgiventomarketfactorssuchasleasedurationatcomparablefacilities,theneedsofAirporttenant businesses, or the actual costs of Airport operations. Rather, the City Council’sMarch 24, 2015 decision, and subsequent actions, were based entirely on the likelydurationofpendinglitigation,onthedemandsofanti‐Airportgroupsthatanyleasetermsbeminimal and, so far as “western parcel” tenants are concerned, on thewhims of CityCouncilmembers,inutterdisregardoffederalpolicyandtheCity’sfederalobligations.

22Inthefewmeetingswithaeronauticaltenantswhichdidoccurbeforeall aeronauticalleasingdiscussionswerefrozenbytheCityCouncil inJuly2015, leasedurationwaspresentedonastrictly“take‐it‐or‐leave‐it”basis,notsubjecttonegotiation.23InitsAugust14,2014MotiontoDismisstheComplaintinFAADocketNo.16‐14‐04,theCityassertedthat“theCityCouncilhaspreviouslyvotedtoofferthree(3)yearleaseextensionswhichwouldrunthroughJune30,2018and is in theprocessofconsideringproposed leasingguidelines.” Id.at3.Morethanayear later,neithertheoffernortheguidelineshaveappeared.

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B. TheCity’sProposedShort‐TermLeasesareUnjustifiedandPlainlyIllegal

147. Thebasicstandardforallaeronauticalusercharges,includingleaserates,isset forth in Grant Assurance 22(a), which requires both non‐discrimination and“reasonableterms.”ThisrequirementisalsopartoftheFAA’sRatesandChargesPolicy:

Rates,fees,rentals, landingfees,andotherservicecharges(“fees”)imposedonaeronauticalusersforaeronauticaluseofairportfacilities(“aeronauticalfees”)mustbefairandreasonable.

78Fed.Reg.at55332.

148. Both the Rates and Charges Policy and FAA Order 5190.6B also requirereasonablenessinthenegotiationprocess:

Airportproprietorsshouldconsultwithaeronauticaluserswellinadvance,ifpractical, of introducing significant changes in charging systems andprocedures or in the level of charges. The proprietor should provideadequate information to permit aeronautical users to evaluate the airportproprietor’s justificationforthechangeandtoassessthereasonablenessoftheproposal.

78Fed.Reg.at55332;seealsoFAAOrder5190.6B,§18.6(b).

149. As described in a recent Director’s Determination (FAADocket No. 16‐12‐07):

If a sponsorwishes to require lease terms that the FAA considers fair andreasonable, and a potential lessee does not wish to agree to those terms,neitherpartyisunderobligationtolowertheirstandardsinordertosignalease.

JimDeVries,etal.v.CityofSt.Clair,Missouri, at 26 (May 20, 2014) (emphasis supplied).Inherentinthisstatementistherightofanairporttenanttochallengeunacceptableterms,iflikelytobedeemedunreasonable.

150. The adopted, but not yet implemented, City decision to offer mostaeronauticalbusinessesleasesnottoextendbeyondJuly1,2018(adateseeminglypickedat random), and to offer those located on the so‐called “western parcel” onlymonth‐to‐monthleases, isaveryclearviolationofthe“reasonableness”requirement.TotheextenttheCityhasnowtakenthedefactopositionthatnoleasesbeyondmonth‐to‐monthwillbe

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offered at all to aeronautical tenants (even though non‐aeronautical tenants have beengrantedmulti‐yearterms),theviolationisevenmoreglaring.

151. While there is no bright‐line test for the reasonableness of any particularleaseterm,theFAAhasapprovedtheuseofshort‐termleasesforaeronauticalbusinessesin only limited situations where justified by legitimate circumstances, such as pendingrelocation or construction which would affect the subject facilities. For example, inMcDonoughProperties,L.L.C.,etal.,v.CityofWetumpka,Alabama (FAADocketNo. 16‐12‐11,FinalAgencyDecisionandOrder,at21(January15,2015),aone‐yearleasetermwasfound to be appropriate in view of proposed reconstruction or relocation of the airport(subject toFAAapproval),anda10‐year leasewasultimatelyofferedafter thesponsor’splans were abandoned. Similarly, in Santa Monica Airport Association v. City of SantaMonica,FAADocketNo.16‐99‐21,FinalDecisionandOrder,at23(February4,2003),theCitywas justified indenying long‐term leases tosouth‐side tenants(whilegranting long‐term leases for north‐side FBOs) in light of the terms of the 1984 Agreement and itsapproval of plans to eliminate most aeronautical uses on the south side. And inUnitedStatesConstructionCorporationv.CityofPompanoBeach,Florida,FAADocketNo.16‐00‐14,FinalAgencyDecision,at22(July10,2002)theFAAfoundthataten‐yearleasewithaten‐year renewal option was not inherently improper, but that the sponsor’s additionalrequirementofatwo‐yearcancellationclauserendereditunreasonable.

152. TheCity’snotionthatitneednotpresentlyofferreasonable,long‐termleasesinlightofitsintentiontoclosetheAirportissimplyunfounded.InJimDeVries,etal.v.CityofSt.Clair,Missouri,FAADocketNo.16‐12‐07,theDirector’sDeterminationaddressedthiscontentioninthecontextofanactualpendingpetitiontoclosethesubjectairport:

However, the Director is concerned that the Respondent appears to haveused its active petition to close the airport as part of its justification topostponehangarnegotiations.Aspreviouslydiscussed,anairportsponsor’sfederal obligations are not altered or suspended based on its intent anddesire to close the airport. The Director notes that the Respondent’scontinuedpracticeofwaitinguntilNovembertobeginleasenegotiationsforthefollowingyear–particularlyifrateincreasesareinvolved–couldcreatea situation in the future inwhich itmay fail tomake a good‐faith effort toreachanagreement.WhileatnotimeweretheComplainantsdeniedaccessto their leased hangars, the Director cautions the Respondent that thecontinuedpracticeofusingtheCity’sairportclosurepetitionasameanstodissuade, intimidate, or otherwise turn away potential tenants couldpotentially be a violation of Grant Assurance 22, EconomicNondiscrimination,orGrantAssurance24,FeeandRentalStructure, in the

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future.

Id.at26‐27(May20,2014)(emphasissupplied).Moreover:

Sponsorshavetheobligationtonegotiateinsuchawaythatdoesnotdeterpotential tenants from doing business with the airport. Because theRespondent had requested permission from the FAA to close the St. Clairairport it appears that it believed it couldbegin to closeout services to itsaeronauticalusers.Thisisnotthecase.

Id.at36.

153. To reiterate, the evidence is overwhelming that the City’s lease renewalprocessandproposalshavenothingtodowithaeronauticalmarkets,comparablefacilities,federalrequirementsortheneedsoftheAirportanditstenants.TheyaredrivensolelybythegoalsofrestrictingandultimatelyclosingtheAirportandbytheanti‐Airportagendasofparochialpoliticalinterests.

IV. ImpactonComplainants

154. EachoftheComplainantshasbeendirectlyandsignificantlyaffectedbytheviolationsheretoforealleged.ComplainantSmithmustpayexcessivelandingfeesand,asatenantoftheCity,isalreadychargedfortheuseofAirportproperty,facilitiesandfuel,andisthusdouble‐chargedaswell.ComplainantJusticeAviationlikewisepayslandingfees,andas theoperator of a flight school bears the additional, unfair burdenof having such feesimposed on all flight training operations, including multiple touch‐and‐go landings.ComplainantsJusticeAviation,Bill’sAirCenterandKimDavidsonAviationareallvictimsoftheCity’scontinuingrefusaltodomorethanmaintainaeronauticalbusinessesonamonth‐to‐monthholdoverbasisanditsdecisionto(someday)offeronlyshort‐termleases.AsaconsequenceoftheCity’scontinuingdisregardofitsobligationtoofferfairandreasonablelease terms, these tenants and sub‐tenants, and their employees, are unable to plan foreventhenearfuture,muchlessanticipatelonger‐termneeds.AndalloftheComplainantsare necessarily adversely affected by the City’s financial manipulations, which haveburdenedtheAirportwithexcessiveloanobligationsandraisedthecostsofoperationforallAirporttenantsandusers.

V. Pre‐ComplaintResolutionEfforts

155. On December 2, 2015, Complainants’ counsel directed a letter to therespondentsadvisingofComplainants’ intent to file thepresentactionandrequestinganopportunitytodiscusspossiblesettlementoftheclaimsidentifiedtherein.Ex.65.

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156. The issuespresented inEx.65hadpreviouslybeenraisedwith theCitybyNBAAincorrespondenceconcerninglandingfeespriortotheiradoptionbytheCity(Exs.66‐67), the importance of airport tenants being providedwith leases beyondmonth‐to‐monthterms(Exs.68‐70)andenvironmentalrestrictions(Exs.71‐72).NorwasNBAAtheonlycomplainanttopreviouslyhaveobjectedtoissuesnowraised(Ex.73).

157. OnDecember29,2015,afterurgingaresponsetoComplainants’initialletter(Ex.74),Complainants’ counselmetwithCityAttorneyMarshaMoutrie andDeputyCityAttorneyIvanCampbell.Complainants’counseldetailedtheissuespresentedinEx.65,andanswered questions concerning the factual and legal basis of Complainants’ proposedclaims. The parties agreed to communicate further in the near future, Complainants’counselexplainingthattimewasoftheessence.

158. Unfortunately,theCitysubsequentlyprovedunresponsive,despiteeffortsbyComplainants to communicate the importance of the timely resolution of the pendingissues,andarequestthattheCityatleastindicatewhetheritwaswillingtoengagefurther.Ex. 75. Ultimately, the City declined to offer any response to Complainants’ detailedexposition of their claims, suggesting only that the issues could be discussed at a futuremeeting called by the FAA for another purpose (Exs. 76‐77). Meanwhile, the City hascontinued to advance, indeed accelerate, its agenda of re‐purposing theAirport for non‐aeronauticaldevelopment and imposingunreasonable termsand conditionson itsusers,includingComplainants.

159. AstheFAAiswellaware,complainantsarenotrequiredtoengageinfurtherone‐sidedefforts to resolveadisputewithofficialswhohave “forallpracticalpurposes”madeclearthattheywillnotcomplywiththeGrantAssurances,suchasbytheadoptionofordinances thatareatoddswith thesponsor’s federalobligations,or remainingsilent inresponsetocorrespondence.SeeBombardierAerospaceCorp.,andDassaultFalconJetCorp.v.CityofSantaMonica,DocketNo.16‐03‐11,at19‐23(January3,2005).

Conclusion

As detailed in the first sections of this Complaint, the City regrettably has a longrecordofseekingto findmeansbywhichtorestrictoperationsatSMO, indefianceof itsfederalobligations.ThecurrentsituationattheAirport,whichdemonstratesthattheCityhasnointentionofchangingitsways,requiresthestrictestpossiblefederalresponse.

As alleged in this Complaint, the City is in violation of its Grant Assurances(including no. 22, no. 24, and no. 25), IOT, and federal statutory obligations: i) AirportrevenuehasbeenandcontinuestobedivertedthroughundocumentedloanstotheAirportfrom the City and excessive interest thereon; ii) the current landing fee regime at the

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airportisbothprocedurallyandsubstantivelyflawed,withtheconsequencesthatthefeesareexcessiveandunjustified;iii)SMC,foryearsifnotdecades,haspaidbelow‐marketrentfornon‐aeronauticalproperty,a further formofrevenuediversion; iv) inapparent–andmistaken–anticipationofclosingtheAirport,theCityhasrefusedtoextendtheleasesofaeronautical tenants beyondmonth‐to‐month holdover terms and has formally adoptedshort‐termleasesasamatterofCitypolicy.

TheFAA’sstandardremedyforanairportsponsor’snon‐compliancewithitsfederalobligations,inadditiontorequiringacorrectiveactionplan,istheinterimsuspensionofitseligibility for further AIP grants. But because the City has made clear that it has nointentionofapplyingforadditionalAIPgrants,thisisacaseinwhichtheCityneedstobeon notice that if its non‐compliance is not corrected, including the return of divertedrevenue,theresultwillbethesuspensionofalltransportationgrants(e.g.,formasstransit)totheCity,pursuantto49U.S.C.§47111(e).

Moreover,giventhedeficiencies in,orcompleteabsenceof,Citydocumentationofitsloansandlandingfees,aswellasitsimproperratebasecostallocations,asheretoforealleged,Complainantsurgethat,inimplementingremedies,onlyafullauditofrelevantCityand Airport books and records by an experienced, independent firm will provide thenecessaryclarityand transparency for currentandany future fees, chargesand financialobligationsimposedbytheCityontheAirportanditsusers.

Lastly, Complainants request that the FAA consider judicial enforcement of Cityobligations pursuant to 49 U.S.C. § 46106 and § 47111(f) should the City continue toengageintheconductallegedherein.

Accordingly, Complainants request that the FAA take any and all actions that arenecessaryandappropriatetoensurethattheCity is incompliancewith itsobligationsasthesponsorofSMO.

Respectfullysubmitted,

1700DeckerSchoolLaneMalibu,CA90265310‐503‐7286rsimon3@verizon.net

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CertificateofService

IherebycertifythatIhavethisdaycausedtheforegoingcomplainttobeservedonthefollowingpersonsbyfirst‐classmailwithacourtesycopybyelectronicmail:

RickColeCityManagerCityofSantaMonica1685MainStreet,Room209SantaMonica,CA90401manager@smgov.net

MarshaMoutrie,Esq.CityAttorneyCityofSantaMonica1685MainStreet,Room310SantaMonica,CA90401marsha.moutrie@smgov.net

MartinPastuchaDirectorofPublicWorksCityofSantaMonica1685MainStreet,Room116SantaMonica,CA90401martin.pastucha@smgov.net

SteliosMakridesAirportManagerCityofSantaMonicaAirportAdministrationBuilding3223DonaldDouglasLoopSouthSantaMonica,CA90405stelios.makrides@smgov.net

NelsonHernandezSeniorAdvisortotheCityManageronAirportAffairsAirportAdministrationBuilding3223DonaldDouglasLoopSouthSantaMonica,CA90405nelson.hernandez@smgov.net

Datedthis5thdayofFebruary,2016.

1700DeckerSchoolLaneMalibu,CA90265310‐503‐7286rsimon3@verizon.net