FAA Orders City to Return $31 Million

The Federal Aviation Administration has ruled that Los Angeles must return--within 10 days--$31 million in airport funds it earmarked to help balance the city budget, or face possible loss of other federal transportation money.

The FAA rejected out of hand the city’s rationale for shifting the money to the city’s general fund, setting up yet another showdown in a long-running battle with Mayor Richard Riordan over the use of airport revenues.

The issue of diverting federal airport money has so inflamed key members of Congress that the dispute could jeopardize the city’s Metro Rail subway project.

“We have issued a solid legal opinion that clearly states that Los Angeles is obligated to retransfer these funds,” said William Shultz, an FAA spokesman. “We expect them to do so within 10 days.”

The FAA warned ominously that “the city’s prompt cooperation will avoid any impact on federal assistance to airports and other city programs.”

Noelia Rodriguez, the mayor’s spokeswoman, said the mayor stands by his long-held position that the money has been transferred legally. She said city officials will confer to decide what steps to take in light of the FAA letter.

“The transfer of the money always was legitimate and now we want to hear from the city controller on how to proceed,” she said. “Obviously, the news is disappointing.”

Senior Assistant City Atty. Bret Lobner, who is handling the FAA matter, indicated that the city will not be complying with the ruling--at least not immediately.

He said he planned to reply by letter today, outlining the city’s response and “addressing the FAA’s concerns.” Asked if the city would return the $31 million, Lobner said, “I’m not sending her money, I’m sending her a letter.”

Shultz, the FAA spokesman, refused to outline what steps the FAA would take if the city failed to abide by the opinion.

“We’re not going to get into any of that,” Shultz said in a conference call with reporters on Thursday.

At present, the city has no appeal process because the FAA does not consider the legal opinion--and its accompanying threats--an official enforcement action. In effect, the FAA is jawboning the city to return the money, however grudgingly, in the face of the unequivocal legal opinion.

But should the city decide to refuse to transfer the money back to airport accounts, the FAA could then attempt to enforce its ruling and the city would be able to appeal, federal officials indicated Thursday.

In a letter to John J. Driscoll, executive director of the city’s Department of Airports, Susan Kurland, FAA associate airport administrator, said the city was wrong to base the $31-million transfer on capital improvements to the airport in the 1950s and ‘60s.

“The FAA concludes that the past contributions to the airport . . . were not justified as being considered unreimbursed and could not be charged by the city to LAX revenues in 1996.”

If the city fails to return the money, Kurland wrote, that “would lead to an enforcement action . . . which may include withholding of future grants and payments on current grants.”

The FAA also threatened to “terminate the availability of all federal transportation funds appropriated in fiscal years 1994 and 1995. The FAA may also file suit in U.S. District Court to obtain specific relief.”

Los Angeles County transit officials were assessing how the FAA ruling could affect federal funding for the Metro Rail subway project.

Under congressional legislation, the federal government can withhold up to $70 million in subway construction funds from the Metropolitan Transportation Authority if the U.S. Department of Transportation inspector general finds that Los Angeles has illegally diverted airport funds.

The legislation was pushed by Rep. Frank Wolf (R-Va.), chairman of the House Transportation Appropriations Subcommittee, who has waged a bitter cross-country feud with Riordan over the diversion of LAX funds.

The inspector general, not the FAA, would make the decision on whether any subway funds are withheld.

MTA Chairman Larry Zarian has said it is unfair to put the transit agency in the middle of the dispute between Riordan and the airline industry “since we have no power to determine the outcome.”

The subway project suffered a blow when Congress allocated $70 million this year for subway construction--less than half of the $158.9 million requested.

Even before he took office, Riordan has been eyeing Los Angeles International Airport as a source of revenue to balance the city’s budget and pay for his plan to hire nearly 3,000 new police officers by 1997.

Federal law, however, prohibits the use of airport funds for any non-aviation purpose.

The dispute centers on whether old loans provided by the city to the airport for infrastructure improvements fall into that category.

After an often nasty fight with Riordan, the council voted during the last budget debate not to spend the $31 million on new police officers until the dispute could be settled.

With the city facing a projected $40-million shortfall in the current budget, LAX reimbursed the city’s general fund on Sept. 30.

Asked about returning the $31 million, Driscoll said Thursday: “I don’t have the money; the city has the money. I am not in the position to send the money back.”

Possibly foreshadowing the way the city would fight the FAA action, Driscoll noted that Los Angeles had no opportunity to make its case for the transfer.

“We need to look at what the city attorney decides with respect to the lack of a hearing and due process. Usually, the FAA is a real stickler for following process and having hearings,” Driscoll said. City Controller Rick Tuttle, who has supported the transfer, defended it again Thursday.

“This is a matter of reimbursement of past investments by the taxpayers,” he said, and criticized efforts to link the transfer to funding for subway construction.

But Councilman Nate Holden, chairman of the council’s Transportation Committee and an ardent Riordan critic, urged the mayor and his council colleagues to return the money and avoid a fight with federal officials.

“I’ve been saying to the mayor and other members of the council that their conduct is a mistake,” Holden said. “This is a war they cannot win.”

Bornemeier reported from Washington and Martin from Los Angeles. Also contributing to this story was Times staff writer Richard Simon in Los Angeles.