Return of LAX Funds Ordered

In a setback for Los Angeles Mayor Richard Riordan’s plan to transfer as much money as possible from the city’s airports to its general fund, the Federal Aviation Administration decided Monday to demand the return of almost $31 million transferred last year.

A spokesman for the mayor said Riordan would urge the City Council to appeal the ruling by the FAA’s director of airport safety and security. The city can appeal to a higher level within the FAA and, if necessary, in federal court. Moreover, because they believed the transfer would be challenged, city officials have not spent the money. It is gathering interest in an escrow account, the spokesman said.

Meanwhile, the FAA froze $60 million in federal grants for capital improvements at the four airports the city operates--Los Angeles International Airport, Van Nuys, Ontario and Palmdale--until the city repays the money it took.

The impact of the freeze on capital improvement projects was unclear Monday evening. Philip Depoian, deputy executive director of the city’s Department of Airports, said he could not be sure until he can review the matter today what the grants are for.

The Riordan administration sought to downplay the significance of the FAA action.

“This is a step along the way in a very complicated process,” said Riordan communications director Steve Sugarman. He said the FAA determination “contradicts the position of the city’s legal advisors.”

Riordan was said to be at a reelection campaign event. He did not return a call seeking comment. But his budget director, Christopher O’Donnell, has said he is confident that the city will prevail over challenges to the transfer, which is opposed by the airline industry. O’Donnell has noted that the county grand jury, the city controller and an independent private auditor all recommended the transfer when it was made in September 1996.

Harvey Englander, a spokesman for the airline industry’s Air Transport Assn., said: “The FAA has done exactly what we’ve been telling the City Council for months would occur and we hope that before this week is out, the City Council refunds the money so there are no delays in any capital improvements.”

The transferred funds represented debts the city maintains the airport owes the general fund in return for services such as fire protection and traffic control that the city provided from the 1920s through the early 1970s.

The FAA, which regulates operations of the nation’s airports, also enforces federal law that requires that airport revenues be spent only on airport operations.

One exception to the law allows airports to repay cities for unreimbursed past services.

Los Angeles city officials say the general fund is owed about $25 million for fire protection alone from the 1920s through the 1940s, before there were separate airport fire stations. The rest of the money was for miscellaneous services.

FAA officials said that the city had trouble documenting the money it said it had spent.

After a review, which the FAA initiated, David Bennett of the agency determined that the city was entitled to keep only $780,000 of the $31 million it had taken.

“It is long-standing FAA policy that when you transfer funds from an airport, you have to have adequate documentation,” said FAA special counsel Steve Okun. He said the city of Los Angeles could document only $1.1 million in unreimbursed expenses, but that the FAA determined it was not even entitled to all of that.

That, he said, was because the city agreed in 1975 to close its books on most unreimbursed expenses in return for a one-time $5.2-million transfer from the airports.

Still being litigated is an earlier transfer of $58 million. That money represented condemnation payments, plus interest, from the state of California to the Department of Airports for city land the state needed to build the Century Freeway.

The condemnation payments had stayed at the airport but the city argued that they did not have to because they were not airport revenues, but rather proceeds from the sale of city land.

The city asked federal transportation officials in 1994 for permission to make that transfer. The FAA did not block the transfer but notified officials that they could proceed at the risk of having to repay the funds.