City Gave Up $117 Million in U.S. Funds for LAX

Over the last eight years, the city of Los Angeles has forsaken more than $117 million in federal grants urgently needed to improve safety and security at Los Angeles International Airport.

The federal money could have been used to soundproof hundreds of homes, to build safer taxiways to prevent near misses between aircraft and to install advanced security systems to keep intruders from reaching “secure” areas of passenger terminals.

The failure to accept the federal assistance is a direct result of former Mayor Richard Riordan’s unsuccessful effort to tap airport proceeds to pay for putting more police officers on the streets of Los Angeles.

The magnitude of the loss only becomes clear now--five months after Riordan left office--following a comprehensive review by The Times of airport and Federal Aviation Administration records.

Key Riordan administration officials saw the forgone federal money as a price worth paying to eventually clear the way for using LAX as a financial engine for the city treasury.

The former mayor’s supporters note that his legacy also includes a substantial increase in the amount airlines pay to land at LAX. That change raised tens of millions of dollars that paid for airport operations and improvements.

Riordan fell flat, however, with one of the central initiatives of his first term: The attempt to divert revenue from the airport to City Hall was beaten back by the powerful airline industry and its allies in Congress and the FAA.

Unwilling to accept conditions attached to the financial aid, Riordan turned down the federal grants. That made LAX the only major airport in the nation to reject the primary source of U.S. aid for airport improvements.

But now, Mayor James K. Hahn is considering a reversal of Riordan’s position to deal with critical safety and security needs at LAX, one of the world’s busiest airports.

Although Hahn has not made a final decision, the mayor said he sees “a lot of promise” in a recent task force recommendation that the city once again seek and accept the federal grants for LAX.

George Kieffer, chairman of Hahn’s task force assessing the economic impact of the Sept. 11 terrorist attacks, called the Riordan policy “wrongheaded.” He said the city paid a political price in Washington because of its long and costly fight with the airline industry.

But before Hahn can change his predecessor’s course, the city must settle its long-running battle with the airline industry. “There are still some legal issues we have to work out first,” the mayor said.

A key sticking point: City officials are reluctant to promise the federal government that they will never again try to use airport revenues for other city programs.

As chairman of an airport safety task force of the U.S. Conference of Mayors, Hahn has been pushing for more federal assistance to help pay the cost of heightened security at the nation’s airports.

The issue of federal grants comes to the fore at a critical time, as the new mayor tries to shore up an airport suddenly facing a financial crisis--triggered by a sharp drop in passengers, flights, parking revenue and income from airport businesses--since the terrorist attacks.

The loss of revenue combined with the sharply higher cost of security since the attacks on the World Trade Center and Pentagon threaten to leave the airport with a gaping $108-million hole in its budget.

That’s not counting the untold costs to complete a long-delayed renovation of LAX or to upgrade security and install new baggage-handling systems and high-tech bomb scanners--as provided for in the aviation safety bill signed last week by President Bush.

To get money under the new law, Los Angeles has no choice but to rejoin the Airport Improvement Program that Riordan disdained.

The airline industry is urging Hahn to take the federal grants.

“We believe the policy to divert revenues from LAX was counterproductive for the city, the airport and the citizens of Los Angeles,” said Roger Cohen, managing director of state and local affairs for the Air Transport Assn. in Washington. “We need to close all the chapters on the past decade at LAX and move forward together with the new Hahn administration and a new City Council . . . to reinvigorate and revive that airport.”

Today, defenders of the Riordan policy are hard to come by.

Riordan is now running for governor of California. His aides refused to schedule an interview with the candidate to discuss his airport policy.

Ted Stein, the chief architect of Riordan’s policy while chairman of the city Airport Commission, declined to comment for this story.

Ironically, Hahn named Stein, a San Fernando Valley attorney, developer and political fund-raiser, to the top Airport Commission post. Now Stein may be forced to undo the very policy he helped make a cornerstone of the Riordan administration.

LAX officials declined to comment on the issue of federal grants--under orders from Stein.

Planning to Divert Airport Revenues

Los Angeles was still reeling from riots and recession when attorney and multimillionaire businessman Riordan ran for mayor in the spring of 1993. The city was struggling with the worst economic decline since the Great Depression. Crime was the overriding issue in the mayor’s race.

Riordan seized on the idea of leasing LAX to a private operator to fulfill a campaign promise--that he would find a way to pay for the hiring of 3,000 new police officers.

The idea of harnessing LAX as an economic dynamo for the city treasury had been endorsed by Los Angeles voters, who narrowly approved a City Charter amendment in 1992. Councilwoman Ruth Galanter, who wrote the ballot measure, saw the change as a way to head off budget cuts that threatened LAPD and Fire Department jobs.

But siphoning money from the airport wasn’t that simple.

To obtain federal grants for projects to improve runways, taxiways and service roads at LAX, the city had promised the federal government that it would not divert airport revenues to any non-airport uses for at least 20 years. The city repeatedly signed agreements to keep airport revenues “on” the airport.

Rather than agreeing to such conditions, Riordan and his airport commissioners decided in 1993 not to accept any more federal grants. The theory behind the move was that the city would be free to transfer money from the airport beginning in 2013.

“The decision to forgo grants was sensible at the time in light of what we knew about the legal and practical obstacles to revenue sharing,” said Michael Keeley, a deputy mayor during Riordan’s first term.

Riordan and Stein decided they wouldn’t need Washington’s money if they could make the airport far more profitable and find a way to get some of the surplus downtown.

To do that, the Riordan administration embraced and expanded a policy of former Mayor Tom Bradley to boost the amount airlines paid to land at LAX. Previously, landing fees were kept at a bare minimum while the bulk of airport operations were financed by money from concessions, parking lots and rents for terminal space.

Then-LAX Executive Director Jack Driscoll said the landing fees--based on the weight of arriving aircraft--were so low that the airlines were “really paying very little to operate out of LAX.”

Bradley and Riordan saw the increased charges to the airlines as long overdue--forcing the companies to pay their fair share to help run airport facilities.

Bradley’s tripling of the fees, just days before he left office, enraged the airlines. They saw the increase as a way to create a pot of money that could be diverted from the airport to prop up the city treasury.

With tens of millions of dollars a year at stake, the airlines fought back. The fight over airport finances became a classic case of hardball politics--fought in Congress and the courts over nearly a decade.

The airlines sued to stop the higher landing fees and vowed not to pay. Riordan responded by threatening to shut down the airport.

After tense negotiations in Washington, the airlines backed down and agreed in December 1993 to pay the higher fees while they pressed their case in court.

Another Front Opens in Dispute

As the dispute continued, the Riordan administration opened another front when it tried to move $58 million from the airport to the city treasury. LAX had received the money from the sale of land for the right of way of the new Century Freeway.

In September 1994, Stein secretly hired former Associate Atty. Gen. Webster Hubbell to lobby the Clinton administration. Hubbell was paid to persuade the Department of Transportation to allow the transfer of Century Freeway funds to City Hall. Once again, the airline industry sued the city.

The pressure on Los Angeles to leave airport money alone became so intense that powerful members of the House and Senate threatened to cut off federal funds for the city’s struggling Metro Rail subway construction.

FAA records show that by 1999, the city had passed up $73.4 million in grants that the airport was entitled to receive. The magnitude of the annual losses increased dramatically in 2000, when an aviation funding bill expanded payments to airports.

Since then, the city has forgone $44.4 million more in federal funds, according to the FAA. However, that money can be recovered if the city changes its policy.

Although the city largely prevailed in court on the question of raising landing fees, its efforts to use airport funds to pay for more police were a failure.

Los Angeles was already banned from diverting airport money and losing millions in federal grants. Then Congress wielded another club in an effort to stop the city’s go-it-alone policy.

Lawmakers passed a bill that said the city could not increase a fee on airline tickets until it once again accepted federal airport grants. The intended fee hike, to $4.50 per ticket from $3, could have been an enormous windfall for the airport. And with a $12-billion expansion plan on the drawing board, LAX would need the money.

“We sure as hell didn’t win the revenue diversion,” said Driscoll, the former airport executive director. “They blocked us. They slammed that thing so tight you couldn’t get a quarter of a dollar through it.”

Kelly Martin, chief of staff in the final years of the Riordan administration, acknowledges the city’s inability to divert airport money.

But she said the city had “weaned” itself of the U.S. funds and only needed Washington’s money if the expansion plan moved forward. But that proposal became mired in environmental reviews and community opposition.

The hijacking of four jetliners Sept. 11 changed everything. Since the attacks, safety and security at airports have become a preeminent concern.

The threat at LAX seemed only too real. Memories of a plot to bomb the airport around Jan. 1, 2000, were still fresh. And three of the hijacked jets that crashed Sept. 11 were bound for Los Angeles.

In hindsight, former Riordan administration official Keeley said the mayor and his staff may have underestimated the power of the airline industry.

“As the recent airline bailout demonstrates, the airlines are very adept at working the Washington machinery to achieve their own interests,” Keeley said.

Airline industry official Cohen said the battle with Los Angeles was time-consuming and extremely expensive. “It was a big waste of energy and resources which should have been spent all along making LAX better for the traveling public,” he said.

The question now before Hahn is a simple one: Can the city continue to spurn federal grants when faced with massive costs to improve security and eliminate safety hazards on the airport’s runways?