Visitors bureau’s use of airport funds probed
Federal authorities are questioning whether the agency that manages Los Angeles International Airport has illegally provided more than $40 million in revenue since 2002 to L.A. Inc., the city’s convention and visitors bureau.
The Federal Aviation Administration, which began a routine audit of airport expenditures in July, has tentatively concluded that Los Angeles World Airports allocated the money in apparent violation of federal laws that restrict how airport revenue can be spent.
L.A. Inc., a private, nonprofit corporation, has received up to $6.8 million a year in airport funds for marketing and promotional campaigns designed to bolster tourism in the region and encourage travelers to fly into LAX, LA/Ontario International Airport and Palmdale Regional Airport.
“The FAA notified us that the expenditures involving L.A. Inc. need to have more documentation to make sure they comply with FAA policies,” airport director Gina Marie Lindsey said Tuesday. “We are scrambling back into the boxes to get that documentation.”
Lindsey said she was confident that the airport would be able to show that most, if not all, of the money sent to L.A. Inc. involved a legitimate use of airport funds.
She added that the law involved is “very general, with lots of gray areas subject to interpretation.”
FAA auditors, who have the power to challenge expenditures dating back six years, notified airport officials of their preliminary findings last week. Los Angeles World Airports now has until the end of the month to prepare a challenge to the initial conclusions. The government will weigh those arguments before reaching a final decision on how much -- if any -- money may have been misspent.
Under federal law, advertising, marketing and promotions designed to increase air travel at an airport are permissible as long as the efforts specifically relate to an airport’s amenities, airlines and advantages for travelers. In addition, the expenditures cannot exceed what the FAA determines to be the “fair and reasonable” value of the services provided to an airport.
General promotions of a region’s tourist attractions, while likely to increase air travel, are not considered specific enough to comply with federal diversion laws.
If airport officials cannot refute the FAA’s findings, the federal government can seek civil penalties of up to $50,000, treble damages in federal court and order L.A. Inc. to return the $40 million, plus interest, to Los Angeles World Airports.
The FAA can also withhold federal grant money from the airport department.
The city’s Airport Commission is scheduled to discuss the government’s preliminary findings today during an executive session that is closed to the public.
An FAA spokesman declined to comment except to confirm that an audit was underway.
Former and current airport officials said L.A. Inc.'s efforts comply with federal law because they have provided travelers, foreign governments, tour operators and travel agents specific information about the services and airlines available at LAX, Ontario and Palmdale. They also said L.A. Inc.'s marketing efforts helped to reverse the severe downturn in air travel after the 9/11 attacks.
Among other things, airport funds have helped L.A. Inc. set up international offices in Beijing, Tokyo and London, in addition to a Latin America office in Los Angeles. L.A. Inc. has established a training academy for travel agents from around the world and programs to help reverse a decline in tourism from Korea and Japan.
“Los Angeles International Airport has garnered the greatest increase in international frequencies [flights] than any other airport in the U.S. in the past 24 months,” Lindsey said. “I believe our partnership with L.A. Inc. and our investment in international marketing means that this status is not accidental.”
Since 2002, about 28% of L.A. Inc.'s funding has come from Los Angeles World Airports, and the visitors bureau has had a close relationship with the department. In fact, the bureau has received up to 80% of its money from the city, its airports and port.
Michael Collins, executive vice president of L.A. Inc., also holds an unpaid executive position at Los Angeles World Airports and Airport Commission Chairman Alan Rothenberg sits on L.A. Inc.'s board of directors.
Although the airport department and L.A. Inc. have had a relationship for decades, it was formalized in the mid-1990s with an agreement to establish a partnership to market the region’s tourist attractions and airports.
“It was a logical choice,” said Philip Depoian, a former airport deputy director who helped to set up the partnership. “L.A. Inc. has a relationship with airlines, travel agents and tour operators. Both partners benefit from this.”
The use of airport revenue has been controversial in the city before. During Mayor Richard Riordan’s administration, the airline industry and the federal government prevented the mayor from tapping airport revenue to pay for police officers. The city had to return millions of dollars to Los Angeles World Airports.
On a national level, a congressional study of 33 major airports in the mid-1990s found that $252 million in airport revenue had been diverted from 13 of them since 1982 to pay for local government programs.
During the last five years, the FAA has ordered the cities of Miami, Fresno, Orlando and San Francisco to repay their airports more than $24 million because of overcharges for municipal services.
The FAA is now seeking the return of an additional $15 million to Miami International Airport.