B-155754, JUL. 13, 1965

B-155754, JUL. 13, 1965

TO ADMINISTRATOR, FEDERAL AVIATION AGENCY:

BY LETTER OF JUNE 18, 1965, ACTING ADMINISTRATOR HAROLD W. GRANT REQUESTED THAT WE RECONSIDER OUR DECISION OF DECEMBER 30, 1964, B 155754, RELATING TO A REQUESTED FEDERAL-AID AIRPORT GRANT FOR THE DES MOINES, IOWA, AIRPORT. THE ESSENTIAL FACTS IN THE MATTER MAY BE BRIEFLY RESTATED AS FOLLOWS.

THE CITY OF DES MOINES OWNS SEVERAL HANGERS AT THE AIRPORT WHICH ARE UNDER LEASE TO PRIVATE FIRMS FOR REMAINING TERMS OF APPROXIMATELY FIVE YEARS WITH FIVE-YEAR RENEWAL OPTIONS. THESE HANGARS HAVE BEEN CLASSIFIED AS HAZARDS IN CONNECTION WITH THE USE OF CERTAIN NAVIGATION AIDS INSTALLED AT THE AIRPORT BY THE FEDERAL AVIATION AGENCY. UNDER THE FEDERAL AIRPORT ACT THE AGENCY IS AUTHORIZED TO PARTICIPATE IN THE COST OF TERMINATING THE LEASEHOLD INTERESTS INVOLVED FOR THE PURPOSE OF ALLOWING REMOVAL OF THE HAZARDOUS HANGARS. HOWEVER, IN ORDER TO AVOID THE COST OF LEASEHOLD TERMINATIONS, THE CITY HAS PROPOSED THE CONSTRUCTION OF A NEW HANGAR TO BE MADE AVAILABLE TO THE CURRENT LESSEES FOR THE REMAINING TERMS OF THEIR LEASES. UNDER THE ACT, THE FEDERAL AVIATION AGENCY IS NOT AUTHORIZED TO PARTICIPATE IN THE COST OF CONSTRUCTING HANGARS. THE BASIC QUESTION WE HAVE BEEN ASKED TO RECONSIDER, THEN, IS WHETHER ANY PORTION OF THE COST OF CONSTRUCTING THE NEW HANGAR, WHICH THE CITY IS NOT OBLIGATED TO INCUR, MAY PROPERLY BE CONSTRUED AS COST RELATED TO THE LEASEHOLD TERMINATIONS, ON THE BASIS THAT THE NEW CONSTRUCTION IS IN FACT AN INDUCEMENT TO THE LEASEHOLDERS TO FOREGO ANY LEASE TERMINATION DAMAGES THE CITY MIGHT OTHERWISE BE REQUIRED TO PAY AND IN WHICH YOUR AGENCY WOULD BE AUTHORIZED TO PARTICIPATE.

FOR ANALYSIS PURPOSES, LET US ASSUME THE CONSTRUCTION COST OF THE NEW HANGAR TO BE $600,000 AND THAT REMOVAL OF THE OLD HANGARS WITHOUT PROVIDING A NEW HANGAR FOR THE TENANTS WOULD GIVE RISE TO LEASEHOLD TERMINATION COSTS OF $200,000. CLEARLY, IF THE CITY WERE INITIALLY TO TERMINATE THE LEASES AT THE COST OF $200,000 WITHOUT OBLIGATING ITSELF TO CONSTRUCT A NEW HANGAR THE FEDERAL GOVERNMENT COULD PARTICIPATE IN IN THIS COST TO A MAXIMUM OF $100,000 WHICH WOULD RESULT IN A COST OF $100,000 TO THE CITY. AND IF LATER THE CITY DID DECIDE TO CONSTRUCT A NEW HANGAR, THE FEDERAL GOVERNMENT WOULD NOT BE INVOLVED. UNDER SUCH CIRCUMSTANCES, THE TOTAL COST TO THE CITY AT THE POINT WHEN THE NEW HANGAR IS CONSTRUCTED WOULD BE $700,000 PLUS LOSS OF THE EXISTING HANGARS AND THE FEDERAL GOVERNMENT WILL HAVE EXPENDED $100,000. UNDER A CONTEMPORANEOUS DECISION TO CONSTRUCT A NEW HANGAR AND TERMINATE THE EXISTING LEASES, IT IS TRUE THAT THE FEDERAL GOVERNMENT WILL SAVE $100,000; BUT SO WILL THE CITY. LET US SUPPOSE THAT PRIOR TO ANY CONSIDERATION OF REMOVING THE OLD HANGARS, THE CITY WERE TO HAVE BUILT A NEW HANGAR. AGAIN THERE CLEARLY WOULD NOT BE ANY AUTHORITY FOR FEDERAL PARTICIPATION IN THE CONSTRUCTION COSTS INVOLVED. UPON A DETERMINATION THAT THE OLD HANGARS CONSTITUTED A HAZARD REQUIRING THEIR REMOVAL AND LOSS TO THE CITY, WOULD THERE BE ANY BASIS FOR PARTICIPATING IN LEASE TERMINATION COSTS IF THE TENANTS OF THE OLD HANGARS MERELY MOVED TO THE NEW HANGAR WITHOUT PAYMENT TO THEM OF ANY OTHER CONSIDERATION? WE THINK NOT. NOR DO WE BELIEVE THAT THERE IS ANY REAL DISTINCTION WITH REGARD TO PARTICIPATION IN HANGAR CONSTRUCTION COSTS ON THE GROUND THAT THE DECISION TO CONSTRUCT A HANGAR IS DIRECTLY DEPENDENT UPON A DESIRE TO AVOID LEASEHOLD TERMINATION COSTS AS OPPOSED TO ITS CONSTRUCTION UNRELATED TO SUCH CONSIDERATION. IN OUR EARLIER DECISION WE REFERRED TO THE FACT THAT YOUR AGENCY'S ANALYSIS OVERLOOKS THE FACT THAT THE CITY WILL RECOVER RENTALS. MR. GRANT STATES THAT THIS IN TURN OVERLOOKS THE FACT THAT THE CITY IS CURRENTLY ENTITLED TO SUCH RENTALS WITHOUT THE NEED TO CONSTRUCT A NEW HANGAR. BUT AS WE STATED PREVIOUSLY AND REPEAT HERE, LOSS OF THE EXISTING HANGARS AND OF THE RENTALS THEREON ARE LOSSES WHICH THE CITY WILL HAVE TO BEAR IN ANY EVENT REGARDLESS OF WHETHER A NEW HANGAR IS CONSTRUCTED.

IN SHORT, WE DO NOT BELIEVE THAT THE PROHIBITION AGAINST PARTICIPATION IN THE COST OF CONSTRUCTING HANGARS MAY PROPERLY BE CONSTRUED AS INAPPLICABLE BY VIRTUE OF THE FACT THAT SUCH CONSTRUCTION IS UNDERTAKEN TO AVOID OTHER COSTS WHICH IF INCURRED WOULD BE ELIGIBLE FOR PARTICIPATION. THE FACT REMAINS THAT UNDER THE PROPOSAL IN QUESTION A HANGAR WILL HAVE BEEN CONSTRUCTED. THAT THE DECISION TO CONSTRUCT SUCH HANGAR MIGHT BE PREDICATED IN PART UPON CONSIDERATION OF SAVINGS TO BE EFFECTED AGAINST LIABILITIES THE CITY WOULD OTHERWISE HAVE SERVES ONLY TO EFFECTIVELY REDUCE THE REAL COST OF CONSTRUCTION BUT DOES NOTHING TO CONVERT THE CITY'S EXPENDITURES FROM THOSE FOR A HANGAR TO THOSE FOR THE TERMINATION OF ITS OBLIGATIONS AS A LESSOR.

IN VIEW OF THE CONCLUSIONS STATED ABOVE WHICH LEAD US TO SUSTAIN OUR PRIOR DECISION IN THE MATTER IT DOES NOT APPEAR NECESSARY TO REACH A DETERMINATION WITH RESPECT TO THE SPECIFIC LEASE PROVISIONS DISCUSSED IN OUR EARLIER DECISION AND FURTHER EXPLAINED IN MR. GRANT'S LETTER.