B-155886, JUN. 6, 1966

B-155886: Jun 6, 1966

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SITUATION WHICH IS THE SUBJECT OF A CLAIM BY THE FEDERAL AVIATION AGENCY AGAINST THE CITY AS COVERED IN LETTER OF MARCH 23. THE FEDERAL AVIATION AGENCY IS AUTHORIZED BY THE FEDERAL AIRPORT ACT. THESE GRANTS ARE ON A MATCHING BASIS WITH THE FEDERAL GOVERNMENT GENERALLY CONTRIBUTING AN AMOUNT EQUAL TO 50 PERCENT OF TOTAL ALLOWABLE PROJECT COSTS AND THE AIRPORT PROJECT SPONSOR PROVIDING THE REMAINING FUNDS NECESSARY. THE ESTIMATED PROJECT COST WHICH WAS TO BE SHARED EQUALLY BY SILER CITY AND THE FEDERAL GOVERNMENT WAS SET FORTH IN THE PROJECT APPLICATION AS FOLLOWS: CHART LAND $49. 000 SILER CITY'S SHARE OF THE TOTAL PROJECT COST WAS TO CONSIST OF THE LAND ELEMENT COMPRISING 91.8 ACRES VALUED AT $533.77 PER ACRE PURPORTEDLY TO BE DONATED BY THE SILER CITY CHAMBER OF COMMERCE.

B-155886, JUN. 6, 1966

TO ADMINISTRATOR, FEDERAL AVIATION AGENCY:

THERE FOLLOWS A SUMMARY OF THE SILER CITY, NORTH CAROLINA, SITUATION WHICH IS THE SUBJECT OF A CLAIM BY THE FEDERAL AVIATION AGENCY AGAINST THE CITY AS COVERED IN LETTER OF MARCH 23, 1966, FROM THE ACTING CHIEF, ACCOUNTING PROGRAMS DIVISION, OFFICE OF MANAGEMENT SERVICES, TO OUR CLAIMS DIVISION, TOGETHER WITH OUR CONCLUSIONS AND POSITION IN THE MATTER.

THE FEDERAL AVIATION AGENCY IS AUTHORIZED BY THE FEDERAL AIRPORT ACT, AS AMENDED, 49 U.S.C. 1101, ET SEQ., TO PROVIDE GRANTS TO PUBLIC AIRPORTS. THESE GRANTS ARE ON A MATCHING BASIS WITH THE FEDERAL GOVERNMENT GENERALLY CONTRIBUTING AN AMOUNT EQUAL TO 50 PERCENT OF TOTAL ALLOWABLE PROJECT COSTS AND THE AIRPORT PROJECT SPONSOR PROVIDING THE REMAINING FUNDS NECESSARY. THE SPONSOR'S CONTRIBUTION TOWARD PROJECT COSTS MAY INCLUDE THE REASONABLE VALUE OF LABOR AND MATERIALS DONATED TO IT AFTER EXECUTION OF A PROJECT AGREEMENT AND THE REASONABLE VALUE OF LAND DONATED AFTER MAY 13, 1946, WHETHER BEFORE OR AFTER EXECUTION OF A PROJECT AGREEMENT. U.S.C. 1112; 14 CFR 151.41, REV. AS OF JANUARY 1, 1963.

ON FEBRUARY 13, 1963, THE TOWN OF SILER CITY SUBMITTED A REQUEST FOR AID UNDER THE FEDERAL-AID AIRPORT PROGRAM AND ON FEBRUARY 15, 1964, IT APPLIED FOR A GRANT OF FEDERAL FUNDS FOR THE PURPOSE OF AIDING IN FURTHER DEVELOPMENT OF THE SILER CITY MUNICIPAL AIRPORT. THE PROPOSED DEVELOPMENT WORK CONSISTED PRIMARILY OF ACQUIRING LAND, PREPARING THE SITE FOR EXTENDING AN EXISTING LANDING STRIP, AND RESHAPING AND REGRADING THE STRIP. THE ESTIMATED PROJECT COST WHICH WAS TO BE SHARED EQUALLY BY SILER CITY AND THE FEDERAL GOVERNMENT WAS SET FORTH IN THE PROJECT APPLICATION AS FOLLOWS:

CHART

LAND $49,000

CONSTRUCTION 40,141

ENGINEERING AND SUPERVISION 6,021

ADMINISTRATIVE EXPENSE 338

CONTINGENCIES 2,500

TOTAL $98,000

SILER CITY'S SHARE OF THE TOTAL PROJECT COST WAS TO CONSIST OF THE LAND ELEMENT COMPRISING 91.8 ACRES VALUED AT $533.77 PER ACRE PURPORTEDLY TO BE DONATED BY THE SILER CITY CHAMBER OF COMMERCE. THIS 91.8 ACRES WAS AT THE SITE OF AN EXISTENT SILER CITY MUNICIPAL AIRPORT, AND THE STATED VALUE OF $533.77 AN ACRE INCLUDED THE APPRAISED VALUE OF THE LAND TOGETHER WITH IMPROVEMENTS THEREON ALREADY MADE. IT IS WITH RESPECT TO THE REASONABLENESS OF THE VALUE PLACED UPON THE LAND AND IMPROVEMENTS THEREON FOR PROJECT COST PURPOSES TOGETHER WITH QUESTION AS TO WHETHER THERE WAS IN FACT A REAL DONATION THEREOF TO THE CITY SUCH AS WOULD SUPPORT THE CITY'S SHARE OF PROJECT COSTS THAT THE CONTROVERSY BETWEEN FEDERAL AVIATION AGENCY AND SILER CITY ARISES. THE ESSENTIAL FACTS AS SHOWN BY THE RECORD MAY BE SUMMARIZED AS FOLLOWS:

ON NOVEMBER 8, 1957, THE CITY OBTAINED AN OPTION, THROUGH JULY 1, 1958, TO PURCHASE 106 ACRES OF LAND AT A PRICE OF $100 PER ACRE FOR A TOTAL OF $10,600. ON MARCH 21, 1958, THE CITY AND OWNERS OF THE PROPERTY AGREED THAT THE OPTION EXPIRATION DATE WOULD BE EXTENDED THROUGH JULY 1, 1963; THAT THE OWNERS WOULD, UPON REQUEST BY THE CITY, CONVEY TITLE TO A NUMBER OF LOTS ALONG THE PERIMETER OF THE OPTIONED TRACT TO PURCHASERS WHOSE PAYMENTS WOULD BE APPLIED AGAINST THE TOTAL OPTION PRICE; AND THAT THE CITY WOULD HAVE THE RIGHT TO OCCUPY THE PROPERTY RENT FREE FOR THE PURPOSE OF IMPROVING IT.

AS STATED ABOVE, THE FEDERAL AVIATION AGENCY PROJECT WAS FORMALLY INITIATED ON FEBRUARY 13, 1963, WHEN THE CITY SUBMITTED A REQUEST FOR AID UNDER THE FEDERAL-AID AIRPORT PROGRAM. THE IMPROVEMENTS IN CONTROVERSY HAD BEEN MADE BY THE CITY PRIOR TO THIS TIME. ON MARCH 22, 1963, THE CITY AND THE OWNERS OF THE PROPERTY ENTERED INTO A FURTHER AGREEMENT WHEREBY THE OWNERS, UPON WRITTEN REQUEST FROM CITY OFFICIALS, WOULD CONVEY TITLE IN THE AIRPORT PROPERTY TO THE SILER CITY CHAMBER OF COMMERCE; AND ON JUNE 29, 1963, TITLE TO THE PROPERTY WAS SO CONVEYED, RECEIPTS FROM THE SALE OF PERIMETER LOTS HAVING BEEN MORE THAN SUFFICIENT TO COVER THE ENTIRE 106 ACRES INITIALLY OPTIONED TO THE SPONSOR. THE CHAMBER OF COMMERCE, IN TURN, DEEDED THE PROPERTY TO THE CITY AS A "DONATION" ON FEBRUARY 12, 1964.

THERE DOES NOT APPEAR TO BE ANY SIGNIFICANT CONTROVERSY OVER THE BASIC FACTS AS OUTLINED ABOVE EXCEPT AS TO THE IMPLICATIONS THEY CARRY WITH RESPECT TO WHETHER IT MAY BE CONCLUDED THAT THEY SUPPORT THE FINDING OF A BONA FIDE DONATION FROM THE CHAMBER OF COMMERCE TO THE CITY. THE FEDERAL AVIATION AGENCY CONCLUDED THAT THE LAND VALUE TOGETHER WITH THE IMPROVEMENTS THEREON WERE INELIGIBLE EITHER AS A DONATION OR AS REIMBURSABLE COSTS. PRIOR TO THIS DETERMINATION FEDERAL FUNDS IN THE AMOUNT OF $24,920.75 HAD BEEN PAID TO THE CITY. RECOMPUTATION OF ALLOWABLE PROJECT COSTS EXCLUDING THE LAND AND IMPROVEMENTS ELEMENT DISCLOSED TOTAL ALLOWABLE COSTS AGGREGATING $48,444.40 OF WHICH THE 50 PERCENT FEDERAL SHARE WAS $24,222.20 GIVING RISE TO AN OVERPAYMENT OF $698.55. THE AGENCY'S CLAIM FOR THIS OVERPAYMENT WAS REFERRED TO THE CLAIMS DIVISION OF OUR OFFICE AS UNCOLLECTIBLE.

SO FAR AS CONCERNS THE IMPROVEMENTS WHICH WERE PLACED UPON THE PROPERTY, WE BELIEVE IT IS CLEAR, APART FROM ANY QUESTION REGARDING THE PROPRIETY OF THE VALUATION PLACED UPON THEM, THAT THEY MAY NOT PROPERLY BE CONSIDERED AS HAVING BEEN DONATED BY THE CHAMBER OF COMMERCE TO THE CITY. THIS CONCLUSION IS PREMISED UPON THE FACT THAT THESE IMPROVEMENTS WERE MADE BY THE CITY ITSELF AT ITS OWN EXPENSE. TO CONCLUDE THAT THE CHAMBER OF COMMERCE DONATED THE VALUE OF THESE IMPROVEMENTS UNDER THE CIRCUMSTANCES OUTLINED ABOVE IS, A FORTIORI, TO CONCLUDE THAT THE CITY PREVIOUSLY DONATED THEM TO THE CHAMBER. WE DO NOT BELIEVE IT WOULD BE REASONABLE UNDER CIRCUMSTANCES SUCH AS ARE HERE INVOLVED, WHERE THE OSTENSIBLE DONOR AND DONEE ARE WORKING TOGETHER IN COMMON PURPOSE TOWARD DEVELOPMENT OF AN AIRPORT PROJECT, TO CONSTRUE THE VALUE OF WORK DONE BY THE ONE AS HAVING BEEN DONATED TO IT BY THE OTHER. THE PLAIN FACT IS THAT THE CITY INCURRED THE EXPENSE OF THE IMPROVEMENTS ON LAND WHICH WAS AT ALL TIMES UNDER ITS CONTROL. TRANSFER OF THE LAND TOGETHER WITH THE IMPROVEMENTS THEREON TO THE CHAMBER OF COMMERCE WAS FOR THE SOLE PURPOSE OF ALLOWING THE CHAMBER TO "DONATE" THEM BACK TO THE CITY. THE CHAMBER DID NOT IN ANY REAL SENSE INCUR ANY EXPENSE FOR OR DONATE THE VALUE OF THE IMPROVEMENTS. AND THE EXPENSES CONNECTED WITH THE IMPROVEMENTS HAVING BEEN INCURRED BY THE CITY PRIOR TO EXECUTION OF A GRANT AGREEMENT, THEY MAY NOT BE INCLUDED AS PART OF THE PROJECT COSTS ELIGIBLE FOR FEDERAL SHARING. 49 U.S.C. 1112; 41 CFR 151.41; ABOVE.

THE SITUATION IS A LITTLE MORE COMPLEX WITH RESPECT TO THE LAND ITSELF. THIS IS SO BECAUSE, IN EFFECT, NEITHER THE CITY NOR THE CHAMBER OF COMMERCE WAS REQUIRED TO DISBURSE ANY OF ITS OWN FUNDS TOWARD THE PURCHASE PRICE OF THE LAND, THE NECESSARY FUNDS HAVING BEEN DERIVED FROM THE SELL- OFF OF A NUMBER OF PERIPHERAL LOTS. INDEED IT WAS BECAUSE THERE WAS NO OUT-OF-POCKET EXPENSE ASSOCIATED WITH THE LAND ACQUISITION AS WELL AS THE FACT THAT THERE WAS NOT A BONA FIDE DONATION BY THE CHAMBER OF COMMERCE THAT THE FEDERAL AVIATION AGENCY CONCLUDED AGAINST INCLUSION OF THE LAND OR ITS VALUE AS AN ALLOWABLE PROJECT COST FOR FEDERAL PARTICIPATION.

WE AGREE THAT THE CIRCUMSTANCES SURROUNDING THIS TRANSACTION MILITATE AGAINST CONSIDERATION OF THE LAND TRANSFER FROM THE CHAMBER OF COMMERCE TO THE CITY AS A DONATION. IT MUST BE RECOGNIZED THAT THE ENTIRE CONCEPTION OF THE PLAN WAS IN THE NATURE OF A PARTNERSHIP ARRANGEMENT BETWEEN THE CITY AND THE CHAMBER. THE SUBSTANCE OF THE ARRANGEMENTS WAS THAT THE CITY AND THE CHAMBER OF COMMERCE WERE ACTING TOGETHER WITH THE CITY IN CONTROL AND THE CHAMBER ACCEPTING TITLE FOR THE SOLE PURPOSE OF SIMULATING A DONATION. BUT FOR THE CITY'S ACTION THE CHAMBER WOULD HAVE HAD NOTHING TO DONATE. THE CHAMBER, IN ESSENCE, ACTED THROUGHOUT MERELY AS AN AGENT OF THE CITY. THE CITY CONTENDS THAT TO A LARGE EXTENT THE PLAN WAS CONCEIVED AND EXECUTED WITH THE KNOWLEDGE OF AND INDEED DIRECTION BY A RESPONSIBLE FEDERAL OFFICIAL AT THE FIELD LEVEL. FROM THE RECORD BEFORE US IT APPEARS THAT THIS IS THE PRIMARY BASIS UPON WHICH THE CITY INSISTS THAT IT IS ENTITLED TO PAYMENT IN FULL UNDER THE PROJECT AGREEMENT. THERE IS QUESTION AS TO JUST HOW MUCH GUIDANCE WAS FURNISHED BY THE FEDERAL OFFICIAL, THE AGENCY CONCLUDING AFTER INVESTIGATION THAT IT WAS ONLY WITH RESPECT TO FURNISHING COPIES OF LAWS AND REGULATIONS AND THAT NO SPECIFIC GUIDANCE WAS DIRECTED TOWARD CONCEPTION OF THE ARRANGEMENTS WHICH WERE MADE. BUT, IN ANY EVENT, RELIANCE UPON FEDERAL OFFICIAL CANNOT SERVE TO ALTER WHETHER, IN FACT, A DONATION WITHIN THE MEANING OF THE BASIC LEGISLATIVE AUTHORITY WAS EFFECTED. HOWEVER, WE DO NOT BELIEVE IT IS EVEN NECESSARY TO A RESOLUTION OF THIS CASE THAT WE ANALYZE FURTHER THE RELATIONSHIPS OF THE PARTIES OR THE EFFECT OF THE FEDERAL OFFICIAL'S AWARENESS OF THE ARRANGEMENTS WHICH WERE BEING MADE.

IN THE FINAL ANALYSIS, WE DO NOT AGREE WITH THE FEDERAL AVIATION AGENCY THAT COSTS FOR LAND ARE INELIGIBLE FOR FEDERAL PARTICIPATION. IN OUR OPINION THE LAND ACQUIRED FOR AIRPORT DEVELOPMENT BY THE CITY COST $100 PER ACRE PURSUANT TO THE OPTION AGREEMENT IT ENTERED INTO WITH THE OWNERS. THAT FUNDS FOR PAYMENT OF THIS PURCHASE PRICE WERE DERIVED FROM THE SALE OF A PORTION OF THE LAND INVOLVED DOES NOT AFFECT THE FACT THAT $100 PER ACRE WAS PAID TO THE OWNERS. CERTAINLY, IF THE CITY OR THE CHAMBER OF COMMERCE HAD PURCHASED THE LAND AND PAID FOR IT OUT-OF-POCKET THERE WOULD NOT BE ANY QUESTION THAT THE LAND WOULD HAVE BEEN IMPRESSED WITH A COST. AND IF AT SOME LATER DATE A PORTION OF THE LAND HAD BEEN SOLD AT A PRICE SUFFICIENT TO RECOUP THE FULL PRICE PAID FOR ALL OF THE LAND IN THE FIRST INSTANCE, IT COULD NOT BE REASONABLY MAINTAINED THAT THE REMAINING PORTION WHICH HAD BEEN ACQUIRED AT A SPECIFIC COST NO LONGER HAD ANY COST ASSOCIATED WITH IT. WE DO NOT THINK THE FACT THAT, IN EFFECT, THE SALES IN THIS CASE TOOK PLACE SIMULTANEOUSLY WITH OR PRECEDED THE PURCHASE SERVES TO ALTER THE SITUATION. IN SHORT, WE DO NOT THINK IT REASONABLE TO INSIST THAT THE CITY HAS ACQUIRED LAND FOR AIRPORT PROJECT PURPOSES WITHOUT RECOGNIZING ANY VALUE FOR THAT LAND MERELY BECAUSE OF THE MEANS THROUGH WHICH THE PURCHASE PRICE OF THE LAND WAS OBTAINED.

ACCORDINGLY, WE BELIEVE IT WOULD BE APPROPRIATE TO ALLOW THE COST OF THE LAND AT $100 PER ACRE DEDICATED TO THE PROJECT AS AN ALLOWABLE PROJECT COST. AND IT WOULD MAKE NO DIFFERENCE, SO FAR AS CONCERNS THIS AMOUNT, WHETHER THE LAND BE VIEWED AS HAVING BEEN PURCHASED BY THE CITY OR DONATED BY THE CHAMBER OF COMMERCE.

IF THE LAND BE VIEWED AS HAVING BEEN PURCHASED BY THE CITY, THE AMOUNT OF $100 PER ACRE IS CLEARLY THE MAXIMUM ALLOWABLE PROJECT COST FOR LAND. IF, ON THE OTHER HAND, THE LAND IS VIEWED AS HAVING BEEN DONATED BY THE CHAMBER OF COMMERCE, QUESTION MIGHT BE RAISED AS TO WHETHER ITS VALUATION FOR DONATION PURPOSES MIGHT NOT BE GREATER THAN THE INITIAL PURCHASE PRICE OF $100 PER ACRE PARTICULARLY IN LIGHT OF THE FACT THAT PORTIONS OF THE PURCHASED PROPERTY WERE SOLD AT PRICES CONSIDERABLY IN EXCESS OF THE PURCHASE PRICE. BUT WHILE THE QUESTION MIGHT BE RAISED, WE DO NOT CONSIDER THAT AN AFFIRMATIVE ANSWER TO IT WOULD BE WARRANTED. IT MAY BE THAT THE PURCHASERS OF PERIPHERAL LOTS PAID SUBSTANTIALLY MORE THAN $100 PER ACRE IN EXPECTATION OF ACQUIRING SITES PROXIMATE TO A DEVELOPED AIRPORT. OR IT MIGHT BE CONCLUDED THAT IT WAS IN REALITY THESE PURCHASERS WHO DONATED THE PROPERTY RATHER THAN THE CHAMBER OF COMMERCE. WHATEVER THE REASON FOR THEIR WILLINGNESS TO PAY SUCH PRICES, IT IS OUR OPINION ON THE BASIS OF THE PRESENT RECORD THAT THE $100 PER ACRE OPTION PRICE, AS THE ONLY APPARENT ARMS LENGTH ELEMENT OF THE TRANSACTION INVOLVED, CONSTITUTES THE BEST MEASURE OF THE TRUE VALUE OF THE LAND DEDICATED TO AIRPORT USE. MOREOVER, THE RECORD DISCLOSES THAT IT HAS NEVER BEEN REALISTICALLY CONTENDED THAT THE LAND ITSELF WAS SUFFICIENTLY MORE VALUABLE THAN THIS TO SIGNIFICANTLY AFFECT THE CITY'S POSITION, THE ESSENTIAL DISPARITY BETWEEN THE CONTENTIONS OF THE AGENCY AND THE CITY OVER THE ALLOWABILITY OF COSTS RESTING PRINCIPALLY IN THE VALUE OF IMPROVEMENTS WHICH AS SHOWN ABOVE MAY NOT PROPERLY BE CONSIDERED ALLOWABLE IN ANY EVENT.

WE MAKE THIS POINT ONLY TO SHOW THAT THE ISSUE OF WHETHER THE LAND WAS DONATED IS OF MINIMAL SIGNIFICANCE. IN TERMS OF THIS ISSUE, HOWEVER, WE ARE OF THE FIRM OPINION THAT IT WAS THE CITY WHICH PURCHASED THE LAND IN QUESTION, ALBEIT WITH SOME ASSISTANCE FROM THE CHAMBER OF COMMERCE; THAT THE COOPERATIVE BASIS UPON WHICH THE CHAMBER AND THE CITY PLANNED THE ACQUISITION PRECLUDES A DETERMINATION THAT THE CITY RECEIVED A DONATION; AND THAT TRANSFERRING TITLE IN THE PROPERTY TO THE CHAMBER PURSUANT TO THE OPTION AGREEMENT HELD BY THE CITY WITH THE SUBSEQUENT DEED FROM THE CHAMBER TO THE CITY WAS FOR THE SOLE PURPOSE OF SIMULATING A DONATION WHERE NONE, IN FACT, TOOK PLACE, SINCE THE CITY COULD JUST AS WELL HAVE TAKEN TITLE DIRECTLY FROM THE OWNERS WITHOUT AFFECTING THE RELATIONSHIPS WHICH EXISTED BETWEEN ALL PARTIES TO THE TRANSACTION. IN LIGHT OF THE CONCLUSIONS EXPRESSED HEREIN, THE AMOUNT OWED TO SILER CITY ON ACCOUNT OF THE FEDERAL AIRPORT ASSISTANCE PROGRAM PROJECT IN THAT CITY SHOULD BE RECOMPUTED TO ALLOW THE FEDERAL PORTION ON LAND COSTS AS SET FORTH ABOVE. A COPY OF THIS LETTER IS BEING FURNISHED TO THE HONORABLE HAROLD D. COOLEY, HOUSE OF REPRESENTATIVES.