Airport PILOT: Permissible Payments in Lieu of Taxes
This article examines the federal regulatory framework governing Payments in Lieu of Taxes (PILOTs) at U.S. airports, including permissible structures, grandfathered exceptions, enforcement mechanisms, and compliance considerations. Analysis draws from the statute (49 U.S.C. §§ 47107, 47115, 47133), implementing FAA guidance (FAA Order 5190.6C, Chapter 15; Revenue Use Policy, 64 FR 7696), published enforcement data, and audited financial disclosures from named airport examples. All data is current as of March 6, 2026.
Airports receiving federal grants must comply with revenue-use restrictions that classify most PILOTs—as defined by FAA enforcement actions under the Revenue Use Policy (64 FR 7696, 1999)—as prohibited revenue diversion unless they reimburse documented services at fair value using transparent cost allocation. Nine airport sponsors hold grandfathered exceptions permitting ongoing PILOTs to local governments under amounts established between 1954–1981; other airport sponsors must structure PILOTs as cost-based reimbursements or recover payments through airline rates under residual or hybrid methodologies. As of 2019, FAA reported that 107 of 177 jurisdictions with which it had engaged on revenue diversion remained noncompliant.
The Revenue-Use Requirement
Federal law restricts airport revenue use under 49 U.S.C. § 47107(b), which requires airport sponsors accepting Airport Improvement Program (AIP) grants to expend all revenues for: (1) the capital or operating costs of the airport; (2) the capital or operating costs of the local airport system; or (3) the capital or operating costs of other local facilities owned or operated by the airport owner and directly and substantially related to air transportation of passengers or property.
This restriction applies to all airports receiving any federal assistance, not only AIP recipients, under 49 U.S.C. § 47133. FAA's definitive implementation guidance is the Policy and Procedures Concerning the Use of Airport Revenue (Revenue Use Policy), published as a final policy statement at 64 FR 7696, February 16, 1999.
Payments to a host government that exceed the fair and reasonable value of services provided, or are not based on a transparent cost allocation formula, are classified as revenue diversion and are prohibited.
Two Categories of PILOTs Under Federal Law
Permissible PILOTs
An airport may reimburse a governmental body for services and facilities actually provided to the airport, provided that: (1) the payment does not exceed the fair and reasonable value of those services and facilities; and (2) the payment is based on a reasonable and transparent cost allocation formula.
Permissible cost-based reimbursements include:
- A city fire department's proportional share of fire response costs, allocated by call volume, land area, or assessed value
- A city police department's law enforcement costs
- A city public works department's road maintenance costs
- General government overhead (executive offices, legislative functions, legal services), provided the sponsor allocates such costs using a methodology consistent with government cost-accounting standards
FAA Order 5190.6C, Chapter 15, § 15.9, provides that "a sponsor may pay for a portion of the general costs of government, including executive offices and the legislative branches, provided the sponsor allocates such costs to the airport" using an appropriate cost allocation methodology.
Prohibited PILOTs
Under 49 U.S.C. § 47107(k)(2)(C), PILOTs or other assessments that exceed the value of services provided to the airport, or that are not based on an acceptable cost allocation formula, are prohibited.
Under 49 U.S.C. § 47107(k)(2)(D), payments to compensate non-sponsoring governmental bodies for lost tax revenues are prohibited to the extent they exceed the stated tax rates applicable to the airport.
Many airport PILOTs are voluntary — not assessed by the receiving government. Such payments fall under the "lost tax revenues" provision of § 47107(k)(2)(D) rather than the "payments in lieu of taxes" provision of § 47107(k)(2)(C). A voluntary payment must be evaluated against whether it exceeds stated tax rates that would otherwise apply, while an assessed PILOT is tested against the fair value of services provided.
The Grandfathered Exception
The revenue-use requirement, enacted as part of the Airport and Airway Improvement Act of 1982, contained an exception for pre-existing financial arrangements. Under 49 U.S.C. § 47107(b)(2), certain airport sponsors that were diverting revenue for non-airport purposes before September 3, 1982 may continue to do so, subject to a cap equal to the amount diverted in the base year (generally FY 1994 or FY 1995).
As of the FAA's most recent list, published in the Compliance Activity Tracking System (CATS) on May 1, 2018, nine sponsors hold grandfathered status:
| Sponsor | Grandfathered Payment Type | Basis |
|---|---|---|
| City of Chicago | Vehicle fuel tax (including aviation fuel) deposited into City's corporate fund | 1981 sales tax; 1986 fuel tax of $0.05/gallon |
| City and County of Denver | Aviation fuel tax deposited into general fund | 1981 tax of $0.04/gallon; 1986 amendment to $0.02/gallon |
| State of Hawaii | 5% gross receipts surcharge from airport revenue fund to state general fund (15 airports) | 1970 state statute |
| Maryland Aviation Administration | All MAA revenue deposited into MDOT Transportation Trust Fund | 1970 state law creating MDOT |
| Massachusetts Port Authority | PILOTs to Cities of Chelsea, Winthrop, and Boston; Seaport deficits/surpluses | 1956 state law creating Massport |
| Niagara Frontier Transportation Authority | Cross-utilization of revenues across airports, bus, light rail, and port operations | 1967 New York state legislation |
| Port Authority of New York & New Jersey | Consolidated revenues across all authority facilities | Pre-1982 practice |
| City of St. Louis | 5% of airport operating revenues to city general fund | 1954 city ordinance |
| City and County of San Francisco | 15% of non-airline concession revenues (or $5 million minimum) to City general fund | 1980 City charter; 1981 airline settlement agreement |
Grandfathered Payment Examples: Named Airports
San Francisco International Airport (SFO): SFO paid the City and County of San Francisco an Annual Service Payment (ASP) based on 15.0% of concession revenues (net of adjustments), with a minimum of $5.0 million annually, as reported in SFO's audited financial statements. Under SFO's residual Lease and Use Agreement, the ASP is included in the airline cost base and recovered through airline rates and charges (Source: SFO Financial Statements FY 2024, October 25, 2024).