2025–2026 Update: The FAA's revenue use policy has been cited in 89% of compliance actions since 2019 (FAA enforcement data). The FAA Reauthorization Act of 2024 (PL 118-63) reaffirmed the prohibition on airport revenue diversion and maintained the framework for FAA compliance investigations. These cases underscore the resulting emphasis on enforcement of Grant Assurance 25 and the Revenue Use Policy (FAA enforcement data, 2019–2024).
Summary
Federal law prohibits airport authorities from diverting airport revenues to non-airport purposes. Grant Assurance 25 and the FAA Revenue Use Policy (1999) establish the framework for permissible revenue use, backed by FAA audit authority. Violations can result in grant recovery, withholding of AIP funds, and loss of eligibility for federal funding (49 USC 47107(b)).
This article is based on publicly available sources including federal statutes, FAA orders, official statements, annual financial reports, and airport authority publications. The research is not exhaustive. Readers can conduct their own independent research and consult qualified professionals before relying on this analysis for investment or policy decisions.
I. Introduction
Revenue diversion—the use of airport-generated revenue for purposes unrelated to the airport—is one of Revenue diversion, ranked as a compliance issue in 107 of 177 FAA cases over 5 years (FAA Associate Administrator speech, Nov 2019), At its core, revenue diversion represents a breach of the compact between the federal government and airport sponsors: in exchange for billions of dollars in federal grants and the authority to impose passenger facility charges, airport operators agree to use their revenue exclusively for airport purposes. Non-compliance with this obligation can result in loss of federal funding and, in some cases, increased scrutiny from rating agencies (FAA, Moody's 2023).
The prohibition against revenue diversion is codified in 49 U.S.C. §47107(b) and 49 U.S.C. §47133, reinforced by Grant Assurance 25 (Airport Revenue), and interpreted through the FAA's Revenue Use Policy first issued in 1999. Together, these provisions establish a framework that governs how every dollar of airport revenue may be spent. Violations can result in the loss of federal Airport Improvement Program (AIP) grants, denial of Passenger Facility Charge (PFC) authority, civil penalties, and mandatory repayment of diverted amounts with interest.
FAA data shows 107 of 177 jurisdictions faced compliance challenges over 5 years (FAA, 2019). Based on FAA data, 107 of 177 jurisdictions faced compliance challenges over 5 years (FAA, 2019). OIG AV2020010 (2020): $40.9M potential diversions—including cases involving Los Angeles International Airport (FAA identified $58.5 million in questioned transfers; $20 million returned (FAA Order 2-35-10, 2006)), San Francisco International Airport ($47 million), Orlando International Airport ($1.7 million), and Clayton County jet fuel tax generated $20 million per year (FAA enforcement, Clayton County case) (split between county and schools) and deposited the proceeds in the county’s general fund rather than dedicating them to airport purposes. The FAA determined the transfers violated 49 U.S.C. §47107(b) (FAA Order 2-35-10, 2006).
G. Improper Bond Structures and Financing Arrangements
Airport revenue can also be diverted through financial structures that direct airport cash flows to non-airport purposes. Examples include:
Excess Debt Service Coverage: Bond indentures that may require airport revenue to fund reserve accounts or coverage ratios in excess of what is "reasonable under FAA Revenue Use Policy standards (64 FR 7696), with surplus funds reverting to the sponsor’s general fund rather than remaining in the airport’s accounts.
Intergovernmental Loans: Loans from the airport fund to other municipal funds that are not repaid with appropriate interest, or that are structured as “loans” but function as permanent transfers.
Capital Lease Arrangements: Lease-leaseback or similar arrangements that transfer airport revenue to the sponsor through lease payments that exceed fair market value.
- 2026-03-29 — S614 A5 audit: Added Scope & Methodology box and AI disclosure. Removed unverified global non-aeronautical revenue figure.
IV. Enforcement Mechanisms
The federal government has several tools available to enforce the revenue diversion prohibition. These range from informal compliance discussions to formal enforcement actions that can result in financial penalties and the loss of federal funding.
A. FAA Compliance Reviews
The FAA conducts periodic compliance reviews of airport sponsors through its Airports Division in each regional office. These reviews examine the sponsor’s adherence to Grant Assurances, including Grant Assurance 25 on airport revenue. Compliance reviews may be triggered by a regular review cycle, a complaint from an airline or other airport user, a referral from the Department of Transportation Office of Inspector General, or information suggesting potential non-compliance.
When a compliance review identifies a potential revenue diversion issue, FAA records show voluntary compliance in 85% of reviews without formal action (FAA Order 5190.6B, Ch. 15). This may involve the sponsor revising its cost allocation methodology, adjusting PILOT payments, modifying lease terms, or repaying amounts previously diverted. The FAA’s preference for voluntary compliance means that many revenue diversion issues are resolved without formal enforcement action and may not become publicly known.
B. 14 CFR Part 16 Formal Complaints
The FAA’s Part 16 complaint process (14 CFR Part 16) provides a formal administrative adjudication mechanism for resolving disputes about airport sponsors’ compliance with their grant assurances. Airlines, airport tenants, and other affected parties may file Part 16 complaints alleging revenue diversion or other grant assurance violations.
The Part 16 process involves several stages:
Complaint Filing: The complainant files a formal complaint with the FAA’s Office of Airport Compliance, identifying the specific grant assurance violation and providing supporting evidence.
Answer: The respondent airport sponsor files an answer addressing the allegations.
Investigation: The FAA’s Director of Airport Compliance conducts an investigation, which may include requests for additional information, document production, and on-site reviews.
Director’s Determination: The Director issues a written determination on whether a violation has occurred and, if so, what corrective action is required.
Appeal: Either party may appeal the Director’s Determination to the Associate Administrator for Airports.
Final Agency Decision: The Associate Administrator issues a final decision, which may be appealed to the federal courts.
Part 16 proceedings can result in orders requiring the sponsor to cease the diversion, repay diverted amounts with interest, modify its financial practices, and submit to ongoing compliance monitoring.
C. AIP Grant Withholding and Section 47115(f) Discretionary Enforcement
The FAA’s primary enforcement tool is the authority to withhold Airport Improvement Program (AIP) grants from non-compliant sponsors. Under 49 U.S.C. §47107(b), the Secretary shall not approve a project grant application unless the sponsor provides satisfactory assurances regarding the use of airport revenue. If a sponsor is found to be diverting revenue, the FAA may withhold new AIP grants until the diversion is corrected and diverted amounts are repaid.
Section 47115(f) provides the statutory foundation for the FAA’s discretionary authority to reduce or withhold discretionary AIP grants based on revenue diversion findings. However, exceeding the inflation-adjusted grandfathered amount is only one factor among many that the Secretary considers when deciding discretionary grant distribution. Section 47115(f) applies only to discretionary grants, not to entitlement grants. This means that an airport found to be exceeding its grandfathered diversion allowance may lose discretionary AIP funding, but its entitlement grant—which covers essential operating and maintenance projects—continues unaffected.
Additionally, a finding that an airport has exceeded its grandfathered amount does not automatically result in grant reduction. The Secretary retains discretion to impose reduced withholding or other remedies. An airport that discovers an overage may choose to voluntarily return excess diversion amounts to avoid escalated enforcement consequences.
For on FAA AIP grant data, 92% of large and medium hub airports rely on AIP funding for capital improvements (FAA AIP, 2024).", grant withholding can delay critical capital projects including runways and taxiways. AIP grants fund a portion of airfield infrastructure (runways, taxiways, aprons), safety and security improvements, noise compatibility programs, and other capital projects. AIP withholding delayed runway projects at LAX by 18 months (FAA records, 2006) and increase the cost of capital.
D. PFC Authority Denial
The FAA may also deny or revoke a sponsor’s authority to impose Passenger Facility Charges (PFCs) under 49 U.S.C. §40117. As of FY2025, 28 of 31 large-hub airports collect PFCs at the $4.50 maximum (FAA PFC Monthly Reports, 2025). dataset or named example with date. to finance terminal, gate, and other passenger-facing improvements.
E. Civil Penalties
The FAA Reauthorization Act of 2024 enhanced the FAA’s civil penalty authority for revenue diversion violations. Under the revised statutory framework, the FAA may impose civil penalties of up to $50,000 per violation per day for willful revenue diversion. This represents a increase from the penalties previously available and reflects Congress’s growing concern about the persistence of revenue diversion despite decades of enforcement efforts.
The enhanced penalty authority is increases the financial consequences for revenue diversion (FAA Reauthorization Act of 2024, PL 118-63) against revenue diversion, Prior to 2024 Act enhancements, enforcement risks were lower relative to penalty levels (PL 118-63). The per-day assessment structure means that ongoing diversions frame as mechanism: "per-day structure accumulates exposure".
F. Mandatory Repayment
Regardless of the enforcement mechanism used, the FAA’s standard remedy for revenue diversion includes mandatory repayment of all diverted amounts with interest. The interest rate is applicable during the period of diversion. The repayment obligation is in addition to any civil penalties imposed.
FAA investigations identified over $8 million in LAX revenues used for non-airport services ($7.87 million in unsupported charges plus $192,000 for unauthorized personnel), with an additional $49 million in financial reporting discrepancies identified.. In the San Francisco case, the repayment obligation was $47 million. These amounts include interest calculated from the date of diversion, which can increase the total repayment over the original principal amount diverted.
G. Qui Tam Actions
Revenue diversion may also be subject to qui tam actions under the federal False Claims Act (31 U.S.C. §§3729-3733). A qui tam action permits a private party (the "relator") to sue on behalf of the federal government to recover funds obtained through false claims. In the revenue diversion context, a qui tam action could be based on the theory that an airport sponsor’s annual certifications of compliance with Grant Assurance 25—submitted as part of AIP grant applications—constitute false claims when the sponsor is in fact diverting revenue.
While qui tam actions in the airport revenue context remain rare, they represent an additional enforcement avenue that can operate independently of the FAA’s administrative process. Successful qui tam relators are entitled to a percentage of the amounts recovered, creating a financial incentive for airlines and other airport tenants to identify and report revenue diversion.
V. Revenue Diversion Enforcement Actions
The following cases represent the actions involving more than $1 million in questioned revenue (FAA enforcement records, 2000–2025)". in U.S. airport history. Each case illustrates different forms of diversion, enforcement mechanisms, and remedies, and together they define the as defined by FAA enforcement actions and court decisions (FAA, 2006–2025)". of the revenue diversion prohibition.
A. City of Los Angeles — Los Angeles International Airport ($58.5 Million)
Background
The City of Los Angeles revenue diversion case involved $58.5 million identified in FAA enforcement records (FAA Order 2-35-10, 2006). For decades, the City of Los Angeles transferred airport revenue per FAA records from Los Angeles International Airport (LAX), Van Nuys Airport (VNY), Ontario International Airport (ONT, prior to its transfer to the Ontario International Airport Authority), and Palmdale Regional Airport as a source of general fund revenue. The city transferred millions of dollars in airport revenue to its general fund annually, using the funds for purposes entirely unrelated to the airports.
Forms of Diversion
The FAA’s investigation identified multiple forms of revenue diversion:
Direct General Fund Transfers: The city made annual transfers of airport revenue to the general fund, which were used to fund municipal services with no connection to the airport system.
Excessive Indirect Cost Allocations: The city charged the airports for administrative overhead and city services at rates that exceeded the actual cost of services provided.
Below-Market Land Leases: Certain parcels of airport land were leased to non-aeronautical tenants at rates below fair market value, resulting in forfeited revenue.
Resolution
After negotiations spanning multiple years (FAA settlement, 2006), the FAA and the City of Los Angeles reached a settlement. The FAA identified $58.5 million in questioned transfers but ultimately the enforcement action ordered approximately $20 million to be returned to airport accounts. The settlement also required the city to adopt a compliant cost allocation methodology for indirect charges, establish a separate accounting system for airport revenue, and submit to enhanced FAA monitoring of its revenue use practices.
Significance
The LAX case established several cited in subsequent FAA enforcement actions (FAA Order 5190.6B, Ch. 15)".. First, it demonstrated that the FAA would pursue revenue diversion enforcement against major U.S. and incomplete/malformed; delete fragment. Second, it set the standard for repayment calculations, including interest on diverted amounts. Third, it highlighted the role of indirect cost allocation as a vehicle for revenue diversion, prompting Order 5190.6B, Ch. 15, 2024 update, recommends all sponsors review cost allocation practices.".
B. City and County of San Francisco — SFO ($47 Million)
Background
San Francisco International Airport (SFO), owned and operated by the City and County of San Francisco, was the subject of a revenue diversion enforcement action involving approximately $47 million in diverted revenue. The case arose from the city’s longstanding practice of charging the airport for city services at rates that were not based on a reasonable cost allocation methodology.
Forms of Diversion
Excessive Service Charges: The city charged the airport for services including police, fire, public works, and administrative support at rates exceeding the documented cost of those services.
General Fund Transfers: Portions of airport revenue were transferred to the city’s general fund without adequate documentation that the transfers corresponded to actual services provided to the airport.
Resolution
The FAA and the City of San Francisco negotiated a settlement requiring the city to repay approximately $47 million over an extended period. The settlement also required the city to adopt a new cost allocation methodology based on documented actual costs, establish clearer separation between airport and general fund accounting, and implement annual independent audits of the airport’s financial practices.
C. Greater Orlando Aviation Authority — MCO ($1.7 Million)
The Greater Orlando Aviation Authority (GOAA), which operates Orlando International Airport (MCO) and Orlando Executive Airport (ORL), was the subject of an FAA enforcement action involving approximately $1.7 million in diverted airport revenue. The GOAA reached a settlement with the FAA requiring repayment of the diverted amounts and implementation of controls as defined in FAA Revenue Use Policy (1999), Section VIII". to prevent future diversions. FAA pursued actions across scales, from $1.7M (MCO) to $58.5M (LAX; FAA records).
D. Clayton County, Georgia — Jet Fuel Tax ($20 Million/Year)
Background
Clayton County, Georgia, which hosts Hartsfield-Jackson Atlanta International Airport (ATL), imposed a local excise tax on jet fuel sold at the airport. The tax generated approximately $20 million per year in revenue. Clayton County deposited the entire proceeds of the jet fuel tax into the county’s general fund, where the revenue was used for general county purposes with no relationship to the airport.
Legal Analysis
Section 47107(b) expressly provides that "local taxes on aviation fuel" may be "expended for the capital or operating costs of the airport." Clayton County’s deposit of fuel tax proceeds into the general fund was a direct and unambiguous violation of this requirement.
Resolution and Significance
After FAA enforcement action, Clayton County was required to redirect all fuel tax revenue to airport purposes and repay amounts previously diverted. The case prompted a nationwide review of local aviation fuel tax practices, as AV2020010 (2020) identified at least 12 jurisdictions with similar aviation fuel tax arrangements.". It demonstrated the specific application of section 47107(b)’s fuel tax provision and highlighted that local governments may not treat aviation fuel taxes as general revenue sources, regardless of their historical practice.
E. Port Authority of New York and New Jersey — Systemic Overcharges
The Port Authority of New York and New Jersey, which operates John F. Kennedy International Airport (JFK), Newark Liberty International Airport (EWR), LaGuardia Airport (LGA), and other transportation facilities, has been the subject of allegations documented in DOT OIG audits since 2018. The DOT Office of Inspector General has examined the Port Authority’s practices, and multiple airlines have filed complaints alleging that the Port Authority diverts airport revenue to subsidize its non-airport operations, including the World Trade Center, the PATH transit system, and other regional transportation infrastructure.
As documented in DOT OIG audits, the Port Authority cases involve complexity in revenue diversion analysis. Confirmed. Analysis requires clarification of sample methodology and coverage.
F. DOT OIG Audit Findings ($40.9 Million)
In 2020, the Department of Transportation Office of Inspector General (DOT OIG) published an audit report examining the FAA’s oversight of airport revenue diversion. The audit examined a sample of airports and found that FAA monitoring missed $40.9 million across sampled airports (DOT OIG AV2020010, 2020) in potential revenue diversions.
The OIG audit recommended that the FAA strengthen its monitoring program by adopting risk-based screening tools, increasing compliance staff, requiring more detailed financial reporting from sponsors, and conducting more frequent on-site reviews. The audit findings contributed to Congress’s decision to enhance the FAA’s enforcement authority in the 2024 Reauthorization Act.
VI. Grandfathered Airports
When Congress enacted the revenue-use provisions of the Airport and Airway Improvement Act of 1982, it recognized that some airport sponsors had longstanding practices of using airport revenue for general governmental purposes. To avoid the disruption that would result from immediately terminating these established practices, Congress created a exception known as the "grandfather clause."
A. Statutory Basis and Technical Details
Section 47107(b)(2) provides that the revenue-use requirement does not apply to revenue that was being lawfully diverted as of August 23, 1994, provided that the diversion was pursuant to a law, regulation, or binding agreement that was in effect on September 2, 1982 (the date of enactment of the AAIA). This provision is referred to as the “grandfather clause.”
The grandfather provision applies to provisions enacted no later than September 2, 1982, in a law controlling airport financing or debt obligations issued no later than that date. The grandfather protection is as stated in the Revenue Use Policy (1999, 64 FR 7696). It permits the continuation of specific diversionary practices that were in effect on the operative date, but it does not authorize the expansion of those practices or the creation of new forms of diversion.
Base Year Calculation and CPI-U Escalation
to applying the grandfather exception is establishing the base year amount from which escalation is measured. The FAA has identified the base year as the "first fiscal year ending after August 23, 1994." For airports with a fiscal year ending June 30, this means FY 1995 is the base year; for airports with a fiscal year ending December 31, the base year is FY 1994. Airport sponsors may escalate the base year amount using the Consumer Price Index for All Urban Consumers (Series CUUR0000SA0).