The Federal Aviation Administration has determined Santa Monica Municipal Airport violated federal law by accumulating surplus revenues it intends to spend on general city services when the airport closes, rather than using those funds for aviation purposes.
In a Director's Determination issued Dec. 22, FAA Director Michael Helvey found the city's actions do not conform with federal grant assurances and revenue use restrictions. The ruling requires Santa Monica to revise its fee structure within 30 days and implement new aeronautical rates within 60 days.
"The Director finds that the City's actions are not in conformance with Grant Assurance 25, which requires a sponsor to commit to expending airport revenue generated while the airport is obligated, on the capital and operating expenses of the airport," the determination states.
The case stems from a complaint filed in July 2024 by pilot Mark Smith, Kim Davidson Aviation Inc. and the National Business Aviation Association. The complainants alleged the city violated federal obligations by distinguishing between aeronautical and nonaeronautical revenue surpluses and failing to use the entire airport revenue surplus to reduce rates charged to aviation users.
The city projects a nonaeronautical surplus of approximately $19 million by Dec. 31, 2028 — when a 2017 settlement agreement allows the airport to close. City officials admitted they believe those funds would become available for general municipal purposes upon closure.
Federal law requires all airport revenues — both from aviation activities and nonaeronautical uses like leases — be spent on airport capital costs, operations or facilities directly related to air transportation. The FAA found Santa Monica's plan to accumulate and reserve nonaeronautical surplus for non-aviation purposes violates these requirements.
"The City has clearly shown that its current forecasts project a nonaeronautical surplus of approximately $19 million on December 31, 2028," Helvey wrote. "This does not conform to Grant Assurance 25 or 49 U.S.C. § 47133."
The determination noted the city reduced aeronautical rates by 53% in June 2024, explicitly designed to eliminate aeronautical surplus before the potential closure while maintaining the nonaeronautical surplus. The FAA found this demonstrated intent to create a surplus the city knows it cannot spend in accordance with federal law.
However, the FAA ruled in the city's favor on other allegations. The determination found Santa Monica's actions to separate aeronautical and nonaeronautical revenues and not cross-credit nonaeronautical surplus to aeronautical rates are acceptable under federal policy. The ruling also found the city conducted adequate consultation with airport users before implementing fee changes.
The city had argued the complaint was outside FAA jurisdiction and that revenue restrictions only apply while an airport operates. The FAA rejected those arguments, finding Grant Assurance 25 requires sponsors to promise they will expend all revenue generated while obligated under federal agreements.
"Under usual circumstances, a federally obligated airport that desires to close must have FAA approval to do so," the determination states. "As part of that approval process, the FAA directs where any surplus revenue will be expended upon closure."
The 2017 settlement agreement resolved years of litigation between the FAA and Santa Monica over airport operations. Under that agreement, the city must operate the airport consistent with specific grant assurances until Dec. 31, 2028, when it is allowed to close.
The FAA ordered Santa Monica to review its planned nonaeronautical expenditures, compare actual spending to forecasts used in rate-setting and present a plan demonstrating conformance with federal obligations. The city must also update aeronautical rates annually and report to the FAA.
The city has 30 days to appeal the determination to the FAA Associate Administrator for Airports. If no appeal is filed, the determination becomes final agency action.
"We will be extremely disappointed if the City chooses to fight this FAA Director’s Determination by continuing to waste additional City funds on high-priced outside attorneys,” said Smith. “For more than twenty-five years, the City has misappropriated tens of millions of dollars from the Airport Fund. This ongoing reliance on outside counsel, to justify or conceal fiscal improprieties, has become an embarrassing legacy, and it needs to stop now."
The determination noted the airport received $9.9 million in federal Airport Improvement Program funds since the 1980s and operates on land conveyed under the Surplus Property Act in 1948.
Santa Monica Municipal Airport is a general aviation reliever airport with approximately 74 based aircraft and 67,000 annual operations.