Return of $31 Million to LAX Approved

A reluctant and divided Los Angeles City Council voted Wednesday to return nearly $31 million in disputed funds to the city’s quasi-independent Department of Airports, hoping that the move will serve as an olive branch to the combative airline industry and antagonistic federal regulators.

The transfer, if signed by Mayor Richard Riordan, would free up about $56 million in frozen federal grants to Los Angeles International, Ontario and Van Nuys airports, and allow the city to apply to Washington for further funds. It also lifts the federal government’s threat to withhold millions of dollars in grants to the troubled Metropolitan Transportation Authority if the city refused to give back the disputed $31 million.

The council’s vote marks a major setback for Riordan’s strategy of using revenues generated at LAX to pay for his aggressive expansion of the Los Angeles Police Department and other city programs, but City Hall leaders said it was a necessary step in a larger negotiation with the airline industry and federal officials.

There will be no immediate impact on residents, because the city had placed the $31 million in an escrow account and was not relying on it. And while it dries up a potential reservoir of funds, it also could portend a windfall later.

“This is a tactical maneuver in a much bigger game, a much bigger war,” Councilwoman Ruth Galanter, whose coastal district includes LAX, told her colleagues before the 8-2 vote approving the return of the money. “This is not the one we want to go to the mat for. . . . We ought to be entitled to the money, but we have bigger fish to fry.”

Airport Director Jack Driscoll and City Council President John Ferraro spent much of this week in Washington, meeting with the president of the Air Transport Assn.--which represents the nation’s major airlines--and federal aviation and transportation officials.

City Hall sources said Driscoll, Ferraro and Riordan’s office are trying to negotiate a deal with the association in which the group would back off of other LAX disputes and support the proposed $12-billion expansion of the airport in exchange for the city’s return of the $31 million. Under pressure from the association and Congress, including threats to MTA funding, the city returned $1.5 million in questionable transfers earlier this year.

Besides the $31 million--which was supposed to reimburse Los Angeles’ general fund for loans and investments dating back as far as 70 years--the association has challenged the city on several other fronts. The largest is a $58-million settlement awarded by the state in connection to the building of the Century Freeway. The city used the money in its general fund, but the association contends that it belongs to the airport. The matter is pending before the Federal Aviation Administration.

The airlines also have fought Riordan’s quadrupling of landing fees since he took office in 1993. That fight, which could bring $15 million a year to city coffers if Riordan succeeds, remains in FAA hands as well. In addition, there are constant struggles over audits at the airport.

Driscoll could not be reached for comment Wednesday. Ferraro and transport association spokesman John Ek denied that there is a specific deal in the works, saying only that the council vote ushers in an era of cooperation between the city and the industry, which have been battling for several years.

“There’s nothing in writing. We just talked about a lot of things,” Ferraro said. “They’re going to back away.”

Ek insisted that the association’s position of fighting any transfer of airport revenues to other purposes--which is prohibited by federal law--would not change.

“It has always been our contention that once this money was returned, we would work cooperatively with the city on any endeavors they would pursue, whether in Washington or in Los Angeles,” he said. “I hear all these rumblings about a deal, but the deal is there’s going to be cooperation.”

MTA officials expressed relief at the resolution of a dispute in which the transit agency claimed to have been an innocent third party. But they worried that the council’s reversal could be seen as a success for the association’s tactic of tying MTA funds to LAX, and that such a link could be made again.

“I hope that, once and for all, Congress and the air transport people realize that we were absolutely helpless,” said MTA board Chairman Larry Zarian. “There was nothing we could do other than ask the mayor and City Council to get us off the hook.”

The MTA is a countywide agency separate from the city, but Riordan sits on its board and appoints three other board members.

“The precedent has been set to tie [disputed airport funds] to the MTA,” said a transportation lobbyist who asked not to be named. “If you’re the airlines, this worked.”

Indeed, City Councilman Richard Alarcon said his vote to return the money was motivated largely by the threat to MTA funds.

“You’ve got to know when to hold ‘em and know when to fold ‘em,” he said. “Strategically, it’s time to pull back and it’s time to recognize that there’s much more at stake.”

City staff split on the issue. Chief Legislative Analyst Ron Deaton advised the council to comply with the FAA’s order to return the money. But Controller Rick Tuttle told lawmakers that they were on safe legal ground and should stay the course, fighting the matter through in court.

Council members Mike Hernandez and Jackie Goldberg voted not to return the money to LAX. Councilman Hal Bernson supported the transfer, but introduced a separate motion to study the prospects for selling the airport, saying it may no longer be worth taxpayers’ investment.

“The airport is a burden on the citizens of Los Angeles. If we aren’t going to get any proceeds, perhaps we should unload that burden to the private sector,” Bernson told his colleagues. “Thirty-one million dollars buys a lot of parks . . . and other programs and housing and things we need in this city. And police officers.”

Riordan aides said the mayor would be reviewing the decision, and Driscoll’s negotiations, over the next 10 days before deciding whether to join the council action; knowledgeable sources said a veto is unlikely.

“He still believes LAX belongs to the people of our city. He wants the people to get the benefits of that,” said Steve Sugarman, Riordan’s communications director. “He’s going to take a very serious look at this. He wants to move toward a partnership on the LAX master plan.”