Opinion for the Court filed by Circuit Judge SILBERMAN.
The City of Los Angeles increased the landing fees at Los Angeles International Airport, and the airlines challenged those fees as unreasonable before the Department of Transportation. The DOT set aside the increased fees, reasoning that the City’s attempt to recoup its “opportunity costs” through the fees was impermissible as a matter of statute. In City of Los Angeles v. DOT,
I.
Until 1993, the City of Los Angeles, pursuant to a contractual agreement with the airlines, established landing fees at the Los Angeles International Airport (LAX) based on a residual methodology. Under that technique, the City estimated the revenue and cost attributable to non-aeronautical operations — such as parking contracts and concession franchising — for the coming fiscal year. Expected nonaeronautieal surplus, if any, was then applied toward the anticipated cost of aeronautical operations. Landing fees were set (based on estimated landed weight) at a sufficient level to make up for the remaining aeronautical cost. In 1992, the last year in which the City used this methodology, the fee was $.51 per 1,000 pounds of landed weight. In 1993, the expiration of the City’s contract with the airlines opened the door for the City to adopt the potentially more lucrative compensatory fee methodology. That approach treats aeronautical operations separately from non-aeronautical operations; the airport sets landing fees at a sufficient level to compensate it for the entirety of its aeronautical costs, and any surplus or deficit from non-aeronautical operations is irrelevant.
The City also decided in 1993, for the first time, to include in its estimated aeronautical costs a charge reflecting the current annual fair market rental value of the land on which the airfield rests. The City thought itself entitled to recover this “opportunity cost,” for only then would the City be compensated fully for the cost of using the land as an airport instead of pursuing its alternative opportunity to earn profits by renting the land.
The airlines challenged the fee increase pursuant to an expedited administrative procedure in which the Department of Transportation has authority to set aside unreasonable fees. See 49 U.S.C. § 47129 (1994); see also Anti-Head Tax Act, 49 U.S.C. § 40116(e)(2) (1994) (providing that a political subdivision of a State may levy or collect “reasonable ... landing fees”); 49 U.S.C. § 47107(a)(1) (1994) (requiring federal airport grant recipients to assure the DOT in writing that “the airport will be available for public use on reasonable conditions”). The Department determined the fee unreasonable, reasoning that the Anti-Head Tax Act’s “requirement of reasonable fees ... mandates] the use of historic cost for airfield land” — i.e., the original acquisition cost of the land on which the airport was built — and thereby forbids consideration of opportunity cost. Los Angeles Int’l Airport Rates Proceeding, Order No. 95-6-36, at 24 (June 30, 1995). In the meantime, the City had announced a new landing fee in 1995 of $2.06 per 1,000 pounds of landed weight (effective July 1, 1995), again including among its costs its claimed “opportunity cost,” i.e., the forgone fair rental value of the airfield land. The airlines challenged this fee before the DOT, and the Department set the fee aside for the same reason given in rejecting the 1993 fee. Second Los Angeles Int’l Airport Rates Proceeding, Order No. 95-12-33 (December 22, 1995).
In City of Los Angeles v. DOT (LAX I),
On remand, the DOT consolidated the 1993 and 1995 fee proceedings. As before, the Department held that the 1993 and 1995 fees should be set aside because it was unreasonable for the City to recover its claimed “opportunity cost.” Los Angeles Int’l Airport Rates Proceeding and Second Los Angeles Int’l Airport Rates Proceeding (Remand Decision), Order 97-12-31 (December 23, 1997). But this time the Department rested its decision explicitly on 'policy grounds. It pointed to the airport’s obligation as a federal airport grant x-ecipient to keep the airport “available for public use,” 49 U.S.C. § 47107(a)(1), and to another provision that bars a grant recipient from making any alteration to the airport’s layout unless the Secretary decides
Alternatively, the DOT held that even if the City were thought to incur opportunity costs, the fees should be set aside because the City’s “benefits” from operating LAX already sufficed to cover the City’s opportunity costs. The Department viewed the City, rather than the airport, as the relevant economic actor; pursuing the rental opportunity would require the City either to build a new airport (or expand an existing minor airport such as Long Beach or Orange County), or else simply to go without a major airport. The latter option, according to the Department, would entail an enormous loss to the City; a 1992 study quantified the benefits of LAX “in terms of jobs (402,000); direct, indirect, and induced economic impacts ($37 billion per year); and state and local taxes ($1.7 billion per year).” Id. at 17. And the City would sacrifice the current revenue the City earns from its airfield and non-airfield activities at LAX. In the Department’s view, these losses far outweigh any reasonable forecast of rental revenue — the City’s estimate of that revenue, recall, was a mere $14,861,900 per year. In short, the stream of benefits from using the lapd as rental property rather than as an airport would be smaller than the stream of benefits from operating the airport — i.e., the opportunity cost of using the land as an airport was already being covered. And the Department thought the calculus would not be much different if the City, rather than going without a major airport, attempted to build a new major airport or expand existing minor airports. Relying on the City’s own appraisal firm’s report that the “relocation of the Los Angeles International Airport (LAX) is practically impossible” given the paucity of alternative airport development sites and the prohibitive costs of acquiring such a site, the Department concluded that once these costs were taken into account, the net profit from renting the LAX land would again be outweighed by the benefits of using the LAX land as an airport. Id. at 18-19. In the end, the Department concluded that the City’s analysis of its opportunity costs — which treated only the airport as the relevant economic actor and considered only the annual rental income of $14,861,900 — was overly simplistic, and therefore rejected the City’s attempt to include its self-described “opportunity costs” in calculating its landing fees.
We should briefly mention a related proceeding, the DOT’s effort to fulfill its statutory mandate under 49 U.S.C. § 47129(b)(2) to publish final regulations, policy statements, or guidelines establishing the “standards or guidelines that shall be used by the Secretary in determining ... whether an airport fee is reasonable.” In June 1996, the Secretary published a regulation entitled the “Policy Regarding Airport Rates and Charges.” See 61 Fed.Reg. 31,994 (June 21,1996). The regulation required airports to value their airfield assets at historic cost, but allowed airports to use “any reasonable methodology” in valuing them non-airfield assets. Id. In Air Transport Association v. DOT,
II.
The City and the Department before us principally dispute the reasonableness of the City’s methodology of fee calculation, not the reasonableness of the magnitude of the resulting fees.
A.
Reiterating its first reason for rejecting the City’s fee methodology, the Department submits that it is unreasonable to attempt to include as an airfield cost the “opportunity cost” of employing the land as an airport rather than as rental property, for the proposed opportunity does not lawfully exist at present. As one of the members of the panel observed, in paraphrasing the DOT’s argument, the City is like an owner of a hot dog stand who claims his opportunity cost is the revenue he would earn by selling cocaine rather than hot dogs. The City contends, however, that the Department has adopted an erroneous conception of opportunity cost; for an economist, we are told, the present impossibility of pursuing the opportunity to rent the airfield land does not mean that no opportunity cost has been incurred.
At bottom, the parties’ dispute as to the concept of opportunity cost seems to rest on a single question: Should the legal barrier to pursuing the opportunity be treated as immutable? If opportunity costs are measured as of now and the grant assurance obligation is viewed as fixed, then the Department’s view would seem inevitable. For then the City would have no opportunity to use the land in any non-airport capacity — the City at least would face enormous transition costs (the cost of violating the law or perhaps of buying a release from the obligation) in pursuing the opportunity, which alone could render the potential profit from that opportunity small or even negative. But if we ignore (i.e., treat as changeable at zero cost) the present legal hurdle to pursuing the opportunity, then the City’s position is much stronger.
To be sure, an economist formulating an efficient plan for regulating the City’s monopoly over landing space might well take the City’s view, treating all regulatory tools — including existing grant assurance obligations — as easily changeable. Cf. William J. Baumol & J. Gregory Sidak, Transmission Pricing and Stranded Costs in the EleCTRic Power Industry 53 (1995). But the airlines’ expert suggested otherwise when he testified that “[sjometimes the opportunity is virtually nil, in which case there is no opportunity cost.” In any event, that some or many economists would disapprove of the Department’s approach does not answer the question presented to us. In reviewing the Department’s order, we do not sit as a panel of referees on a professional economics journal, but as a panel of generalist judges obliged to defer to a reasonable judgment by an agency acting pursuant to congressionally delegated authority. See Air Canada v. DOT,
Here we cannot say it was irrational for the Department to treat the grant assurances as a given and evaluate the City’s proposed methodology from that perspective. And the grant assurance obligations may in fact be a fixed point for the DOT. Although the Department has some control over grant assurances insofar as the grant recipient ab initio promises the Department to keep the airport open for public use, see 49 U.S.C. § 47107(a)(1), it is unclear whether the Department is free at this stage to release an airport from its promise — to do so might violate the statute.
The City argues that the Department’s “no opportunity, hence no opportunity cost” rationale attempts an “end run” around our holding in LAX I that the Anti-Head Tax Act, 49 U.S.C. § 40116(e)(2), does not itself proscribe consideration of opportunity costs in establishing reasonable landing fees. See LAX I,
Intervenor Airports Council International (ACI) points to a different alleged problem with the Department’s “no opportunity, hence no opportunity costs” rationale: ACI submits that DOT has retroactively added new conditions to the City’s grant assurances by relying on those grant assurances to deprive the City of the ability to recover its opportunity costs, which ACI claims conflicts with the “clear statement” requirement of Pennhurst State School & Hospital v. Halderman,
B.
Even were we to hold the Department’s first rationale unlawful, we would uphold its order. We cannot say — and the City does not seriously argue — that the DOT’s alternative rationale, that if the City is deemed to incur opportunity costs, those costs are already covered by the existing “benefits” enjoyed by the City, is an unreasonable one. See Air Canada,
III.
The City argues that the setting aside of its fees amounted to an unconstitutional taking. The question is entirely one of the adequacy of the fee the Department permits the City to charge; the Takings Clause has nothing to do with the methodology of rate-making. See Duquesne Light Co. v. Barasch,
the financial integrity of the company whose rates are being regulated. From the investor or company point of view it is important that there be enough revenue not only for operating expenses but also for the capital costs of the business. These include service on the debt and dividends on the stock. [The return] should be .sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital.
Id. at 1176 (quoting Hope,
The Department contends, and we agree, that these principles do not precisely carry over to the situation presented here of a municipally-owned airport as the regulated entity. A municipality has no stockholders, so it makes little sense to analyze the proper return on equity. That is not to say that the Takings Clause has no application here. The Supreme Court has explained that the Clause applies to the federal government’s condemnation of property owned by a local government, see United States v. 50 Acres of Land,
The only suggested “hardship” under the current fees is a lack of flexibility in undertaking airport improvement projects. (The thrust of the City’s argument is the oblique claim that the City is being denied a “fair” rate of return.) The City has never alleged that its current fees jeopardize the financial integrity of LAX, and therefore the City had no right to a hearing before the Department on its Takings Clause claim. Compare Jersey Central,
For the foregoing reasons, the petition for review is
Denied.
Notes
. A leading economics text defines "opportunity cost” in this way: “[M]aking a choice in effect
. In a contention related to its attack on the Remand Decision as economically unsound, the City argues that the airlines, as proponents of an order setting aside the fees, failed to carry the burden of persuasion assigned to them by the Administrative Procedure Act. See 5 U.S.C. § 556(d) (1994); Air Canada,
. The compensatory fee methodology, recall, permits an airport to set landing fees at a sufficient level to cover its airfield costs and, unlike the residual methodology, does not require an airport to apply any surplus from non-airfield activities toward those airfield costs.
. Intervenor ACI objects that the Department's "comprehensive opportunity costs analysis,” carried to its logical conclusion, could prevent airports from charging landing fees at all, depending on the level of benefit provided to the residents and businesses of the city-owner. But the Department has not in fact pursued that approach — to do so would raise a serious Takings Clause question.