Airspace Memo - Initial Findings and Recommendations

 

To: Governor Gavin Newsom
From: Tony Tavares, Caltrans Director
CC: Toks Omishakin, CalSTA Secretary
Date: February 6, 2024
Subject: Initial Findings and Recommendations of Airspace and Telecommunications Licensing Program

 

Background

This memo follows Secretary Omishakin’s November 22, 2023, memo describing Caltrans’ initial review and inventory of Airspace and Telecommunications Licensing Program (Airspace) lease sites. That review included an inventory of all lease sites to identify potential concerns, properties proximate to sensitive infrastructure, tenancy status, site use types, and inspection status, among other details. Caltrans has now completed inspections of all but one of the high-priority sites identified (the single exception is described below), and 97% of the 600 Airspace lease sites have been inspected within the past year. An update on the findings of Caltrans’ inventory is provided below.

Additionally, at your direction Caltrans has begun a top-to-bottom review of the Airspace lease program. This memo summarizes the initial findings of that review and recommended improvements. As explained below, Caltrans has identified several potential changes in its policies and practices concerning the Airspace lease program. These changes will make more efficient use of Caltrans’ oversight resources (e.g., Airspace program Right-of-Way staff), ensure the lease agreements governing each property are up-to-date and reflective of potential risks, streamline enforcement of lease terms and allow Caltrans to more quickly address risks, and ensure program managers and Caltrans leadership have greater visibility into program operations.

Caltrans is developing specific language for its Right-of-Way (ROW) Policy Manual to implement these initial recommendations and anticipates completing that task by March 30, 2024. Additionally, Caltrans has undertaken a broader reconsideration of goals, benefits and risks of the Airspace lease program, and we will keep you apprised of additional program changes and improvements.

Lease Inventory Update

Caltrans has completed the inventory of its 600 active Airspace leases. Caltrans, in partnership with the State Fire Marshal, has inspected 582 of those sites within the last year and is actively working to complete inspections on the remaining 18 sites. Most of the remaining sites are telecommunications leases (cell phone towers) or parking lots. These uses do not present the same risks as materials storage, which contributed to the recent fire under the I-10 freeway in Los Angeles, and Caltrans has not identified any specific risks during recently completed inspections at these types of sites.

As noted in the prior memo, Caltrans identified 38 sites ― 6% of all sites ― that had identified risks or warranted further inspection. These sites were identified based on results of recent inspections and characteristics of the site, including nature of known uses and proximity to critical infrastructure. Since the I-10 fire, Caltrans and the State Fire Marshal have inspected 47 sites ― 37 of the original 38 identified in November and an additional 10 that were due for their annual inspection. The only outstanding high-priority site is being used for parking/open storage. Caltrans and the State Fire Marshal have performed a visual inspection of the site, but additional notification to the tenant is required for a more comprehensive inspection of the locked mobile offices on the premises. Caltrans is actively working to resolve the issue and complete the full inspection based on the current guidance and lease terms.

Inspections of these sites revealed several issues presenting fire or safety risks, as well as other issues and lease violations. These included:

• One tenant was storing propane tanks under the freeway.
• Several parcels had improperly stored lumber or pallets.
• Several parcels have unauthorized vehicle storage/maintenance that was noted not to be a fire concern, but might involve hazardous fluids.
• One parcel had bedding, a propane grill, and workout equipment installed.
• Minor issues, such as outdated fire extinguisher inspections.

At each site where problems were identified, Caltrans has taken action, which includes communicating with the tenants, who are actively addressing safety risks or other lease violations; serving a formal 30-day Notice to Correct violations; or, as in the case of the site at which the I-10 fire occurred, initiating legal action to remove the tenants (Caltrans filed lawsuits relating to these properties in September 2023, prior to the recent fire).

Attached to this memo is a spreadsheet summarizing recent inspections, in which full reports of those inspections may be found.

Initial Findings Of Policy And Practice Review

Streets and Highways Code section 104.12 authorizes Caltrans to “lease to public agencies or private entities the use of areas above or below state highways.” Caltrans’ policies and practices concerning Airspace leases are governed by federal regulations and Caltrans’ ROW Policy Manual. Federal regulations specify: “Any non-highway alternative use of real property interests requires approval by FHWA [Federal Highway Administration], including a determination by FHWA that such occupancy, use, or reservation is in the public interest; is consistent with the continued use, operations, maintenance, and safety of the facility; and such use does not impair the highway or interfere with the free and safe flow of traffic.” 23 CFR 710.405.

Since Caltrans first began leasing Airspace sites in the 1970s, the properties have benefitted small businesses, nonprofit organizations, and local governments, including being used as a hub to connect transit users with buses, trains, and other clean energy transportation opportunities. Nonetheless, as demonstrated by the recent I-10 fire, the Airspace program also presents risks. Caltrans’ ongoing review of the program will take into account both the benefits and risks of the program, as well as explore potential program improvements to mitigate risks. Below are the initial findings of this review, including recommendations for improvements that can be implemented while the broader review continues.

I. Leasing Process and Form of Lease

We assessed the manner in which Airspace properties are leased, from the initial identification of prospective lessees through the execution of lease agreements, as well as the template lease agreement used for these arrangements.

Vetting of Lessees. Prospective lessees are identified in a number of ways. Some interested parties approach Caltrans to lease specific Airspace properties; properties are sometimes put up for lease through a public bidding process; other properties are offered to an adjacent landowner/tenant for lease; and some properties are offered to public entities for public use.

Pursuant to section 15.01.04.00 of the ROW Manual, a district Airspace review committee (DARC), composed of subject matter experts, reviews the property use proposed by a prospective lessee. A DARC may include experts on planning, environmental impacts, stormwater, traffic operations, maintenance, design, and other topics. The California Transportation Commission must approve direct negotiations with prospective private lessees and review those leases to ensure that they are in the State’s best interest.

Recommendation: In addition to the review currently conducted, Caltrans should require prospective lessees other than government agencies to attest that they have not previously been subject to unlawful detainer actions or other related legal actions based on violation of lease terms and that they or their principals have not entered bankruptcy in the previous ten years. Caltrans should obtain credit checks from prospective lessees to verify information provided. This due diligence will help determine whether a perspective tenant is likely to be a responsible steward of State property and good-faith business partner. This information will allow Caltrans to better assess whether a long-term relationship with the prospective lessee is appropriate.

Standard Lease Terms. Caltrans uses a template lease agreement for all Airspace leases. That form agreement is modified to fit the circumstances of the particular property at issue, but the same terms and conditions generally apply. Caltrans’ current template includes a prohibition on “any storage of flammable materials, explosives or other materials or other purposes deemed by Landlord to be a potential fire or other hazard to the transportation facility,” as well as a general prohibition on storage of “hazardous” materials.

Recommendations:

• The standard lease terms should be updated to define more specifically what materials are deemed “hazardous.” The current version cites to an old statutory definition that is no longer in effect. (Similarly, section 15.07.09.00 of the ROW Manual cites to an outdated section of the California Code of Regulations.)
• Additionally, in order to conform to recently clarified FWHA requirements, the form lease agreement should expressly prohibit storage of the following materials under bridges or other structures: Oil, gasoline, lumber, pallets, wood, wood chips, landscaping materials, non-operable vehicles, plastic piping/tubing, tires, paper/paper products, fabrics, batteries, and chemicals/cleaning supplies in industrial quantity.
• Relatedly, Caltrans should not approve “open storage” as a permissible site use without greater specificity as to materials to be stored. Caltrans should consider whether the lease agreement should also specify requirements for the manner in which certain materials are stored, not just prohibitions on certain materials.
• In addition to updating its template lease agreement going forward, Caltrans should issue interpretive guidance to lessees clarifying prohibitions on storage of certain materials and should also consider whether to seek to amend existing lease agreements where appropriate.

Subleasing. The current version of Caltrans’ parking and open storage template lease agreement prohibits all subleasing. However, older versions of the lease agreement ― such as that governing the property at which the recent I-10 fire occurred ― permitted subleasing with Caltrans’ approval and concurrence by the FHWA. The prime tenant of that property failed to obtain Caltrans’ approval before subleasing that property and other properties leased by that tenant were also subject to unauthorized subletting.

Recommendations:

• Caltrans should assess whether existing tenants are in compliance with subleasing requirements and enforce lease terms to remove any unauthorized subtenants.
• Where discretion exists under current lease agreements, Caltrans should decline to authorize further subleasing.

II. Airspace Site Inspection Program

Caltrans has an obligation to monitor use of Airspace properties after leasing and has adopted policies and practices concerning regular inspection of all leased properties.

Maintaining an Up-to-Date Inventory. Records concerning Caltrans’ Airspace leases ― including lease agreements, amendments, inspection reports, and correspondence with lessees ― are maintained primarily in paper format. As a result, prior to the recent fire, Caltrans did not have a readily accessible inventory of all Airspace leases with relevant information about each property; that document was generated by referencing paper records stored at multiple district offices.

Recommendations:

Caltrans should create and maintain an up-to-date inventory of Airspace properties under lease agreements, including key information about each property, such as use type, inspection history, lessee information, etc. This inventory should be maintained and updated on an ongoing basis, with District leadership responsible for reviewing the District’s inventory at least quarterly to assess timeliness of inspections and any necessary enforcement actions.

Caltrans HQ should review the Airspace lease inventory at least twice annually to enable meaningful review and oversight of the Airspace lease program.

Inspection Cadence. District staff are responsible for regular inspection of Airspace lease sites. Pursuant to Section 15.07.01.00 of Caltrans’ ROW Manual, inspections of developed sites (i.e., those with structures) are required quarterly and undeveloped sites (e.g., parking lots, open storage) must be inspected annually. According to Caltrans’ last survey approximately 83% (499 of 601) of Airspace lease sites were in compliance with this inspection requirement. Notably, Caltrans had inspected the site on which the recent I-10 fire occurred within the required timeframe.

Inspections are generally coordinated with the State Fire Marshal, who has an independent duty to inspect these sites on a regular basis. Pursuant to Section 15.07.08.01 of the ROW Manual, the State Fire Marshal may establish an inspection schedule that differs from Caltrans’ required schedule based on the use of the property and perceived risk.

Recommendation: Caltrans should categorize leased sites to better reflect the risk posed by tenant uses. For example, telecommunication uses (e.g., cellular communications nodes) generally pose a very low risk, but are considered “developed” sites requiring quarterly inspections. By contrast, open lots on which vehicles or other items are stored are considered “undeveloped” and require only annual inspections, regardless of the items stored there and risks that may be posed by those items. In developing an updated inspection schedule and cadence, Caltrans should ensure flexibility to respond to unique needs that may be posed by certain sites and align with State Fire Marshal inspections when permitted by applicable state and federal law.

III. Enforcement of Lease Terms and Legal Requirements

District staff are responsible for monitoring compliance with and enforcing all terms and conditions of Airspace lease agreements. Caltrans policies specify that District staff should take certain steps when lessees are in violation of lease terms. Enforcement efforts include initial correspondence/demands to lessees, referral to the State Fire Marshal for citation and/or immediate condemnation of especially risky sites, and litigation to remove non-compliant lessees from State property.

Enforcement Timelines. Sections 15.07.01.00 and 15.07.11.00 of the ROW Manual specify steps District staff should take to address lessee non-compliance. In particular, the Manual provides that “[w]hen a leased site is not properly maintained, R/D A/S shall immediately inform the lessee by written letter sent by certified mail of the violation and provide the lessee with a list of actions that must be taken and a time period within which to make corrections.” If an issue requires “immediate” attention, “the lessee should be given a formal 30-day notice… to correct the problem….” If the issue is not resolved satisfactorily within that time “the lessee is declared in default and served a three-day notice to vacate.” If a lessee is unable or unwilling to come into compliance, the ROW Manual provides that district staff “should initiate default proceedings (e.g., termination, eviction, lawsuit, and collections).”

In the case of the Los Angeles property where the I-10 fire occurred, the lessee was out of compliance due to non-payment of rent since March 2020. Additionally, Caltrans inspections had identified safety issues at the site since at least August 2021. Although Caltrans served the tenant notice to vacate the premises in November 2020, an unlawful detainer action to remove the tenant from the property was not filed until September 2023. The delay in this case was due, in part, to COVID-era limitations on eviction actions for nonpayment.

Recommendations:

• The Caltrans ROW Manual currently provides District offices discretion in determining when enforcement action is appropriate. In particular, it provides that notices of non-compliance “should” be issued in the specified time frames and that default proceedings “should” be initiated if a lessee remains non-compliant. The ROW Manual should be revised to require staff to initiate enforcement action, consistent with the terms of the lease agreement, within the timelines provided ― i.e., “should” should be “shall” ― absent unusual circumstances and approval from the District director and statewide Right of Way Division Chief.
• Additionally, Caltrans should consider whether a one-size fits all timeline is appropriate given the range of lessee violations experienced. For example, it may be appropriate to provide a lessee more time to come into compliance for failure to pay rent than for a violation that poses a safety risk. In the latter situation, a 30-day notice is excessive. Caltrans policy should require that risks involving flammable, combustible, explosive, or other hazardous materials stored under structures must be addressed immediately, and enforcement, up to and including litigation, should be pursued promptly if a lessee does not comply. Caltrans should develop a new notice for high risk of safety violations with corrections to be completed within 3 business days or a reasonable amount of time under the circumstances.

Approval for Enforcement Actions. Notices of violation may be issued by the ROW Agent responsible for the property. However, if violations are not corrected within the appropriate allotted time, a default proceeding may commence. Existing Caltrans policy requires default proceedings, including unlawful detainer (i.e., eviction) actions, to be approved by the Director of Caltrans upon the recommendation of the District director.

Recommendation: Allow default proceedings upon notice to, and approval by, Caltrans’ Director, District Deputy Right of Way Manager and/or Right of Way Division Chief. A response to a request to initiate default proceedings shall be provided within 30 days of notice by ROW staff that a tenant is unable or unwilling to correct violations.