By: Barbara Lichman, PhD

On November 7, 2014, the Federal Aviation Administration (“FAA”) published its “Final Policy Amendment” (“Amendment”) to its “Policy and Procedures Concerning the Use of Airport Revenue,” first published 15 years ago in the Federal Register at 64 Fed.Reg. 7696, February 16, 1999 (“Revenue Use Policy”).  The Amendment formally adopts FAA’s interpretation of the Federal requirements for use of revenue derived from taxes including sales taxes on aviation fuel imposed by both airport sponsors and governmental agencies, local and State, that are non-airport operators.

In brief, the FAA concludes that “an airport operator or State government submitting an application under the Airport Improvement Program must provide assurance that revenues from State and local government taxes on aviation fuel will be used for certain aviation-related purposes.”  79 Fed.Reg. 66283.  Predictably, FAA received 25 substantive comments from a diverse group of interested parties, including airport operators, industry and nonprofit associations representing airports, air carriers, business aviation and airport service businesses, air carriers, state government agencies, and private citizens.  For example, in response to the airports’ and governments’ comments that airport sponsors would find it impossible to provide assurance that other governmental agencies would comply with the revenue use statutes for the life of the Airport Improvement Program (“AIP”) grant, and that airports should not be required to agree to a condition compliance with which they have no control, FAA takes the position that Federal statute 49 U.S.C. §§ 47107(b) and 47133 already require this level of control from local proprietors.  This is because “[t]he grant assurances provided by airport sponsors include Grant Assurance 25, which provides, in relevant part: ‘All revenues generated by the airport and any local taxes on aviation fuel established after December 30, 1987, will be expended by it for the capital or operating costs of the airport; the local airport system; or other facilities which are owned and operated by the owner and operator of the airport. . .’” 79 Fed.Reg. 66284.  The FAA further concludes that airport sponsors often have influence on the taxation of aviation activities in their States and localities, and the FAA expects airport sponsors to use that influence to shape State and non-sponsor local taxation to conform to these Federal laws.  Id.  Moreover, FAA asserts its power to pursue enforcement action against non-sponsor entities for the purposes of limiting the use of aviation tax revenues under 49 U.S.C. §§ 46301, 47133 and 47111(f).

FAA interprets § 46301 as specifically authorizing the imposition of civil penalties for a violation of § 47133 and does not exclude non-sponsors from its coverage.  Moreover, it views 49 U.S.C. § 47111(f) as inclusive of non-sponsor entities because “Congress did not limit FAA’s enforcement authority in 49 U.S.C. § 47111(f) to just airport sponsors, but rather permitted judicial enforcement to restrain ‘any violation’ of chapter 471 – that includes the requirements of § 47133 – by any person for a violation.  ‘Any violation’ encompasses violations by non-sponsors as well as airport sponsors.”  79 Fed.Reg. 66285 [emphasis in original].

Finally, a number of commenters raised the issue of “federalism,” or the distribution of power between the States and Federal government mandated by the United States Constitution, and the Amendment’s lack of compliance with Executive Order 13132 on federalism, on the ground, among others, that the Amendment was not required by statute.  In response, FAA argues that, although a formal federalism analysis is unnecessary due to the clear applicability of the cited statutes, it closely consulted with “States, local governments, political subdivisions, and interested trade groups,” 79 Fed.Reg. 66287, and thereby satisfied any lingering federalism concerns.

Less predictably, FAA agrees with the majority of commenters that it would be unfair to penalize airport sponsors for taxes imposed by another entity.  79 Fed.Reg. 66284.  Therefore, FAA has also agreed to revise Revenue Use Policy paragraph IV.D.2 to acknowledge the differences in taxes that are and are not controlled by the airport sponsor for purposes of grant compliance.  For taxes within the airport sponsor’s direct control, the airport sponsor must comply with the revenue use requirements of §§ 47107(b) and 47133.  For taxes imposed by non-sponsor States and local governments, however, the airport sponsor is expected to advise those entities of Federal requirements for use of aviation fuel tax revenues, and to take action reasonably within the sponsor’s power to tailor State and local taxation to conform to the requirements of those statutes.  79 Fed.Reg. 66284.

Perhaps most important, however, FAA will not relinquish its power to pursue enforcement action under 49 U.S.C. §§ 46301 or 47111(f) against a non-sponsor State or local government that violates the revenue use policy or the limitations in 49 U.S.C. § 47133.  Id.  Because of that crucial caveat on FAA’s self-imposed limitation on its own authority, jurisdictions with taxing power that include airport uses should be as aware of FAA’s intentions as the airports themselves, and work closely with the relevant airport during the grant application and project approval processes to ensure that the disposition of resulting tax revenues from aviation fuel do not run afoul of FAA’s enforcement intentions.

From Aviation and Airport Law News Blog