Fuel for Thought: Let's Close the "Leaky Valve" In How Aircraft Fuel Taxes are Spent

By Roy Goldberg

When airports need more money to operate and grow, their natural prey for cash are airlines and their passengers, general aviation and concessions. An important protection against higher airport fees is the ability of airports to use all the tax revenues generated from the sale of aircraft fuel for airport needs.

Unfortunately, this seawall against increased airport charges has sprung a leak in the guise of a porous enforcement approach adopted by the Federal Aviation Administration. Language on FAA's website offers no assurance that state and local governments in states with primary airports have actually ceased diverting fuel tax revenues to non-airport programs, such as public schools and other non-aeronautical state and local government uses.

Ideally, FAA will act quickly to close the breach. Regardless, the Department of Transportation Inspector General or Congress, with the assistance of the Government Accountability Office (GAO), should lean on FAA to seal the gap. If not, airlines, passengers, general aviation, concessions and their customers will have to fund the shortfall in airport cash requirements caused by the continuing diversion of fuel tax revenues.

Fuel Tax Revenues are for Airport Uses

With limited exceptions, federal law requires that fuel tax revenues be spent on airport operations. Specifically, "[l]ocal taxes on aviation fuel (except taxes in effect on December 30, 1987) or the revenues generated by an airport that is the subject of Federal assistance may not be expended for any purpose other than the capital or operating costs of— (1) the airport; (2) the local airport system; or (3) any other local facility that is owned or operated by the person or entity that owns or operates the airport that is directly and substantially related to the air transportation of passengers or property." 49 U.S.C. 47133(a). The law provides that "[n]othing in this section may be construed to prevent the use of a State tax on aviation fuel to support a State aviation program or the use of airport revenue on or off the airport for a noise mitigation purpose." 49 U.S.C. 47133(c). But these are narrow exceptions that must be strictly construed.

The FAA has taken important steps over the last five years to halt state and local governmental efforts to use aircraft fuel tax revenues for non-aeronautical purposes. In 2013, FAA proposed a policy to thwart state and local governments from diverting fuel tax revenues, and one year later the policy was finalized. 79 Fed. Reg. 66282 (Nov. 7, 2014). It was disappointing that FAA granted state and local governments a three-year grace period for compliance, but by the end of 2017, all fuel tax revenues should have been dedicated to airport operations and projects (save for a handful of grandfathered airports).

It was good that the then-FAA chief counsel in 2016 told Georgia county governments that federal law "prohibits all state and local governments from diverting aviation fuel tax revenues for any non-aviation purpose." This meant the counties could not use fuel tax revenues from Atlanta Hartsfield International Airport to fund school districts and other non-airport expenses. Last year the 11th Circuit Court of Appeals rejected the counties' challenge to FAA's position. 887 F.3d 1262.

FAA's Website Does Not Reflect State and Local Government Compliance

The current problem is that according to FAA's own website, many state and local governments are not yet in "compliance" with their obligation to submit final and comprehensive state action plans on how they will shut off the spigot of fuel tax revenues being spent on non-aeronautical uses. Several major jurisdictions, including the City of Phoenix; Los Angeles County; Orange County, California; the San Diego Association of Governments; the San Francisco County Transportation Authority; the State of California; the Denver Transit Authority; the State of Missouri; the State of Nevada; the State of New York; Pennsylvania; Virginia; Washington State; and Wyoming are not in complete compliance, in many cases because FAA is waiting on "additional information required."

FAA should expeditiously close the loop with state and local governments that are tardy with their compliance plans or have received only "qualified" compliance grades. The "additional information required" by FAA must be submitted and reviewed, and the agency must make a final compliance determination or pursue enforcement against the non-compliant governments. FAA also must conduct timely audits of the governments to ensure their action plans are being executed fully. In addition, the DOT Inspector General should audit FAA's efforts to assure state and local governments are no longer diverting fuel tax revenues. This includes making certain that state and local governments are not claiming compliance but in reality using fuel tax revenues for projects they assert are "State aviation programs," when in fact the money is spent for uses not tied to any actual airport operations.

Finally, Congress should task GAO with investigating and reporting on whether FAA and state and local governments are meeting the congressional and FAA mandate to ensure that fuel tax revenues are being spent on airport operations and projects. Otherwise, airlines, their passengers, general aviation and concessions will have to pay increasingly more money for the airports to operate.

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