Agency Says Monies Must Be Used For Air Travel-Related Expenses

The FAA and some state and local governments disagree about the use of revenues collected from jet fuel taxes as outlined in the Airport and Airway Improvement Act passed in 1982.

The FAA ruled in 2014 that the revenues must be used only for air travel-related expenses, but some local and state governments see it differently, according to a report posted on the blog of the Pew Charitable Trusts. The local entities say that if an airport was managed by an independent airport authority instead of by a state or locality, the state or locality could spend the fuel-tax revenue however it wanted.

That interpretation could cost those governments millions in federal revenue, according to the report. H.D. Palmer from the California Department of Finance said that state is just beginning to look at the potential consequences. He said the state could lose up to $10 million per year if it does not follow the FAA guidelines.

Other states that could lose significant revenue are Georgia, Michigan, Illinois, New York, and New Jersey. The cities of Boston and Chicago could also be impacted, according to the airline tax policy group 12billion.org.

The Pew report indicates that Georgia has told the FAA that state and local governments have the final say in how tax revenues are allocated under the U.S. Constitution. “We respectfully disagree with the FAA’s interpretation,” Georgia Senior Assistant Attorney General Alex Sponseller wrote. He said the purpose of the law is to regulate and fund airports and airport authorities, not “interfere” with a state’s taxing power or penalize state and local entities.  Georgia could lose as much as $38 million each year.

But the FAA disagrees. Agency spokeswoman Marcia Alexander-Adams said that the states "will have to initiate a process to amend any noncompliant laws and ordinances to ensure that taxes on aviation fuel are expended for airport purposes.”  She said that the FAA is working specifically on a response to Georgia's objections.

Another stakeholder is the airports themselves. The Airports Council International-North America said in a 2013 study that $71.3 billion will be needed through 2017 for capital development to accommodate passenger growth, upgrades, and repairs at airports around the country. It has called for boosts in local user fees to help fund such projects.

But ACI-NA also says that the FAA's rule on fuel taxes “impermissibly interferes with fundamental state taxing and spending powers.”

FMI: www.faa.gov, www.aci-na.org, Blog Post