The concern of the Federal Aviation Administration (“FAA”) regarding the use by airport operators of airport generated revenues to soften budget shortfalls off the airport appears to be growing. In a speech delivered at the November 11, 2019 National Air Transportation Association Leadership (“NATA”) Conference, Kirk Shaffer, FAA’s Associate Administrator for Airports, solicited the assistance of the aviation community in working with jurisdictions on compliance. Mr. Shaffer went on to opine that jurisdictions that operate airports are sometimes unaware of the laws governing revenue diversion, or confused by revenue flows, particularly as related to state and local taxes. He illustrated the problem by sharing the fact that, of the 177 jurisdictions with which the FAA has worked over the past five years on revenue diversion issues, 107 still remain noncompliant.

That number of noncompliant jurisdictions is somewhat surprising as the rules governing the use of airport revenues from airports are fairly explicit. The general rule is that revenues generated by a public airport may only be expended for the capital and operating costs of: (1) the airport; (2) the local airport system; or (3) other facilities owned or operated by the airport operator and directly and substantially related to the air transportation of passengers or property. 49 U.S.C. §§ 47107(b)(1) and 47133(a). The use of airport revenue for purposes other than airport capital or operating costs is generally considered “revenue diversion” and is prohibited by federal law. See Policy and Procedures Governing the Use of Airport Revenue, 64 Fed.Reg. 7696, 7720 (February 15, 1999) (“Revenue Policy”). Airport revenues subject to the revenue use requirements include all fees, rents, charges, or other payments received from anyone who makes use of the airport and from the airport sponsor’s activities on the airport. Id. at 7716.

The third prong provides unique revenue allocation opportunities to airport sponsors that own or operate other facilities.


Continue Reading FAA Focuses on Controlling Revenue Diversion

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). 
 


Continue Reading FAA Loosens Regulation of Taxes on Aviation Fuel