U,S. Department of Transportation Federal Aviation Administration



### .NOV 

## f 72016 Willie Oswalt, Mayor City ofLake City 5455 Jonesboro Rd. Lake City, Georgia 30260 Office ofthe Chief Counsel

Re: Clayton County Entities' Amended ActionPlan Dear Mayor Oswalt: 800 Independence Ave., S.W. Washington, D.C. 20591

The Administrator asked me to respond to your September 

### 13, 2016letter, submitting an amendmentto the Clayton County Entities' 1 December 8, 2015 Action Plan? As you know, the FAA's November 7, 2014, "Policy Amendment" required state and local governments to submitby December 8, 2015, an Action Plan detailing how, and by when, they would come into compliance with federal lawrequiring revenue raised from all aviation fuel taxes

- excise and general alike

- be dedicated to supportthe operation and development ofairports, air transportation ofgoods and passengers or a state aviation program. 3
The Clayton County Entities' December 8, 2015 ActionPlan, which is a part ofthe Aviation Fuel Tax Docket, described the Entities' proposal to comply withthe Policy Amendment, the impact ontheir localjurisdictions, and impediments to intended compliance. The Clayton County Entities' September 13, 2016 amended ActionPlan, which also has beenmade a part ofthe AviationFuel Tax Docket, provides the Entities' positionthat the Policy Amendment does not apply to them since they are not grant recipients and have no

1 The September 13, 2016letter was submitted on behalfofthe following local governmental entities ofthe State ofGeorgia: Clayton County Georgia Govermnent, Clayton County Georgia Public Schools, and the Cites afForest Park, Riverdale, Lovejoy, Morrow, Lake City, Jonesboro, and College Park (collectively referred to as "Clayton County Entities").

2 Your amended Action Plan has been posted to the FAA Aviation Fuel Tax DocketNo. 2013-0988- 198 (October 4, 2016).

3 79 Fed. Reg. 66282, the "2014 Policy Amendment" clarified application ofthe Agency's 1996 Revenue Use Policy. (Policy andProcedures Concerning the Use of AirportRevenue, 64 Fed. Reg. 7696, (February 16, 1999)).

### ability to spend revenues from their tax on aviation fuel for the purposes specified in federal law. The basis for the Clayton County Entities' amended Action Plan is their contention that federal lawpermits them to levy a general sales tax on the sale ofaviation fuel and divert suchrevenue to fund a variety oflocal governmental services, includingpublic education and infrastructure, in lieu offunding aviation-related projects orprograms. Specifically, the Entities contend they are (or shouldbe) exempt from generally applicable federal lawbecausethey neither received federal airport improvement grants nor are theyresponsible for the operation ofHartsfield-Jackson Atlanta International Airport and, hence, are unable to spend aviation fuel tax revenue for aviation-related purposes.4


### In the eventthe FAA disagrees withtheir contention as to permissible uses ofaviation fuel tax revenue, the Clayton County Entities alternatively propose the FAA sanction using the value oflost property taxes, due to their inability under Georgia state lawto tax the airport's real property located in Clayton County, as an "offset" for their impermissible diversion ofaviation fuel taxrevenue for non-aviation-related purposes.5


### This letter responds to each contention. Diversion ofAviation Fuel Tax Revenue ForNon-Aviation Purposes The FAA disagrees with your contention that the federal prohibition onthe diversion of aviation fuel tax revenue for non-aviation purposes only applies to state or local governments who received federal airport improvement grants or are an airport sponsor. We believe federal lawprohibits all state and local governments from diverting aviation fuel tax revenues for any non-aviation related purpose. The Clayton County Entities' contention to the contrary relies on the text ofa version of current lawthat originated in the House ofRepresentatives in 1996. It

### is true that the House bill applied to only airport sponsors ("certificate holders"). However, as the Entities acknowledge, the House language did not become law as it was amended in conference to include the Senate's broader language. The Senate'sbroader language is the final language ofPublic Law 104-264 § 804, which provides: "(a) Prohibition. Local taxes on aviationfuel (except taxes in effect on December 30, 1987) orthe revenues generated by an airport that is the

4 

### Notwithstanding that contention, the FAA notes that publicly available records reflect Clayton County, as an owner ofa federally obligated airport, was subjectto prohibitions on revenue diversion at least through 2012 when the County sold the airportto aneighboring county.
5 

### Letter from Irene Elizabeth Howie, Esq., to Eduardo Angeles, the FAA's Associate Administrator for Airports, September 15,2016. 2subject ofFederal assistance 

### may not be expended for anypurpose other than the capital or operating costs of(l) 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 ofpassengers orproperty." (Emphasis added). By its express terms, this provision ofcurrent law clearly is not limited tojurisdictions that eitherreceive federal financial assistance or operate the airport. 6 Additionally, Public Law 104-264 

### § 802(b) expressly provides as one ofits purposes: "Thepurpose ofthis title is to ensure that airport users are notburdened with hiddentaxation for 

### unrelatedmunicipal services andactivities, by

... (4) clarifying limitations onrevenue diversionthat are permitted under chapter 471 oftitle 49, United States Code; and (5) establishing clearpenalties and enforcementmechanisms for identifying and prosecuting airport revenue diversion." (Emphasis added). Clearly, the Clayton Counties Entities' use ofrevenue from a general sales tax on aviation fuel to support a variety ofpublic services, including public education and infrastructure, is the use ofthe taxto fund "unrelated municipal services and activities

..." contraryto the express purpose ofthe federal ban onthe diversion ofaviation fuel tax revenue.7 Byfollowing the clear, unambiguous intent ofCongress, the FAA is not expressing a view as to the desirability ofState or local goverrnnents levying a general sales tax on aviation fuel. 8 That is a matter for state and local governments. Rather, the FAA simply is enforcing Congress' mandate requiring aviation fuel tax revenues be used solely for aviation-related purposes.9 Neitherthe federal statutory prohibition on diverting aviation

6 Congress knows how to establish a process to waive provisions when appropriate. For example, the House bill contained aprovision granting the FAA authority to issue waivers to airports not receiving grant assistance under Chapter 471, during the preceding 10-yearperiod. That provision also was eliminated in Conference.

7 As the Clayton CountyEntities acknowledge, the FAA's 2013 Proposed Policy Clarification specifically referenced non-sponsor state and local governments and stated the FAA did not distinguish between types oftaxes. [78 Fed. Reg. 69791 and 69793].
8 The FAA specifically solicited comments on other reasonable interpretations regarding the permissible use ofstate and local taxes because we understood there could be alternate views as to the interpretation ofthe statute. The Agency also was aware that its proposed interpretation would have substantial practical consequences both for state and local government agencies and for industry consumers ofaviation fuel. [78 Fed. Reg. 69791). The FAA conducted outreach with Congressional Committee staff, state and local organizations, and industry organizations and solicited feedback from taxing authorities. 3

9 The Agency recognizes guidance prior to the 2014 Policy Amendment may have lacked clarity and precision. However, the 2014 Policy Amendment provided all State and local governments: (i) clearfuel tax revenues northe FAA's enforcement ofthe same in any wayprohibits or restricts State or local governments from levying a general sales 

### tax onthe sale ofaviation fuel. 10 

### Guidance as to Permissible Offsets Your September 15, 2016 letterto Associate Administrator Angeles notes the HartsfieldJackson Atlanta International Airport is owned by the City ofAtlanta, whichis located in DeKalb and Fulton Counties, even though 3,146 ofthe Airport's 4,700 acres are located in Clayton County. In addition, I reviewed Clayton County's Comprehensive Annual Financial Reports. The 2017 Budget Documentnotes the Hartsfield-JacksonAtlanta International Airport is an economic engine contributing thousands of jobs, significant tax revenue, and international trade resources to the County. II Indeed, the Report notes the real andpersonal property taxes bythree air carriers- Southwest, Air Tran and Delta- on property atthe airport are amongthe County's top tenpropertytaxpayers. Nevertheless, Clayton Countyproposes the FAA approve the County using the value of losttax revenue due to its inabilityunder Georgia state lawto tax airportreal property located in County as an "offset" for the diversion ofaviation fuel tax revenue for general municipal services and activities. 12 Specifically, Clayton County seeks permissionto offset its impermissible diversion ofapproximately $18 million in general sales tax on aviation fuel with approximately $100 million "lost" due to its inabilityunder Georgia lawto tax real property comprisingthe Airport. 

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and precise guidance applying the application ofthe prohibition on revenue diversion, regardless of whether they are responsible for airports or operate State aviation programs; and (ii) three years to come into compliance conditioned on their submitting the requisite Action Plan. The Georgia Department ofLaw, on behalfofthe Georgia Departments ofTransportation and Revenue, submitted an Action Planto the Aviation Fuel Tax Docket. That Action Plan did not address compliance by taxing authorities like the Clayton County Entities who are not responsible for operating an airport. The Clayton County Entities' initial Action Plan enclosed Georgia's Action Plan, and claimed they were "handcuffed" bythe absence ofcollaboration with the HartsfieldJackson Atlanta International Airport, the incapacity to change restrictions on use for aviation fuel taxes approved by referendum, and the State's failure to discuss the legal restriction issues in its Action Plan. The Entities advised thatthey were evaluating offsets for the exempted taxes against fuel tax revenues and the value ofquantifiable in-kind services.
10 The FAA rejects the Clayton County Entities' contention that federal prohibitions on diversion ofaviation fuel tax revenue are inconsistent with the federalism principles described in Executive Order 13132. The preamble ofthe 2014 PolicyAmendment and aresponse to a comment summarize the Agency's views. [79 Fed. Reg. 66283 and 66287].
11 http://www.claytoncountyga.govIpdfs/finance/Budget%2OBook%2020I7%20Fina!.pdf

12 Your letter also notes the lack ofguidance as to permissible offsets applicable to taxing authorities that are not airport sponsors and do not share a "common treasury" with ataxing authority that is an airport sponsor. Nevertheless, your letter further notes during preliminary discussions FAA staff "suggested one test may be whether the offset benefits the national air transportation system and is quantifiable."It

### is important to note that federal law explicitly permits local advalorem taxation of airport property. See, 49 U.S.C.§ 40116. Thus, the restriction on Clayton County's revenue base solely results from Georgia State lawprohibiting it from taxing real property used for airport purposes. But for that provision ofGeorgia law, you note Clayton County would have approximately $100 millionto fund a variety ofmunicipal services and programs, including public education and infrastructure. Significantly, in issuing the 2014 Policy Amendment, the FAA acknowledged the impact on state and local governments. For example, the Policy Amendment, noted: The FAAbelieves that State and local officials should prepare an action plan to initiate the process to amend any non-compliant State laws and local ordinances as necessary to conformto federal law onuse ofaviation fuel tax revenues...The planmay include a reasonable transition period, not to exceed three years, during which the FAA would agree, in an exercise ofits prosecutorial discretion, not to enforce the revenue use requirement against a non-sponsor State or local government. [79 Fed. Reg. 66286]. Because the real property taxes are made impermissible by operation ofGeorgia law, the Clayton County's "relief" from such prohibition must be provided by the Georgia State legislature, notbythe FAA. Indeed, the three-year transitionperiodthe FAA provided to jurisdictions to submitAction Plans was for the verypurpose ofgiving State and local legislatures ample time to restructure fiscal policies, processes, and practices necessary to end impermissible diversions ofaviation fuel revenues. To further facilitate compliance, the FAA issued guidance permitting the use ofoffsets in recognition ofa non-airport sponsor's legitimate charges to airport sponsors for, inter alia, payments for services or facilities providedto the airport, or for payments to compensate nonsponsoring governmental bodies for lost tax revenues notexceeding statedtax rates. On July 9, 2015, the FAA's Office ofAirports provided guidance to the State of Michigan and the State ofGeorgia as to the contours ofpermissible offsets. In Michigan, a portion ofits general sales tax (including onthe sale ofaviation fuel) was constitutionally dedicated to educational purposes. We advised that federal aviation fuel tax requirements were metby the State appropriating from its general fund an amount equal to or exceedingthe aviation taxes collected and remitting such funds to the State's aviation program fund or applicable airport revenue account. We further advised that the State had to have requirements in place to ensure the appropriations are implemented and enforceable by state or local agencies and mechanisms to account for and remit to the local airport entity the dollar amount ofthe revenues generated for the applicable fuel tax. In the Agency's response to Georgia, we advised the State would be required to specifically appropriate as a line item in its budget and pay into airport revenue accounts an amount at least equal to the total amount ofaviation fuel taxes levied and not used by localjurisdictions for aviation-related purposes. 

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### However, the Clayton County Entities propose neither to "offset" an impermissibly diverted aviation fuel tax revenue stream with some otherrevenue stream from the State or a commontreasury norto "offset" an impermissibly diverted revenue stream with the value ofservices providedto the aviation-related operations or programs. Rather, the Entities propose to offset impermissibly diverted aviation fuel tax revenues withthe imputed "value" ofequally impermissible orphantom real property tax revenues. While your ActionPlanmeets the minimum requirements ofthe Policy Amendment regarding the submission ofan action plan, we are concernedthatthe Clayton County Entities will notbe in compliance withthe aviation fuel tax revenue use requirements by December 8, 2017, based on the concerns expressed above. KevinWillis, the FAA's Director ofthe Office ofAirport Compliance and ManagementAnalysis, is available to discuss with you in more detail permissible offsets ofdiversions ofaviation fuels tax revenues, and other potential means to achieve compliance by the December 8, 2017 deadline. In light ofthe guidance provided as to the contours ofpermissible and impermissible offsets, this letter will be submittedto DocketNo. 2013-0988. The foregoing response represents the present view ofthe FAA's Office ofChiefCounsel based on the facts presented in your September 13, 2016letterto the Administrator, September 16, 2016 letter to the Associate Administrator for Airports and the amended Action Plan and does not constrain future FAA action or opinion. This advisory response does not constitute a final agency action or an "order issued by the Secretary of Transportation" under 49 U.S.C. 

### §46110. We sent a letter to each ofthe cosigners ofthe September 16, 20 16 letter. Should you have any question or seek additional information, please do not hesitate to contact either me, or ElizabethNewman, Senior Attorney, Airports Branch, Office ofthe ChiefCounsel.


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