U.S. Department of Transportation Federal Aviation Administration



### HOY 

# 17 2016 Jeffrey A. DeTar, Mayor City ofMorrow City Hall 1500 Morrow Rd. Morrow, GA 30260 Office ofthe Chief Counsel

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

The Administrator asked me to respond to your September 13, 2016 letter, submitting an amendmentto the Clayton County Entities,) December 8, 2015 Action Plan2
As you know, the FAA's November 7, 2014, "PolicyAmendment" 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 law requiring revenue raised from all aviationfuel 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 AviationFuel Tax Docket, described the Entities' proposal to comply with the Policy Amendment, the impact ontheir localjurisdictions, and impediments to intended compliance. The Clayton County Entities' September 13, 2016 amended Action Plan, which also has been made a part ofthe Aviation Fuel Tax Docket, provides the Entities' positionthat the

1 The September 13, 2016 letter was submitted on behalfofthe following local governmental entities ofthe State ofGeorgia: Clayton County Georgia Government, Clayton County Georgia Public Schools, and the Cites ofForest 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)).

### Policy Amendment does not apply to them since they are not grant recipients and have no 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 law permits them to levy a general sales tax onthe sale ofaviation fuel and divert such revenue to fund a variety oflocal governmental services, including public education and infrastructure, in lieu offunding aviation-related projects or programs. Specifically, the Entities contend they are (or should be) exempt from generally applicable federal law because they neither received federal airport improvement grants nor are they responsible 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 with their 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 inabilityunder Georgia state law to tax the airport's real property located in Clayton County, as an "offset" for their impermissible diversion ofaviation fuel tax revenue for non-aviation-relatedpurposes.5


### This letter responds to each contention. Diversion ofAviation Fuel TaxRevenue For Non-Aviation Purposes The FAA disagrees with your contentionthat the federal prohibition onthe diversion of aviation fuel taxrevenue for non-aviation purposes only applies to state or local governments who received federal airport improvement grants or are an airport sponsor. Webelieve 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 onthe 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 notbecome 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, whichprovides:

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 leastthrough 2012 when the County sold the airportto a neighboring county.

5 Letter from Irene Elizabeth Howie, Esq., to Eduardo Angeles, tbe FAA's Associate Administrator for Airports, September 15, 2016. 

### 2"(a) Prohibition. 

### Local taxes on aviationfuel (excepttaxes in effect on December 30, 1987) orthe revenues generated by an airport that is the subject ofFederal assistance 

### may not be expendedfor anypurpose 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 entitythat own.s or operates the airport that is directly and substantially related to the air transportation ofpassengers or property." (Emphasis added). By its express terms, this provision ofcurrent law clearly is not limitedtojurisdictions 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 not burdenedwith hiddentaxation for 

### unrelatedmunicipal services andactivities, by

... (4) clarifying limitations on revenue diversion that are permitted under chapter 471 oftitle 49, United States Code; and (5) establishing clearpenalties and enforcement mechanisms for identifying and prosecuting airportrevenue 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 tax to fund "unrelatedmunicipal services and activities

..." contrary to the express purpose ofthe federal ban onthe diversion ofaviation fuel tax revenue.7 By following the clear, unambiguous intent ofCongress, the FAA is not expressing a view as to the desirability ofState or local govermnents levying a general sales tax on aviation fuel. 8 That is a matter for state and local govermnents. Rather, the FAA simply is enforcing Congress' mandate requiring aviation fuel tax revenues be used solely for

6 Congress knows how to establish aprocess 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 1 0-year period. That provision also was eliminated in Conference.

7 As the Clayton County Entities acknowledge, the FAA's 2013 Proposed Policy Clarification specifically referenced non-sponsor state and local governments and statedthe 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. 

### 3aviation-related purposes.9 Neitherthe federal statutory prohibition on diverting aviation fuel tax revenues nor the FAA's enforcementofthe same in any way prohibits or restricts State or local governments from levying a general sales tax onthe sale ofaviationfuel. 1 0


### Guidance as to Permissible Offsets
Your September 15, 2016 letterto Associate AdministratorAngeles notes the HartsfieldJackson Atlanta International Airport is owned by the City ofAtlanta, which is 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-Jackson Atlanta International Airport is an economic engine contributingthousands of jobs, significanttax revenue, and international trade resources to the County. 11 Indeed, the Report notes the real and personal property taxes by three air carriers- Southwest, Air Tran and Delta- on property atthe airport are among the County's top tenproperty taxpayers. Nevertheless, Clayton County proposes the FAA approve the Countyusingthe value of lost tax revenue due to its inability under Georgia state law to tax airport real 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 4

9 The Agency recognizes guidance priorto the 2014 Policy Amendment may have lacked clarity and precision. However, the 2014 Policy Amendment provided all State and local governments: (i) clear 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 ontheir submittingthe requisite Action Plan. The Georgia Department ofLaw, on behalfofthe Georgia Deparhnents ofTransportation and Revenue, submitted an Action Plan to the Aviation Fuel Tax Docket. That Action Plan did not address compliance by taxing authorities like the Clayton CountyEntities 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 incapacityto 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 that they 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 Policy Amendment and aresponse to a comment summarize the Agency's views. [79 Fed. Reg. 66283 and 66287].

11 http://www.clavtoncountyga.gov/pdfs/finance/Budget%20Book%202017%20Final.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 a taxing 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 airtransportation system and is quantifiable."offset its impermissible diversion ofapproximately $18 million in general sales tax on aviation fuel with approximately $100 million "lost" due to its inability under Georgia lawto tax real property comprisingthe Airport. Itis importantto note that federal law explicitly permits local 

### advalorem taxation of airportproperty. 

### 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 wouldhave 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 shouldprepare an actionplan to initiate theprocess to amend any non-compliant State laws and local ordinances as necessary to conformto federal law onuse ofaviation fuel tax revenues...The plan may include a reasonable transitionperiod, notto exceedthree years, during whichthe FAA would agree, in an exercise ofits prosecutorial discretion, notto 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 suchprohibitionmustbe providedbythe Georgia State legislature, not bythe FAA. Indeed, the three-year transitionperiod the FAAprovidedto jurisdictionsto submit Action Plans was for the very purpose 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 not exceeding stated tax rates. OnJuly 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 met by the State appropriating from its general fund an amount equal to or exceeding the aviationtaxes collected and remitting such funds to the State's aviationprogram fund or applicable airport revenue account. We further advised thatthe State had to have requirements inplace 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. Inthe Agency's response to Georgia, we advised the State wouldbe required to 5

### specifically appropriate as a line item in its budget and pay into airportrevenue accounts an amount at least equal to the total amount ofaviation fuel taxes levied and not used by localjurisdictions for aviation-related purposes. However, the Clayton County Entities propose neither to "offset" an impermissibly diverted aviation fuel tax revenue stream with some other revenue stream from the State or a commontreasury norto "offset" an impermissibly divertedrevenue stream withthe value ofservices providedto the aviation-related operations or programs. Rather, the Entities propose to offset impermissibly diverted aviation fuel tax revenues with the imputed "value" ofequally impermissible or phantom real propertytax revenues. While your Action Plan meets the minimum requirements ofthe Policy Amendment regarding the submission ofan action plan, we are concerned that the Clayton County Entities will notbe in compliance with the aviation fuel tax revenue use requirements by December 8, 2017, based onthe concerns expressed above. Kevin Willis, the FAA's Director ofthe Office ofAirport Compliance and Management Analysis, is available to discuss withyou in more detail permissible offsets ofdiversions ofaviation fuels tax revenues, and other potential means to achieve compliance bythe 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 presentview ofthe FAA's Office ofChiefCounsel based onthe facts presented inyour September 13, 2016 letter to the Administrator, September 16, 20 16 letter to the Associate Administrator for Airports and the amended ActionPlan and does not constrain future FAA action or opinion. This advisory response does not constitute a final agency action or an "order issuedbythe Secretary of Transportation" under 49 U.S.C. § 46110. We sent a letter to each ofthe cosigners ofthe September 16, 2016letter. Shouldyou have any question or seek additional information, please do not hesitate to contact either me, or Elizabeth Newman, Senior Attorney, Airports Branch, Office ofthe ChiefCounsel. 6