I'V
H PALO ALTO ADMINISTRATIVE SERVICES 250 Hamilton Av enue,

4 th Floor Pa

l oAlto

.CA 94301 650.329.2692 December

3, 2015 Mr. James T. Brown (Email: James. T.Brown@faa.gav

.) Finance Management Federal Aviation Administration 800 Independence Avenue SW Washington,
DC 20591 Subject: Compliance with anFAA Requirement for aSubmitted "Action Plan" Due by December

8, 2015: FAA Policy and Procedures Concerning the Use of Airport Revenue; Proceeds from Taxes onAviation Fuel 79, Fed. Reg 66282, November

7, 2014). Revenue Implications

,Concerns with Implementation Requirements and Other Issues. Suggested Action Consideration Dear Mr. Brown

: The City of Palo Alto wasnotified of the above

-referen ced rule after its final adoption and via a private party

. Neither the City of Pa

l oAlto norits advocates
or industry representatives wereawareof the rulemaking process surrounding this policy change. The City of Pa lo A lt o

i sconcerned and potentially impacted
by this ruling because taxesonaviation fuel are collected
atthe City of Palo Alto Airport. Since the FAA rule is newtous,research mustbe conducted
to determine what components

of the taxareand arenot subject to airport use.The City does nothave any voter approved sales taxin excessof the local Bradley Burns 1.25 % rateorthe 4.75% state general fund ratein effec

tin effect onDecemb er31, 1987. The City do esreceive California Proposition 172 taxes (explained below) and it is our understanding that the State Board of Equalizat ion is contacting the FAA todetermine whether

it is subject tothe FAA rule. State and

l oca

l governments provide manyservices tothe airports that arefunded from general sales taxes, including infrastructure, transportation,
fire and public safe ty.Other services include lighting, secur
it y, roadways, buildings and terminals, and noise controls, etc.,and these far exceed aviation fuel revenues

.The funding makes surethat airports remain viable and meetthe needs of local businesses and commun

i ties. In somecases,stateand local governments

or airport authorities use tax-exempt bonds tofund major capital improvements.

T he redirecting
of these revenuescreatesanunfair burden for jurisdictions that must payfor t.he services for the entities benefiting from the ruling shift. Also notethat Ca lif ornia's Proposition 172 (Public Safety Augmentat

i on Fund)
is a permanent state-wide
ha

l f cent (0.5% tax rate) sa

l estaxthat is collected
by the State Board of Equalizat

io nand allocated back toall the counties based upontheir proportionate share of sales tax.Within each county,those funds aredistributed based upon proportion

of ERAF (educational revenue augmentation funds) loss

.(Please refer to http:/ /www.californiacityfinance.com/ERAFfacts.pdf

for additional information.) Ther
eis notan easynexu
s between the 1% and Proposition 172. These funds have already been earmarked for local public safety purposes. CttyOfPaloAito
orgExecutive Order 13132 (Federalism} establishes the principles and criteria that apply to regulations, legislative comments, and other policy statements that have

a substantial effect on States. We are concerned with the FAA's position

I belief that "Federalism implications

(if any) are substantially mitigated because of the prior legislative intent." The final policy amendment does impose substantial direct requirement costs on State and local governments,
and should have been subjected
to Federalism implications. Local jurisdictions rely on State and National organizations
for policy direction on those issues impacting our interests. These include for example the National League of Cities, California State Association

of Counties,
US Conference

of Mayors, and Governance Finance Officers Association. The FAA adoption
of the ruling has caught our own local community off guard. The cost, loss of revenues, and current and future workload involved
as a result of this unforeseen ruling
is substantial. This following serves as the intent to comply with the ruling based on our understanding

of what
is required of any "action plan" submitted: Action Plan Requirement: Applicable Law • Local: Proposition 172 revenue. The City of Palo Alto will research any other potential sales or use tax to determine

if applicable

to FAA rule. • State: California's Department

of Finance (DOF) will provide guidance on any laws, regulations and procedures that may need amending. Action Plan Requirement: Tracking System • The City of Palo Alto in conjunction with its sales tax consultant has commenced trying to identify sales and use tax revenue to comply with the requirement.
For implementation purposes, there could be an issue with some of the taxpayers that comingle sales tax reporting
of their retail gas station locations not at an airport and/or non-fuel related sales and their jet fuel sales. The internal process to undertake this effort- which
is to identify, track and segregate the revenue,

is extensive;

a process

is being develop for the reporting requirements
and tracking systems for discrete information
on aviation fuel tax revenues. We would appreciate the FAA provided

a descriptive definition
of the requirements
for the mandated "tracking system." Action Plan Requirement: Transition Period • It is the City of Palo Alto's intent to comply with the requirements

of the FM rule and will notify the FAA if a reasonable transition period, not to exceed three years,

is needed to become compliant with the rule. In consideration

of the broader concerns outlined above we also request that the FAA consider

a re-evaluation or immediate sunset of the ruling and commence
an open and full public process discussion with all stakeholders

to ensure full participation

by impacted parties. We appreciate the FAA's consideration

of this request and look forward
to working with your team and others impacted
by this ruling.Sincerely, **~c=~\cJ.e~~** Administrative Services Department CityofPaloAlto

Public Works Department CityofPaloAlto cc:CityofPaloAlto City Council, City Manager, City Attorney, City Auditor, Chief Financial Officer SenatorDiane Feinstein (EIIen_Freedman@feinstein.senate.gov) SenatorBarbara Boxer (laura_Schiller@ boxer.senate.gov) House Representative AnnaG.Eshoo StateSenator JerryHill State Assembly Member Rich Gordon Jay Chamberlain, Department

ofFinance (Jay.Chamberlain@dof.ca.gov)