(

a

 James. T.Brown@faa.gav.) 

Finance Management 

Federal Aviation Administration 

800 Independence Avenue SW 

Washington, DC 20591 

Subject: Compliance with an FAA Requirement for a Submitted "Action Plan" Due by December 8, 2015: FAA 

Policy and Procedures Concerning the Use of Airport Revenue; Proceeds from Taxes on Aviation 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 was notified of the above-referenced rule after its final adoption and via a private party. 

Neither the City of Palo Alto nor its advocates or industry representatives were aware of the rulemaking 

process surrounding this policy change. 

The City of Palo Alto is concerned and potentially impacted by this ruling because taxes on aviation fuel are 

collected at the City of Palo Alto Airport. Since the FAA rule is new to us, research must be conducted to 

determine what components of the tax are and are not subject to airport use. The City does not have any 

voter approved sales tax in excess of the local Bradley Burns 1.25% rate or the 4.75% state general fund rate in 

effect in effect on December 31, 1987. The City does receive California Proposition 172 taxes (explained 

below) and it is our understanding that the State Board of Equalization is contacting the FAA to determine 

whether it is subject to the FAA rule. 

State and local governments provide many services to the airports that are funded from general sales taxes, 

including infrastructure, transportation, fire and public safety. Other services include lighting, security, 

roadways, buildings and terminals, and noise controls, etc., and these far exceed aviation fuel revenues. The 

funding makes sure that airports remain viable and meet the needs of local businesses and communities. In 

some cases, state and local governments or airport authorities use tax-exempt bonds to fund major capital 

improvements. The redirecting of these revenues creates an unfair burden for jurisdictions that must pay for 

t.he services for the entities benefiting from the ruling shift. 

Also note that California's Proposition 172 (Public Safety Augmentation Fund) is a permanent state-wide half 

cent (0.5% tax rate) sales tax that is collected by the State Board of Equalization and allocated back to all the 

counties based upon their proportionate share of sales tax. Within each county, those funds are distributed 

based upon proportion of ERAF (educational revenue augmentation funds) loss. (Please refer to 

http:/ /www.californiacityfinance.com/ERAFfacts.pdf for additional information.) There is not an easy nexus 

between the 1% and Proposition 172. These funds have already been earmarked for local public safety 

purposes. 

CttyOfPaloAito org 
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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. 
cc: City of Palo Alto City Council, City Manager, City Attorney, City Auditor, Chief Financial Officer 

Senator Diane Feinstein (EIIen_Freedman@feinstein.senate.gov) 

Senator Barbara Boxer (laura_Schiller@ boxer.senate.gov) 

House Representative Anna G. Eshoo 

State Senator Jerry Hill 

State Assembly Member Rich Gordon 

Jay Chamberlain, Department of Finance (Jay.Chamberlain@dof.ca.gov)