# Hogan Lovells

June 19, 2015

Mr. Randall S. Fiertz Hogan Lovells US LLP Columbia Square 555Thirteenth Street, NW Washington, DC 20004 T +1 202 637 5600 F +1 202 637 5910 WNW.hoqanlovells.com Robert E

. Cohn PatrickR. Rizzi 202

.637.4999 I5659 robert.cohn@hoqanlovells.com patrick.rizzi@hoqanlovells.com



### Director, Office ofAirportCompliance and ManagementAnalysis FederalAviation Administration 800 IndependenceAve., SW Washington, DC 20591 Re: Denver Regional Transport District -Aviation FuelTaxes Dear Randy: We represent the Denver Regional Transport District ("RTD")

. RTD, a political subdivision of the State of Colorado, is a single purpose entity which develops and operates mass transportation in the eight-county Denver metropolitan region. Under Colorado law, RTD is authorized to levy and receive a general sales tax collected and administered by the Colorado Department of Revenue ("Colorado DOR")

. The FAA, through the DenverAirports DistrictOffice, has inquired aboutwhethergeneral sales tax revenues received by RTD, only a small portion ofwhich comes from a tax on sales of aviation fuel,complieswith requirements applicableto the use ofaviationfueltaxes. The purpose of this letter is to explain why RTD's use of aviation fuel tax revenues with respect to on-airport, airport-related projects fully complies with applicable federal aviation law and FAA policy, including the recent Final Policy Amendmenttothe FAA's Policyand Procedures concerning the Use ofAirport Revenue ("2014 PolicyAmendment"), 79 Fed. Reg. 66282 (November7, 2014). The 2014 Policy Amendment requires non-compliant entities to submit a remedial action plan by December8,2015. Because RTD fully complieswith the aviation fuel tax requirements, there is no need for itto submit a remedial plan. RTD respectfully requests that your

1 \\DC •040604/000006•6644823v4office issue a letter confirming RTD's position. We believe that this letter sufficiently 

### addresses the 2014 PolicyAmendment. I. 

### Background. Pursuant to Colorado law, RTD is authorized to levy and receive a general sales 

### tax collected and administered by the Colorado Department of Revenue ("Colorado DOR"). Colo. St. Ann. 32-9-119(2). Priorto 1987, RTD levied ageneral sales tax in the amount of 0.6%. Aviation fuel is one of many items on which the general sales tax is imposed. In 2004, Colorado voters increased the general sales tax by 0.4%, pursuant to Referendum 4A, making the total current general sales tax 1%. The additional 0.4% is to be used solely for a specific program oftransportation projects called "FasTracks". 

### RTD estimates that about $10.6 million ofthe 1% general sales tax for CY 2014 came from aviation fuel sales, based on industry reporting codes and data from the 

### Colorado DOR. 1 

### Approximately $6.4 million of the $10.6 million came from the pre1987 (the 0.6%) portion ofthe general sales tax; and about $4.2 million came from the post-1987 (the 0.4%) portion of the general sales tax. And, as noted above, under Colorado law, the 0.4% portion ($4.2 million) may only be used for FasTracks transportation projects. II. RTD's UseofAviation Fuel Taxes Complieswith FAA Lawand Policy. For the reasons set forth below, we submit that RTD's use of the portion of the general sales tax from aviation fuel sales (approximately $10 million annually) fully complies with federal aviation law and FAA policy. As explained below, slightly more than $6 million in annual taxes from aviation 

### fuel sales received by RTD are derived from the pre-1987 portion of RTD's general sales tax, and thus is grandfathered under 49 U.S.C. 

### §41733(a), 

### § 47107(b), and FAA policy. The remaining approximately $4 million in annual taxes from aviation fuel sales is used to fund an airport-related rail project that is constructed on airport property of 

### Denver InternationalAirport ("DIA"). 

### A. The 0.6% Component 

### of RTD's General Sales Tax Is Grandfathered UndertheAviation Statute. 

### Sixty percent ofthe current general sales tax (0.6% ofthe 1% tax) levied by RTD and collected by the Colorado DOR was authorized before, and was in effect on, December 30, 1987. The Aviation statute expressly excludes taxes on aviation fuel "in effecton December30, 1987" from the prohibition on non-airport use: "Local taxes on aviation fuel (except taxes in effect on December 30, 

### 1987) or the revenues generated by an airport that is the subject of Federal assistance may not be expended for any purpose other than the
In CY2014, 27vendors sold and remitted sales taxes from aviation fuel sales. 2 \IOC· 0406041000006•6644823 v4capital 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 entity that owns or operates the airport that is directly and substantially related to the airtransportation ofpassengers or property." 49 U.S.C. 

### § 41733(a) (emphasis added); see also 49 U.S.C. 

### § 47107(b); FAA Order 5190.6B,

**~** 15.10(a)(6) at 15-8 ("Grandfathered arrangements also include local taxes on aviation fuel that were in effect before the 1987 Airport Act (i.e., fuel taxes in effect on December 30, 1987)."). The 2014 Policy Amendment confirms this grandfather exclusion: "State or local taxes on aviation fuel (except taxes in effecton December 

### 30, 1987) are considered subject to the revenue-use requirements in 49 U.S.C. 47107(b) and 47133." 79 Fed. Reg. at 66287 (emphasis added). Accordingly, of the approximately $10 million in annual general sales taxes generatedfrom aviation fuel sales, about $6-plus million comesfrom the pre-1987 0.6% grandfathered portion ofthe tax and can be usedforany purpose.2 B. RTD's Use of the 0.4% Portion of the Sales Tax for the On-Airport Rail ProjectComplies with FAA Requirements. The additional 0.4% ofthe general sales tax enacted in 2004 can be used only for the FasTracks transportation program, which includes airport-related projects. RTD is building a rail line (the "EastCorridorAirport Rail Line") from downtown Denverto DIA as part of the FasTracks program. It is expected to open for service in 2016. The purpose of the East Corridor Airport Rail Line project will support direct rail service to/from DIA. The East Corridor Final Environmental Impact Statement clearly articulatesthe purpose and need forthis project: "1.0 PURPOSE AND NEED Downtown Denver is the center for rail and bus transit in the region. DIA is a critical link in the regional and national transportation network. The East Corridor project serves as a connection between these two importantareas
...." "1 .5 PROJECT PURPOSE "The purpose of this [East Corridor] project is to provide high-quality, high-capacity, fixed-guideway transit that improves transportation

2 We also note that, perthe FAAAirport Compliance Manual, the "City and County of Denver- Denver International" is a grandfathered airport that may use airport revenue for expenditures that would be impermissible for nongrandfathered airports. See FAA Order5190.68, 1115.1O(a) at 15-7 and at 15-12 (September2009). "An airport is deemed "grandfathered" when provisions establishing certain financial arrangements between the airport and sponsor exist that were in effect prior to

... September 3, 1982. Grandfathered airports are grandfathered only as towhatwas in effectofSeptember 3, 1982. A list ofairports considered to be grandfathered is atthe end ofthis chapter. A grandfalhered airport is permitted to pay the sponsor for costs that are for purposes otherthan the airport's capital and operating costs.

. ' See FAAOrder5190.68, '!115.10(a) at 15-7. 3 \\DC

-0406041000000

-6044823v4access and mobility between downtown Denver and DIA, with connectionstothe rest ofthe RTD transitsystem,

...." East Corridor Final Environmental Impact Statement, at 1-1,1-7 (September2009). RTD uses the approximately $4 million in annual general sales tax revenues derived from aviation fuel sales to fund the nearly 11 mile portion ofthe East Corridor Airport Rail Line being constructed by RTD entirely on airport property to transport people between the Denver Metropolitan region and DIA. This project is airport-related and therefore consistent with aviation law, FAA policy, and the broader policy of the United States "to encourage the development of intermodal connections on airport property between aeronautical and othertransportation modes and systems to serve air transportation passengers and cargo efficiently and effectively and promote economic development". 49 U.S.C. 

### §47101(a)(5). With respect to airport ground access projects, the FAA's Final Policy and Procedures concerning the Use ofAirport Revenue explains: "Final Policy: The Final Policy has been modified to provide guidance on the use ofairport revenues to finance airport ground access projects. The Final Policy states that airport revenue may be used for the capital or operating costs ofsuch a project if it can be considered an airport capital project, oris part ofafacility owned oroperated bythe airportsponsorand directly and substantially related to air transportation of passengers or property, relying directly on the statutory language of Sec. 47107(b)

.... [T]he Final Policy summarizes the FAA's decision on the use of airport revenue to finance construction of the rail link between San Francisco International Airport and the Bay Area Rapid Transit (BART) rail system extension running past the airport

.... [T]he FAA determined that the possibility of incidental use by nonairport passengers did not preclude airport revenues from being used to finance 100 percent ofthe otherwise eligible cost items. For purposes of this analysis, the FAA considered ''airport passengers" to include airport visitors and employees working at the airport." 64 Fed. Reg. 7696, 7705 (February 16, 1999) ("Final Policy"). Section V(A)(9) ofthe Final Policy codifies this position asfollows: "9. Airport revenue may be used forthe capital oroperating costs ofthose portions of an airport ground access project that can be considered an airport capital project, or of that part of a local facility that is owned or operated by the airport owner or operator and directly and substantially related to the air transportation of passengers or property, including use by airport visitors and employees. The FAA has approved the use of airport revenue for the actual costs incurred for structures and equipment associated with an airport terminal building station and a rail connector between the airport station and the nearest mass transit rail line, where

4 \\DC •0400041000000 •6644823v4the structures and equipmentwere (1) located entirely on airport property, and (2) designed and intended exclusively for the use of airport passengers." 64 Fed. Reg. at 7718-7719. Nearly 11 miles ofthe rail project and the terminus ofthe rail line will be on DIA property, thereby effectively ensuring that most ofthe people using the rail line will be people travelling to and from the airport. The East CorridorAirport Rail Line's budgetfor project construction/development costs is approximately $1.4 billion. As ofApril 30, 2015, RTD had already spent over $159 million on the local capital costs forthe nearly 11 miles ofthe East CorridorAirport Rail Line located on airport property. [A map showing the rail line on airport property is attached as Exhibit 

### A.] This $159 million does not include costs related to land acquisition/relocation, rolling stock (i.e., trains) or finance charges. In addition, going forward for a 29-year period, RTD will spend approximately $30 million annually with respect to the on-airport portion ofthe East CorridorAirport Rail Line. These amounts vastly exceed (and more than account for) the approximately $4 million in annual taxes from sales ofaviation fuel received by RTD as part ofthe non-grandfathered portion of the sales tax. The salient pointwith respectto the use ofaviation fuel tax revenue isthat the approximately $4 million, comprising the non-grandfathered portion of the annual general sales taxes from sales of aviation fuel, is fully used by RTD to fund the cost and operations of the on--airport rail project. Indeed, the annual costs of the on-airport portion of the project vastly exceed the $4 million in annual taxes. The $159 million of actual costs expended by RTD through April 2015 and the approximately $30 million to be spent annually by RTD going forward were derived using a mileage-based allocation. The East CorridorAirport Rail Line comprises atotal of nearly 23 miles, of which nearly 11 miles (48%) is on DIA airport property. RTD submits that the mileage based allocation is the most appropriate methodology for allocating the airport-related costs ofthis project.3 First, the mileage allocation formula is linked to the readily measurable, on-airport property portion of the East Corridor Airport Rail Line. Second, the rail line is not operating to the airport yet, and thus any proration based on a forecast of airport/non-airport rail passengers would be hypotheticalwithout any historical foundation. Third, since the final station is on airport property at the DIA terminal and, as the FEIS stated, the East Corridor Airport Rail Line's purpose is to connect Denverto the airport, the vast majority of rail passengers using the East Corridor Airport Rail Line will be related directly to travelers to and from the airport (e.g., passengers, employees, visitors, airport businesses, meeters-andgreeters). The mileage-based allocation, which allocates less than 50% of RTO's budget and costs to the on-airport portion ofthe East CorridorAirport Rail Line, would
- ifanything- be a conservative proration methodology. The allocation of$159 million of

FAA Order5190.68 makes reference to pro-ratingthe airport's contribution to the forecast useofthe facility. FAA Order5190.68, 1J15.9 at pages 15-6to 15-7. 5 \\DC

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-6644823 v4actual costs already expended for the on-airport portion is also conservative because it excludes the cost of acquisition of rail cars. RTD believes it would be fair and reasonable for the FAA to permit the tax revenues from the sales ofaviation fuel to be used for the acquisition of rail cars. As noted above, the primary purpose ofthe trains operating on the East Corridor Airport Rail Line is to transport people to and from the airport. Every train operating on the East CorridorAirport Rail Line will operate to and from the airport. In conclusion, we request thatyour office confirm that RTD's use ofaviation fuel tax revenues complies with the FAA's aviation fuel tax requirements. Please let us know ifyou have any questions, need more information orwould like to have a meeting orconference call with RTD to discussthese issues. Sincerelyyours,

Robert E. Cohn Patrick R. Rizzi Hogan Lovells US LLP

cc: John P. Bauer, Manager- DenverAirports DistrictOffice (ADO) John.Bauer@faa.gov Marla Lien, General Counsel, Denver Regional Transport District

6 \\DC •040604/C()()0()6 •6644B23

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### DenverRegional Transport District

ExhibitA

## East Corridor on DenverAirport Property

East Corridor runs for 10.69 miles on Denver Airport property, starting on the north side on Interstate 70 (lower leftcorner of map) within the right of way ofthe airport's Pena Transportation Corridor. In additionto the terminal platform location atthe south s1de of the DEN terminal, there are two other station platforms located along the alignmenton airport property. They are the 40th/Airport Station and the 61st/Pena Station.