U.S. Department of Transportation Federal Aviation Administration



### NOV I72016 Dr. Evelyn Wynn Dixon, Mayor City ofRiverdale 7200 Church St. Riverdale, GA 30274 Office ofthe Chief Counsel

Re: Clayton County Entities' Amended Action Plan
Dear Mayor Wynn Dixon: 800 Independence Ave., S.W. Washington, D.C. 20591

The Administrator asked meto respond to your September 13, 2016letter, submitting an amendmentto the Clayton County Entities,) December 8, 2015 Action Plan2
As you know, the FAA's November 7, 2014, "Policy Amendment" required state and local governments to submitby December 8, 2015, anActionPlan detailing how, and by when, theywould 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 program3
The Clayton County Entities' December 8, 2015 Action Plan, 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 been made 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, 20161etterwas 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)).

### 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 onthe sale ofaviation fuel and divert such revenue to fund a variety oflocal governmental services, including public education and infrastructure, in lieu offunding aviation-relatedprojects or programs. Specifically, the Entities contend they are (or should be) exempt from generally applicable federal lawbecause they neither received federal airport improvement grants nor are they responsible for the operation ofHartsfield-JacksonAtlantaInternational Airport and, hence, are unable to spend aviation fuel tax revenue for aviation-related purposes4


### Inthe event the FAA disagrees withtheir contention as to permissible uses ofaviation fuel tax revenue, the Clayton County Entities alternatively propose the FAA sanction usingthe value oflostproperty 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 tax revenue for non-aviation-relatedpurposes. 5


### This letter responds to each contention. 

### Diversion ofAviation Fuel Tax Revenue ForNon-Aviation Purposes The FAA disagrees withyour contention that the federal prohibition on the diversion of aviation fuel tax revenue for non-aviationpurposes 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' contentionto the contraryrelies onthe text ofa version of current lawthat originated inthe 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 itwas amended in conference to include the Senate'sbroader language. The Senate's broader language is the final language ofPublic Law 104-264 

### § 804, whichprovides: "(a) Prohibition. Local taxes on aviation fuel (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 ofafederally obligated airport, was subjectto prohibitions on revenue diversion at least through 2012 when the County sold the airport to 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 he expended fbr anypurpose other than the capital or operating costs of(I) 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 operatesthe airport that is directly and substantially related to the airtransportation ofpassengers orproperty." (Emphasis added). By its express terms, this provision ofcurrent law clearly is notlimited tojurisdictions that either receive federal financial assistance or operate the airport.6 Additionally, Public Law 104-264 

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

### unrelatedmunicipal services andactivities, by

... (4) clarifying limitations on revenue diversionthat are permittedunder chapter 471 oftitle 49, United States Code; and (5) establishing clear penalties 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 tax to fund "unrelated municipal services and activities

..." contraryto the express purpose ofthe federal ban on the 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 governments 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 a provision 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 County Entities 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 AdministratorAngeles notes the Hartsfield- ]acksonAtlanta International Airport is owned by the City ofAtlanta, which is located in DeKalb and Fulton Counties, eventhough 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 Document notes the Hartsfield-Jackson Atlanta International Airport is an economic engine contributing thousands of jobs, significanttax revenue, and international trade resources to the County. 11 Indeed, the Report notes the real andpersonal propertytaxes bythree air carriers- Southwest, AirIran and Delta- on property at the airport are among the County's top ten property taxpayers. Nevertheless, Clayton County proposes 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 millionin general sales tax on aviationfuel with approximately $100 million "lost" due to its inability under Georgia lawto tax real property comprising the Airport.
and precise gnidance 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. 

### 4

The Georgia Department ofLaw, on behalfofthe Georgia Departments ofTransportation and Revenue, submitted an Action Plan to the Aviation Fuel Tax Docket. That Action Plan did not address compliance bytaxing 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" by the 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 that they were evaluating offsets for the exemptedtaxes 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 inconsistentwith 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.claytoncountyga.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 air transportation system and is quantifiable."

### Itis importantto note that federal lawexplicitlypermits local 

### advalorem taxation of airport property. 

### See, 49 U.S.C. § 40116. Thus, the restriction on Clayton County's revenue base solelyresults from Georgia State lawprohibiting it from taxing real propertyused for airport purposes. But for thatprovision ofGeorgia law, you note Clayton County would have approximately $100 million to 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 action plan to initiate the process to amend any non-compliant State laws and local ordinances as necessary to conformto federal lawon use ofaviation fuel tax revenues...The plan may include a reasonable transition period, not to exceed three years, during whichthe 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 suchprohibition mustbe providedby the Georgia State legislature, notbythe FAA. Indeed, the three-year transition periodthe FAA providedto jurisdictions to 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 FAAissued guidance permittingthe 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 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 on the 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 frmd an amount equal to or exceeding the aviation taxes collected and remitting such frmds to the State's aviation program fund or applicable airport revenue account. We further advised that the State hadto 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 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. 

### 5

### However, the Clayton County Entities propose neither to "offset" an impermissibly diverted aviation fuel taxrevenue stream with some other revenue stream from the State or a commontreasury norto "offset" an impermissibly diverted revenue 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 orphantom real property tax revenues. While your ActionPlan 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 withthe aviation fuel taxrevenue use requirements by December 8, 2017, based on the 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 by the December 8, 2017 deadline. Inlight ofthe guidance provided as to the contours ofpermissible and impermissible offsets, this letter will be submitted to DocketNo. 2013-0988. The foregoing response represents the present view ofthe FAA's Office ofChiefCounsel based onthe facts presented inyour September 13, 2016 letter to the Administrator, September 16, 2016 letter to the Associate Administrator for Airports and the amended Action Plan and does not constrainfuture FAA action or opinion. This advisory response does not constitute a final agency action or an "order issued bythe Secretary of Transportation" under 49 U.S.C. 

### §46110. We sent a letter to each ofthe cosigners ofthe September 16, 20 16 letter. 6