April 15, 2016

The majority of the Senate’s floor time this week was devoted to consideration of a Federal Aviation Administration (FAA) reauthorization bill (S 2658).  The $33.1 billion measure would extend the FAA’s authorization for an additional 15 months, carrying it through the end of fiscal year 2017.  The current aviation patch is slated to expire on July 15.

Of particular interest to counties, the Senate bill would increase funding for the Airport Improvement Program (AIP) by $400 million to an annual amount of $3.75 billion.  AIP provides grants to public agencies for the planning and development of public-use airports.  The legislation also would fund the Essential Air Services (EAS) program – which provides subsidies for air service to small and remote airports – at current levels.  In addition, the measure would provide $10 million for the Small Community Air Service Development Program (SCASDP), which is $4 million more than the currently authorized level.  Similar to EAS, SCASDP grants are designed to help rural counties address issues involving air service and airfare.

It should be noted that lawmakers on the Senate Finance Committee were hoping to use the FAA bill as a vehicle to advance a variety of tax-related add-ons.  For example, one provision would have provided a five-year extension of tax credits for renewable energy, including fuel cells, geothermal, and wind.  The proposed package also included incentives for carbon dioxide sequestration projects, as well as a number of tax breaks for brewers of beer, wine, and spirits.  After facing criticism from both parties, Senate leaders agreed to move forward with a “clean” bill instead.  The chamber is expected to wrap up its work on the bill next week.

In the House, a six-year FAA renewal bill (HR 4441) is currently awaiting floor action.  Entitled the Aviation Innovation, Reform, and Reauthorization (AIRR) Act, the legislation includes a number of major aviation reforms, including a controversial proposal to reform the air traffic control (ATC) system by removing it from the FAA and placing it in a federally-chartered non-profit corporation.  The proposal faces stiff opposition from congressional Democrats, as well as some Republican members of the Appropriations and Ways and Means Committees.  Accordingly, it remains unclear if the AIRR Act will advance to the floor of the lower chamber.

It should be noted that Representative Grace Napolitano (D-CA) is expected to offer a floor amendment that would clarify that local sales tax measures of general application are not subject to provisions of federal law that require the proceeds of certain taxes to be spent for aviation purposes.  The amendment, which was initially offered during the Transportation & Infrastructure Committee’s consideration of the FAA rewrite, was defeated on a voice vote and subsequently withdrawn prior to a recorded vote.

The impetus for the Napolitano amendment is a 2014 FAA ruling (79 FR 66282) that requires States and local governments to spend the proceeds of any aviation-related tax – those derived from excise taxes and local sales taxes – on airport uses only.  According to the FAA, “the agency interpreted the provisions of Sections 47107(b) and 47133 [49 USC] to apply to any state or local tax on aviation fuel, whether the tax was specifically targeted at aviation fuel or was a general sales tax on products that included aviation fuel without exemption.”  Incidentally, the Conference Report to the Airport and Airway Improvement Act (PL 100-223), which houses the statute in question, states that the requirement was “intended to apply to local fuel taxes only, and not to other taxes imposed by local governments, or to state taxes” (Conf. Rept. No. 484, 100th Cong., 1st Sess. 1987 accompanying PL 100-223).

It is estimated that the FAA’s policy amendment will mean a loss of over $100 million for the State of California and its local governments.  Nationwide, a recent study suggests that state and local governments will lose roughly $190 million a year under the FAA rule change.  Furthermore, because sales taxes on aviation fuel are not segregated from other taxable sources, state and local governments will need to implement an extensive new tracking system(s) in order to comply with the FAA’s policy.