RECOMMEND that the TAMC Board of Directors support amending federal law so that the Federal Aviation Administration cannot redirect voter-approved local sales taxes on aviation fuel to airport improvements.

The Federal Aviation Administration has issued a rule that specifies that local sales taxes on aviation fuel should be considered excise taxes and therefore under federal law must be utilized for on-airport projects. The Self-Help Counties Coalition opposes this rule as a violation of voter intent that would also result in a loss of revenue to transportation projects in the local sales tax expenditure plans.

The Federal Aviation Administration's new interpretation of the eligible uses of local sales taxes generated from the sale of aviation fuel could result in a lower amount of funding available for voter-approved Measure X projects. In addition, it could set a precedent that the federal government can redirect locally-approved sales taxes to federally-determined priorities, which would be tremendously damaging to the ability of cities, counties and special districts to raise local sales taxes in the future. 

Federal law enacted 29 years ago stipulates that all airport-related excise taxes must be used for on-airport purposes. In 2016, the Federal Aviation Administration (FAA) issued an interpretation of this law stating that all local sales taxes on aviation gasoline must therefore be spent on on-airport projects. This interpretation puts at risk funding from all local sales tax measures, including Measure X as well as all city and county sales taxes.

The Self Help Counties Coalition, in coordination with the League of Cities, has opposed this interpretation on the grounds that voter-approved local sales tax measures were approved by the voters solely for the projects in the approved expenditure plans. They contend that the federal government should not be able to divert revenues from these local sales taxes to the airports. Furthermore, it erodes voter trust if another government entity can decide to override the voter-approved use of such sales tax funding.  

Calfornia transportation agency representatives have been working with Congressmembers Lowenthal and Napolitano to craft an amendment, up for a vote the week of April 23, 2018, that would address this issue and exempt sales taxes that were approved prior to the bill’s enactment from this diversion. The Napolitano - Lowenthal amendment does the following:

• Continues FAA policy that excise taxes on aviation fuel must be spent at the airport.
• Exempts existing voter-approved general sales taxes from the FAA rule (but not future ones).This amendment is needed because voters approved these general sales taxes over the past 29 years with the knowledge that FAA aviation fuel limitations did not apply to general sales taxes. The will of the voters should not be overturned when agencies were acting based on long standing FAA policy. 

• Allows for general sales taxes on aviation fuel to be spent on surface transportation projects in addition to aviation projects. Many general sales taxes, whether legislature approved or voter approved, are for surface transportation. This provision would allow these funds to be spent on surface transportation. A government can also use general funds in lieu of general sales taxes to meet this requirement.

The Transportation and Infrastructure Committee Chair, Bill Shuster, has proposed a substitute amendment that would not divert the local sales taxes, but would require them to be spent on transportation projects in the vicinity of the airport from which the sales taxes were raised.

See the attached comparison of prior law, the FAA interpretation, the Napolitano-Lowenthal Amendment and the Shuster proposed amendment. The Self Help Counties Coalition and TAMC staff do not believe that this amendment addresses the issue of diverting voter-approved sales taxes from voter-approved uses, and recommends continuing to support the Napolitano-Lowenthal amendment. Congress member Panetta has agreed to co-sponsor the Napolitano-Lowenthal amendment. Because this issue is not specifically addressed in the TAMC legislative program, staff seeks the Committee's recommendation that the TAMC Board support of the Napolitano-Lowenthal amendment.