FAA Official Asks for Industry Help on Tax Diversion

A key FAA official is encouraging the aviation community to help the agency in its battle to combat airport sponsors that inappropriately divert airport revenues, declaring “time is up” for jurisdictions not complying with statutes involving aviation tax law. Kirk Shaffer, associate administrator for airports at the FAA, appealed to attendees last month at the 2019 NATA Aviation Leadership Conference: “You can do a lot” to help on the agency on the issue, he said.

Airport managers, he continued, will often turn to the agency for assistance, whispering, “I’ve got a problem here,” but saying there is little they can do. Airport officials often answer to a mayor or county commission with other priorities, he said. Shaffer added that he is happy to step in, because in the long run, it is in the best interest of the community.

“The more of that revenue that stays on the airport, the less the cost of the airport on the community. The more goods and services the airport can offer,” he said, adding that the airport's ability to repay expansion costs also increases in tandem with the revenue it generates.

“The fact remains that no matter what size the airport is, whether it’s a major hub or a small general aviation airport, or something in between, that airport is an economic driver in the community.” He pointed to the important roles airports play in air medical, law enforcement, cargo delivery, shuttle, and community services and emphasized that they are job creators and play a role in community development. “That’s an undeniable fact.”

Community leaders who divert revenue from the airport to other municipal budget areas are only harming themselves, he said.

“You folks can serve in the same role that I try to serve,” Shaffer told attendees. “When you are talking to your mayor or city council, you as the aviation professionals, can educate them on the adverse impacts that flow from violating that federal statute.”

The FAA does not necessarily want to play the role of enforcer, he said. “Our job is to build stuff. That means construction projects will come to a grinding halt. But if we find a sponsor that is not working with us in good faith, then it could come to [enforcement action].”

Instead, the agency has been working with jurisdictions on compliance. Many are unaware of the laws or confused by revenue flows, particularly with state and local fuel taxes. Of the jurisdictions the agency has worked with over the past five years, 70 have come into compliance, but another 107 still haven’t satisfied federal requirements. 

The agency recently sent out another round of compliance letters. Of the 47 sent, they received 32 responses, eight of which sought more time. The agency granted a little more time, but Shaffer stressed, “The rules have not changed. Everyone has had time to obey the law.”

He also noted how this could harm a community. One airport sponsor that handles a network of airports, he said, is out of compliance by at least $100 million. “This is a real problem in the system.” Not only does the sponsor face losing grants, but fines and charges associated with non-compliance could amount to as much as $300 million.

During his discussion at NATA, Shaffer also underscored the importance of adequate funding for airports. When it comes to appropriating funding for airport grants, “We need to do better,” Shaffer said.

He noted that Congress has set airports' funding at $3.35 billion for several years. With that, “You are still going to come out with about $100 billion worth of pent-up capital demand in the system for very important safety, security, and capacity projects.” At current levels, “It’s going to take us a long time to tackle that….it would be great if Congress were to appropriate even more than the regular [Airport Improvement Program levels].”

Having said that, Shaffer added Congress did provide an additional $1.5 billion in additional discretionary funds over the past two fiscal years. The first $1 billion of that funding came with the stipulation that at least half would be spent on small hubs, non-hubs, and non-primary airports. Importantly—“something the FAA is very proud of”—is having spent 88 percent of that fund on the smaller and non-primary airports.

This is an emphasis at the Department of Transportation, he added, saying the first question he receives every time he is with Transportation Secretary Elaine Chao is, "What has the agency done that day to help small and rural airports?"

Shaffer also stressed that some airport formulas, at first blush, do not look like they would impact that general aviation community. But they all have an impact, he said. For instance, when larger airports' passenger facility charges reach certain levels of revenue, those airports then forfeit some of their other funding. That money rolls back into the funding pot for smaller airports to use. He stressed that the FAA ensures it spends the allocation. In Fiscal Year 2019, he said, out of the $3.35 billion allocation, “We left 76 cents…on the table.”