FAA tightens controls on California airport money

from Levi SumagaysaiCalMatters

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Hundreds of millions of dollars could be at stake if California fails to resolve its long-running dispute with the Federal Aviation Administration.

The federal agency questions whether California is spending money collected from jet fuel taxes under federal rules meant to ensure states maintain airport infrastructure. It gave the state finance department until the end of March to submit detailed records of how it spends those taxes or “reserve the right to take appropriate compliance and enforcement action if necessary,” according to a March 5 letter sent to the state agency.

The Finance Department responded on March 20, telling the FAA that the state spends more on its airports than it collects in jet fuel taxes, and that it was therefore in compliance with the spirit of the regulations. The state would have spent more than $2 billion on its airports from 2020 to 2026 and received a total of $226 million in tax revenue during that period, according to the department’s analysis.

California has long reallocated funds from jet fuel tax revenue to other accounts, including its general fund, according to an audit by the U.S. Department of Transportation’s Office of Inspector General released in December 2023. That revenue, based on a 3.9 percent tax, varies depending on how much jet fuel is sold to airlines. An analysis of related legislation cites total tax revenue far higher than the Treasury Department’s figures: more than $100 million a year, based on data from the Department of Taxation and Fee Administration: in 2024, it was $134 million, and the year before, it was almost $154 million. The discrepancy can be explained by the finance department’s disagreement with the FAA regarding the taxes exempted by the FAA’s jet fuel tax revenue policy.

FAA spokeswoman Cassandra Nolan confirmed that the agency is “evaluating” whether California is in compliance, but did not respond to CalMatters’ question about what form possible enforcement would take. In a September 2020 letter to the Treasury Department, the FAA said it was “prepared to seek assistance from the U.S. Attorney’s Office” if necessary.

At least $650 million in federal funding is coming to eight airports in the state this year, said Jim Lights, executive director of the California Airports Council, a trade group for airports in the state. Airports with pending federal capital project funding are in San Francisco, Los Angeles, Palm Springs, Burbank, Orange County, Monterey, San Jose and Sacramento.

The state and the FAA have been in contact on the issue for more than a decade, according to letters seen by CalMatters. It is not clear why the federal government wants records of amounts collected, spent, transferred and appropriated now; Nolan didn’t answer that question either. The FAA also requests documentation from accounts using tax revenue proceeds.

For decades, the FAA has not enforced a mandate since the 1980s that aviation fuel tax revenue be used for airports, according to the audit. The agency signaled it would begin doing so in 2014 and gave states three years to comply. California remains one of four states out of compliance, according to the 2023 audit.

One state senator’s bill addresses the problem while also trying to help his constituents. Senate Bill 661 will ensure that half of these tax revenues support non-commercial airports. The other half will be retained by the airport where the jet fuel is sold. Currently, according to an analysis of the bill, the state collects fuel taxes from retailers, deposits its share in the general fund and other state funds, then distributes the local taxes to the appropriate jurisdictions.

Besides the Airports Council, other supporters of the bill include the cities of Merced and Bakersfield, whose airports would benefit from the distribution of tax revenue under the mandate, as well as airlines. The author of the bill, Sen. Melissa Hurtadois a Democrat representing Bakersfield. Her bill also proposes a formula for distributing tax revenue to better meet the needs of all airports in the state, she said. “Obviously I represent a rural community and the goal is to make sure that those funds can go back into those communities, and right now they’re not,” she told the Assembly’s standing committee on transportation last summer.

California Department of Finance officials declined to be interviewed about the state’s negotiations with the FAA, although the department shared some of its correspondence with the federal agency.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.