BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 747 (McGuire) - Airports: financial assistance.
          
           ----------------------------------------------------------------- 
          |                                                                 |
          |                                                                 |
          |                                                                 |
           ----------------------------------------------------------------- 
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Version: May 6, 2015            |Policy Vote: T. & H. 9 - 0,     |
          |                                |          GOV. & F. 6 - 0       |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Urgency: No                     |Mandate: No                     |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Hearing Date: May 18, 2015      |Consultant: Robert Ingenito     |
          |                                |                                |
           ----------------------------------------------------------------- 


          This bill meets the criteria for referral to the Suspense File.




          


          Bill  
          Summary: SB 747 would require that the sales and use tax (SUT)  
          revenue derived from aviation fuel be transferred to the  
          Aeronautics Account, as specified.


          Fiscal  
          Impact: Because this bill would transfer funds from the General  
          Fund to the Aeronautics Account, the Board of Equalization (BOE)  
          estimates the General Fund revenue loss in 2018-19 to be $140  
          million. With respect to only this bill's specific requirements,  
          BOE could incur administrative costs in the hundreds of  
          thousands of dollars annually to revise jet fuel retailers'  
          returns and associated programming, and identify and track  







          SB 747 (McGuire)                                       Page 1 of  
          ?
          
          
          revenue (see staff comment).

          The original Federal Aviation Administration (FAA) policy  
          discusses permitted use of airport revenue, and allows certain  
          government costs to be deducted from those revenues. It is  
          unclear whether the BOE's administrative costs would be included  
          within the allowable deductions.

          The Department of Transportation (Caltrans) indicates that,  
          because the bill would create an entirely new state grant  
          program, additional staff would be needed to provide  
          administration. The amount would be dependent on the size of the  
          annual General Fund transfer, but would likely reach the  
          hundreds of thousands of dollars annually. 


          Background: Current law imposes a state, local, and district SUT on  
          retailers' gross receipts derived from tangible personal  
          property sold at retail, unless the sale is specifically  
          exempted from the tax. Sales tax generally applies to sales of  
          aviation fuel to air common carriers. However, current law  
          provides an exemption from tax for the sale of fuel and  
          petroleum products to air common carriers for immediate  
          consumption or shipment in the conduct of its business as an air  
          common carrier on an international flight. The average statewide  
          SUT rate is 8.42 percent; the current-law General Fund SUT rate  
          will be 3.94 percent in 2018-19.
          Current law establishes the Aeronautics Account within the State  
          Transportation Fund.  This account is funded by revenues from  
          fuel excise taxes of 18 cents per gallon on general aviation  
          fuel and 2 cents per gallon on jet fuel.  These rates were set  
          in 1994 and 1969, respectively.  


          The Airport Improvement Program (AIP), administered by the FAA,  
          provides grants to public agencies for the planning and  
          development of public-use airports.  In general, the federal  
          grant covers 75 percent of eligible costs for large and medium  
          primary hub airports, and 90-95 percent of eligible costs for  
          small primary, reliever, and general aviation airports.   
          Eligible projects include capital improvements related to  
          safety, capacity, security, and environment.  Operational and  
          maintenance costs are generally not eligible for AIP assistance.  
           To supplement AIP, Caltrans administers a State AIP Matching  








          SB 747 (McGuire)                                       Page 2 of  
          ?
          
          
          Grant Program.  This program, which provides a state matching  
          grant equal to 5 percent of the federal grant, is funded from  
          the Aeronautics Account.


          In November 2014, the FAA issued a directive (Docket No.  
          FAA-2013-0988) to confirm its longstanding policy, based on  
          federal law, that aviation fuel taxes be used for airport  
          purposes and state aviation programs.  The directive provides  
          states one year to submit an action plan to the FAA; this plan  
          should detail the process of amending any non-compliant state  
          laws and local ordinances as necessary for compliance, as well  
          as detailing the process to develop reporting requirements and  
          tracking systems for aviation fuel tax revenues.  The plan must  
          be implemented within three years of the FAA directive, which  
          took effect December 8, 2014.  Failure to comply with the FAA  
          mandate could result in ineligibility for AIP grants and  
          possible civil penalties.




          Proposed Law:  
          This bill would require General Fund SUT revenues, less refunds,  
          derived aviation fuel be transferred to the Aeronautics Account  
          beginning December 8, 2017. The bill would require Caltrans'  
          Division of Aeronautics to annually allocate these funds to  
          eligible recipients, for airports and aviation-related purposes,  
          as specified. The bill would become effective January 1, 2016,  
          but be operative December 8, 2017.


          Staff  
          Comments: BOE currently lacks the data infrastructure to make  
          the necessary calculations to transfer the correct amount of  
          revenue to the Aeronautics Account. BOE notes that there are  
          roughly 225 jet fuel dealers operating in the State. Jet fuel  
          dealers' SUT returns currently capture taxable gross receipts  
          for all products sold. Thus, BOE currently cannot precisely  
          determine the amount of SUT revenue resulting from the sale of  
          jet fuel, and consequently cannot calculate how much revenue to  
          transfer. 
          The BOE revenue estimate is instead based on U.S. Energy  
          Information Administration data, which indicate that annual  








          SB 747 (McGuire)                                       Page 3 of  
          ?
          
          
          sales of jet fuel to end users amounted to 2.4 billion gallons  
          in 2014. BOE then used average historical growth rates to  
          project annual sales through 2018-19, the first full year that  
          the bill would be in effect. Next, BOE assumes that 46 percent  
          of the total fuel is consumed by the military or international  
          carriers, and thus would be exempt from the tax. The BOE revenue  
          estimate is largely dependent on the price of jet fuel (assumed  
          to be $2.54/gallon), which is volatile and generally tracks  
          world crude oil prices. The aggregate impact of these  
          assumptions is a General Fund revenue loss of $295 million. Of  
          this amount, $140 million would be General Fund.


          Caltrans notes that the number of staff it would require to  
          administer the bill cannot be accurately estimated without  
          knowing the amount of grant funding to be distributed, the  
          number of grant applications coming in, and the complexity of  
          the grants. 



                                      -- END --