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 --