Airline-backed Federal Rule Change Could Cost State, Local Governments Estimated $190 million in Revenue Annually: 12billion.org

In December, 2014, the Federal Aviation Administration issued a new rule amendment that threatens many state and local taxes on airline jet fuel purchases. A new report by 12billion.org shows that the airline-backed rule change could cost state and local governments an estimated $190 million in revenue annually.

Compliance would hit the State of California and California local governments hardest, with a loss estimated at a combined total of over $100 million annually. In Georgia, $38 million in annual revenue is at risk for Clayton County, home to Hartsfield-Jackson Atlanta International Airport, half of which funds county schools. Budgets in Illinois, New York and Michigan could also be hit hard.

While supported by airlines, the rule was instituted over objections from airport authorities and the State of Georgia.

Despite the potential loss of an estimated $190 million in revenue annually for state and local governments as a result of the rule amendment, the FAA did not publish, in connection with the rule-making process, any estimate on financial implications of the amendment for current state and local government taxes. It is unclear if affected parties have realized the full potential impact. No state other than Georgia commented on the change, which the FAA had classified as a “clarification.”

The FAA rule specifically threatens federal penalty for state and local government entities that currently levy taxes on jet fuel that were not in effect on December 30, 1987 and are not dedicated to airport-related purposes.

States will still be allowed to collect taxes whose proceeds are fully dedicated to airport-related purposes. The FAA states that in 2015, governments should submit plans to the FAA for becoming compliant within three years, and will face penalties if they do not comply with the amended rule by December 2017 or do not submit a plan in 2015.

If the federal rule change goes unchallenged and states choose to eliminate taxes, airlines’ anticipated record profits could soar higher at taxpayer expense. Delta (NYSE:DAL), American (NASDAQ:AAL) and United (NYSE:UAL) purchase billions of gallons of fuel each year at hub airports in affected localities. Airlines received an estimated $1 billion in state and local tax breaks on their jet fuel purchases in 2013. The North American airline industry anticipates profit of $13.2 billion in 2015.

12billion.org is a project of UNITE HERE