FAA scrutinizes California jet-fuel tax use for airport funding

FAA scrutiny targets jet-fuel tax records in long-running California dispute

The Federal Aviation Administration has stepped up scrutiny of a yearslong dispute with California over how the state uses jet-fuel tax revenue for airport infrastructure, seeking detailed documentation from the state by the end of March. The FAA’s request, laid out in a letter dated March 5, comes amid federal efforts to determine whether California is spending the money consistent with federal rules.

In the letter, the FAA questioned whether California is using jet-fuel taxes in accordance with regulations intended to ensure states maintain airport infrastructure. The FAA gave the California Finance Department until the end of March to provide records showing how the taxes are being spent.

California responded on March 20, according to the correspondence described in the reporting. The state said it spends more on airports than it collects from jet-fuel tax revenue and argued that therefore its approach is in compliance with the “spirit” of the regulations. The state’s analysis, as described in the reporting, projected that California would spend more than $2 billion on its airports from 2020 to 2026 while taking in a total of $226 million from jet-fuel tax revenue over the same period.

The dispute reflects an enforcement and accounting problem tied to how the revenue is categorized and how California moves money among budget accounts. Reporting cited a December 2023 audit by the U.S. Transportation Department’s Office of Inspector General that found the FAA had not enforced a 1980s requirement that aviation fuel tax revenue be used for airports. The reporting said California has long reallocated jet-fuel tax revenue to other accounts, including its general fund.

The disagreement also extends to how much money California actually collects from the jet-fuel tax. The reporting said the revenue can fluctuate based on how much jet fuel is sold to airlines, and it noted that an analysis of related legislation cited higher tax-revenue totals than those in the Finance Department’s analysis. The discrepancy, the reporting said, may relate to how the FAA treats taxes that states consider “grandfathered” under a federal policy on jet-fuel tax revenue.

FAA spokesperson Cassandra Nolan confirmed in an interview that the agency is “assessing” whether California is in compliance, according to the reporting. Nolan did not answer what form enforcement could take, and the reporting said a September 2020 letter from the FAA to the finance department indicated the agency was prepared to seek help from the U.S. Attorney’s Office if needed.

The reporting also said federal funding remains pending for airport projects around California this year. Jim Lites of the California Airports Council, a trade group, said at least $650 million in federal funding is pending for eight airports, listing projects in San Francisco, Los Angeles, Palm Springs, Burbank, Orange County, Monterey, San Jose and Sacramento.

The reporting described the dispute as an ongoing effort between state and federal officials for more than a decade, with the FAA asking for not only records of amounts collected and spent but also documentation from accounts that use proceeds from the tax revenue. It was not clear, according to the reporting, why the federal government is requesting the records now, and Nolan did not address that question.

At the same time, California lawmakers are considering legislation aimed at changing how the revenue would be allocated. Senate Bill 661, authored by Sen. Melissa Hurtado, would require half of the jet-fuel tax revenue to support non-commercial airports and would keep the other half with the airport where the jet fuel was sold, according to the reporting. Hurtado, a Democrat representing Bakersfield, told a legislative committee last summer that her goal is to ensure funds return to communities where she said they are not currently reaching.

The reporting said besides the Airports Council, supporters of the bill include the cities of Merced and Bakersfield, whose airports would benefit from the mandated allocation, as well as the airline industry. California finance department representatives declined to be interviewed about their discussions with the FAA, though the department shared some correspondence with the federal agency, the reporting said.