NOTE: THIS LETTER PRECEDED OUR "AIRPORTS DAY ON THE HILL" 2/27/18

Dear Members of the 110^th General Assembly

Tennessee’s system of airports, both commercial air carrier and general aviation are crucial parts of our statewide transportation assets. We depend upon them to assure that we are competitive in attracting new business and industry, for emergency preparedness, law enforcement, national, state and local security, medical emergencies, just-in-time deliveries, wildlife and land management, catastrophic event response and so much more.

Tennessee’s Transportation Equity Fund was established by the 94^th General Assembly in 1986 (TCA 9-4-207). The sales tax on aviation fuels was then lowered from 6% to 4.5% and dedicated exclusively to build, develop and maintain our statewide system of airports. Mandated, strict control of petroleum products assures the utmost integrity in collections and accountability.  Airports funding from both federal and state levels are derived in large measure from fuel taxes.

This “User-based” funding system is fair to all aviation fuels consumers and all users benefit from them. The general fund for the State of Tennessee is not affected by this method of funding allowing airports to be more self sufficient. Large and small users alike pay the same 4.5% sales tax rate. In 2015, driven by fuel prices that had been extremely high, the General Assembly opted to cap the tax obligation of high volume users. Fuel prices fell to extremely low levels immediately thereafter, thus the TEF has suffered considerably. Tennessee’s airports projects have begun to suffer from lack of sufficient funding.

The absence of a comprehensive Statewide Airports System Plan for the past 17 years makes it difficult to accurately determine what our financial needs for airports development, maintenance and improvements should be. A Statewide Airports Pavements Analysis done in 2015 indicated that current TEF funding for pavements alone will be insufficient near term just to maintain the current conditions of pavements and does not account for any further economic development of airports across the state.

The 2015 Legislative Aviation Task Force proposed an Aeronautics Economic Development Fund that was established in 2016 (TCA 4-3-2313). It should be noted that this special fund cannot be used for maintaining, updating and improving airports. It is not the same fund as the TEF and is not funded by aviation fuels tax collections.

To allow Tennessee to remain competitive in aviation transportation and to contribute to economic development for the state, continued investment in our airport system is absolutely critical. The TEF is a historically sound mechanism to ensure that all airports, a vital part of our transportation infrastructure, are funded to the fullest extent possible. Two years ago, the Legislative Aviation Task Force cautioned against compromising the TEF further.

Tennessee’s airports implore you to refrain from compromising the Transportation Equity Fund further. We are ready, willing and able to join with you in exploring fair and equitable funding solutions for the years ahead.

Yours truly,

Tennessee Aviation Association               

Chad Gehrke, President

Aeronautics Economic Development Fund

The development strategy for this fund is to impact job creation and investment opportunities in Tennessee’s aviation industry.  Our aviation facilities are critical to the economic development of communities across the state.   This is a reimbursement grant initiative with a combined total of $15,000,000 available for award in fiscal year 2018.

Tennessee’s aerospace sector has a rich combination of research assets, capital investment opportunities, advanced manufacturing expertise, accessibility to educational resources, and workforce capacity. This environment provides an excellent opportunity for new or expanding aerospace programs and activities.

Congratulations to the recipients of our FY 2018 Aeronautics Economic Development Fund.

Applicant Name	Project Summary	Maximum Award	County  Location
Austin Peay State University	Assist with the development of an aviation education program at Austin Peay State University in Clarksville, TN.	$175,000.00	Montgomery
Chattanooga Metropolitan Airport Authority	Develop a build-ready site for the expansion and development of a Maintenance Repair and Overhaul (MRO) Facility at Lovell Field in Chattanooga, TN.	$3,856,049.00	Hamilton
Millington-Memphis Airport Authority	Renovate a 36,000 SF Barrel Hangar and the building's 44,000 SF east wing at Millington-Memphis Airport in Millington, TN.	$2,366,000.00	Shelby
Smyrna/Rutherford County Airport Authority	Construct a maintenance hangar on the east side of Smyrna Airport in Smyrna, TN for the expansion of a growing charter company.	$1,900,000.00	Rutherford
Sumner County Regional Airport Authority	Expand the apron at Sumner County Regional Airport in Gallatin, TN for a future avionics and MRO facility.	$2,592,000.00	Sumner
Tri-Cities Airport Authority	Develop a 140-acre build-ready site for a future MRO facility or other aerospace industry at Tri-Cities Airport in Blountville, TN.	$4,100,000.00	Sullivan

*Preface – All blogs tagged “MY OPINION” are just that! They do not represent an opinion of others and are not a statement or position of the Tennessee Aviation Association.

MY OPINION* - “Tennessee Airports New Best Friend”

When the General Assembly passed PC #462 last year, which established an Aviation Task Force to explore how to deal with the funding reduction involving the Transportation Equity Fund, I was skeptical. Task Forces in this context are usually “paper tigers” and this one may still be but I think most of us who have attended the Task Force meetings in preparation for the current legislative session are impressed with the gentleman who served as its Chairman.

Tennessee’s Economic & Community Development Commissioner, Randy Boyd approached the task of chairing the Task Force with zeal. He visited a bunch of general aviation airports in advance of the meetings and engaged those who manage them. He’s a bright guy with a great personality… easy to talk with, and apparently has a refreshingly open mind. He was genuinely interested, wanted to learn all he could and those he spoke with were justifiably impressed. He brought that same enthusiasm to the Task Force meetings and used his staff to do some helpful and necessary research to assist the process. I really think this gentleman “gets it” in terms of the importance and value of our system of general aviation airports in Tennessee, and the absolute need to fund them properly. Arguably, he should, as our state’s chief jobs builder and new industry salesman. And, I have not detected an ounce of arrogance in Commissioner Boyd! Refreshing!

One of my pet “peeves” is a palpable arrogance within governmental bureaucracies these days. And it isn’t all from Washington. Some seem to believe that they are the center of a particular industry universe. When I “served” in state government we viewed ourselves as “a service agency” to local governments who needed help improving, maintaining and developing their local airport. We weren’t arrogant at all; we were “partners”! I am a strong believer of “government of and by the people” starting at home! Those “serving” as governmental employees need to be reminded that the operative word is “serving”!

While I am venting, another of my peeve’s is that when the legislature or when a state agency needs industry information (aviation in our case) they tend to turn to each other… to another state governmental entity. They apparently believe that the sought after expertise resides within these government departments. That is often a seriously misguided theory. It may be born of simple laziness because it is easier that seeking information from people in the industry who aren’t in the State Telephone Book. To be fair, that may be our fault. We need to be more connected with our government; the legislature and the agencies we have to work with. We need to make them aware of who to call when they need information and when they do call, we need to make sure we provide the facts, not opinion!

I hope that one positive result of the Aviation Task Force will be better connections and communications with the legislature and our own bureaucracy. There is a lot of aviation industry expertise in Tennessee and I believe Commissioner Boyd knows that. I honestly believe that he is truly “aviation’s new best friend”. Hopefully, the Governor will listen to him. I want to believe he will!

TAA and the TENNESSEE ASSOCIATION OF AIR CARRIER Airports have sent the following letter to the Chairman outlining our position on the issues and items under consideration in advance of the final meeting. Here is that letter. It will provide the details of what is currently on the table for our membership.

December 30, 2015

Randy Boyd
Commissioner, Department of Economic and Community Development State of Tennessee - William R. Snodgrass Building – Tennessee - Tower 27th Floor - 312 Rosa L. Parks Avenue Nashville, TN 37243-1102

Via Email: Randy.Boyd@tn.gov

Dear Commissioner Boyd:

The Tennessee Association of Air Carrier Airports (TAACA) and the Tennessee Aviation Association (TAA) thank you for your leadership of the Aviation Funding Task Force. We also appreciate the time and dedication provided by the legislative leaders and aviation stakeholders represented on the Task Force.

TAACA and TAA would like to provide the following comments related to four points discussed at the December 8th meeting of the Task Force:

1. Current Aviation Related Tax Collections Being Redirected to the Transportation Equity Fund

At the initial meeting of the Task Force on October 22, 2015, TAACA proposed the Task Force identify all current aviation related taxes imposed by the State. The intent was to evaluate the potential to redirect funds generated from current taxes paid by aviation users. The redirected funds would partially replace the funding lost as a result of the aviation fuel tax cap passed under 2015 Tennessee Laws Public Chapter 462 (SB982/HB1147).

At the December 8th meeting of the Task Force, the Department of Economic and Community Development reported back the following information related to this item:

State sales tax annually from taxpayers who purchased airplanes $ 2,853,425 (5 yr. average) Sales tax annually from other aviation related sales tax accounts $ 2,100,286 (5 yr. average)

Total $ 4,953,711 Additionally, the TAA identified the following taxes that are currently being paid on aviation fuel:

a.Tennessee Motor Fuel Tax ($0.01 per gallon)

b.            Tennessee Environmental Fee ($0.004 per gallon) Total

$ 3,000,000 (estimated annual collections) $ 1,200,000 (estimated annual collections) $ 4,200,000

It is estimated these four current taxes generate $9,153,711 in annual tax revenue. These current taxes, which are generated by aircraft owners and operators, are not currently being used to reinvest into our statewide system of airports.

Commissioner Randy Boyd December 30, 2015 Page 2 of 3

Once the tax cap resulting from 2015 Public Chapter 462 is fully implemented at the maximum cap amount of $10.5 million in FY 2019, the resulting loss of revenue to the Transportation Equity Fund (TEF) will be approximately $20 million annually. This amount of funding loss is based on a comparison to FY 2015 aviation fuel tax collections.

The four sources of tax revenue identified above would restore approximately one-half of the airport improvement funding lost as a result of the aviation fuel tax cap. TAACA and TAA realize this current tax revenue is being used in other areas of the State budget and there may be some opposition to reallocating this tax revenue to airport development. However, redirecting these current aviation user based taxes to the TEF would restore essential funding that ensures a competitive airport system in Tennessee. Reallocating this funding to the TEF may encounter less opposition than a new form of taxes or fees.

These points were briefly discussed during the December 8th meeting of the Task Force. After reviewing all options discussed at the December 8th meeting, TAACA and TAA feel the potential to redirect this current aviation generated tax revenue should receive the highest consideration by the Task Force.

2.Pooling of TEF Funding with Other Transportation Funds At the December 8th meeting of the Task Force, there was discussion of pooling TEF funds with other transportation funds and allowing TDOT to direct the use of the pooled funds to the highest priority statewide transportation projects (surface, airports, etc.). TAACA and TAA would be adamantly opposed to pooling aviation generated tax revenue with other transportation funds and attempting to compete for funds from the pool each year based on some yet unknown system of prioritization. The airport community does not feel airports would be able to consistently compete against the much larger budget demands of surface transportation projects. The risk of not recovering adequate funding from a pooled transportation fund outweigh the potential benefits of airports having access to a larger pool of transportation funds.

3.Moving the Aviation Fuel Tax from a Percentage Based Tax to a Fixed Cents Per Gallon Based Tax There was discussion at the December 8th Task Force meeting of moving the aviation fuel tax from the current 4.5% based tax to a new fixed cents per gallon tax methodology. Given the limited amount of information that has been compiled on this option and the limited time remaining for the Task Force to generate the legislatively mandated report by February 1, 2016, a move to a cents per gallon tax may pose substantial risk to the long-term funding potential for TEF airport improvement funds. An equivalent cents per gallon methodology would require significant research and forecasting. The price of oil and the resulting price of aviation fuel is at an extreme low. It is unlikely the cost of fuel will continue to drop over the long-term. There is greater potential the cost of fuel will rise over the next ten years. Therefore, locking in a fuel tax at a fixed cents per gallon would prevent the potential growth of tax revenue as the price of fuel increases. A cents per gallon rate methodology would need to be set at a significantly higher base rate than the current equivalent of a cents per

Commissioner Randy Boyd December 30, 2015 Page 3 of 3

gallon based on the 4.5% tax rate of current fuel prices. TAACA and TAA are not in favor of an effort to move to a cents per gallon tax methodology without having the time and detailed data necessary to accurately forecast the impact of such a move.

4. TDOT Future Transportation Infrastructure Funding Initiatives Should Include Funds for Airports

As TDOT evaluates the future needs and funding mechanisms of the State’s transportation infrastructure, airports should be considered essential intermodal assets in the State transportation system. Tennessee’s Airports bring drive traffic into Tennessee from at least 10 adjacent states and allow flights to directly connect Tennessee to points around the world. Our airports, large and small, support Tennessee’s commerce, tourism, and industry. It would be reasonable to dedicate a portion of any future TDOT funding mechanism to keep these intermodal assets safe, secure, modern, and able to successfully compete with other states and regions of the globe. Whether it is a portion of a new gas tax initiative, or any other infrastructure funding mechanism developed by TDOT, now is the time to make sure airports are included in the funding plan and not left behind in this effort.

The Task Force and the General Assembly must remember that passage of 2015 Public Chapter 462 dramatically impacted a long-time system that had successfully supported airports and air transportation in Tennessee. A responsible approach toward restoring much of the funding lost must be a priority. Our system of airports, both commercial service and general aviation, is a transportation asset that cannot be taken for granted, nor minimized in terms of its importance to Tennessee’s economy. Relegating Tennessee’s airports to funding that is essentially a maintenance budget is detrimental to Tennessee’s future and gives away a competitive advantage currently held by the State.

The Tennessee Association of Air Carrier Airports, the Tennessee Aviation Association, and Tennessee’s entire aviation community stand ready to work closely with the Tennessee Department of Transportation, the Tennessee Department of Economic and Community Development, and our legislative leaders to ensure Tennessee’s airports have the funding necessary for maintenance, safety, security, capital improvements, and the ever-changing regulatory environment.

Thank you for your consideration of these comments. We respectfully request these comments be shared with the members of the Task Force in advance of the next Task Force Meeting.

Sincerely,

Patrick W. Wilson, A.A.E. Scott A. Brockman, A.A.E.

Representing the Tennessee Association of Air Carrier Airports

Jo Ann Speer John Black

Representing the Tennessee Aviation Association