TRB Publishes Legal Research Digest on Access Restrictions at General Aviation AirportsOn February 6, 2015, the Transportation Research Board published Legal Research Digest 23, A Guide for Compliance with Grant Agreement Obligations to Provide Reasonable Access to an AIP-Funded Public Use General Aviation Airport by Kaplan Kirsch & Rockwell, in cooperation with Aviation Management Consulting Group. The obligation to provide reasonable access is a fundamental requirement for federally-obligated airports and is implicated in issues as diverse as leases, noise rules, and parachute landing areas. To help general aviation airport operators understand their obligations in this complex area, the Digest contains a comprehensive overview of a general aviation airport operator’s legal obligation to provide access and specific discussions of how those general legal obligations apply in specific contexts that airport operators regularly face. To view and download the Digest, visit the following TRB website at http://www.trb.org/main/blurbs/172078.aspx.
ITC Phase Down Creates Near-Term Solar Opportunities for Airport Owners
In our December 10th webinar, “Airport Solar Webinar: How to Maximize the Financial Benefits of Renewable Energy and Sustainability”,1 we discussed the federal Investment Tax Credit (“ITC”) and how the ITC can drive the economics of a solar project located on airport property. In response to inquiries from webinar participants, I would like to explain further how the ITC – and its phase down after 2016 – creates near-term opportunities for airport proprietors interested in third party solar development.
The ITC is a credit against federal income tax otherwise due based on the eligible cost of qualifying assets. Qualifying solar equipment 2 earns a credit equal to 30% of expenditures (with no maximum value to the credit) for units placed in service by December 31, 2016. Solar projects placed in service starting in 2017 will only be eligible for a phased down credit equal to 10% of expenditures. Qualifying solar equipment is also eligible for accelerated depreciation.3 This means that there is currently a window of opportunity for solar developers, and airport proprietors desiring to engage in an airport-based solar project with a tax-paying solar developer, that will be expiring in less than two years.
The ITC, which has been the primary public policy tool used by the federal government to catalyze the growth of the solar market, is generally available only to the “tax owner” 4 of the equipment. Solar equipment that is owned or leased by governmental or tax-exempt entities is ineligible for the credit and for accelerated depreciation. Therefore, in order for most airport-based solar projects to take advantage of the current 30% value of the ITC, such projects need to be developed by tax-paying third party owners. As discussed in the webinar, leases by airports to third party solar developers have been the most successful model for airports to share in the financial and environmental benefits associated with solar. In addition to the airport proprietor acting as a lessor under a Lease Agreement, the airport proprietor might also be a power purchaser under a Power Purchase Agreement.5 Airport proprietors that have worked with third party developers to install solar facilities at their airports include those in Boston, Denver, Indianapolis, Newark, Phoenix, and San Diego.
However, the ITC benefits are not the only factor determining why the cumulative solar capacity added to the grid in 2015 and 2016 is expected to double existing solar capacity. It is estimated by some analysts that over the next two years there will be as much as 13 gigawatts of utility-scale solar added to the grid.6 As explained by John Putnam in the webinar, the reason is that the cost of solar photovoltaic equipment has dropped significantly in recent years. As a result, ITC-assisted solar power from PV projects is now competitive with more traditional sources for generating electric power. Of course, some of that competitiveness will be diminished when the ITC value is phased down to 10% for projects placed in service on or after January 1, 2017.
The timeline for the development of a solar project – including internal planning, permitting, contracting, and construction – can easily take more than one year. Our solar-development clients and other industry contacts indicate that most projects that are not past the internal planning stage by July 2015 are not likely going to be able to capture the full value of the ITC when it expires at the end of 2016. Of course, that depends upon the size, complexity and jurisdiction of the proposed project. Therefore, in order to take advantage of the ITC at the current 30% value, it is recommended that a project should commence development during the first half of 2015.7
Please let us know if we can answer your questions about developing an airport-based solar project. We will be participating at these upcoming airport conferences:
Stephen Barrett from HMMH, who led a discussion on technical considerations in developing airport solar projects in the webinar, will be presenting “Airport Business Case for Renewable Energy” at the ACC/AAAE Airport Planning, Design and Construction Symposium in Denver from February 18-20. Peter Kirsch from Kaplan Kirsch & Rockwell will also be attending the Symposium.
John Putnam from Kaplan Kirsch & Rockwell, who led discussions on state incentives and regulatory considerations in the webinar, will be moderating a panel regarding airport microgrid and solar issues at the ACI Environmental and Ops/Tech Committee Meeting in Vancouver from March 22-25.
Eric Smith from Kaplan Kirsch & Rockwell will be attending the ACI Legal Affairs Committee in New Orleans from April 15-18.
Kaplan Kirsch & Rockwell and HMMH are working together to provide our airport and energy clients with a coordinated resource for technical and legal support for their renewable energy development efforts. Kaplan Kirsch & Rockwell is a national infrastructure and land use law firm with offices in Denver, Colorado and Washington, DC. HMMH is an international leader in airport and airspace planning, and climate and energy solutions, with offices in Burlington, Massachusetts, Sacramento, California and Herndon, Virginia.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, Kaplan Kirsch & Rockwell LLP would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.
1 Click here to download the audio and video of the webinar.
2 Eligible solar equipment includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat. Eligible project costs include only the cost of tangible personal property integral to the production or storage of solar energy, and therefore do not include interconnection or distribution equipment, or most building or site improvements. At least 80% of project components must be new to be qualified for ITC eligibility.
3 Eligible solar equipment also qualifies for accelerated depreciation, where the eligible cost basis is reduced by half of any claimed ITC. At the current 30% level, the cost basis would be reduced by 15% and the remaining 85% would be depreciated using bonus depreciation up to the maximum bonus rate. Under the federal Modified Accelerated Cost-Recovery System (MACRS), tax owners may recover investments in eligible solar equipment through depreciation deductions for the remaining tax basis over an accelerated five-year recovery period.
4 Various factors are relevant to determining “tax ownership”. The Internal Revenue Service has published guidelines for distinguishing a lease from a secured financing that are helpful in determining which party will be treated as owner/lessor vs. lender/lessee (see Rev. Proc. 2001-28). It is clear that title does not control the determination. Rather, the IRS will generally focus on which party has the economic benefit of any upside and which party has the economic burden of downside in any given transaction.
5 It should be noted that a Power Purchase Agreement with governmental or tax-exempt energy purchasers (as is the case of most airport proprietors) must qualify as a service agreement and not as a lease or financing arrangement. The Tax Code specifies factors for distinguishing a lease from an agreement to provide services, and those factors focus on determining who has economic benefits and burdens similar to “tax ownership” test. (See note 4.)
6 “The One Chart That Shows Why 2014 Was a Breakthrough Year for Utility-Scale Solar in America”, Greentech Media (December 11, 2014).
7 It is worth noting that, in certain markets, long-term solar pricing may still be attractive even with a 10% ITC.
FAA Dismisses Part 16 Complaint against the City of CincinnatiOn September 12, 2014, the FAA issued a Director’s Determination dismissing a Part 16 complaint filed by a user of the now-closed Blue Ash Airport against Firm client the City of Cincinnati. The Complaint alleged the City had illegally diverted proceeds from the sale of the Blue Ash Airport. The City demonstrated that it had not spent any of the proceeds from the sale until after a prior sales agreement had been rescinded and the Blue Ash Airport closed. Based on that showing, the FAA found that there had been no revenue diversion and dismissed the Complaint. The FAA also reiterated that airport sponsors are not required to keep airport revenues in segregated, interest bearing accounts, although airport sponsors should be prepared to account for all airport revenues to demonstrate that airport revenues are spent for permitted airport purposes. For a copy of the Director’s Determination, please click on the link below.
FAA Solicits Comments for Net Noise Reduction MethodOn August 19, 2014, FAA published a Notice and Request for Public Comment regarding Section 213(c)(2) of the FAA Modernization and Reform Act of 2012, which directs FAA to file a Categorical Exclusion (CATEX) for any Performance Based Navigation (PBN) procedure that would result in measurable reductions in fuel consumption, carbon dioxide emissions, and noise on a per flight basis. FAA is now proposing the New Noise Reduction Method for determining whether a proposed PBN reduces noise. Specifically, where the number of people who experience a noise reduction exceeds the number of people experiencing a noise increase, the proposed PBN reduces noise, and the application of the CATEX is reasonable. FAA is now asking for public comment regarding the Net Noise Reduction Method and several suggested variations that also incorporate consideration of the magnitude of the noise level change. See 79 Fed. Reg. 49, 141 (Aug. 19, 2014).
New FAA Procedures for Enforcement OrdersOn August 12, 2014, the FAA announced an amendment to the procedures for issuing enforcement orders under 14 C.F.R. Part 13, including cease and desist orders, to provide an opportunity for an informal conference with an FAA attorney that may resolve, or narrow, the issues under investigation. The amendment will go into effect on October 14, 2014, and the FAA has requested comments by September 11, 2014. Specifically, the FAA proposes to amend 14 C.F.R. 13.20, which authorizes the FAA to issue orders of compliance and cease and desist orders for violations of a number of statutes, including the FAA Act, the Airport and Airway Development Act of 1970, and the Airport and Airway Improvement Act of 1982. Section 13.20 does not apply to alleged violations of grant assurances, which are addressed in 14 C.F.R. Part 16, or to orders regarding certificate action or civil penalties, which are covered in other sections of Part 13. A copy of the Federal Register notice announcing the new rule is available here.
FAA Proposes to Clarify Policy on Aviation Fuel TaxesOn November 21, 2013, FAA published notice of its intent to amend the Policy and Procedures Concerning the Use of Airport Revenue with regard to local taxes on aviation fuels. By statute, local taxes on aviation fuels in effect after January 1988 are to be used only for airport purposes and state aviation programs. The proposed changes would provide that the statutory limits (1) apply to both state and local aviation fuel taxes; (2) apply to any tax on aviation fuel, even if included in a broader tax on other products; (3) apply to taxes on aviation fuel dispensed at the airport, regardless of where the taxes are collected; and (4) apply to a new assessment or imposition of an aviation fuel tax, even if the tax could have been imposed before Dec. 30, 1987. For a copy of the Federal Register notice, click here.
DOT Publishes Final Rule Regarding Access to Air Travel For Disabled PassengersOn November 12, 2013, the Department of Transportation issued a Final Rule regarding access to automated airport kiosks and air carrier websites for passengers with disabilities. Certain restrictions now apply to airport operators that jointly own, lease, or control automated kiosks with U.S. and foreign air carriers. Specifically, airport operators must now work with air carriers to ensure that all new automated kiosks installed after December 12, 2016 meet detailed design requirements. This mandate applies until at least 25% of automated kiosks in each airport location meet those standards. Additional provisions of the Final Rule apply to: (1) websites operated by both foreign and domestic air carriers; and (2) disclosure of information by travel agents. For a copy of the Final Rule, click here.
FAA Publishes Policy for On-Airport Solar Installations
On October 23, 2013, FAA published its Interim Policy, FAA Review of Solar Energy System Projects on Federally Obligated Airports (the “Interim Policy”). The Interim Policy clarifies and adds standards for the measurement of both “glint” and “glare” as presented in FAA’s Technical Guidance for Evaluating Selected Solar Technologies on Airports (the “Technical Guidance”), originally published in 2010. Specifically, the Interim Policy clarifies an airport sponsor’s obligation to file FAA Form 7460-1 for all proposed on-airport solar installations, provides standards for ocular impact of solar installations, and identifies a computer-based tool for assessing ocular impact. FAA intends to finalize the Interim Policy and include the standards for ocular impact in an update to the Technical Guidance that will be published later this year. For a complete copy of the Interim Policy, please click here.
FAA Dismisses Complaint Against Chattanooga Metropolitan Airport Authority
On October 4, 2013, the FAA Director of the Office of Airport Compliance and Management Analysis dismissed a complaint filed under FAR Part 16 by an FBO against the Chattanooga Metropolitan Airport Authority. The Complainant alleged multiple violations of the Grant Assurances as a result of Respondent’s decision to develop a sponsor-owned, privately managed FBO at the Chattanooga Metropolitan Airport. The Director found that Respondent has not violated any of the Grant Assurances in connection with its development of the FBO facility, selection of an FBO to manage and operate the facility, and amendment of the Airport Minimum Standards. For a copy of the Director’s Determination, click here.
FAA Updates FAR Part 16
On September 12, 2013, FAA published amendments to 14 CFR Part 16, Rules of Practice for Federally-Assisted Airport Enforcement Proceedings. FAR Part 16 contains the procedures for filing and adjudicating complaints against airport sponsors for violations of the Grant Assurances and other federal obligations. This is the first amendment to Part 16 since its adoption in 1996. For a copy of the Federal Register notice, click here. For a copy of Kaplan Kirsch’s publication summarizing the changes and providing a complete copy of the amended rule, click here.