Flight instructors in California are wondering how they are going comply with a new law that requires them to pay a fee to offer flight instruction. The law, Assembly Bill 48, takes effect Aug. 1.
But CFIs may get an extension, as well as a chance to argue against the new law. The lawmaker who penned the law, Assemblyman Roger Niello from Sacramento, Calif., is now working on an amendment that would give flight instructors an 18-month extension, as well as set up informational hearings on the issue.
According to Todd Moffitt, Niello’s chief of staff, the assemblyman’s intent is to amend a bill he currently has in the Senate, AB 1140, to provide an 18-month extension for all flight instruction and require that the legislature hold an informational hearing on the issue during that interim period. “This extension would allow the industry the time to get organized and come before the legislature at this hearing to further explain the dynamics of their industry and allow the legislature to determine the appropriate level of regulation,” Moffitt said. “At this point, gaining this extension is Mr. Niello’s primary focus. He has no interest in threatening the livelihood of instructors or the industry in California.”
If AB 48 goes into effect as written, it will threaten the livelihood of instructors, according to CFIs in the state. The law mandates that anyone providing flight instruction, be it a Part 61 part-time flight instructor, a small FBO or a Part 141 operation, must pay an initial $5,000 fee, followed by a $1,000 annual fee, and 0.75% of yearly revenue to the state. Minimum operational standards, including that all instructors must have at least three years of education or experience in the field they teach or the a demonstration of equivalency, must be adhered to.
The bill, designed for post-secondary education providers, formerly exempted aviation schools, but that exemption was removed after the sudden closure of Silver State Helicopters. The nationwide flight school, which had a facility in Sacramento, held flashy seminars where students were told that they could go from zero time to a commercial pilot certificate in approximately 18 months. They were told that once they earned their commercial certificates they could get a job earning upwards of $75,000 a year as starting pay. Students were encouraged to sign up on the spot for loans of approximately $60,000 to $80,000 from Key Bank to pay for the training. Silver State arranged the funds to be transferred by automatic withdrawal.
Because of a lack of aircraft and instructors, most students found that it took significantly longer than 18 months and a lot more money to earn their certificates. Students also thought the loans would be paid out in installments as their training progressed. Students who dropped out of the program and tried to get the remainder of their funds returned were surprised to learn that the entire loan amount had been sent to Silver State, although training was not completed. Silver State made the last withdrawal from the student accounts just days before the school shut down on Feb. 3, 2008, leaving the students with outstanding student loans and unfinished educations.
Under AB 48, approximately $2.50 per $1,000 collected from students will be used to pay for a student tuition recovery fund. If the school goes out of business, or is unable to fulfill its obligation to the student, the student is reimbursed.
Although no one wants to see a flight student be taken advantage of, critics of the law note that not paying up front for a service yet to be rendered should be common sense, something that can’t be legislated.
Several flight instructors in the Golden State say the law designed to protect students will kill flight schools.
“If this law is implemented as written, as a flight school owner I will be forced to move my business out of state or cease operations,” says Bridgette Doremire, Master CFI and CEO of Silver Wings, a Part 61 flight school in Van Nuys, Calif. “With the California state business fee, a Los Angeles City Business License Fee, a Los Angeles City Business Tax, and Los Angeles County property taxes, a cost-of-living that exceeds the rest of the country, and the current poor state of the economy, another $5,000 in taxes is too much for us to handle, let alone the additional accounting costs, paperwork and renewal fees. Some schools could be on the hook for $100,000 or more which, as flight training has razor-sharp margins, that could be the school’s entire profit. I cannot pass on this cost to students as they pay after their training, not in advance, nor do we accept student loans.”
Doremire predicts that schools will need to raise prices to recoup the additional cost of doing business, which could result in prospective students taking their business out of state.
Although the purpose of the law is to protect students who naively pay large sums money up front to flight schools, Doremire predicts it will create more red tape rather than a safety net for the students.
“We know California is bankrupt and this law smells like another money grab to fill empty state coffers,” she continues. “With 64 part 141 schools in California per FAA records, at a minimum the first year’s take for the law is $320,000. The bureaucracy needed to track and enforce the law will take a large portion of that sum. At best, this law only gives partial monies to the banks that made the mistake of lump sum payouts on thousands of loan dollars for students to learn a profession in which sub-poverty wages are typically made for the first several years if not decades.”
Doremire says the law creates more questions than answers. “If I exercise my federally-granted certificate, will I be subject to these fees or, as the board states there is a $50,000 fine, will I be subject to the fine as I am not able to drop $5,000 on an application?” she asks. “What is the criteria for passing the post-secondary accreditation board? What are the standards for the audited financial records? Where and how do I send these records to the state? My standard is to accept payment after an instructional session. Am I still subject to state fees if the client declines to pay and I decide not to pursue in small claims court?”
Max Trescott, the 2009 CFI of the Year, was surprised — as many in the aviation community were — when he learned about the bill.
“I suspect it was not intended to be a sneak attack, but through circumstances it effectively became one,” he muses. “AB 48 replaces an earlier law which had an exemption for flight training. That law expired and for a time there was no law. Then AB 48 passed but didn’t include an exemption for flight training. The words aviation and flight training don’t appear in AB 48. Hence it didn’t get flapped by the keyword search systems AOPA and others use to become aware of new legislation. In fact, the law passed before anyone in aviation knew anything about it. If the old bill hadn’t expired, then the differences between the bills –the exception — would have been flagged and we all would have heard of it before it passed.”
Trescott predicts the measure will create more paperwork for CFIs in the Golden State.
“I’ve discussed this with other CFIs and a lawyer shared his opinion with me. We’re of the belief that to have a good paperwork trail to protect us, we need to have new clients sign a form stating that they’re taking training from us for avocational purposes. Additionally, one CFI said that he’d include in the form that he’s not accepting any prepayments. I think this will be sufficient. However, I’m annoyed that I’ll need to do the additional paperwork.”
“The vast majority of my clients are in the avocational category,” he continues. “In the last five years, I’ve had only two clients that weren’t avocational. One became an airline pilot. The other got their commercial while working in high tech, but expressed a desired to eventually work in aviation. In the future, I would have to turn down the airline pilot. The second case is marginal. I’d probably turn him down just to be safe.”
The California Pilots Association is urging California lawmakers to amend the law because of its negative impact on aviation. According to a statement on the CPA website, “Aviation contributes $250,000,000 per year to the state in taxes alone. That amount will drop dramatically if flight schools and independent flight instructors are included in AB 48. The state’s 70,000 active pilots will be unable to adhere to the FAA’s annual and biannual training requirements without flight schools and independent flight instructors.”