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AHJ is Authority Having Jurisdiction, or simply put, the Code Enforcement guy.
The vacuum breaker is likely damaged otherwise water would come out of the faucet. That looks like a frost free faucet by the way. Does water come out the end when you just turn it on?
I had the same issue. I cut it off ,vertical cut not horizontal , with a little hand saw. Just be careful you don't mess up the thread on the spout underneath.
You can (most times) unscrew the vacuum breaker, but will have a hard time getting just that replacement part. You might be able to take it off, clean it out, or un-jamb it, and replace it, and it might be ok. However, it may not.
You can replace the entire hose faucet, but you have to get the right length. You will have to cut into the wall inside the house or garage to do the work too. You can get a plumber or handyman to do it for you. It's not a hard job, but depending on what's on the other side of the wall, it can involve wall repair/painting.
You can take off the vacuum breaker, go buy a like part and switch out the offending parts too.
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