98-574: PILT (Payments in Lieu of Taxes):
Somewhat Simplified
M. Lynne Corn
Specialist in Natural Resources
Environment and Natural Resources Policy Division
June 24, 1998
CONTENTS
Summary
Under current federal law, local governments are compensated through various programs
for losses to their tax bases due to the presence of most federally owned land. Some of
these programs are run by specific agencies, and apply only to that agency's land. The
most widely applicable program, while run by the Bureau of Land Management (BLM), applies
to many types of federally owned land, and is called "Payments in Lieu of Taxes"
or PILT. The level of payments is calculated under a complex formula.
This paper explains PILT payments as simply as possible, with an analysis of the five
major factors affecting the calculation of given local government's payment. It also
outlines some of the consequences of the 1994 changes in the law. These changes have led
to large increases in the authorized amounts, though appropriations have not kept pace
with the authorizations. The result has been great dissatisfaction among local governments
which typically feel wronged at their failure to receive the newly authorized payment
level. In FY1997, the most recent year for which full comparisons can be made, counties
received 53.5% of the amount in the authorized formula. The result has been intense
pressure on Congress from local governments to appropriate the full amount.
There have been two chief issues concerning PILT since the program was created in 1976.
One is that the value of the payments was undeniably eroded by inflation. This concern was
addressed, at least at the authorization level, in the 1994 amendment to the existing law.
Opponents of the amendment at that time contended that if the increased authorization were
fully appropriated, it would exacerbate the federal deficit, and that corresponding budget
cuts or increases in revenues would be needed to pay for the changes.
The second issue is the equity of the PILT formula. Critics argue that some counties
are compensated too well while others receive too low a payment. This assertion turns on
the standard of comparison: payment level per capita, the tax value of the land if it were
in private ownership, the direct and indirect benefits the county received from the
presence of federal land, etc. Payments often differ markedly (higher or lower) from
amounts that would be paid if the lands were simply taxed at fair market value. Counties
were largely united in wanting an increase in the PILT formula, but could not agree on
language that would have changed the formula in the law fundamentally. Thus, rather than
creating new winners and losers by adopting major reforms such as tax equivalency, the
1994 amendments simply lifted all ceilings and payment levels in the law.
Introduction
Generally, federal lands may not be taxed by state or local governments unless they are
authorized to do so by Congress. Since local governments are often financed by property or
sales taxes, this inability to tax the property values or products derived from the
federal lands may affect local tax bases significantly. Instead of authorizing taxation,
Congress has usually chosen to create various payment programs designed to make up for
lost tax revenue. These programs take various forms. Many pertain to the lands of a
particular agency (e.g., the National Forest System or the National Wildlife
Refuge System). The most wide-ranging payment program is called "Payments in Lieu of
Taxes" or PILT. It is administered by the Bureau of Land Management (BLM) in the
Department of the Interior and affects most federal lands.
The Payments in Lieu of Taxes Act of 1976 (P. L. 94-565, 31 U.S.C. 6901-6907, as amended)
was passed at a time when U.S. policy was shifting from one of disposal of federal lands
to one of retention. Because of that shift, Congress agreed with recommendations of a
federal commission that if these federal lands were never to become part of the local tax
base, then some compensation should be offered to local governments to make up for the
presence of non-taxable land within their jurisdictions. Moreover, there was a
long-standing concern that some federal lands produced large revenues for local
governments, while other federal lands produced little or none. Many Members felt that the
imbalance needed to be addressed. The resulting law authorizes federal PILT payments to
local governments; these payments may be used for any governmental purpose.
Since the creation of the program, there have been complaints about many of the same
issues addressed at that time. One issue was the payment levels and their subsequent
erosion due to inflation. Figure 1 shows a slight increase in the actual dollars
appropriated for PILT from FY1980 to FY1998. But as the figure also shows, the value of
the funding, adjusted for inflation, has fallen by over a third. This issue was addressed
in the 1994 amendments and will be discussed below.
In a second category are more basic concerns: the balance struck in the payment formula
between heavily and sparsely populated communities, between those with federal lands
generating large revenues and those with lands generating little or no revenue, and
between the amounts paid under PILT and the amounts that would be paid if the lands were
simply taxed at fair market value. In a few areas, local concerns have also focused on the
failure of the program to include certain categories of land. With the exception of a few
changes in eligibility of certain lands, these issues were not addressed in 1994.
Many critics cite examples of what they view as the quirkiness of PILT: (a) while
acquired lands of the Fish and Wildlife Service (FWS) are not eligible for PILT, there is
no distinction between acquired and public domain lands(1)
for other categories of eligible lands--to the consternation of many states in the East
and upper Midwest where nearly all FWS lands are acquired; (b) some of the "units of
general local government"(2) that
receive large payments have other sources of substantial revenue, while some of the
counties receiving little are relatively poor; (c) a few counties which receive very large
payments from federal revenue-sharing programs (because of valuable timber, mining,
recreation, and other uses of the lands), nonetheless are also authorized to receive a
minimum payment (22¢/acre)(3) from
PILT; and (d) in some counties, the PILT payment greatly exceeds the amount that the
county would receive if the land were taxed at fair market value, while in others it is
much less. Given the complexity of federal land management policies, it is hard to imagine
a payment system that all parties would consider adequate, or even equitable, particularly
when Congress is attempting to reduce federal expenditures.
How PILT Works
Calculating a county's PILT payment first requires answering several questions:
1. How many acres of eligible lands are in the county?
2. What is the population of the county?
3. What was the previous year's payment for eligible land, if any, under the
other payment programs of federal agencies for these lands?(4)
Does the state have any laws requiring the payments from other federal agencies to be
passed through to other local government entities such as school districts rather than
staying with the county government?
After Sept. 30, 1999 only, what was the increase in the Consumer Price Index?
Each of these questions will be discussed below. Their use in the computation of each
county's payment is also described.
How Many Acres of Eligible Lands? Eleven categories
of Federal land are identified in the law as eligible for PILT payments:(5)
1. Lands in the National Park System;
2. Lands in the National Forest System;
3. Lands administered by the Bureau of Land Management;
4. Lands dedicated to the use of Federal water resources development projects;
5. Dredge disposal areas under the jurisdiction of the U.S. Army Corps of Engineers;
6. National Wildlife Reserve [i.e., refuge] Areas withdrawn from the public
domain;
7. Land located in the vicinity of Purgatory River Canyon and Piñon Canyon, Colorado,
that was acquired after December 31, 1981, to expand the Fort Carson military reservation;
8. Lands on which are located semi-active or inactive Army installations used for
mobilization and for reserve component training;
9. Land acquired from a private party to be donated to the United States within eight
years;
10. Eligible Federal land acquired by a State through an exchange; and
11. Lands in Utah acquired by the United States if they were eligible for payment in
lieu of taxes from that State.
Only lands on this list are eligible for PILT payments; other federal lands such as
military bases, federal office buildings and the like are not part of this program.
Population of the County? The law restricts the
payment a county may receive based on population. For example, a county with a population
of just 1,000 people will not receive a PILT payment over $110,000 ($110 per person); a
jurisdiction with a population of 30,000 will not receive a payment over $1,650,000 ($55
per person). No county may receive a PILT payment over $2,200,000 regardless of
population. Figure 2 shows the relationship between the population size of a county and
the maximum PILT payment.
Previous Year Payments from Other Federal Agencies?
Federal land varies greatly in revenue production. Some lands have a large volume of
timber sales, some have recreation concessions such as ski resorts, and some have no
payment programs at all. In addition, some federal lands have payment programs which vary
markedly from year to year. To even out the payments among counties and prevent grossly
disparate payments, Congress provided that the previous year's payments on eligible
federal lands from other agencies' own payment programs would be subtracted from the PILT
payment of the following year. So for a county with three of the eleven categories of
eligible federal land, one paying the county $1000, the second $2000, and the third $3000,
then $6000 would be subtracted from the following year's PILT payment. Most counties are
paid under this offset provision, which is called the standard rate. In figure 3,
the standard rate is shown by the sloping portion of the line, indicating that as the sum
of the payments from other agencies increases, the PILT payment declines.
At the same time, Congress wanted to ensure that each county got some PILT
payment, however small, even if the eligible lands produced a substantial county payment
from other agencies. If the county had payments of $1000, $2000, and $1 million, for
instance, subtracting $1.003 million from a small PILT payment would produce a negative
number -- meaning no payment to the county at all. In that case, a minimum rate
applies, which does not deduct the other agencies' payments. In figure 3, the flat portion
to the right shows that after the other agencies' payments reach a certain level, the rate
of the PILT payment remains the same.
State Pass-through Laws? States may have laws that
allow counties to increase their payments above the calculated amount described above if
they are paid under the formula which deducts their prior year payments from other
agencies (e.g., from the Refuge Revenue Sharing Fund (RRSF; 16 U.S.C. 715s) of
FWS, or the Payments to States from the National Forest Fund (16 U.S.C. 500)) . According
to the BLM:(6)
...[O]nly the amount of Federal land payments actually received by units of government
in the prior fiscal year are deducted. If a unit of government receives a Federal land
payment, but is required by State law to pass all or part of this payment to financially
and politically independent school districts, or other single or special purpose district,
such redistributed payments are considered to have not been received by the unit of local
government and are not deducted from the section 1 in-lieu payment. The amounts to be
deducted are reported to the Bureau of Land Management each year by the Governor of each
State or his delegate.
For example, if a state requires all counties to pass along some or all of their RRSF
payments from FWS to the local school boards, the amount passed along is not deducted from
the counties' PILT payments for the following year (31 U.S.C. 6907). Thus, if two counties
of equal population in two states each received $2,000 under the Payments to States of the
Forest Service (FS), and State #1 requires the payment to be passed along to the local
school board, but State #2 does not, then under this provision, the PILT payment to the
county in State #2 will be reduced by $2000 in the following year, but no such deduction
will occur for the county in State #1.
Consequently, the feature of PILT that was apparently intended to even out payments
among counties (at least of equal population size) would not apply if the state takes
advantage of this pass-through feature. Under 31 U.S.C. 6903(b)(2), the Governor of each
state gives the Secretary of the Interior an annual statement on the amounts actually paid
to each county under the relevant agencies' payment laws. It would be in the interest of
every state to enact pass-through laws; those lacking them may be unaware of this
provision of PILT. There is no monitoring or verification of these reports. BLM does not
have records of which states have pass-through laws for any payment programs. It simply
accepts each governor's report as the basis for its calculation of PILT payments.
According to the BLM, the very low ceilings set in the law for administering PILT are said
not to permit field audits.
Change in Consumer Price Index? After Oct. 1, 1999,
a provision in the PILT law adjusts the authorization levels for inflation. The standard
and minimum rates, as well as the payment ceilings will be adjusted. At the beginning of
each fiscal year, all of these levels will be raised based on the change in the Consumer
Price Index for the 12 months ending on the preceding June 30. This is an unusual degree
of inflation adjustment; no other federal land agency's payment program has this feature.
But as will be shown below, increases in the authorization do not necessarily lead to a
commensurate increase in the funds received by the counties.
Putting It All Together. Knowing the answers to
these five questions, one can then make two comparisons to calculate the authorized
payment level for a county. (Figure 4 shows a flow chart of the steps in these
comparisons, assuming FY 1999 payment levels.)
a. Which is less: the county's eligible acreage times $1.65 per acre or the
county's ceiling payment based on its population? Pick the lesser of these two numbers and
from it subtract the previous year's total payments for these eligible lands under other
payment or revenue-sharing programs of the federal agencies that control the eligible
land. The amount to be deducted is based on the report by each state to BLM. (This option
is called the standard provision.)
b. Which is less: the county's eligible acreage times 22¢ per acre or the
county's ceiling payment? Pick the lesser of these two. (This option is called the minimum
provision.)
The county is authorized to receive whichever of the above calculations ((a) or (b)) is
greater. This calculation must be made for all counties individually to
determine the national authorization level; this amount is not automatically appropriated,
however.
The combination of other federal payments and PILT in the standard option means that
reductions (or increases) in those other payments in the previous year could be exactly
offset by increases (or reductions) in PILT payments. However, PILT payments cannot fall
below 22¢ per acre (see step (b), above), so the full offset occurs only when the other
federal payments in the previous year total less than $1.43 per acre (i.e., $1.65
per acre minus the 22¢ per acre minimum).(7)
The standard option with its offset between other federal payments and PILT payments
does not guarantee a constant level of federal payments to counties, because of the time
lag in determining PILT payments. Federal payments for a given fiscal year are generally
based on the receipts of the previous year. PILT payments of the following fiscal
year are offset by these payments.
To illustrate, consider a county whose only eligible federal lands are under the
jurisdiction of FWS. If the receipts on the FWS lands drop in FY1997 (compared to FY1996),
payments in FY1998 from the FWS Refuge Revenue sharing fund will fall. PILT payments will
therefore increase to offset the drop-- in FY1999. (This example assumes that the
PILT payment is calculated under the standard option.) The counties will be authorized to
receive at least $1.65 per acre from RRSF and PILT payments combined,(8) but the two payments would not come in the same year.
Consequently, if RRSF payments fall from year to year, the combined payments in the given
year would be less than $1.65 per acre, but if RRSF payments rise, the authorized combined
payment in the given year would be more than $1.65 per acre.
From Authorization to Appropriation
Until about 1994, the amount authorized under the law's formula had generally been
appropriated, with a few exceptions such as sequestration under the Gramm-Rudman-Hollings
Act in FY1987. But as Figure 1 shows, the value of the payments had fallen due to
inflation. In response, Congress amended the law in 1994.
The amendment to PILT (P. L. 103-397) did little or nothing to change the relative
rankings of counties' payment levels under the PILT formula. Rather, it focused on
increasing the total payments, building in inflation protection, and making certain
additional categories of land eligible. The increasing discrepancy between appropriations
and the rapidly rising authorization levels led to even greater levels of frustration
among local governments, and prompted intense interest among some Members in increasing
appropriations. The apparent change from budgets with annual deficits to at least
temporary surpluses will no doubt encourage local governments to ask that PILT be fully
funded.
The 1994 amendment increased both the population ceilings and the payment rates. These
increases, beginning October 1, 1994, have been phased-in over a five-year period (see
table 1). Moreover, as noted above, on each October 1 after 1999, all payment rates and
ceilings will be adjusted to reflect changes in the Consumer Price Index, published by the
Bureau of Labor Statistics of the Department of Labor for the 12 months ending the
preceding June 30th (31 U.S.C. 6903(d)). The adjustment applies only to authorization
levels, rather than appropriations.
Table 1. Scheduled Payment Rate Increases from
FY1994-FY1999
Fiscal
Year |
Minimum Rate
($/acre) |
Standard Rate
($/acre) |
| 1994 |
0.10 |
0.75 |
| 1995 |
0.12 |
0.93 |
| 1996 |
0.15 |
1.11 |
| 1997 |
0.17 |
1.29 |
| 1998 |
0.20 |
1.47 |
| 1999 |
0.22 |
1.65 |
What Is Full Appropriation Level for Current Fiscal Year?
As noted above, the full payment rate for an individual county cannot be calculated
without several pieces of information. The amount depends on the amount of land in the
county owned by the federal government (which might vary from year to year), the payments
already made by federal land managing agencies in previous years, population size of the
county, the existence of state pass-through laws, and (after FY1999) the Consumer Price
Index. By extension, this information is needed on a national scale for each county before
an aggregate figure for the nation can be calculated precisely.(9) However, since the amount for full authorization for
FY1997 has been calculated, and since the factors stated above are not likely, in sum, to
decrease the payments at the national level, the full authorization level for FY1999 seems
certain to be no less than the amount shown for full authorization in FY1997, which was
$212,022,000, and very likely to be substantially more. As Table 1 shows, between FY1997
and FY1999 there is an increase in the standard provision from $1.29/acre to $1.65/acre
(27.9%); this is the provision under which most counties are paid. This change alone is
sufficient to predict a substantially higher authorization level; in combination with
increased population ceilings and an increased minimum payment from 17¢/acre to 22¢/acre
(29.4%), the inference of a higher authorization level is inescapable. Yet if recent
trends continue, the increase in appropriation (over FY1998) is likely to be much more
modest.
Addressing the Appropriation Shortfall. Congress
has had to face serious conflict between the competing pressures of counties claiming
mistreatment as the appropriations fall farther behind PILT's rising authorization levels,
and the efforts to reduce federal spending. (See Figure 5.) The options for Congress
include:
- not increasing the appropriations commensurate with the increase in authorization
levels;
- fully funding PILT by making offsetting reductions in the remainder of the Interior and
Related Agencies Appropriations bill;
- decreasing the current federal surplus to allocate more funding for PILT; and
- providing a new fee, tax, or other payment (whether truly new or a diversion of a
current payment from an existing program), and dedicating the resulting revenues to PILT.
To date, appropriations acts have largely favored the first option and to a lesser
extent the second and third. The President's FY1999 budget request likewise reflects a
preference to hold the appropriations for PILT near historic levels rather than attempting
to meet the new authorization levels.
Footnotes
1. (back)"Acquired lands"
are those which the United States obtained from a state or individual. "Public domain
lands" are generally those which the United States obtained from a sovereign nation.
2. (back)"Unit of general local
government" is defined in the law (31 U.S.C. 6901(2)) as "a county (or parish),
township, borough, or city where the city is independent of any other unit of general
local government, that (i) is within the class or classes of such political subdivisions
in a State that the Secretary of the Interior, in his discretion, determines to be the
principal provider or providers of governmental services within the State; and (ii) is a
unit of general government as determined by the Secretary of the Interior on the basis of
the same principles as were used on January 1, 1983, by the Secretary of Commerce for
general statistical purposes" plus the District of Columbia, Puerto Rico, Guam, and
the Virgin Islands. To avoid the use of the unwieldy "unit of general local
government", the word "county" will be used in the rest of this paper, and
must be understood here to be equivalent to the above definition. This shorthand is often
used by the BLM itself.
3. (back)This and all subsequent
references to payment rates and ceilings are based on FY1999 figures, enacted in 1994,
unless otherwise noted.
4. (back)There is only one PILT
payment for all of the eligible federal land in any given county. The formula in 31 U.S.C.
6903 sets a cap on the total PILT payment for all of the eligible land in the
county, regardless of how many agencies have jurisdiction over these eligible lands.
5. (back)See 31 U.S.C. 6903(a)(1).
The law refers to these eleven categories of lands as "entitlement lands", and
the term is used throughout the Act. However, because "entitlement" is a word
which is used in a very different, and potentially confusing, context in the congressional
budget process, these lands will be called "eligible lands" in this paper. This
paper omits consideration of payments under 31 U.S.C. 6904-6905, which involve temporary
compensation for lands recently designated as wilderness, and for certain lands around
Redwood National Park and Lake Tahoe.
6. (back)U. S. Dept. of the
Interior, Bureau of Land Management. Payments in Lieu of Taxes, Fiscal Year 1996.
p. 3. (Note: a printing and binding error in the BLM document resulted in numerous
pagination errors. The reader may have to search for this page.)
7. (back)To illustrate more
concretely, imagine each county as a large bucket, marked off in "$/acre." PILT,
in effect, checks the level already in the bucket, then adds at least enough money to the
bucket to bring it to the $1.65/acre mark. Moreover, if the bucket is already above the
$1.43/acre mark, PILT adds 22¢/acre, regardless of whatever may be in the bucket already.
The money bucket could reach levels of $15/acre or more, with the last 22¢ added by PILT.
The county ceilings might then be thought of as holes in the sides of some of the buckets
that prevent them from filling beyond a certain level.
8. (back)An exception would occur if
the county's population is so small that the county is affected by the PILT ceiling on
payments due to population.
9. (back)BLM recently ceased
reporting its estimate of full payment levels in its annual budget submission to Congress,
and now confines itself to the Administration's request for the current year.
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