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Wednesday, November 3, 2010

PILT (Payments in Lieu of Taxes): Somewhat Simplified

 M. Lynne Corn
Specialist in Natural Resources Policy

Under federal law, local governments are compensated through various programs for losses to their property tax bases due to the presence of most federally owned land. These lands cannot be taxed, but may create demand for services such as fire protection, police cooperation, or simply longer roads to skirt the federal property. Some of these programs are run by specific agencies, and apply only to that agency’s land. The most widely applicable program, administered by the Department of the Interior (DOI), applies to many types of federally owned land, and is called “Payments in Lieu of Taxes,” or PILT. The authorized level of PILT payments is calculated under a complex formula. This paper addresses only the DOI PILT program. There is no PILT-like program generally applicable to military lands, but a small fraction of military lands are eligible for the DOI PILT program. Furthermore, PILT does not apply to Indian-owned lands, virtually none of which are subject to local taxes.

This paper explains PILT payments, with an analysis of the five major factors affecting the calculation of a payment to a given county. It also describes the effects of certain changes in PILT in 2008. Previously, annual appropriations were necessary to fund PILT, but a 2008 provision (in P.L. 110-343) for mandatory spending ensured that, beginning with FY2008 and continuing for four more years, all counties will receive 100% of the authorized payment. Efforts have begun to convert the temporary mandatory spending into a permanent feature of PILT. With the enactment of five years of mandatory spending, counties might also renew the long-term debate over the equity of the PILT formula itself in future years.

Other issues have arisen concerning PILT since the program was created in 1976. One is the perceived delay in making PILT payments in 2010. An administrative controversy arose when DOI announced that the PILT payments would be delayed past the normal June issuance. DOI cited various reasons, but counties (many facing falling revenue bases) protested the delay. Checks were eventually issued with only minor delay.

Other issues have been the inclusion of additional lands under the PILT program, particularly some or all Indian lands, which are not now eligible for PILT. Most categories of Indian-owned lands cannot be taxed by local governments. In some counties, this means a very substantial portion of the land is not taxable. The remaining tax burden (for roads, schools, fire and police protection, etc.) therefore falls more heavily on other property owners. To help compensate for this loss, some counties have proposed that Indian lands (variously defined) be included among those eligible for PILT payments. Other lands mentioned from time to time for inclusion include those of the National Aeronautics and Space Administration, and the Departments of Defense and Homeland Security. In addition, some counties would like to revisit the compensation formula and emphasize a payment rate more similar to property tax rates (which vary widely among counties), a feature that would be a major change in counties with high property values. Finally, for lands in the National Wildlife Refuge System, some would argue that all lands of the system should be eligible for PILT, rather than limiting the PILT payments to lands reserved from the public domain and excluding PILT payments for acquired lands. The exclusion affects primarily counties in eastern states. 

Date of Report: October 28, 2010
Number of Pages: 17
Order Number: RL31392
Price: $29.95

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