Gorte Specialist in Natural Resources Policy
M. Lynne Corn Specialist in Natural Resources Policy
government owns significant amounts of land and resources that are exempt from state
and local taxation. State and local governments provide a wide variety of
services— education, social services, public safety, transportation
facilities, utilities, and much more. These services are funded through
intergovernmental transfers (federal grants to state governments and federal
and state grants to local governments), user fees, and state and local levied
taxation— property taxes, income taxes, sales and use taxes, excise taxes,
severance taxes, and more.
Congress has established programs to compensate state and local governments for
the tax-exempt status of federal lands. Some propose that “fair”
compensation would provide payments that are equivalent to the taxes that
would be paid if the lands were privately owned. Assessing such tax equivalency,
however, is difficult because of the substantial variability in state and local
reliance on and rates for the various types of taxes. Others suggest that
“fair” compensation would provide payments that offset the costs imposed
on state and local governments from the federal lands, although this would
exclude payments for governmental services that are not paid by the beneficiaries
(e.g., social services). Providing consistent payments is a challenge;
permanent appropriations are the most stable, but are difficult to
establish and create permanent obligations. Finally, which lands to
include for federal payments may seem straightforward, but lack of precise
data on the federal lands might compromise accuracy of payments, and federal responsibility
for tax-exempt Indian lands is unclear.
A plethora of federal payment programs exist, enacted at various times and for
various reasons over the past century. Some payment programs are based on
numbers of Indian children or children of federal employees (about $1.3
billion annually), some on federal receipts (about $0.5 billion annually),
and some on federal acreage (about $0.4 billion annually). Some of the
receiptand acreage-based payments are broad, covering many federal lands,
while others are quite narrow (e.g., based on sales of a particular
resource within a limited area). Some are permanently authorized, and have
mandatory spending authority (payments without annual action by Congress).
Others require periodic reauthorization, annual appropriations, or both.
Although most of the federal payment programs were justified as compensation
for the taxexempt status of federal lands, the programs poorly reflect
state and local tax equivalency or state and local costs of providing
governmental services. In some places, the payments probably exceed what a
private landowner would pay; in others, the payments fall short of what many might
consider “fair” compensation. These possibly inequitable results likely occur
from differences in the congressional committees of jurisdiction over
various lands and programs and over time, and because only some programs
were established with mandatory spending authority.
The mandatory spending authority for two relatively large payment programs—the
Secure Rural Schools and Community Self-Determination Act (SRS Act)
program and the Payments in Lieu of Taxes (PILT) program—expired at the
end of FY2011 and will expire at the end of FY2012, respectively. As
Congress debates the reauthorization of the SRS Act, the mandatory spending authority
of the PILT program, and other payment programs, it might consider the broader questions
of what is fair and consistent compensation to state and local governments for
the taxexempt status of federal lands.
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