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Friday, November 22, 2013

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 reductions 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. No precise dollar figure can be given in advance for each year’s PILT authorization level. This report addresses only the PILT program administered by DOI. 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 report 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 legislative changes in PILT in 2009 and 2012. Before 2008, annual appropriations were necessary to fund PILT, but a provision in P.L. 110-343 for mandatory spending ensured that, beginning with FY2008 and continuing through the payment to be made in 2012, all counties would receive 100% of the authorized payment. Then on July 6, 2012, the President signed P.L. 112-141, containing a provision extending mandatory spending to FY2013. The Budget Control Act (P.L. 112-25) provided for a sequestration of 5.1% of PILT payments for FY2013.

Since the creation of PILT in 1976, various changes in the law have been proposed. One proposal has been to include additional lands under the PILT program, particularly Indian lands, which are not now eligible for PILT. Most categories of Indian-owned lands cannot be taxed by local governments, though they generally enjoy county services. 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 burden, some counties have proposed that Indian lands (variously defined) be included among those eligible for PILT payments. Examples of other lands mentioned for inclusion are those of the National Aeronautics and Space Administration, and the Departments of Defense and Homeland Security. Another proposal from some counties would revisit the compensation formula to 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 (NWRS), some have argued 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 of NWRS-acquired lands affects primarily counties in eastern states.

With PILT’s mandatory spending having expired in FY2013, the program will be subject to the annual appropriations process for the payment to be made in 2014. Over the next few years, the larger debate for Congress might then be summarized as three decisions: (1) whether to approve future extensions of mandatory spending (either temporary or permanent); (2) whether to make the diametrically opposed choice of reducing the program through appropriations or by changing the PILT formula; and (3) whether to add or subtract any lands to the list of those now eligible for PILT payments. Background on all three issues is discussed here.

Date of Report: November 7, 2013
Number of Pages: 25
Order Number: RL31392
Price: $29.95

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