Payments of Taxes, Or in Lieu of Taxes, to State Or Local Taxing Units

rational and explainable relationship to the results which would follow if Federal properties were subject to these taxes.

Thus, the Committee rejected the approach of service and per capita payments, concluding that although they may have some merit for specific purposes, they are not suited to help defray the general expenses of local government which should, in the Committee's view, be the purpose of Federal contributions to local governments on account of Federal property holdings. The Committee also rejected proposals which would require centralization of responsibility for all Federal payments in a single Federal agency, preferring a system whereby each Federal property-holding agency would be required to make payment for its properties from its funds. Under such a system, each agency, in budget requests to the Congress, would be under a continuing duty to justify its holdings and under a continuous pressure to keep them at a minimum.

LIMITATIONS UPON USE OF PROPERTY TAX

The Committee was aware, however, that the use of the property-tax criterion as a measure of the amount of the Federal property owner's responsibility to contribute to local government support is subject to some limitations which spring from several factors:

1. The diverse character of Federal properties and the variety of uses to which they may be put, some serving primarily national purposes, and others serving primarily local purposes;

2. The varying service burdens of different properties on State and local governments, and conversely, the varying service benefits which they confer on these governments to lighten the costs of supplying local public services;

3. Similarity and contrast in uses made of Federal properties to uses made of private properties, with some Federal properties resembling and others differing from properties comprising the property-tax bases of most local governments; and

4. The varying effects of Federal acquisition of different properties upon local tax bases, with some properties predating the Republic itself and others acquired intermittently during the intervening years, with the consequence that different communities and owners of taxable properties within their borders have had varying periods of time to adjust, insofar as is possible, to the presence of Federal properties.

CONSIDERATIONS OF THE STUDY COMMITTEE WITH RESPECT TO SOLUTION AND RECOMMENDATIONS

The Committee paid special attention to the necessity for finding a solution to the problem which would maintain and promote sound government at all levels of our Federal system. Since local governments have been primarily affected by the existing situation, the Committee proceeded from the compelling need to maintain robust local government. However, the Committee, at the same time, deliberately sought solutions which would safeguard the Federal Treasury from unwarranted demands. In the Committee's opinion, the situation calls for balanced judgment and reasonableness.

The Committee believes it has realized its goal of finding a solution which would help to preserve financially healthy local governments in its conclusion that the Federal Government should inaugurate a broader system of payments to local governments by reason of its property holdings and that these payments should be responsive to the property-tax system as the system generally accepted for allocating among property holders the costs of supporting local governments.

The Committee believes it has realized its goal of finding a solution which would safeguard the financial interests of the Federal Government by its recommendations relative to (1) the broad category of properties exempted from any payment requirements whatever; (2) the restrictive definitions of properties for which Federal consent to local taxation is proposed; (3) limiting the amounts of payments in lieu of taxes, which contemplate both Federal offsets to tax equivalent amounts and maximum limits or ceilings upon Federal payments in lieu to any individual tax jurisdiction; (4) the narrow definition of personal property made subject to Federal payment requirements; and (5) a cutoff date which would generally absolve the Federal Government from all payment obligations on properties acquired before that date.

RECOMMENDATIONS

1. Congress should not consent to payment of property taxes or any payments in lieu of property taxes on the categories of properties enumerated below. This immunity should not extend to special assessments (see recommendation 7):

(a) Property which, if privately owned or used, would by reason of its use be exempt from taxation under the laws of the state of situs.

(b) Property used or held primarily for services to the local public, including but not limited to the following types of properties: Courthouses; post offices, and properties incidental to local postal operations; weather stations and observation posts; assay offices; local irrigation projects; sanitation projects; federally owned airports maintained and operated by the Civil Aeronautics Administration; and properties used for experimental, testing or research purposes, such as a pilot plant, experimental farm, testing station, or laboratory, if the activities associated therewith serve primarily the local public.

(c) Office buildings not associated with commercial or industrial activities and not included in recommendation 2, customhouses, facilities for coining money and printing currency, bullion depositories, river and harbor improvements, prisons, reformatories, detention farms, hospitals, dispensaries, outpatient clinics, homes for the aged, sanitaria, quarantine and immigration stations, cemeteries, Coast Guard aids to navigation, Civil Aeronautics Administration aids to air navigation, beacons, facilities used in the police and regulatory functions of the Federal Government other than those which are incidental to or an integral part of the properties included in recommendations 2 or 3) and military and naval installations (but not those engaged in industrial or commercial activities) such as forts, camps, armories, observation posts, guard posts, proving grounds, and airfields.

(d) Property which under Federal law is subject to a payment to a State or local government of any portion of the revenue derived from its use or from the sale of such property or any of its products (revenue-sharing arrangements).

(e) Stocks of strategic and critical materials and of agricultural commodities and other personal property which is not incidental to industrial or commercial activities.

2. The Federal Government should consent to nondiscriminatory State and local taxation of the following categories of properties in accordance with the laws of the State of situs:

(a) Properties acquired by the Federal Government to protect its financial interest in connection with loans or contracts of insurance or guaranty, such payments to continue until the property has been disposed of or placed in permanent use by the Federal Government.

(b) Properties sold by the Federal Government under conditional sales contract or leased to taxable persons.

3. The Federal Government should make payments in lieu of property taxes on the following categories of properties, other than those enumerated under recommendations 1 and 2:

(a) Commercial and industrial properties, including properties employed by private contractors or subcontractors in the performance of contracts with the Federal Government, title to which has passed to the Federal Government pursuant to any partial or advance payment contract clause.

(b) Properties used or held for activities which serve primarily national or broad regional interests rather than those of the local public.

The payments in lieu of taxes should be equivalent to the amount of taxes which would be assessable against the property is taxable, according to its value as determined by the established tax procedures of the taxing jurisdiction, including all provisions for administrative and/or judicial review of assessments, tax rates, or levies in accordance with applicable laws governing assessments and taxation, provided that Federal property is treated on the same basis and accorded the same safeguards as non-Federal properties. Payments thus established should be adjusted as follows:

(i) reduced for the local cost of specific and customary State or local governmental services provided at Federal expense to the taxing jurisdiction or its residents, or the Federal property, or Federal employees and their

families who reside within the taxing jurisdiction. The amount of this reduction should be based on the unit cost of the particular services to the taxing jurisdiction, or in the absence of such unit cost data should be based on the unit cost in comparable nearby taxing jurisdictions.

(ii) Increased by the amount of the expenditures incurred by the taxing jurisdiction in providing specific services to the Federal property which it does not customarily provide to non-Federal properties.

The amount of adjustments (i) and/or (ii), if any, should be determined by the Federal Review Board (see recommendation 8) on application of either the taxing district or the Federal agency owning the property. Where properties of more than one Federal owning agency are located within the taxing district, the Federal Review Board should allocate any adjustments made under (i) and/or (ii) among the Federal properties involved.

Local property assessing jurisdictions containing Federal properties deemed to be subject to payments in lieu of taxes hereunder should be required to file, with the Federal owning agency, applications for such payments on forms prescribed by the Federal Review Board. The application should contain a statement by the legally constituted assessing authority showing the property values proposed as the basis for computing tax equivalents hereunder. Such application should also advise the Federal property-owning agency of the steps necessary to be taken to secure administrative and/or judicial review of the valuation of the property as fixed by the assessing authority under the laws of the State or situs applicable to assessments of property for taxation.

The application should also contain a statement by an appropriate fiscal authority on behalf of the taxing jurisdictions involved showing the applicable tax rates and the statutory procedures to be followed to secure review of any objections to such rates.

Federal agencies owning properties subject to payments hereunder, if requested by the legally constituted assessing officer of the taxing jurisdiction in which the property is located, should supply such statements or reports with reference to the property as may under applicable laws be required of the owners of taxable property.

To prevent disproportionate Federal contributions to particular communities, the total amount of payments to any taxing district for those properties described in paragraphs (a) and (b) of this recommendation which are located therein should be subject to the following limitation:

If the total payment to any taxing district in any year, as computed hereunder, exceeds the total taxes levied against all non-Federal taxable property in the district, the Federal Review Board (see recommendation 8) should determine whether or not the computed total payment would confer unwarranted benefits upon the taxing jurisdiction, contrary to the interests of the taxpayers of the United States, and should fix the total payment at such sum as it shall deem fair and reasonable, but in no event at a sum less than the total taxes levied against all non-Federal taxable properties within the taxing district. Where properties of more than one Federal owning agency are involved, any reduction in the total payment determined hereunder should be apportioned among the Federal properties in accordance with their respective values as otherwise determined under this recommendation. No payment should be made to a State or local government which declines to provide services to the Federal property or its residents or employees and their families upon the same terms as are accorded to other properties, residents, or persons, unless the Federal property-holding agency deems the provision of such services to be unnecessary or undesirable.

These payments should be made by the Federal agency charged with the administration of the particular property.

4. Recommendations 2 and 3 should not apply to properties acquired by the Federal Government before September 8, 1939, unless the Congress has specifically authorized the payment of property taxes or payments in lieu of taxes on account of such properties.

5. The Federal Government should make transitional payments in lieu on Federal properties described in category (c) of recommendation 1 which would not also fall within category (a), (b), or (e). These transitional payments should be made over a 10-year period in diminishing amounts. With respect to properties in Federal ownership at the time of the enactment of the legislation here proposed, transitional payments should be limited to properties acquired within the immediately preceding 10 years.

6. In all the foregoing recommendations, the term "property" includes "real property" and "tangible personal property" according to the legal definitions of these terms in the State of situs.

7. The Federal Government should consent to the payment of special assessments to finance local improvements where both non-Federal and Federal properties are included in the benefited district and subjected to the assessment, provided that Federal property is treated on the same basis and accorded the same safeguards and exemptions as non-Federal properties.

8. Congress should authorize and direct the President to appoint an administrative review board, composed of three members who should have responsibility for:

(a) Promulgating rules and regulations governing the payment program and assuring that all property-owning Federal agencies pursue uniform payment policies.

(b) Determining the amount of adjusted payments in lieu of taxes under recommendation 3.

(d) Submitting annual reports to the President.

An advisory committee should be established to consult and advise the administrative review board with respect to the administration of the payment program. This committee should consist of heads of Federal agencies and representatives of State and local governments, and of the public. This committee should recommend to the President such changes in the payments legislation as it deems necessary.

APPENDIX B TO STAFF MEMORANDUM No. 84-1-36

PROVISIONS OF S. 1566 (84TH CONG.)

A bill establishing a general policy and procedures with respect to payments to State and local governments on account of Federal real property and tangible personal property, and for other purposes

OUTLINE OF THE BILL

The bill (S. 1566) consists of introductory sections specifying a short title, declaring the general policy, and giving special definitions, followed by five titles as follows:

Title I-Payments on tax-exempt properties

Title II-Consent to State and local taxation

Title III-Consent to special assessments

Title IV-Payments to local governments not otherwise compensated for substantial financial burdens

Title V-General provisions

Titles I and II, taken together, would establish a classification of Federal properties as a basis for periodic payments to State and local governments, with separate standards of payment provided for each category of property. The categories and standards may be summarized as follows:

1. Three groups of properties subject to administratively determined payments: (a) An inclusive group of properties serving national or broad regional interests, for which payments will be based primarily on an estimate of taxes, with adjustments for special services required or furnished by the Federal Government in connection with the properties. For most of these properties, the estimate of taxes will be based on the value of the properties exclusive of improvements made or personal property added by the Federal Government after acquisition of the property. For commercial and industrial properties, however, the value of Federal improvements and tangible personal property after a specified date (left open in the bill) will also be considered; this is subject, however, to a limit on the total payment. In any particular case payment of taxes upon properties now subject to taxation under other statutes may be continued in place of administratively determined payments, if the policy of the act will be better served thereby. (b) Resettlement and certain defense-housing projects, for which full tax-equivalent payments, less offsets for services supplied by the Federal Government, will be made.

(c) Other properties upon which, ultimately, no payments will be made under titles I and II after a period of diminishing transition payments.

No payment should be made to a State or local government which declines to provide services to the Federal property or its residents or employees and their families upon the same terms as are accorded to other properties, residents, or persons, unless the Federal property-holding agency deems the provision of such services to be unnecessary or undesirable.

These payments should be made by the Federal agency charged with the administration of the particular property.

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