Meletian to Hon. Edward J. Thye Koneski at clerk, ity of St. Paui, Minn., inart me, with enciosure of resolution adopted tv Counen recommending passage of S. 1566Atm 1. Tomas H. a Cited States Senator from the State of 103 103 stereoart of the California Board of Equalization showing ales, and acreage watement of Arthur C. Eddy, assessor, city and county of San Lehman. ton, terbert H., a United States Senator from the State of Marcongail. A iliam R.. general manager, County Supervisors Asso- Macramento, Calif.: Senate Joint Resointion 20, adopted by the Legislature of the owned and. Resolution adopted by National Association of County Officials 122 122 142 131 133 PAYMENTS OF TAXES, OR IN LIEU OF TAXES, TO STATES OR LOCAL TAXING UNITS MONDAY, JULY 25, 1955 UNITED STATES SENATE, COMMITTEE ON GOVERNMENT OPERATIONS, Washington, D. C. The committee met, pursuant to call, at 10: 10 a. m., in room 357, Senate Office Building, Washington, D. C., Senator Hubert H. Humphrey presiding. Present: Senator Hubert H. Humphrey, Democrat, Minnesota; Senator Samuel J. Ervin, Jr., Democrat, North Carolina; Senator Karl E. Mundt, Republican, South Dakota; Senator Norris Cotton, Republican, New Hampshire; Senator George H. Bender, Republican, Ohio. Present also: Walter L. Reynolds, chief clerk; Ann M. Grickis, assistant chief clerk; Eli E. Nobleman, professional staff member. Senator HUMPHREY. We will call this hearing to order. Following the customary procedure, the acting chairman will make a brief statement and then we shall proceed to the testimony of our witnesses. The first witness this morning, following my statement, will be Senator Goldwater. We shall accommodate the Senators who are here in the first part of the meeting. This hearing has been scheduled this morning at the direction of Senator McClellan, chairman of this committee, to consider the important and troublesome problem of Federal payment of taxes or in lieu of taxes to State and local taxing authorities, and to afford an opportunity to representatives of the National Association of County Officials to present their views on the subject. These representatives have been with us in this area at Richmond, Va., for their meeting and we have made some arrangements to have them here this morning. For a number of years, State and local taxing authorities have been seriously concerned over the increasing acquisition by the Federal Government of various types of property, which has operated to remove such property from local tax rolls. From time to time over the years, the Congress has acknowledged responsibility for reducing, to some extent, the adverse effects of these acquisitions upon local government revenues and fiscal structures by enacting numerous statutory provisions which authorize payments by certain Federal agencies or upon certain types of properties. However, the great majority of Federal agencies have no general authority to make payments on their properties. Furthermore, existing provisions of law are quite diverse and result in different treatment for similar properties of various agencies. Thus, those provisions of law which do exist fail to present any clear-cut uniform policy. On some classes of property, some agencies pay taxes, others make payments in lieu of taxes and still others make no payments at all. The seriousness of the general problem was magnified by the outbreak of the Korean war in 1950, when the large-scale acquisition by the Federal Government of defense production facilities throughout the country resulted in the removal of substantial parcels of real property from local tax rolls. In addition, local taxing authorities have been and are being deprived of personal property tax revenues on inventories of such properties as a result of provisions in procurement contracts under which title to such inventories passes to the Federal Government prior to completion. Furthermore, certain properties owned by Government corporations and specifically made subject to local taxation, have been taken out of taxation by the transfer of such properties to other Government agencies which have no authority to make such payments. Finally, more than 30 States are being deprived of sales and use taxes on items of personal property which are being used in connection with the construction of Federal installations under contracts providing that the private contractor is an agent of the Federal Government for the purpose of these purchases, and the items are, therefore, immune from State taxation. During the past three Congresses, this committee has had pending before it numerous bills dealing with various aspects of the problem. Some of these were designed as temporary measures; others proposed the establishment of permanent, long-range policies and procedures; and still others were aimed at meeting specific phases of the overall problem. In general, they covered (1) direct taxation of certain Federal property; (2) payments by Federal agencies of sums in lieu of taxes; (3) restoration to local tax rolls of real estate held by Government corporations and subject to local taxation which was taken out of taxation following the transfer of such property to other Government agencies; and (4) elimination of certain types of Federal tax immunity with respect to State sales taxes on personal property. During the last Congress, this committee devoted considerable time and effort in an attempt to bring about the enactment of legislation which would, at the very least, provide some measure of temporary relief for hard-pressed local taxing authorities. However, due to the fact that the Intergovernmental Relations Commission, of which it was my privilege to be a member, was making a comprehensive study of the entire field of Federal-State relations, the excutive branch agencies most affected were reluctant to make specific recommendations until all the basic facts were available. It was therefore necessary for the committee to defer further action until the reports of the Commission became available. The Commission's reports were submitted to the Congress on June 27, too late to permit full evaluation and action at the present session of the Congress. Nevertheless, it was felt that a preliminary hearing should be held at this time with a view to initiating committee work on the subject. May I pause to say that Senator Kuchel, Senator Goldwater, and Senator Potter, as well as others, have been most insistent and persistent in getting this hearing underway, and it is because of their cooperation that we are able at least to initiate this study. Full-scale hearings and detailed study of the recommendations of the Commission on Intergovernmental Relations and the various pending bills have been scheduled for the next session of the Congress. Pending before the committee this morning are seven bills which represent various approaches to the solution of the problem. I digress to say that if you have 7 bills on one subject, there is apparently some genuine interest in it. Most of the sponsors of the bills are either here or have submitted statements. For the most part, the pending bills appear to fall into four major categories: (1) The establishment of permanent and overall policies and procedures with respect to payments by the Federal Government of taxes or in lieu of taxes, represented by S. 1566, which I introduced, together with Senators Kuchel and Goldwater, and which is virtually identical to bills I introduced in the 82d and 83d Congresses; S. 1657, introduced by Senator Bush; and S. 2390, introduced by the distinguished minority leader, Senator Knowland, for the purpose of carrying out the recommendations of the Intergovernmental Relations Commission; (2) The establishment of a limited program of payments by the Federal Government in lieu of taxes with respect to Federal real and personal property acquired during and subsequent to the Korean war, respresented by S. 826, introduced by Senator Bender and identical to S. 2473, introduced in the 83d Congress by Senators Taft, Knowland, Ferguson, Bush, and Potter; (3) The provision for temporary, short-term relief for local taxing authorities, designed to alleviate their present fiscal plight until longrange legislation can be worked out, represented by S. 888, introduced by Senator Martin of Pennsylvania and identical to H. R. 5605, as reported favorably by this committee during the 83d Congress, and S. 2377,1 a similar measure, introduced by Senator Potter; and (4) The prohibition of certain provisions contained in contracts of some Federal agencies which, under a recent decision of the United States Supreme Court, prevent States from levying sales and use taxes on personal property acquired by private contractors in connection with the performance of such contracts, represented by S. 2100, introduced by Senator Thurmond. At this point, the Chair desires to place in the record that portion of the report of the Commission on Intergovernmental Relations which deals with intergovernmental tax immunities and payments in lieu of taxes, and the 7 bills pending before the committee S. 826, S. 888,2 S. 1566, S. 1657, S. 2100, S. 2377,3 and S. 2390. (NOTE.-S. 2754 is included as a related bill. It was introduced by Senator Malone on August 2, 1955, and was, therefore, not before the committee when this hearing was held.) (The report and bills referred to are as follows:) 1 A companion bill, H. R. 6182, which was substantially similar to S. 888 and S. 2377, became Public Law 388, 84th Cong., on August 12, 1955, and appears on p. 144, of this hearing. 2 See supra, note 1. 3 See supra, note 1. [Extracts from ch. 4 of the Report of the Commission on Intergovernmental Relations (pp. 107-109, H. Doc. No. 198, 84th Cong.)] THE COMMISSION ON INTERGOVERNMENTAL RELATIONS One aspect of the tax relations among governments requiring urgent attention is the immunity of the National Government from State and local taxation and the immunity of State and local governments from Federal taxation. In this area the problem of greatest concern to local governments is the tax status of Federal property. The immunity of federally owned property from State and local ad valorem taxation has reduced the tax base of many communities which rely on property taxes as their chief source of revenue. The impact of this immunity is uneven; it is particularly severe in areas where the value of Federal property is a large part of total property values. This problem has increased in importance with the acceleration of property acquisitions associated with the war and defense efforts and with diverse other Federal programs, including urban housing, power production, resources conservation, and regional development and reclamation. The Congress has not considered constitutional immunity as freeing the National Government from all responsibility for paying State and local taxes or their equivalents. Over the years, it has developed a variety of financial arrangements between the National and State-local governments. At present, the National Government's payments to local governments on its extensive property holdings vary widely. It pays taxes on some, like any other property owner; on others, it makes payments in lieu of taxes; and on still others, a percentage of revenues from Federal operation of the property is paid to State and local units. In many cases there is no payment at all. Payments in lieu of taxes The Commission recommends that the National Government inaugurate a broad system of payments in lieu of property taxes to State and local governments. The most important class of properties on which such payments should be made is commercial or industrial properties. Special assessment payments and transitional payments in lieu of taxes should be made in certain cases. The Commission believes that these payments are necessary to help preserve financially healthy local governments. Present tax immunities of Federal property have weakened many local governments. The States and the National Government share in the responsibility for avoiding actions which impair the financial ability of local governments. Equity as between Federal and local taxpayers requires the National Government to make appropriate payments. These should be based largely on the property tax system, which is the main source of local revenue. The Commission does not believe that equity requires initiation of payments in lieu of taxes on properties held by the National Government where their noncontributory status has already become integrated into the economic and fiscal patterns of the community. Therefore, no in-lieu payments should be made on any properties acquired prior to a specified cutoff date. Perhaps September 8, 1939, would be the earliest date and July 1, 1950, the latest date. These dates marked the beginning of periods of large-scale acquisition of properties for defense purposes-the properties which have been largely responsible for this problem. The Commission, recognizing that any selection must be arbitrary, is not prepared to recommend a specific cutoff date. In addition to a cutoff date, some type of arbitrary limitation on Federal payments is necessary to prevent excessive payments or windfalls to some local governments. In the Commission's opinion, the exhaustive report of its Study Committee on Payments in Lieu of Taxes and Shared Revenues will provide the Congress with a solid foundation upon which to build a sound program of payments in lieu of taxes on Federal properties and make such adjustments in shared revenue arrangements as may be needed. The States sometimes contribute to the financial difficulties of their subdivisions by exempting their own properties from taxation. They may therefore want to consider the use of broad payment-in-lieu arrangements at the State level. |