Making Obligations Right by Enlarging Payments In Lieu of Taxes (MORE PILT) Act
Statement for the Record
U.S. Department of the Interior
Senate Committee on Energy & Natural Resources
Subcommittee on Public Lands, Forests, & Mining
S. 1008, the MORE PILT Act
June 16, 2021
Thank you for the opportunity to provide a statement on S. 1008, the Making Obligation Right by Enlarging Payments In Lieu of Taxes Act or the “MORE PILT Act.”
Payments In Lieu of Taxes (PILT)
The Payment In Lieu of Taxes (PILT) Act (P.L. 94-565) was passed by Congress in 1976 to provide payments to local governments in counties where certain Federal lands are located within their boundaries. PILT is based on the concept that these local governments incur costs associated with maintaining infrastructure on Federal lands within their boundaries but are unable to collect taxes on these lands; thus, they need to be compensated for these losses in tax revenues. The payments are made to local governments in lieu of tax revenues and supplement other Federal land receipts shared with local governments. The Department has distributed approximately $10.2 billion dollars in PILT payments to 49 States (all but Rhode Island), the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands since these payments began in 1977.
We know counties and other local jurisdictions rely on PILT payments to support critically important services and programs. Counties have the flexibility to use PILT payments for any governmental purpose, depending on the laws of individual States. Funds are often used to pay for essential services such as firefighting and police protection, construction of public schools and roads, and search-and-rescue operations.
The annual PILT payments to local governments are computed based on the formula contained in the law which is based on population, certain revenue-sharing payments, and the number of acres of Federal entitlement land within each county or jurisdiction. PILT payments are made in addition to other Federal payments to States, such as energy royalties and timber receipts.
Federal entitlement lands include lands within the National Forest and National Park systems, those managed by the Bureau of Land Management, those affected by U.S. Army Corps of Engineers and Bureau of Reclamation water resources development projects, and certain other Federal lands. The formula for calculating PILT payments considers the amount of certain Federal lands payments received by the county or local jurisdiction in the preceding year. These payments result from Federal revenue generating programs (such as receipts from livestock grazing, timber harvesting and certain mineral leasing activities), which the Federal Government makes to the counties using formulas in authorizing laws such as the Mineral Leasing Act.
Prior to FY 2008, PILT was funded through discretionary appropriations, at a fraction of the full authorized payment levels under the PILT formula. From FY 2008 – FY 2012, full funding for the PILT program was provided under a mandatory authorization. Full funding was provided through one-year extensions in FY 2013 and FY 2014. In FY 2015, the program received a combination of mandatory and discretionary appropriations and in FY 2016 and FY 2017, discretionary funding was appropriated for the program.
In FY 2018 – FY 2021, the program was fully funded through a provision in the Interior Appropriations bill extending authorization of the underlying law.
The FY 2020 payments totaled $517.0 million and were made to more than 1,900 units of local government (mostly counties) in 49 States, the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands. The Department is on track to issue the FY 2021 PILT payments by June 30th, consistent with previous years.
S. 1008, the MORE PILT Act, directs the Department of the Interior to develop a robust modeling tool, or combination of tools, to forecast and compare market value to a tax equivalent calculation of PILT payments on Federal acres within two years of enactment. The bill also requires the Department to conduct a study on PILT-eligible lands to determine market value and calculated PILT payments for the land, including a description of how PILT payments could more accurately reflect the tax equivalent amount. A preliminary report on the Department’s progress toward meeting these two objectives is due one year after enactment. The MORE PILT Act asserts the Federal Government should determine PILT payments equivalent to foregone tax revenues on entitlement lands and compensate units of local government accordingly.
The funding provision in the MORE PILT Act would redirect $9.0 million from the Land and Water Conservation Fund (LWCF) to this effort every year for six years after enactment. The amount permanently available under LWCF is generally fixed at $900.0 million for allocation to the Department of the Interior and the U.S. Forest Service. The Department opposes the redirection of LWCF funds because it will reduce the total funds available for conservation projects and other LWCF programs.
We anticipate the tool described in the MORE PILT Act will be a challenge to develop. The Department is interested in engagement with Congress to improve the PILT program in order to better support local counties, but is concerned that the program outlined by S. 1008 will be too challenging to develop, and cannot support the bill for the reasons described in further detail below.
Successful deployment by the two-year deadline requires development of a market value calculation and a tax equivalency calculation for PILT entitlement acres. Market value and taxable value are not generally the same. The calculation of market value is a complex process driven by factors such as proposed use of the land, existing land use restrictions (like city or county zoning), location, accessibility to main transportation routes, proximity to utilities, and local economic conditions. We anticipate these calculations will be extraordinarily complex to develop.
Many of the PILT entitlement acres contain cultural resources (like the Puebloan Ancestral Cliff Dwellings), physical resources (like the Grand Canyon), and sensitive habitats (like Bear River National Wildlife Refuge, which supports more than 250 species of migrating birds) that are not typically part of the market value determination unless there is demand for them in the private market. Non-economic uses such as parks or wildlife refuges are prohibited from consideration in market value appraisals by nearly all definitions of market value. Valuation issues, to some extent, may be mitigated by the provision that units of local government may annually self-report.
Calculation of tax equivalency presents challenges as well. Taxable value of lands is variable and dynamic, and market value may have little or no connection to the value used by the assessor to levy property taxes. Determination of property taxes is a local function and varies from State to State, county to county, and within counties from taxing district to taxing district. Mill levies are determined at the local level by the revenue needs of the county and adjusted annually or biannually depending on jurisdiction. The tax equivalency portion of the model may need to consider the extent to which local jurisdictions use assessed values and property tax rates strategically, for example meeting revenue targets by adjusting tax rates and/or assessed values. Local jurisdictions can exclude certain types of property from taxation. The bill also raises the potential incentive for local jurisdictions to establish special (higher) tax rates for Federal property, if they believe that action might improve their compensation for foregone tax revenues on Federal land.
The Department is interested in ensuring the Federal government can fulfill its role of being a good neighbor to local communities but opposes the use of LWCF funds for the purposes outlined in S. 1008. We recognize the impact of PILT payments on local governments, which use these funds for critical functions such as local search and rescue operations, road maintenance, law enforcement, schools, and emergency services. These expenditures often also support local services needed by tourists and other visitors who recreate on Federal lands. The Department will work to continue to ensure efficient and effective management of this program.