poses such as schools, roads, or environmental improvements, while other provisions allow the states to determine their proper use and allocation. The concept behind the receiptsharing programs was a common concern over the withdrawal of large amounts of land and its attendant economic activity from local tax bases. Table 1 lists each of these programs, the authorizing statutes and administering agency, and presents a brief summary of the nature and size of payments.

Payments In Lieu Of Taxes

Another large group of payment programs relating to federally held tax exempt property uses a payment in lieu of tax approach, with several combinations of valuation and tax rate factors, to determine the amount of payment a locality is entitled to receive. This category includes many of the better known recent payment schemes, such as the PILOT Act of 1976 (P.L. 94-565). In fact, there are at least 18 PILOT programs, their most common feature being their ad hoc, uncoordinated nature. These PILOTS are presented in Table 2 and can be classified as reflecting one of three types of payment: 11 programs are of a fixed sum nature, three provide for full tax equivalency, and four provide for partial equivalent payments related to the value or amount of the tax exempt property. Understanding these three payment schemes is important to understanding the findings and recommendations of this report and its policy alternatives for achieving greater equities in federal payment programs for real property. Accordingly, each is briefly reviewed below.

Fixed-Sum Payments

In this case, a fixed, or flat sum of money is paid annually to a locality. The amount is typically an arbitrary one, although, in some cases, it may reflect a fixed amount of a tax liability as of a certain date, such as the date certain parcels of property were acquired.

One example of this flat fee approach is the Boulder Canyon Project, where Arizona and Nevada each receive $300,000 for each year of operation of the Hoover Dam. This fixed payment was specified in the PILOT's enacting legislation (1938) and is to expire in 1987.30

Full Tax Equivalency Payments

In this form, payment is made on the full amount of real property tax that would be due were the property fully taxable in private ownership. It provides 100% compensation for a property's tax liability, using the taxing authority's normal valuation or assessment practices as well as the millage rates appropriate for that type of property.

Only U.S. Department of Housing and Urban Development and Veterans Administration payments on acquired properties due to foreclosures and certain payments of federally owned corporations actually have "full" tax equivalency. In this situation, payments are made as if the federal government were a private taxpayer subject to state-local property taxation.

Partial Tax Equivalency Payments

These payments may be made on either a percentage of the full value of the tax exempt property or at a percentage of the rate of taxation for the tax exempt property, thus yielding a reduced effective tax rate (assuming "normal" assessment procedures) based on a smaller payment than that which would be due were the property fully taxable in private ownership.

This partial payment may be based (a) upon a percentage of the federal land to total land area in a jurisdiction, or (b) upon federal to total ratio of the value of real property in a jurisdiction. The actual percentage of either basis may reflect that proportion that is attributable to the federal government's current or past holdings in the locality that is to receive the payment. Usually, however, the percentage is quite arbitrary, often only reflecting a gap between a fully or partially funded program.

Two additional characteristics frequently found in a partial tax equivalency program are thresholds (or minimums) and ceilings (or lids) on payments made to local governments.

Thus, the payment may be a percentage of full current tax equivalency, ranging from 75% of appraised value (e.g., Superior National Forest land payments to Minnesota) to a set percentage of the property's value at the time of acquisition (e.g., as included in one section of the 1976 Payments In Lieu of Taxes Act). Or,

fixed fee lids may be combined with community assistance payments for special capital and operating costs (e.g., payments to atomic energy communities) or with components of revenue and receipt-sharing programs.

Presumably, the purpose of both of these devices is to minimize program costs, eliminate the administrative costs associated with small payments, or eliminate perceived windfalls to certain communities with large amounts of tax exempt lands. There are, however, serious equity and administrative defects in these rationales, as will be discussed later in greater depth (Chapter 4).

FORMULA-BASED PROGRAMS

The third major form of compensatory payment consists of a variety of alternative bases for payment by using formula mechanisms. At least four major types of formula-based programs can be identified among current programs that make in lieu of property tax pay

ments:

⚫ a fixed fee per acre of government-owned land (two programs);

⚫ cost-of-service computations, usually reflecting a portion of the operation and maintenance costs of a local government or service authority (eight programs);

a fixed-fee per federal government employee (one program); and

⚫ various grants for loans and guarantees for community assistance, which are frequently targeted to certain local governments that are burdened with large amounts of capital expenditures for rapidly expanding activities and service requirements on tax exempt government lands (seven programs).

A common and distinctive feature of formula programs is their negotiated payment character: they typically are not guided by any general economic principles, nor do they purport to reimburse localities fully for the cost of public services. More important, perhaps, is the abandonment of the property-related basis for payment. Indeed, a property-based factor might be only one of several factors in a formula which is used to determine a community's entitlement. Thus, the formula-based compensatory payment becomes more a politically negotiated

intergovernmental transfer or grant than an in lieu of tax payment.

The formula-based programs are frequently used in conjunction with other receipt-sharing or partial tax equivalency payment programs. However, the reasons for enacting these programs, as with all the other compensatory payment programs, have not been uniform or comprehensive. Because this group involves by far the largest expenditure of PILOT programs-almost $1 billion in FY 1979-several of the major operating payment programs are discussed in greater depth at this time. They are also included in Table 2.

Fixed Fee Per Acre

The most comprehensive of all federal payment programs are the fixed fee payments made under the Payment In Lieu of Taxes Act of 1976 (P.L. 94-565, as amended in 1976, 1978, and 1979). This program covers federal land in more than 1,500 counties (mostly in the western U.S.) and supplements nine different receipts-sharing laws that provide compensation to these counties. The supplement guarantees that total federal payments to a county meet certain per acre minimums and maximums. P.L. 94-565 provides that each county will receive an additional 10¢ per federally owned acre over the combined payment under all payment programs, or 75¢ per federally owned acre, whichever is greater. The 75¢ and 10¢ per acre standards are modified for counties with small populations by setting a maximum per capita payment. Forty-five population categories are established. For counties with populations under 5,000, the limit is $50 per capita. At the other extreme, the limit is $20 per capita for counties with populations over 50,000. No payment under P.L. 94-565 may exceed $1 million. However, because the Bureau of Land Management has had to interpret vague terms and definitions of entitlement lands as well as use some state data which have been unreliable for computing state-local payments, large portions of PILOT payments have not been made in the last two years.

Despite such administrative problems, however, the 1976 PILOT Act was supplemented in 1978 by the Redwood National Park Expansion Act and the Refuge Revenue Sharing Act Amendments, which added additional entitle

ment lands to the payment program. The Redwood Park Act also included additional revenue benefits for persons affected by the removal of certain industries from the newly acquired park land. The changes effected by these two acts exacerbated the original act's administrative problems noted above. As can be seen in Table 2, the result of these interpretive problems has been a budget outlay somewhat larger than the program budget appropriation for the past two fiscal years.31

Cost-of-Service Computations

Eight of the current PILOT programs make payments to jurisdictions with federally owned real property for some of the operating costs of certain community facilities. These may take the form of general revenue contributions for services "above and beyond what would normally be rendered. . .," as TVA has made to Norris, TN. Alternatively, contracts and cooperative agreements can be arranged with localities to provide cost reimbursements for specific services. The Bureau of Land Management and the Forest Service have had this type of arrangement with several jurisdictions for law enforcement services for several years.

As was true for formula-type programs, payments designed as "cost-of-service" programs are often negotiated rather than reflective of any cost analysis; nor do they purport to fully reimburse localities for community services. Rather, they represent a series of voluntary payments from certain agencies which expect "heavy" service provision. No attempt is made to determine, or even address, the question of the quality or quantity of community services a tax-free entity can expect.

Fixed Fee Per Person

Only one program provides federal payments on a fixed fee per employee basis-the Federal Impact Aid Program administered by the Department of Education. The Impact Aid Program, also the largest and probably most controversial of the existing payment in lieu programs, was enacted through Public Laws 81-815 (construction aid based on increases in enrollment) and 81-874 (maintenance and operation aid based on numbers of federally connected children). Initiated in 1950, it was originally intended to help compensate school

districts for the imposed expense of educating the children of federal employees where the local tax base is reduced because of federal property ownership and where enrollments are raised by the presence of a federal installation. The principal basis on which these payments are made is a function of the number of public school children who reside on tax exempt federal property and who live with a parent who is employed on that land. In 1970-71, this definition of federal property was amended to include low rent housing (whether or not owned by the U.S. government), which is part of a low rent housing project assisted under the United States Housing Act of 1937.*

There are three payment provisions under P.L. 874, the maintenance and operation portion of the impact aid program: section 2 deals with real property acquired by the federal government; section 3 addresses the number of school-age children whose parents live on federal land and/or work for a federal employer; and section 4 addresses sudden and substantial increases in school attendance. However, payments have not been made under section 4 for several years and section 3 payments, by far the largest component of the program, are dispersed through a complicated three-tiered "priority" process. Moreover, total program outlays are being reduced by large amounts each year as a matter of federal policy.

The section 3 payments distinguish between two broad categories of children: 3a children, whose parents live and work on federal property; and 3b children, whose parents live or work on federal property. Each of these categories also contains subcategories of children eligible for impact aid, such as military and low rent housing childen. These categories are then used to establish different entitlement rates in the program's authorized funding level, ostensibly to reflect the relative amounts of tax revenues foregone by local school districts. For example, entitlement on the basis of 3a children's entitlement rates ranges from 90% to 150% of the local contribution rates, whereas entitlement on the basis of 3b children ranges from 40 to 50%. Authorized funding levels are

* This authorization was provided through P.L. 81–874, which is broader than P.L, 81-815.