The federal government owns significant amounts of land and resources. These assets are exempt from state and local taxation. Some payment programs are based on the number of Indian children or children of federal employees, some on federal receipts, and some on federal acreage. In addition, some of the payments are permanently authorized and have mandatory spending authority, while others require periodic reauthorization and/or annual appropriations. The mandatory spending authority for the Secure Rural Schools and Community Self-Determination Act (SRS Act) program expired at the end of FY2011, and that for the Payments in Lieu of Taxes (PILT) program will expire at the end of FY2012. As Congress debates reauthorization of the SRS Act, the mandatory spending authority of the PILT program, and other payment programs, it might consider the broader questions of what is fair and consistent compensation to state and local governments for the tax-exempt status of federal lands. If these lands were privately owned, the states and local governments would receive tax payments of various sorts from the lands and the economic activity that is generated from the lands—property taxes, sales taxes, income taxes, and more. Provision of Goods and Services by State and Local Governments9

State and local governments provide a wide variety of services—education, social services, public safety, transportation facilities, utilities, and much more. Under a complete tax equivalency system, federal payments would replace the state and local taxes that a private landowner would have made. Federal Lands Included for Payments to State and Local Governments

Another issue for federal payments to state and local governments is what lands to include for the payment program. Existing Payment Programs

Beginning more than a century ago, Congress has created numerous programs to provide funds to state and local governments because of the tax-exempt status of federal lands and resources. In recent years, total annual funding for the program has been about $1.3 billion. State and Local Taxation vs. Current Payment Programs: Comparison and Discussion

When established, most of the federal payment programs were justified as compensation for the tax-exempt status of federal lands. The plethora of federal payment programs were enacted by various congressional committees over the past century. One is differences in committees of jurisdiction over the various programs. As Congress debates the reauthorization of the SRS Act and the mandatory spending authority of the PILT Program, and possibly of other payment programs, it might consider the broader questions of what is fair and consistent compensation to state and local governments for the tax-exempt status of federal lands. Excise taxes are essentially sales taxes on particular products. Severance taxes are relatively insignificant in most states. Some payments are based on numbers of children associated with tax-exempt lands, many on receipts from selling or using federal lands and resources, others on federal acreage, while a few are tax-like payments, and some combine these approaches.
The federal government owns significant amounts of land and resources that are exempt from state and local taxation. State and local governments provide a wide variety of services—education, social services, public safety, transportation facilities, utilities, and much more. These services are funded through intergovernmental transfers (federal grants to state governments and federal and state grants to local governments), user fees, and state and local levied taxation—property taxes, income taxes, sales and use taxes, excise taxes, severance taxes, and more.
Congress has established programs to compensate state and local governments for the tax-exempt status of federal lands. Some propose that "fair" compensation would provide payments that are equivalent to the taxes that would be paid if the lands were privately owned. Assessing such tax equivalency, however, is difficult because of the substantial variability in state and local reliance on and rates for the various types of taxes. Others suggest that "fair" compensation would provide payments that offset the costs imposed on state and local governments from the federal lands, although this would exclude payments for governmental services that are not paid by the beneficiaries (e.g., social services). Providing consistent payments is a challenge; permanent appropriations are the most stable, but are difficult to establish and create permanent obligations. Finally, which lands to include for federal payments may seem straightforward, but lack of precise data on the federal lands might compromise accuracy of payments, and federal responsibility for tax-exempt Indian lands is unclear.
A plethora of federal payment programs exist, enacted at various times and for various reasons over the past century. Some payment programs are based on numbers of Indian children or children of federal employees (about $1.3 billion annually), some on federal receipts (about $0.5 billion annually), and some on federal acreage (about $0.4 billion annually). Some of the receipt- and acreage-based payments are broad, covering many federal lands, while others are quite narrow (e.g., based on sales of a particular resource within a limited area). Some are permanently authorized, and have mandatory spending authority (payments without annual action by Congress). Others require periodic reauthorization, annual appropriations, or both.
Although most of the federal payment programs were justified as compensation for the tax-exempt status of federal lands, the programs poorly reflect state and local tax equivalency or state and local costs of providing governmental services. In some places, the payments probably exceed what a private landowner would pay; in others, the payments fall short of what many might consider "fair" compensation. These possibly inequitable results likely occur from differences in the congressional committees of jurisdiction over various lands and programs and over time, and because only some programs were established with mandatory spending authority.
The mandatory spending authority for two relatively large payment programs—the Secure Rural Schools and Community Self-Determination Act (SRS Act) program and the Payments in Lieu of Taxes (PILT) program—expired at the end of FY2011 and will expire at the end of FY2012, respectively. As Congress debates the reauthorization of the SRS Act, the mandatory spending authority of the PILT program, and other payment programs, it might consider the broader questions of what is fair and consistent compensation to state and local governments for the tax-exempt status of federal lands.