Hon. CLARE E. HOFFMAN, TREASURY DEPARTMENT, Washington, D. C., July 14, 1953. Chairman, Committee on Government Operations, MY DEAR MR. CHAIRMAN: Further reference is made to your request of July 6, 1953, for the views of this Department on H. R. 5605 (83d Cong., 1st sess.), a bill to amend the Federal Property and Administrative Serivces Act of 1949 to provide that transfers of real property from certain Government corporations to other Government agencies shall not operate to remove such real property from local tax rolls. H. R. 5605 is directed at the problem created in particular communities when real estate is removed from the property tax rolls as a result of its transfer from a Federal corporation to a Federal agency. Such transfers may deprive local governments of property tax revenues even though they occur only as a result of shifts of administrative responsibility for particular activities between governmental agencies and even though they involve no change in the purposes which the particular property serves. H. R. 5605 would deal with this problem by providing that real estate transfered from a Federal corporation to a Federal agency or Department continue to be subject to property taxes if it had been taxable in the hands of the corporation. This would have the effect of introducing a new criterion for determining the tax status of federally owned real estate, namely, the method of acquisition. Thus, a piece of real estate transferred from the RFC to the Post Office Department would be taxable provided only that it had been taxed in the hands of the RFC. It may be expected that in the case of ectivities normally free of local property taxes, H. R. 5605 would have the effect of discouraging Federal agencies from meeting their real estate requirements by acquiring surplus real estate owned by a Federal corporation. The Department is concerned with the hardship caused certain localities as a result of acquisition of real estate by the Federal Government and the removal of such real estate from local tax rolls. It recognizes that from the viewpoint of local governments, this is one of the most pressing problems in the field of intergovernmental fiscal relations. Over the years the Congress has accepted the responsibility for reducing the adverse effect of Federal Government acquisitions on local government revenues by authorizing the payment of taxes or payments in lieu of taxes in particular situations. To date, however, the problem has been approached on a piecemeal basis. A variety of diverse provisions have been enacted which result in different treatment in substantially similar situations. There is urgent need for comprehensive legislation in this field and the Department is hopeful that it can be enacted by the present Congress. In general, the Department is reluctant to support further piecemeal legislation in this area. It recognizes, however, that H. R. 5605 is concerned with providing relief to particular communities suffering hardship as a result of intragovernmental property transfers in connection with the present defense program. Inasmuch as the proposed legislation is of a stopgap nature and will expire on December 31, 1955, the Department interposes no objection to its enactment in the expectation that comprehensive legislation will have been enacted before that time. The Director, Bureau of the Budget, has advised the Treasury Department that there is no objection to the presentation of this report. Sincerely yours, M. B. FOLSOM, Acting Secretary of the Treasury. Hon. CLARE E. HOFFMAN, EXECUTVE OFFICE OF THE PRESIDENT, BUREAU OF THE BUDGET, Washington, D. C., July 17, 1953. Chairman, Committee on Government Operations, Washington 25, D. C. MY DEAR MR. CHAIRMAN: This is in reply to your requests of June 12 and July 6 and 13, 1953, for reports on H. R. 5605, a bill "To amend the Federal Property and Administrative Services Act of 1949 to provide that transfers of real property from certain Government corporations to other Government agencies shall not operate to remove such real property from local tax rolls." The bill would add a new title to the Federal Property and Administrative Services Act of 1949, to be in effect during 3 calendar years from January 1, 1953, through December 31, 1955. The purpose of the title, as stated in the declaration of policy, is to provide that when property having a taxable status is transferred by a Government corporation to any other Federal Government agency, it shall remain subject to taxation by local taxing authorities regardless of subsequent transfers. The taxes involved are ad valorem taxes on real estate and also special assessments. Section 703 of the bill provides that in the case of any corporation, incorporated after January 1, 1953, and owned or controlled by the Federal Government, all real property owned by the corporation shall, unless other specific provision is made, be subject to taxation by local taxing authorities to the same extent according to its value as other real property. Section 704 provides that when real property which is locally taxable is transferred from a Government corporation to any other Federal agency or instrumentality it shall remain subject to local taxation. This section further provides that in the case of any real property owned on or after June 22, 1948, by a Government corporation or its subsidiary, transferred prior to January 1, 1953, to any other Federal agency or instrumentality and owned by the Federal Government on January 1, 1953, the property shall be locally taxable from January 1, 1953, regardless of the previous transfer or any subsequent transfer. Payments in lieu of taxes are not to be made on real property which is subject to local taxation. The Federal Government is not to be subject to penalties, penalty interest, or other proceedings for delayed payments or nonpayment of taxes, nor shall subsequent purchases be liable for such penalties or penalty interest. In addition, the bill directs that the Federal Government shall be exempt from taxes on real property devoted to uses which would cause tax exemption in private ownership. The general problem of acquisitions of real estate by the Federal Government, with its consequent removal from the tax rolls, has been the subject of considerable attention in recent years. Most Federal Government property is exempt from local property taxation or payments in lieu of taxes, but in a number of cases, notably the Reconstruction Finance Corporation, the Congress has consented to local taxation of federally-owned real property. On the basis of past studies and intergovernmental discussions, it appears that the principal criticisms applicable to present arrangements may be summarized as follows: 1. They have developed piecemeal, so that there is no Governmentwide uniformity or consistency of policy. Similar properties owned or used by different Federal Government agencies are treated differently even though the impact upon local government finances and service needs may be similar. Taxes are paid in some instances, revenues are shared in others, payments in lieu of taxes are made in still other cases, and no payments are made on large categories of properties. 2. Transfers between Federal agencies may alter the local fiscal relationships even though there is no alteration in other relevant circumstances. 3. The removal of property from the local tax base, through Federal acquisition and transfer to a nontaxable Federal agency, may affect local borrowing powers, tax-rate limits, the base for State grants-in-aid, and other fiscal relationships. 4. The immunity of Federal property from special assessments may limit the feasibility of the special assessment method for financing local improvements in particular instances. H. R. 5605 would provide temporarily for reducing the extent of the problems arising from transfers between agencies, the removal of properties from the local-tax base, and immunity from special assessments. It would have the effect for a 3-year period of granting consent to the taxation of all real property of newly established Government corporations. In addition, it would return to the tax rolls or place on the tax rolls any real property transfered to another agency by a Government corporation between June 22, 1948, and January 1, 1953; and it would retain on the tax rolls any real property which may be transferred to another agency by a Government corporation after January 1, 1953. H. R. 5605 would not eliminate, though it would modify, existing diversities in the treatment of similar properties owned by different Federal agencies. Also, it would not affect properties transferred between noncorporate agencies of the Government, nor would it provide for payments on those properties which have been or may hereafter be taken off local tax rolls as a result of their acquisition by noncorporate Federal agencies from private owners. One consequence might be that during the term of H. R. 5605 it would discourage Federal agencies from meeting their needs for real estate by taking over properties from Government corporations. Also, the temporary provision for special assessments might introduce a new type of diversity, since it would authorize only those special assessments for local improvements that were levied during the 3-year term. Incidentally, it is not clear whether this would authorize continuing annual payments after the 3-year term for those special assesments levied during this period. It is therefore the view of the Bureau of the Budget that, while H. R. 5605 would effect some improvements in the present situation, it might also create some new problems, and that the real need is for comprehensive legislation establishing a uniform and consistent policy Government-wide in application and permanent in form. It may be that H. R. 5605 would be helpful as stopgap legislation to provide immediate, temporary relief in some pressing local situations; however, we have not had available for review any specific case studies that would illustrate in detail the particular local effects or provide a basis for estimating the aggregate costs of the measure. If the Congress concludes that immediate action along these lines is required to relieve acute needs in particular communities and that H. R. 5605 is the appropriate vehicle for such temporary relief, the Bureau of the Budget would recommend that steps be taken at the same time to assure the preparation of a more systematic and adequate set of recommendations as a basis for a permanent policy to be applied upon expiration of the temporary measure. Sincerely yours, ROWLAND HUGHES, NATIONAL ASSOCIATION OF TAX ADMINISTRATORS, Mrs. KATHARINE ST. GEORGE, Old House Office Building, Washington, D. C. DEAR MRS. ST. GEORGE: I regret that a long-standing previous engagement prevents me from attending the hearing on H. R. 5605 to amend the Federal Property and Administrative Services Act of 1949 so as to provide that transfers of real property from one Government agency to another shall not operate to remove these properties from local tax rolls. The National Association of Tax Administrators, an official organization of State tax commissioners and revenue department heads, has through its committee on payments in lieu of taxes maintained a great interest in this subject, and its position is fully outlined in the report commencing on page 41 of the enclosure. This position is approved and endorsed by resolution No. 1 on page 67 of the enclosure. Specifically with respect to real estate held by Federal lending agencies and that held by the Reconstruction Finance Corporation and its subsidiaries, our committee not only approved the continuance of the application of local tax laws to these types of properties, but also recommended that Congress give favorable consideration to similar treatment for other real-estate holdings of the Federal Government, especially those of an industrial and commercial character. The passage of H. R. 5605 will be an important step in eliminating some of the revenue squeezes which now exist because federally owned property of substantial value, and requiring at least a normal amount of local public services, is exempt from State and local taxes. Sincerely, CHARLES F. CONLON, Executive Secretary. TAXATION OF FEDERALLY OWNED PROPERTY Report of the Committee on Payments in Lieu of Taxes C. Emory Glander, tax commissioner, Ohio The problem of tax exemption is one of the most serious in the field of governmental finance. In fact, the lack of power to tax is the power to destroy just as much as the power to tax is the power to destroy. This becomes increasingly evident in any study of the loss of local tax revenues through Federal real-estate acquisitions. The rapidly growing amount of property owned by the Federal Government has reached the point, in some instances, where it threatens the financial integrity, if not the existence, of local governmental units. At the outset, your committee desires to call attention to the report submitted last year by Mr. H. G. Dowling, formerly commissioner of revenue of Alabama and chairman of the committee on payments in lieu of taxes. (Revenue Administration 1945, p. 50.) That report states in concise form the background of the entire problem and the principles of taxation for Federal property. No useful purpose would be served in reiterating the material therein presented. In addition, your committee recommends, as worthwhile background material, a paper on The Taxation of Federally Owned Real Estate by Walter W. Heller, Division of Tax Research, United States Treasury Department. This paper was prepared for publication in the Proceedings of the National Tax Association, 1945, and is based on an address delivered before the 33d annual conference of the New England State Tax Officials Association, September 27, 1945. In reporting to you at this time your committee wishes to give particular emphasis to recent legislative developments. While recommendations are in order, and some will be offered, we believe it important to afford an understanding of the numerous proposals now pending in Congress. I. PENDING LEGISLATION At the present time a number of bills relating to the taxation of federally owned real estate are pending in Congress. At the risk of oversimplification and for the sake of brevity, your committee has undertaken to summarize them. 1. The following bills, in general, provide for State and local taxation of real estate owned by the United States to the same extent as if privately owned: H. R. 381, introduced by Congressman Cravens, provides for State and local taxation of all real estate owned by the United States excepting courthouses, post offices, customhouses, mints, bullion depositories, penitentiaries, reformatories, jails, or national cemeteries. Such real estate would be taxed to the same extent as if privately owned. H. R. 759, introduced by Congressman Peterson, of Georgia, provides that all real property acquired by the United States since January 1940 for general military purposes shall remain subject to taxation by the State and political subdivisions to the same extent as other real property. These provisions would not apply to property with respect to which such power of taxation is waived in accordance with State law. H. R. 1418, introduced by Congressman Angell, provides that all real property acquired by the United States subsequent to December 7, 1941, for general military purposes shall remain subject to taxation by the State and political subdivision in which such property is located to the same extent according to its value as other real property is taxed. These provisions would not apply to any property with respect to which such power of taxation is waived in accordance with State law. H. R. 2435, introduced by Congressman Campbell, provides that all housing projects owned or operated by the United States and all plants owned by the United States and leased to others shall be subject to taxation by State and local governments to the same extent as if privately owned. S. 1518, introduced by Senator Cordon, relates to the sale of real property by the United States under an arrangement whereby title is held or retained by the United States for some period, and provides that such property shall not be exempt from State or local taxation to the purchaser during such period. H. R. 6680, introduced by Congressman Eberharter, relates to surplus Government property owned by governmental departments, agencies, or corporations and provides for local taxation thereof on the same basis as privately owned property. In case of sale upon an installment basis or lease for private use, it provides that the contract shall require payment of local taxes on the same basis as if title had not been retained by the Government. As to the period between December 7, 1941, and the effective date of the act, the bill provides that the Government shall pay, in lieu of taxes, special assessments and benefit assessments lump sums equal in accumulated amounts (without interest, penalties, or costs) to that which would be required if the property were privately owned, less such amounts as may have been paid on account thereof. 2. Tax equivalent payments to local governments for the loss of tax revenues through Federal real-estate acquisitions are provided in the following pending bills: H. R. 1383, introduced by Congressman Rogers of Florida, provides that real property acquired by the United States since January 1939 for general military purposes or for national parks or monuments shall remain subject to taxation by State and local governments according to value, but that in lieu of such taxes State or local governments shall be reimbursed by the Federal Government in amounts equivalent to the taxes on such property. These provisions would not apply to any property with respect to which such power of taxation is waived in accordance with State law. H. R. 2120, introduced by Congressman Martin of Massachusetts, provides that real or personal property owned by the United States in any governmental functions, if yielding no rent or compensation in the nature of rent, shall not be liable to taxation. It further provides that real or personal property acquired by the United States since December 7, 1941, which is not used or occupied by the United States for governmental purposes but which is used or occupied by other persons shall not be liable to taxation but in lieu thereof the United States shall pay an amount equal to that which the local government would receive in taxation. S. 2410, introduced by Senator Bushfield, relates to lands held by the United States which are (1) within national forests, (2) within national wildlife refuges, (3) administered under the Farm Tenant Act, (4) within an Indian reservation, (5) administered under the Taylor Grazing Act, (6) sold by the United States upon an agreement providing that title shall remain in the Federal Government until the purchase price is paid in full, or (7) leased by the United States for a valuable consideration; and provides for the payment to the States of a sum equal to the amount of taxes which would be assessable if such lands were subject to taxation to the same extent as privately owned lands. This bill also contains mandatory provisions with respect to apportionment of such payments among the counties in each State. 3. Payments in lieu of taxes, but not necessarily tax-equivalent payments, are proposed in the following pending bills: H. R. 547, introduced by Congressman Randolph, provides for annual payments to local governments, with respect to manufacturing plants acquired since December 7, 1941, by the United States or any Government corporation, of a sum in lieu of taxes equal to the amount of taxes assessed against such plant for the fiscal year in which such plant was acquired by or on behalf of the United States. H. R. 653, introduced by Congressman Auchincloss, provides for payments, with respect to real property acquired by the United States for military purposes since December 7, 1941, to the State and any political subdivision in which such property is located, of sums in lieu of taxes equal to 100 percent of the amount of taxes for 5 years, 50 percent for the next 5 years, 25 percent for the next 5 years, and no payments thereafter. H. R. 1622, introduced by Congressman Whitten, provides for payments to State and local governments within which are situated certain lands of the United States and which have issued bonds which are a lien against such lands, of certain sums which are to be used for the payment of such honds. These provisions would not apply to lands of the United States which are subject to taxation by the State or local government to the same extent according to value as other real property is taxed. S. 2119, introduced by Senator Murdock, provides for the creation of a commission on Federal contributions to State and local governments by reason of the Federal ownership of real property. The Commission would consist of the Secretary of the Treasury, Secretary of War, Secretary of the Navy, Secretary of the Interior, Secretary of Agriculture, the Administrator of the Farm Loan Agency, and the Administrator of the National Housing Agency. The Commission would be empowered to effectuate the following policy with respect to Federal real property: (a) That States and local governmental units shall not, by reason of Federal ownership or acquisition of real property, be deprived, without compensation, of revenue which, if it were not for such Federal ownership, would accrue to the States or local governmental units from State or local governmental unit taxation of said real property; (b) That State and local governmental unit taxpayers shall not be compelled to assume inequitable tax burdens arising from Federal ownership or acquisition of real property; |