(c) That the Federal Government, with respect to Federal real property, is not under an equitable duty to contribute to the States or local governmental units any sum in lieu of taxes in excess of the tax revenue said real property would produce if it were privately owned. In effectuating such policy the Commission would be required to determine the amounts which would be payable to State and local governments in taxes upon all Federal property if such property were not exempt and, using such amounts as bases the Commission would be required to pay to each of the States such amounts in lieu of taxes as would effectuate the foregoing policy. In determining the amounts to be paid the Commission would be guided by the extent of actual tax loss sustained by State and local government as a result of State and Federal ownership and also by any monetary benefit derived by the State and local government as a result of Federal acquisition or ownership. Federal office buildings, courthouses, customhouses, mints, assay offices, bullion depositories, post offices, research laboratories, experimental grounds, testing stations, quarantine stations, narcotic farms, immigraation stations, jails, reformatories, detention farms, hospitals, and cemeteries would be wholly exempt from the foregoing provisions. H. R. 2867, introduced by Congressman Colmer, relates to the determination of the fair value of certain national-forest lands and provides for the amount of payments by the United States to the States in which such lands are located. II. RECOMMENDATIONS AND COMMENTS Your committee is not disposed at this time to approve finally any of the foregoing proposals as an adequate solution of the problem or to offer alternative proposals. On the contrary, we believe that the problem still is in the "study" stage and that no hasty generalizations should be made. There are, however, certain principles of approach and suggestions as to procedure which ought to be considered and which are respectfully submitted as follows: 1. No need presently exists for removing the tax exemption of federally owned properties used for general administrative purposes. (Comment: These properties include Federal office buildings, post offices, customhouses, weather stations, mints, and the like. They have long been exempt and represent relatively small tax losses to local governments.) 2. Consideration should be given to the necessity for continuing the tax-exempt status of real estate used for penal or curative purposes or for the purposes of national defense or war. (Comment: This category includes Federal hospitals and prisons, narcotic farms, quarantine stations, immigration stations, Federal arsenals, navy yards, camps, and similar property. Although much of this property has long been owned by the Government, there has been a vast increase in such acquisitions during the recent World War. As pointed out in the committee's report last year, these acquisitions "in certain cases have created a tax loss not always equitable as a local contribution.") 3. As to all other Federal real estate holdings, an effort should be made to authorize taxation to the same extent as if privately owned, and only where such taxation is impossible or impractical should resort be had to tax-equivalent payments in lieu of taxes. (Comment: Within this class of property are power, flood control, public housing, rural resettlement and slum-clearance projects, national forests, real estate held by Federal lending agencies, and real estate held by the Reconstruction Finance Corporation and its subsidiaries. As to the last two, Congress already has consented to local ad valorem taxation. Your committee believes that Congress could safely extend this privilege to embrace other real-estate holdings within this category.) 4. Immediate consideration should be given to the tax status of surplus real estate; and where such property is leased, or where it is sold by the United States under an agreement providing that title shall remain in the Government until the purchase price is paid, it should be made subject to local taxation to the same extent as other property. (Comment: A large amount of real estate has become surplus property now that the war is over. Billions of dollars were invested in plants and industrial property and in war housing projects during the war, much of which will be disposed of by the Government. Where such property is taken over by private agencies under lease or conditional sale agreements, your committee believes that it should be made subject to local taxation. The decision of the Supreme Court of the United States in S. R. A., Inc. v. Minnesota, decided on March 25, 1946, is a step in the right direction. This decision permits the taxation of property sold by the United States on a conditional sales basis, despite the retention of a security title in the United States.) 5. There should be closer cooperation and coordination between the Federal Government and the States in the solution of this entire problem. (Comment: By Executive Order No. 8034 the President established a Federal Real Estate Board. The purpose of this board was to "study and make appropriate recommendations regarding the situation in different communities adversely affected by the loss of tax revenue on land purchased or acquired by the Federal Government." It is unfortunate that no provision was made whereby representatives of State and local governments could sit and vote with the Board in matters affecting the exemption of federally owned property. As a consequence, the Board functions unilaterally. Here is an area, like the larger area of Federal, State and local taxation in general, where there is a need for real cooperation and coordination among all levels of government.) 6. The work of your committee should be continued during the ensuring year and the membership should be kept advised as to all legislative developments. Respectfully submitted. C. EMORY GLANDER, Ohio, Chairman. R. E. HAMMOND, Utah TOM S. HEDGES, Washington COE A. MCKENNA, Oregon D. C. O'NEIL, Arizona LOUIS M. NIMS, Michigan FRANK E. WALSH, New Jersey RESOLUTION 1 Whereas the status of federally owned property for tax purposes and for in lieu payments differs widely according to type and location; and Whereas the Committee on Payments in Lieu of Taxes of the National Association of Tax Administrators has submitted its report with recommendations: Now, therefore, be it Resolved, That the Report of the Committee on Payments in Lieu of Taxes be accepted and approved; and be it further Resolved, That the committee be continued and the members of the association be advised concerning all legislative developments; and be it further Resolved, That the executive secretary of the association be authorized and directed and hereby is authorized and directed to communicate to Federal departments and agencies and committees of Congress the opinions and conclusions of the Committee on Payments in Lieu of Taxes, the National Association of Tax Administrators or its members relative to the taxation of federally owned property. Mrs. ST. GEORGE. I think that is all we have, gentlemen. The committee will go into executive session now. Thank you very much. (Whereupon, at 10:35, the hearing in the above-entitled matter was concluded.) APPENDIX STATEMENT OF HON. CHARLES E. POTTER, A UNITED STATES SENATOR FROM THE Mr. Chairman, I wish to thank you and the members of this committee for the opportunity of presenting this statement in reference to H. R. 5605. I have long been concerned with the serious problem confronting several of our municipalities as a result of the abundance of tax-exempt Federal properties and the lack of adequate payment-in-lieu-of-taxes legislation. Although H. R. 5605 will not solve the aforementioned problem, it will prevent a bad situation from growing worse. Our municipal governments, those wherein Federal real properties are located, can no longer continue to supply and pay for the essential services given to Federal properties without receiving proportionate or even partial reimbursement for these services. Moreover, it is only fair that Federal properties carried on the local tax rolls be continued on that basis irrespective of the transfer of these properties to another Government agency or corporation which enjoys a tax-exemption privilege. Transfers of this character have caused severe hardships on small communities that have come to depend, and rightly so, on the revenue accruing from these properties. I would like to illustrate a case in point which occurred at Adrian, Mich. The Defense Plants Corporation constructed a plant here in World War II with the title remaining with the Reconstruction Finance Corporation until 1947. Taxes were paid on the property while the property remained with the RFC. In 1947, the property was declared surplus and taken over by the War Assets Administration. Then it went to General Services Administration and the RFC deeded the title to the United States of America rather than to a Government corporation. Taxes were paid on the property until 1952 at which time the Bureau of the Budget ruled that the Air Force, now the lessors of this plant, were not required to make payments in lieu of taxes because of a decision handed down by the United States Claims Court in a similar case in Kansas. As a result of the loss of this revenue, the city of Adrian suffers serious financial difficulties that can only result further in a cutback of its essential services to the community and other municipal operations. Accordingly, I believe that the quick enactment of H. R. 5605 is a logical first step toward the equitable adjustment of intergovernmental tax relations. I fail to see any good reason why the transfer of any real Federal property from one Government agency to another should operate to remove such properties from the local tax rolls. On the contrary, the Federal Government is obligated to pay its share on all properties it owns within the municipalities excepting, of course, the public domain and properties within the District of Columbia and our island possessions. I am hopeful that the tax problems growing out of intergovernmental relations may be worked out under a broad legislative program. The problem is complex, and there is much that may be said for both sides. But certainly we all agree that the present situation is critical. Ever since Chief Justice Marshall rendered his famous decision in the McCulloch v. Maryland case in 1819, the Federal Government has been held to possess a constitutional immunity from State and local taxation. However, in view of problems inherent in the tax liabilities on real properties, the Congress has consented to the taxation of some Federal properties and payment in lieu of taxes on others. Unfortunately, there is little, if any, uniformity of treatment, and the way in which such properties are transferred from one agency to another, leaves the municipal governments more or less in doubt as to where they stand from one year to the next, as illustrated in the Adrian case. It is therefore urgent that this legislation be enacted to prevent further problems of this nature from arising. 62 Hon. CLARE E. HOFFMAN, OFFICE OF THE SECRETARY OF DEFENSE, Chairman, Committee on Government Operations, House of Representatives. DEAR MR. CHAIRMAN: This will reply to your letter of July 13, 1953, advising that a special subcommittee of the Committee on Government Operations, chairmanned by Congresswoman St. George, would conduct a hearing on July 20, 1953, on the bill H. R. 5605, 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 views of the Department of Defense on the bill were requested by that time. This legislation would amend the Federal Property and Administrative Services Act of 1949 by adding thereto a new "Title VIII-Taxation by Local Taxing Authorities" to be effective from January 1, 1953, to December 31, 1955. This new provision would require that property owned by Government corporations and subject to State and local taxation remain subject to such taxation when transferred to any department, agency, or other instrumentality of the Federal Government. It would also subject to State and local taxation any other real property owned on or after June 22, 1948, by a Government corporation which was transferred to a department, agency, or other instrumentality of the Government prior to the effective date of the proposed legislation and owned by the Federal Government on the effective date of the legislation. Other provisions of the bill would subject to State and local taxation the property of Government corporations hereafter incorporated, prohibit the making of payments in lieu of taxes on property subject to taxation under the legislation, exempt the Federal Government from taxes on its real property devoted to uses which would cause the property to be exempt if it were privately owned, and provide that the Federal Government shall not be subject to penalties, penalty interest, lien, foreclosure, garnishment, or other proceedings based on its nonpayment or failure to make timely payment of taxes on such real property. Enactment of the legislation would not only impose a heavy additional burden on the Federal budget, but it would affect a wide variety of relationships between Federal departments and agencies and State and local governments. In fairness to both Federal and State agencies, it is essential that any proposal such as H. R. 5605 be given thorough study in the light of present programs for Federal assistance to State and local governments and existing arrangements which, although varied in form, are designed to accomplish a reasonable and fair relationship between Federal and State functions, budgets, and revenues. report on this legislation is being developed by the Department of Defense and will be submitted to the committee as soon as practicable. A full Meanwhile, because of the adverse impact which the legislation would have on the budget of the Department of Defense, the Department recommends against the enactment of this legislation at this time. Because of the urgency of your request, this report has not been submitted to the Bureau of the Budget for advice as to the relationship of the legislation to the program of the President. Sincerely yours, Mrs. KATHARINE ST. GEORGE, JOHN G. ADAMS, Acting General Counsel. JULY 16, 1953. Congresswoman, 240 Old House Office Building, Washington, D. C. We are informed that a special subcommittee has been composed to hold hearings beginning July 20 on H. R. 5605 to amend the Federal Property Administrative Services Act of 1949. This bill appears to stipulate 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. A favorable report of your special subcommittee and ultimate passage by the Congress is deemed to be important to local governmental units in order to preserve ratables as presently and in the future to be assessed upon which the revenue structure of local units is dependent in some measure to balance annual budget appropriations. Since the Municipal Finance Officers Association is interested in improved methods of public finance you are respectfully advised that we believe that favorable approval of H. R. 5605 would conform to association policy. We shall not present witnesses at hearings on this bill. Respectfully submitted, Thank you. JOSEPH F. CLARK, Executive Director. SEATTLE, WASH., July 17, 1953. Hon. KATHARINE ST. GEORGE, House of Representatives, Old House Office Building, Washington, D. C. On behalf of the cities and towns of Washington, strongly urge passage of H. R. 5605 providing for payment of taxes on real property held or transferred by Government corporations. Any consideration you may give will be appreciated by the municipalities of the State. Hon. KATHARINE ST. GEORGE, ASSOCIATION OF WASHINGTON CITIES, New House Office Building, Washington, D. C.: ALBANY, N. Y., July 17, 1953. The cities and villages of New York State take this means of urging favorable consideration of H. R. 5605 which provides that transfers of real property from one Federal agency to another shall not operate to remove such property from local tax rolls. Taxes lost by the tax-dodging practice this bill seeks to correct seriously affect the finance of several cities and villages in New York. All of which operate under strict constitutional tax limits. If permitted to continue more cities will be harmed as industrial properties are transferred to escape local taxes even though operations are continued unchanged. This bill, we believe, presents an opportunity to Congress to correct one aspect of the pay-in-lieu problem before it becomes firmly established and thus strengthen local finances. We earnestly request favorable action on the bill, both in committee and on the floor. NEW YORK STATE CONFERENCE OF MAYORS, ANN ARBOR, MICH., July 24, 1953. Hon. CLARE E. HOFFMAN, House Office Building, Washington, D. C.: Respectfully urge that H. R. 5605 be brought up for a vote before the full Government Operations Committee as soon as possible. JOHN H. HUSS, Director of Michigan Municipal League. HOUSE OF REPRESENTATIVES, Washington, D. C. August 10, 1953. Hon. KATHARINE ST. GEORGE, Chairman, Subcommittee, Committee on Government Operations, House of Representatives, Washington 25, D. C. DEAR MADAM CHAIRMAN: I appreciate this opportunity to insert in the record a copy of a letter from one of my constituents. This clearly outlines the injustice which is being imposed on local taxing authorities by the transferring of real property from one Government agency to another, which operates to remove it from the taxable rolls of local taxing authorities. "I am enclosing a tax bill of Lake County, Ohio, relative to the property occupied by the Diamond Magnesium Co. It shows a tax delinquency of $115.855. "The history of this property is that the Diamond Alkali Co. in 1942 sold the land to the Defense Plant Corporation. In 1945 the Defense Plant Corporation sold the property to the Reconstruction Finance Corporation. In 1948 the Reconstruction Finance Corporation sold the plant to the United States of |