IMPACT OF INDUSTRIAL DEVELOPMENT ON LOCAL GOVERNMENT NET FISCAL: RESOURCES

two counties, Blount and Sullivan, which are comparable in the sense of having a For purposes of illustrating this problem, we have compared our situation with

adequate fiscal assistance from the principal industries. which because of immunity from taxation the local governments do not receive heavily on the other two. This is the case in Anderson and Roane counties in principal industries. If any one of the three is absent, the fiscal burden falls more of ancillary commercial business and industry induced by the presence of the resources: (1) taxation of industry, (2) taxation of population, and (3) taxation Examination of this schematic reveals three major modes of developing fiscal

Alcoa Company is valued at $128 million, employes 5,000 people, and pays 33% of the property taxes collected in Blount County while occupying 0.7% of the land.

Tennessee Eastman Company is valued at $338 million, employs 7,000 people, and pays 28% of Sullivan County property taxes while ocupying 1.3% of the land. It should be noted that these manufacturing industries engage in extensive export activity and that any taxes paid by the industry are ultimately transferred to the consumers of the manufactured products which may be intra-state, national or inter-national.

In comparison ERDA facilities are valued at $813 million, employ 15,000 people, and paid in 1973 less than 10% of the real property taxes (considering for sake of calculation that ERDA in lieu of tax payments plus PL 874 payments are equivalent to real property taxes), while occupying 6.1% of Anderson County land and 9.6% of Roane County land.

Table V B2 succinctly summarizes the comparisons with respect to effective tax rates.

TABLE V-B2 (MODIFIED).—TAX RATES AND EFFORT IN COUNTIES IN 1973

1 The estimated true value of property is computed at 231⁄2 times the assessment value of property (40 percent level of assessment).

2 The effective tax rate is determined by the following formula: E.T.R.

(assessed value) -X tax rate. (est. true value) Source: Research Report No. 187, Tennessee Taxpayers Association, Oct. 1, 1973.

Blount, Roane and Sullivan counties have a local option sales tax. This tax is usually levied by counties via the referendum process in lieu of increases in property taxes. Such a tax, therefore has the effect of skewing the effective tax rate lower than it would be if the amount of such sales tax revenue were garnered from the property tax.

The major conclusion from this comparison is that Roane and Anderson Counties' residents must exert approximately twice as much effort to meet the cost of comparable governmental services as do Blount and Sullivan County residents primarily because privately owned industrial establishments provide large shares of the tax revenue for the latter.

The ramifications of the restricted tax base in Roane and Anderson Counties are many. It creates excessive tax rates which bear most heavily on those with little ability to pay. It tends to drive away industry. It makes the counties more dependent on the Oak Ridge industrial complex. It makes it more difficult to maintain the level of services required to adequately support the Oak Ridge plants and Oak Ridge program and thus may tend to deter recruitment and retention of personnel.

Tax Immunity

By reason of Federal Government ownership, the real and personal property controlled and used by ERDA and TVA in the counties are not subject to ad valorem taxes levied on and collected from private owners. In addition, the transaction, revenues, and income of these Federal agencies are exempt from other State and local taxes that are imposed on privately owned business. ERDA's principal contractor at Oak Ridge, Union Carbide Corporation, is subject to the use tax on personal property levied by the Tennessee Retailers Sales Tax Act to the same extent as other private businesses. However, that Act exempts nuclear material used under a contract with ERDA. (Sec. 67–3014, TCA) The statute also exempts other personal property acquired for and used in the construction of Government-owned electric generating stations. (Sec. 67-3004, TCA.) These exemptions from the Sales Tax Act, while benefiting the Federal Government and its customers, reduce the amount of taxes available for distri

bution to both the counties and cities within the counties pursuant to the Retailers Sales Tax Act. (Sec. 67-3047, TCA.) Since the exemptions are permitted by State tax, they also reduce the taxes that can be levied under the local option provisions of that statute. (See 67-3049 et seq., TCA.)

The large Federal land holdings in the counties and the operation of ERDA and TVA adversely affect the counties in two ways. First, their immunity from taxation deprives the county governments of a source of revenue needed for providing governmental services. Second, their location in the counties severely limits the potential for private industry development in the counties. The inability to levy the county ad valorem tax on ERDA and TVA facilities means that private property owners essentially residential property owners, farmers, and small business enterprises are the primary source of all local revenue for county expenses. Moreover, the amount of Federal land eliminated from the tax base, the existence of a tax exempt, very large, single industry and employer as represented by ERDA, including the associated housing, school and labor force limitations involved, all serve to restrict the development of a large, privately-owned industry that could provide an adequate source for local revenue through taxes.

The various tax immunities and exemptions for ERDA and TVA (both directly and indirectly) are the major cause of the special financial problems in both counties.

ERDA Assistance Payments

The current (FY 1974–75) ERDA assistance payments for Roane and Anderson Counties (outside Oak Ridge) amount to $9.37 and $8.89 per capita, respectively, as indicated in Table VII B1. If PL 874 monies are included for these counties the per capita assistances are $13.91 and $15.63 for Roane and Anderson Counties. TABLE VII-B1.—SEC. 168, APPLICATION IN COUNTIES

Public Law 874, commonly referred to as Federally Impacted Area Legislation, provides a mechanism by which school districts receive payments for maintenance and operation of schools to assist qualifying school districts in meeting a portion of the increased costs incurred due to the presence of Federally connected pupils attending schools within the district.

In the 1974-75 school years, 23% (1911) of Anderson County students and 28% (1881) of Roane County students were eligible for PL 874 assistance. However, major defects in PL 874 financing are (1) the year-by-year approach to financing (with accompanying fiscal uncertainties) and (2) the fact that payments never equal the entitlements. Table VII C3 (see page 20) indicates a five-year difference between entitlement and payment of $467,000 for Roane County and $442,000 for Anderson County.

Since PL 874 funds are distributed solely on the basis of where children go to school, every county and school system to whom payments are made for Oak Ridgerelated school children receives the same "benefits" under this law as do Roane and Anderson Counties. However, only Roane and Anderson Counties have been deprived of potential private industry development through location of the Oak Ridge complex in these counties. And, because the Government-owned facilities are physically situated in Roane and Anderson Counties, the latter have all the responsibilities and obligations for providing all governmental services arising out of or connected with the government-owned industrial plants, as well as a concentration of impacts. Thus, Roane and Anderson County "benefits" by

reason of PL 874 are actually less than those of other recipients. The City of Oak Ridge received PL 874 school funds on the same basis as Roane and Anderson Counties plus substantial annual assistance payments from ERDA to compensate for lack of an adequate property tax base by reason of the tax-exempt Government owned industrial plants. The other counties and systems receive PL 874 school funds on the same basis as Roane and Anderson Counties but without the burdens of a tax-exempt industry and loss of the potential for privately-owned, taxable industry.

Publio Land Law Review Commission

The Public Land Law Review Commission is discussed in detail in the report. The following is an excerpt: .. It is the obligation of the United States to make certain that the burden (of Federal ownership) is spread among all of the people of the United States and is not borne only by those states and governments in whose area the lands are located” (underscoring supplied; recommendation 101 of the PLLRC).

The report is significant since it represents a finding by an official agency of the Federal Government that (a) Federal ownership results in burdens in excess of benefits, and (b) in today's situation the Federal Government should contribute a fair share of the costs for providing local governmental services.

Public Law 221 Support

Although the City of Oak Ridge is a separate legal entity under Tennessee law, it is important to remember that its residents are also residents of the counties; that the city and the counties are interrelated; and that the counties as well as the city are involved in maintaining services, facilities, schools, roads, and housing for personnel associated with the Government's atomic energy programs.

It is time to recognize the Federal Government is a resident of the counties, as well as the City of Oak Ridge, and, as such, should and must contribute a fair share of the costs of governmental services provided by the counties.

This section gives emphasis to some of the qualitative ideas which are important to the Joint Committee's considerations but are not stressed in the impact study presented with this testimony.

The equity problem being addressed in this hearing is not a new one. What is new is the recognition that an approach like the present one is the appropriate way to proceed. The urgency of obtaining federal assistance has become greater as the costs of required services have increased and as county officials have come to understand more fully the reasons why our particular counties are in a financial bind. We look to the future in seeking solutions, but we must recognize that

the inequitable assistance situation has been present for two decades. The problem can be gradually alleviated by stabilization of the financial situation, followed by gradual development of the portions of our local economy which are outside the public sector. The stabilization process can aid the development, and requires an expectation of continuity, justice and reasonableness in the way ERDA assistance are arrived at. The payments received this year and recently authorized for next year are most helpful, but such year-by-year authorizations are unstable for us and too demanding of the attention of our congressional representatives.

The counties are not sitting idly by awaiting efforts by Congress and ERDA to solve all our fiscal problems. Strong efforts have been made within both counties and by their governments to obtain full and fair assessments for ad valorem. taxes, to improve economy and effectiveness in the delivery of services, to obtain new and retain present private industry, and generally to run the county governments in an organized and correct manner consistent with the many helpful requirements of state and federal governments. Within their strength, our County administrations are seeking every legal avenue to obtain funds to help meet the needs of our citizens.

Our impact study often refers to demands for services; as suggested above these demands often reach us indirectly through the mandates of higher governmental units. We do not complain about these mandates because dealing with them is part of the task we have undertaken and because often we can see the need and value behind them. However, they do require additional funds just as do the directly expressed demands of our citizens, and they do emphasize the smallness of our tax base.

Beyond the effect of these mandates, one must recognize fully that the costs of government shown in the prepared document and the resulting high local tax efforts have not been enough to give the services needed by our citizens. The children now in our county schools must compete for jobs tomorrow on a state and regional level, but our schools have not had the funds to assure their students the needed educational opportunity. The problem of competition of more richly financed school systems is also a local one because of the markedly higher perpupil expenditure which has been possible in Oak Ridge City. The counties as a whole are not prosperous enough that parents can afford far above-average taxes to obtain even average education for their children; this lack of prosperity is shown by the large fraction of low-income families among our citizens.

Since citizens of the City of Oak Ridge are also residents and taxpayers in the Counties, and since substantial tax funds collected by the Counties are shared with the City, the entire unique situation of governmental impact upon this area that contains the plants must be studied together. If the proposed amendments become law, we look forward to a period of negotiation to arrive at equitable assistance payments to the Counties so that nationally distributed benefits will not be unduly subsidized by local County residents.

CONCLUSIONS

We believe a fair reading of our testimony and other available information will lead the Joint Committee to conclusions similar to those summarized below The Federal Government, largely through ERDA, dominated the economy of Roane and Anderson Counties because of its large land holdings and the magnitude of the government-owned industrial complex at Oak Ridge. The inadequate property tax bases in Roane and Anderson Counties and the resulting high ad valorem tax rates in the Counties are primarily due to the tax-exempt status of the Government-owned facilities, not to any extravagance of services.

The large permanent increases in County populations has resulted primarily from the Government-owned complex at Oak Ridge. The workers who have come here are without the industrial tax base which would normally have accompanied such industrial workers. Because of the TVA tax-immunity status the large secondary industry which provides electrical power to one of the ERDA plants also does not produce an appropriate amount of revenue to local governments. For reasons of high tax rate, competition for workers, and reduction of the available industrial land, the existence of the Government-owned facilities deprives the Counties of much opportunity for large privately-owned industrial development.

Because of the Federal impacts the Counties have had to be content with average or below-average services even though they have among the highest