The chart traces the impact of various federal county-payment programs. As revenue sharing (shown in green) dropped, Congress created other programs designed to compensate counties for the decreased tax base created by public lands. Payment in Lieu of Taxes is shown in blue. Secure Rural Schools is shown in brown. Click to expand the chart. Source: Headwaters Economics

Rural counties may get some good news this week if Congress reauthorizes funding for the Secure Rural Schools program. But in less than a year’s time, these counties will be right back where they started, arguing for their fair share of federal funding.

It’s time for Congress to create a more predictable and fair system for compensating counties that contain large amounts of federal land.

Federal public lands are exempt from local taxation, placing a hardship on rural communities that rely on property taxes to fund local services. As compensation, Congress has made payments under two programs: Payments in Lieu of Taxes (PILT) and agency-based revenue sharing payments (for example, payments via the U.S. Forest Service based on federal timber sales in a given county). In 2000, Congress passed the Secure Rural Schools and Community Self-Determination Act to help make up for anemic revenue-sharing payments from the Forest Service and Bureau of Land Management.

“County payments” have been around for a century. But today counties find themselves stuck in a cycle of seeking congressional approval for payments every year. Besides initially dropping Secure Rural Schools funding for 2014, Congress only approved one year of funding for PILT.

This short-term fix approach—where Congress debates whether or not extend SRS or funds PILT for a single year — should end.

Since 2001 PILT has been the cornerstone of compensation payments for non-taxable federal land. This year, PILT will provide $422 million, while revenue sharing payments will provide $60 million. PILT’s full funding amount will rise to $522 next year.

PILT’s heightened importance is increasing traction for to reauthorize and reform the program. But to work well, the system needs updates.

Problems with PILT
First, PILT must be removed from discretionary budget processes. Second, the program needs reforms to address current flaws in its distributional approach that are a legacy of its original role.

PILT was designed to address weaknesses in revenue-sharing payments, not to replace them. For example, in 1970, the U.S. Public Lands Law Review Commission wrote: “Although they were originally designed to offset the tax immunity of Federal Lands, the existing revenue-sharing programs do not meet a standard of equity and fair treatment either to state and local governments or to the Federal taxpayers.”

The current PILT formula reflects its original purpose of equalizing payments for counties with lower timber values. The formula includes “prior year payments” to pay less to counties that receive higher revenue sharing payments.

PILT is also subject to limitations based on population. The population cap prevents the program from making up for large swings in agency-based payments, such as the declines experienced in the early 1980s recession, and in the 1990s from declining timber harvests. Counties dependent on revenue sharing-payments are often already at the “PILT ceiling.” For these primarily rural counties, PILT cannot make up for the loss of SRS.

For example, the charts below shows that Idaho County, Idaho–with a population of 16,000–is PILT limited and will see its total payments fall by more than two thirds. Meanwhile, Ada County (Boise) with a population of 416,000 will actually get a boost this year (PILT is adjusted upward for inflation annually).

For example, the charts below shows that Idaho County, Idaho–with a population of 16,000–is PILT limited and will see its total payments fall by more than two thirds. Meanwhile, Ada County (Boise) with a population of 416,000 will actually get a boost this year (PILT is adjusted upward for inflation annually).

Potential Reform
One idea for reform comes from Headwaters Economics’ work with the Clearwater Basin Collaborative (including Idaho and Clearwater Counties, Idaho) on county payment reforms. Members were working together to improve forest health and create jobs. Their efforts may go unfulfilled if counties could not secure funds to support quality local schools, transportation, and public safety services. They crafted a proposal to provide stable payments, build broader support nationally for county payments by using incentives that rewarded collaboration, and included an economic adjustment that targets payments to counties with greatest needs to use federal dollars most efficiently.

The mechanics would allow rural counties to raise their population limits for every acre of established protected areas in the county (Wilderness, National Parks and Wildlife Refuges). The idea builds on existing PILT law that provides additional payments for newly established Wilderness and National Park acreage. The economic performance criteria delivered lower payments to counties that have higher than average wages and incomes, a more highly educated workforce, and lower poverty rates, shifting a portion of the total appropriation to their relatively less well-off peers.

The idea was introduced as The Fair Share Act of 2014 in the Senate, but did not progress. The idea may still have merit.

While the top goal is to reform PILT so it can adequately compensate counties, another long-term goal is to find a long-term solution for SRS and revenue sharing. For example, stronger support and compensation from PILT could provide flexibility for a less costly and longer-term SRS reauthorization as receipts are repurposed to a permanent trust. A trust managed by the states could eventually eliminate the need for appropriations altogether while ensuring counties receive stable—and rising—payments in perpetuity.

Mark Haggerty is an economist at Headwaters Economics, an independent, nonprofit research group that focuses on the Western United States. For more information on county payments, visit the Headwaters website.

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