A primer on Payments in Lieu of Taxes and why they exist — Part 1
By Seth Richardson
Payments in lieu of taxes (PILT), sometimes known as PILOT, is a concept for revenue sharing that originated between governmental entities and emerged decades ago as states began to understand that federal lands within their states were exempt from property taxation under the Supremacy Clause of the Constitution. In the beginning, states and local political subdivisions were often burdened with providing services such as law enforcement, roads, bridges and firefighting to federally-owned lands while at the same time being unable to collect tax revenues to pay for those services. This placed an undue burden on local taxpayers, often a crippling one, particularly in the western states where in some places, more than 85 percent of the land in some states, and many counties, is owned by the federal government. Indeed, nearly one-third of all of the land in the U.S. is owned by the federal government, with the vast majority in the western states.
This inequity was formally recognized by Congress in 1997 with the enactment of Public Law 97-258, when formal payments to state and local jurisdictions adversely affected by federal ownership of lands exempt from local taxation were authorized.
More recently, the concept of PILT has been expanded by state and local jurisdictions in an attempt to generate revenues from other tax-exempt entities and organizations, including public colleges and charitable institutions. The theory is that private non-taxable organizations such as charitable foundations that are tax-exempt under federal law, and property within one political subdivision (state, county, city) that is owned by another political subdivision and is therefore immune from taxation by the containing entity, still enjoy the benefits of services offered by the containing entity, but because no taxes are paid, it is felt by some that this is an unfair tax burden upon the taxpayers of the containing entity. An example is Washington, D.C., where half or more of the land is tax-exempt, but where city services such as law enforcement and firefighting, among others, must nonetheless be provided to all residents, even when they are on federal property.
There is nothing inherently wrong with payments in lieu of taxes, particularly between one government entity and another, since they are statutorily prohibited from taxing one another, because equity demands that local taxpayers should not have to shoulder the entire burden of providing basic services like sewers and water to tax-exempt governmental agencies from which local taxpayers receive no concomitant benefits.
But the PILT concept, like many good ideas, has metastasized into a cancer of ever-growing proportions as financially-strapped municipalities and politicians search for revenue sources to prop up dwindling sales tax revenues.
The best thing about a PILT is that it’s entirely voluntary, at least so far. This means that while some landowner otherwise exempt from taxation may agree to pay money to the local government to help defray the costs of providing public services, PILTs are not, so far, a tax-equivalent mandatory exaction.
This is not to say that cities, counties and states do not have considerable powers they can bring to bear on non-profits and other tax-exempt private organizations in order to “persuade” (read: coerce) them to agree to a PILT. Author Mark Murphy writing for the American Federation of State, County and Municipal Employees (AFSCME), the nation’s largest public employee union, wrote:
“Local officials sometimes force the issue with nonprofits that have not contributed by halting or slowing building permits or zoning approvals, by proposing to levy some alternate tax on nonprofits or even by challenging the organization’s tax-exempt status. The result is usually a negotiated settlement that allows the jurisdiction to collect some revenue while at the same time letting the tax-exempt organization project a positive image in the community and avoid an alternative that could be worse. That was the case in Baltimore, Md., last year, where 16 of the city’s largest nonprofit organizations agreed to contribute $20 million to the city over 4 years, after the mayor dropped a proposed energy use tax on nonprofit organizations within the city. Several Pennsylvania cities and counties mounted legal challenges to local nonprofit organizations’ tax-exempt status in the early 1990s. Many of these attempts were successful in collecting PILOT payments even after they lost initial challenges in court.”
Murphy goes on to recommend ways that public employees can work to enhance government revenues (and thereby preserve public-sector jobs) through public employee activism to encourage (read: coerce) PILTs from local non-profit organizations.
The problem with PILTs in this context is that the reason that such organizations are tax exempt in the first place is that they generally offer services to the community that the government would otherwise have to pay for itself, so the taxes are foregone precisely because of the greater fiscal benefits that the community realizes by having non-profits serving the community.
The National Society of Fund Raising Executives (NSFRE) published a position paper on PILTs in 1997 saying:
“These actions are motivated by a thirst for property tax revenues with no regard to the fact that, for over 400 years, western societies have exempted not-for-profit organizations from taxation because of “community benefit.” Not only do those living in the communities served by not-for profit organizations benefit from their presence, the not-for-profits work to preserve America’s voluntary philanthropic tradition. Studies continually reaffirm the finding that not-for-profit organizations deliver programs more cost-effectively and with better quality than government efforts.
In 1994, 10 million people were employed in the not-for-profit sector with an annual payroll of $144 billion. This is 10.6 percent of the total workforce. In addition, volunteers provided the full-time employee equivalent of 5.46 million people. If the services provided by these volunteers alone were not available, the government would have to pay over $49 billion to provide the same level of service.”
On the other hand, some organizations voluntarily make PILTs as a goodwill gesture to the communities they serve. An example is Harvard University, which paid the city of Cambridge $1.6 million and paid Boston $40 million in 2001 for their tax-exempt campuses.
But the key here is voluntariness. So long as local tax-exempt organizations can afford to contribute towards the municipal services they receive, fine. But as the NSFRE points out, the very reason they are tax exempt in the first place is that they provide far more by way of benefits than they consume in public resources. Even the Congress and the Supreme Court recognize this beneficial relationship, as the NSFRE paper points out. The failure to recognize the benefits such non-profits offer by bureaucrats, politicians and public employee unions is a case of not seeing the forest for the trees.
There is little argument that PILTs between different political subdivisions to offset the impacts of services provided to non-taxable government entities are inherently unfair or unreasonable. However, the essential component of the entire PILT concept, at least as originally conceived, is that the tax-exempt status of one jurisdiction’s property causes an unfair economic drain on the taxpayers of the other jurisdiction without any realized benefits, which therefore ought result in some compensation for those costs.
When the taxpayers of Colorado Springs have to pay for public services rendered to El Paso County government, from which the city taxpayers receive little or no benefit, then a PILT from the County to the City is likely to be appropriate and reasonable.
But when it comes to PILT payments from one municipal department or enterprise to another, such as from the Colorado Springs Utilities Enterprise to the city’s General Fund, that’s something else entirely… it’s a TABOR-evading fraud on the taxpayers… as I will discuss in Part 2 of this examination of Colorado Springs payments in lieu of taxes, coming soon to this column.
Race to the federal education trough
December 31st, 2009, 4:47 am by Seth RichardsonFederal “Race to the Top” grant competition enhances federalization of local schools
By Seth Richardson
The U.S. Department of Education’s “Race to the Top” grant competition is another step in the not-so-stealthy program to take over public education and administer it at the federal level. Starting with Jimmy Carter, who birthed the bloated bureaucracy, big-government advocates have been relentlessly working towards full federal control of education, despite attempts to deconstruct the unconstitutional intrusion on state sovereignty and parent’s rights by Ronald Reagan and other liberty-minded fiscal conservatives over the years.
Crypto-Progressive George Bush the Younger, whose favorite political theorist was Progressive architect Woodrow Wilson and who never met a big-government bureaucracy he didn’t like, shoved the plan far down the slope with the No Child Left Behind Act, and Progressive/Liberal/Socialist (take your pick) President Barak Obama is continuing the slide towards full federal control of education.
As a part of the Obama administration’s inflationary American Reinvestment and Recovery Act fiat-money exercise in fiscal insanity, the DOE is dangling 4 billion dollars in front of state educators in an attempt to further enhance the framework of federal education control. The competitive grant program provides a long laundry list of requirements and criteria upon which a state application will be judged, and upon which awards, if any, will be based.
Among other attempts to commit states to centralized control, key to the effort is “standardization” of everything from teacher education to student testing and evaluation. One particularly troubling aspect is the criteria that encourages “a commitment to adopting a common set of high-quality standards, evidenced by … [a] State’s participation in a consortium of States that… [i]s working toward jointly developing and adopting a common set of K-12 standards… that are… internationally benchmarked… and [i]ncludes a significant number of States.”
Why we would want to benchmark our children’s education to international standards that consist mostly of Socialist propaganda is something we might want to discuss. Why we would want to jointly adopt common standards with other states is another question that leads inexorably to the conclusion that Obama’s One World Government may be preceded by his One Nation Government wherein state sovereignty ceases to exist.
But nobody can accuse Obama or his cohorts of being stupid. The forces of Progressivism, Liberalism, and Socialism have been working on this educational agenda for more than a hundred years now. Neo-Marxists and radical Liberals and Progressives, who infest the National Education Association and nearly every school district in the country understand that the route to collectivism and control lies in the minds of our children, and that control of their education by the State, by which I mean the Collectivist State, not the State of Colorado, is essential to indoctrinating and raising up generations of dependent-class Proletarians who are pliable and compliant with Socialist, Liberal and Progressive ideology.
And because states are loathe to give up any chance they have at recovering some of the wasted tax dollars they send to Washington, dangling money before educators is like tossing a bucket of swill into the feeding trough at a pig farm, and Colorado is no exception in the swinish rush to the federal trough. That’s unfortunate, because Colorado should take the lead in rejecting Congressional swill-pandering and standing firmly on the solid ground of state sovereignty.
There’s nothing wrong with improving education, but not every effort to improve education is worthy of consideration, particularly when the sub rosa agenda is a nefarious one that leads to the surrender of local control over our children’s education. Colorado must not participate in programs that enhance federalization of our education system and should flatly reject the offer to grunt and squeal at the federal trough. Instead, we must insist that the federal government respect the Constitution and Colorado’s sovereign right to educate her children as the People of Colorado see fit, not as the bureaucrats in Washington require.
Keep in mind that the purpose of the grant program is not only to bind states to educational “reform” through the “cooperative agreements” criteria, it’s to get states to do the scut-work of creating the framework that the Department of Education will eventually implement through regulation to imprison the states and their educational systems to federal servitude. By participating in this “race,” Colorado is facilitating the federal government in exceeding its constitutional limitations and authority, and is helping to forge the very fetters that will bind our children’s educational future to the visions of Progressivism, Liberalism, and Socialism that the Administration has in mind.
There’s a better idea though, one that’s been floated in Washington since Jimmy Carter created the Department of Education; eliminate it as a flatly unconstitutional intrusion upon state sovereignty. An added benefit of eliminating the department is that tax money we send to Washington to fund it can remain in Colorado and be used to actually serve the educational needs of our children without having the federal government skim some off the top, give most of it away to other, more compliant states, and then send a pittance back to us. It’s our money, and we should keep it right here in Colorado.
CATO Institute scholars Veronique de Rugy and Marie Gryphon wrote in their 2004 paper “Elimination Lost: What happened to abolishing the Department of Education?”:
It’s high time we demanded that our state legislators support such efforts, and it’s long past time to demand that our federal representatives get on with slaughtering this pig.
In a Denver Post article, Molson Coors chairman Pete Coors and Steve Shuck, chairman of The Shuck Corporation in Colorado Springs, write:
However well intentioned the sentiment of improving education, what Mr. Coors and Mr. Shuck don’t appear to see the danger of allowing the federal government to take control of public education.
If Colorado’s education system is broken, then it’s up to Coloradoans to fix it, and we’re perfectly capable of doing so on our own. Debilitating dependency on federal largesse does not solve anything, certainly not Colorado’s educational problems. This grant program, even if Colorado competes successfully, will provide only $60 – 175 million in grants, which is a drop in the bucket compared to the more than $5 billion Colorado spends on public education every year. And it’s not about federal money that will improve education, it’s about committing the state to policies and programs that comply with federal educational goals, not necessarily the legitimate needs of the children of Colorado. And ultimately, our children will be paying for the grants the feds hand out, because there’s no such thing as a free lunch. Shall we sell our children’s minds and liberty, not to mention their economic future, down the river at such a cheap price?
Coors and Shuck go on to say:
Indeed. Which is why Colorado must reject further pandering to Liberal/Progressive/Socialist political agendas and overweening federal interference in the education of our children and save them from proletarian dependence on the federal government for their educational needs.
Education is a local matter, let’s keep it that way.
© 2009 Altnews
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