What is ACIR? The Advisory Commission on Intergovernmental Relations (ACIR) was created by the Congress in 1959 to monitor the operation of the American federal system and to recommend improvements. AClR is a permanent national bipartisan body representing the executive and legislative branches of Federal, state, and local govern- ment and the public. The Commission is composed of 26 members- nine representing the Federal government, 14 representing state and local government, and three representing the public. The President ap- points 20-three private citizens and three Fed- eral executive officials directly and four gover- nors, three state legislators, four mayors, and three elected county officials from slates nom- inated by the National Governors' Association, the National Conference of State Legislatures, the National League of Cities/U.S. Conference of Mayors, and the National Association of Counties. The three Senators are chosen by the President of the Senate and the three Con- gressmen by the Speaker of the House. Each Commission member serves a two year term and may be reappointed. As a continuing body, the Commission ap- proaches its work by addressing itself to specific issues and problems, the resolution of which would produce improved cooperation among the levels of government and more .effective func- tioning of the federal system. In addition to deal- ing with the all important functional and structural relationships among the various governments, the Commission has also extensively studied criti- cal stresses currently being placed on traditional governmental taxing practices. One of the long range efforts of the Commission has been to seek ways to improve Federal, state, and local govern- mental taxing practices and policies to achieve equitable allocation of resources, increased efficiency in collection and administration, and reduced compliance burdens upon the taxpayers. Studies undertaken by the Commission have dealt with subjects as diverse as transportation and as specific as state taxation of out-of-state deposi- tories; as wide ranging as substate regionalism to the more specialized issue of local revenue diversification. In selecting items for the work program, the Commission considers the relative importance and urgency of the problem, its man- ageability from the point of view of finances and staff available to AClR and the extent to which the Commissi6n can make a fruitful contribution toward the solution of the problem. After selecting specific intergovernmental issues for investigation. AClR follows a multistep pro- cedure that assures review and comment by rep- resentatives of all points of view, all affected levels of government, technical experts, and interested groups. The Commission then debates each issue and formulates its policy position. Commission findings and recommendations are published and draft bills and executive orders developed to assist in implementing AClR policies. This report focuses on one of the most dis- acquire $4 billion of private land during the tinctive features of the U.S. system of federal- next 11 years. Accordingly, by examining the ism-the federal government's immunity from issue of the tax status of this federal property, state and local real property taxation. Specifi- the Commission is not only preserving a link to cally it examines whether it is time to modify its past but, in addition, is adhering to its long- or even eliminate the exemption and presents established practice of discussing at an early recommendations to the Congress to authorize stage emerging policy problems that are likely a comprehensive system of payments in lieu of to require remedial legislative action. real property taxes designed to compensate, on Except for a 1970 report of the Public Land a full tax equivalency basis, state and local Law Review Commission, which focused only governments for the revenues lost due to the on the narrow issue of the treatment of certain exemption. "open space" lands (recreation, watershed, na- The call for a rationalization of the current tional park areas), the federal government had system is not new. Public land ownership has not reexamined the payment in lieu of tax issue been an issue of heated debate throughout this since the Kestnbaum report. century. And the Kestnbaum Commission, the The 1976 Payments In Lieu of Tax Act and a "early ACIR," addressed this subject in a 1955 1978 report by this Commission again broke report. The commission recommended that the the ice in this very important area of federal- national government inaugurate a broad system state-local taxation. Responding to P.L. of payments in lieu of property taxes to state 94-565, a general law which provides compen- and local governments as "necessary to help sation to states and localities for National For- preserve financially healthy local govern- est and most other types of underdeveloped ments.'' federal land, the Commission published The Since that time the scope and dimension of Adequacy of Federal Compensation to Local the issues associated with federally owned real Governments for Tax Exempt Federal Lands property have grown. Not only has the federal (A-68). However, even that study still left government added billions of dollars of real unexamined the question of how "nonopen property to its total holdings, but there is every space" federal property should be treated in indication that it plans to increase its real our intergovernmental fiscal system. Concern property holdings in the future. According to a regarding the proper fiscal treatment of this 1979 report of the U.S. General Accounting Of- property by both members of the Commission fice, the federal government is authorized to and members of Congress led the Commission, iii at its fall 1978 meeting, to request that the staff the building in which it was situated, it is cur- undertake an examination of the intergovern- rently located in a privately owned, govern- mental implications of nonopen space federal ment-leased building upon which taxes are properties with specific attention directed to- paid, either through market rental payments to ward the question of whether Congress should the lessor or through explicit tax escalation enact some form of payment in lieu of tax pro- clauses (which are built into most GSA leases). gram designed to compensate state and local The second and perhaps more important of governments for the property tax loss due to the major inequities that are mentioned briefly the federal presence. here is the ad hoc method of "compensation" The major conclusions, findings, and recom- for tax exempt properties, which the federal mendations of the Commission's work are pre- government has developed over time, as is evi- sented in Chapter 1 of this volume. The re- denced by the existence of 57 different federal mainder of the report provides a more detailed payment programs. None of these programs look at the entire issue of federal payments in provides for a uniform payment for all types of lieu of taxes. A second volume of technical ap- federally owned property. Moreover, many of pendices will be issued soon. the payments are the result of negotiations From this analysis the Commission con- with federal agencies at the local level, rather cludes that there is a persuasive case for a uni- than being based on any guiding principles of form payment, based on full tax equivalency of fiscal economics. federally owned real properties, within the ex- Central to the report's analysis is a look at isting property tax structure of each respective the quantitative aspects of a comprehensive taxing jurisdiction. The findings and conclu- payments in lieu of taxes program, including sions are based upon extensive staff research, estimates of the cost of such a program to the which is supported on firm equity grounds. U.S. Treasury and the geographic distribution The equity issue is seen as at least a two-fold of the payments. The report includes a com- problem: plete discussion of the pros and cons of the On the one hand, the federal government has proposal for Congress to authorize a broad- not followed the traditional equity considera- payment program. This discussion ranges from tions of public finance, which would provide arguments that state and local governments that "like properties be treated alike." This is may not actually "need" additional real prop- manifest in the policy of directly or indirectly erty tax revenues to the viewpoint that a paying taxes for federally owned real property PILOT-type reform would generate significant in many, but not all, instances. ACIR's own lo- economic and political benefits to the federal cation provides one good example of this prob- and statellocal sectors alike. lem. Formerly located in the New Executive Abraham D. Beame Office Building, where no taxes were paid for Chairman Acknowledgments Thisreport was coauthored by Robert D. ~bel report to the members of the Commission. Here and Joan E. Towles and prepared in the ACIR's it is difficult to adequately acknowledge every- division of Taxation and Finance directed by one who helped in this effort. The list, howev- John Shannon. er, would surely include the following: Richard The authors wish to especially acknowledge Almy, Michael Bell, Barbara Boslego, Donald the comments and assistance throughout the Boyd, Bob Breezee, Susannah Calkins, James writing of the report by Douglas Clark, Federal Carberry, Henry Coleman, Peter Crane, Jerry Provincial Relations Division of the Canadian Emrich, Anita Gaven, Susan Jacobs, I. M. Department of Finance; Edgar Estep and Vir- Labovitz, Richard Levin, Harry Levy, John ginia Collins, U.S. General Services Adminis- Lynch, Ted Masters, John Ross, Charles tration; John Behrens, U.S. Bureau of the Cen- Stephenson, Jim Stine, and Matthew Watson. sus; Robert Stein, Rice University; John Jacob Jaffe edited the final report and Lavinia Rackham, U.S. Postal Service; and ACIR col- Clarke and Ruth Phillips put in endless hours leagues Will Myers, and Frank Tippett.