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Compensating Local Governments for Loss of Tax Base Due to State Ownership of Land

September 1996

IV. RECOMMENDATIONS FOR IMPROVING THE COMPENSATION SYSTEM

Thus far, we have reviewed all the existing types of compensation programs used by New York State and analyzed them from the standpoint of comparability with programs of other states, uniformity, and distributional equity. Based on this review and analysis, six specific recommendations are made to improve New York's compensation system, as outlined below. The effect of the recommendations in terms of treatment proposed for different types of state-owned land is summarized in Table 11.

Table 11.
Categorization of State Lands for Proposed
Local Government Compensation Programs
Land Category Recommended
Compensation Type
Transportation Property, including Canals, Highways, Parkways,
and Utilities, etc.
None
Forests, Parks, Recreation, Wildlife Management, Vacant Land
with few or no improvements
PILOT
Admin. Facilities, Institutions, and Other Properties that are
Substantially Improved
Service Charges

*Includes lands owned by all agencies of state government and state authorities.

Any change to existing compensation programs will have fiscal ramifications for both the state and its local governments. It is thus important that the issue of state costs and program benefits to localities be explored, and that the costs of the current program be compared to those of the proposed program. An analysis of fiscal impacts is therefore provided immediately following the recommendations.

The recommendations made herein would require changes to various statutes, including the Real Property Tax Law, the Environmental Conservation Law, the Public Lands Law, and the Education Law.

Recommendations

  1. Combine the existing tax and PILOT program into a single program that applies in all municipalities having eligible state land.
     
  2. PILOT payments should be made to local governments for all types of state-owned land except parcels used for basic infrastructure and smaller improved parcels used for administrative purposes.
     
  3. PILOT payments should be a fixed amount per acre of eligible state land.
     
  4. Local governments should be guaranteed at least as much money as they received in a recent year under existing programs.
     
  5. Adjustments will be required to the state education aid formula, and to formulas used for establishment of constitutional limits on local taxing and borrowing powers, to account for the switch from tax payments to PILOT payments on state-owned land.
     
  6. The state should continue to pay benefit assessments and other such charges for specific local services provided to any properties not considered eligible for PILOT payments.

The many tax and PILOT programs currently provided all have the same purpose: to provide state funds to local governments having state land within their boundaries without regard to the amount of local services (if any) provided to the state property. These programs should be combined into a single PILOT program, applicable on a statewide basis.

This proposed reform would result in more uniform treatment of all state property and all local governments. It would also eliminate the costly state-local disputes over assessments that now occur on an annual basis.

As a general principle, compensation should be paid on all state-owned lands, for distinctions based on location, agency ownership vs. public authority ownership, or other such factors are difficult to justify. However, there are two types of state property that generally do not impose a burden on any municipality and are in fact necessary to both local citizens and local governments alike: (1) roads, highways, and public utility corridors, and (2) state facilities and the local offices of state agencies. As recognized by the various commissions that have studied the issue in the past, these state-owned parcels generally impose no appreciable fiscal burden on local governments and provide substantial local benefits, they should thus be excluded from the proposed PILOT program. However, all improved parcels should be subject to any applicable local service charges (see Recommendation No. 6, below).

Although no specific limitations on payments are recommended, based on acreage thresholds or other criteria. such limitations could be used as a means of controlling total program costs and targeting benefits on the local governments most severely affected by state land ownership.

This recommendation would simplify the program and remove uncertainty concerning the amount to be budgeted for compensation payments in an upcoming fiscal year. It would also result in uniform payments to local governments in different areas of the state and end the practice of differential compensation based on geographic area and local land values.

The fixed payment per acre should be prorated among the taxing jurisdictions receiving the compensation according to the relative magnitude of their tax rates. This is an equitable way of allocating the compensation according to the relative costs of local services borne by counties, municipalities, and school districts.

The compensation program would require accurate identification of eligible acreage of state-owned lands. Since the figures used in the present report reflect existing information from local assessment rolls whose currency and accuracy varies considerably, it is possible that accurate data may result in payments that differ from the estimates provided herein to some unknown extent.

This recommendation will hold local governments harmless from any potential loss in revenues attributable to the proposed program changes. In determining the amount to be guaranteed, both existing tax payments and PILOT payments (including "transition assessments," "aggregate assessments," and "river regulating district assessments.") should be included. In the future, the transition assessments provided under current law should be paid only on newly acquired land that is not eligible for the proposed PILOT program.

At present, the taxable value of state-owned land is included when local real property wealth is measured for these purposes, but properties subject to PILOTs are not included. A switch to PILOTs for all state property would thus result in a major reduction in property wealth in many municipalities. This reduction must be offset by formula adjustments which credit the PILOT payments appropriately if aid payments and tax/debt limits are to remain equitable.

Benefit assessments fill a role that statewide PILOT payments can not in that they provide dollar-for-dollar compensation for expenses incurred in providing a measurable amount of an eligible local government service to specific state properties. They are especially appropriate for the many state administrative offices and similar facilities that are generally situated on smaller parcels in populated areas and for which PILOT payments are not recommended.

The authority of counties and towns to levy benefit assessments on tax-exempt property located within special districts should be further reviewed. Expansion of benefit assessment financing to such services as road maintenance, snowplowing, and refuse collection would assist many of these local governments in obtaining appropriate compensation for services provided to tax-exempt property.

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