Nolan Stout

WASHINGTON (CN) — Persistent inflation could lead to bigger payouts for local governments through an often overlooked federal compensation program, but not everyone is happy with the formula used to compensate different regions across the United States.

Poised to announce one of the biggest funding totals in its 47-year history, the U.S. Department of the Interior is busy calculating allocations for this year under its PILT program, short for payment in lieu of taxes.

The Department of the Interior budget for fiscal 2023, which ends Sept. 30, included up to $580 million for the program, which would be the largest amount in its history. The allocations are typically announced each year in June.

When Secretary of the Interior Deb Haaland announced 2022 numbers last year, she noted that the $549.5 million being paid by the government would support vital local government services such as firefighting, police protection, the construction of public schools and roads, and search-and-rescue operations.

“This program is an important example of the federal government’s commitment to continuing to be a good neighbor to the communities we serve,” Haaland said.

PILT compensation is calculated through a formula based on acreage, prior year payment deductions, the consumer price index and population. Inflation, which has been persistently rising in the three years since the start of the Covid-19 pandemic, raises the consumer price index and can lead to bigger payments.

The initiative was started in 1976 to acknowledge the loss in tax revenue felt by local governments because the federal government owned land in their borders. But the payments are nowhere close to the revenue the property would generate through real estate taxes.

“It’s typically pennies on the dollar compared to what they’d collect in property taxes,” said Jonathan Shuffield, legislative director for public lands at the National Association of Counties.

For example, Rockingham County, Virginia, which is home to parts of Shenandoah National Park and the George Washington and Jefferson National Forests, has 176,512 acres of federal land within its boundaries.

In 2022, the local government valued the land at more than $2.7 million, which would have produced nearly $1.9 million in real estate tax revenue. Rockingham received $518,574 from the federal government for the land last year.

The biggest payments go to Western states, which also have the most federal land in their borders.

Alaska has more than 225 million acres of federal land, while Nevada is a distant second with 56.7 million acres followed by California with 43.7 million and Utah with 32.98 million.

The 2022 payments range widely from $58.78 million to California at the top to $2,738 for Guam.

About half of all land in California is owned by the federal government, said Ada Waelder, a legislative advocate for the California State Association of Counties. Some counties have 80% to 90% of their land controlled by the federal government, and a direct injection of funding into their general funds is vital.

“The PILT program is pretty crucial for a lot of counties in California,” she said. “PILT helps to support those counties in their budgeting.”

The allocations don’t directly correlate to the acreage. Yuma County, Arizona, and Tooele County, Utah, received the most of any jurisdiction in 2022 at $3.95 million. Yuma has about 1.56 million acres, however, compared with Tooele’s 2.1 million. North Slope Borough, Alaska, on the other hand, received only $1.4 million for 40.1 million acres.

Nils Andreassen, executive director of the Alaska Municipal League, said the state has many small population centers with little commercial or residential tax base as more than 100 communities have less than 1,000 people.

In these sparsely populated places, Andreassen said PILT payments can make up 20% of the local budget.

“It ends up being a pretty big deal in relation to their budget,” he said in an interview.