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[Senate Report 109-236]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 398
109th Congress                                                   Report
                                 SENATE
 2d Session                                                     109-236

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   REPEAL SECTIONS OF THE MAY 26, 1936 ACT PERTAINING TO THE VIRGIN 
                                ISLANDS

                                _______
                                

                 April 20, 2006.--Ordered to be printed

   Filed, under authority of the order of the Senate of April 7, 2006

                                _______
                                

   Mr. Domenici, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 1829]

    The Committee on Energy and Natural Resources, to which was 
referred the bill (S. 1829) to repeal certain sections of the 
Act of May 26, 1936, pertaining to the Virgin Islands, having 
considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                         Purpose of the Measure

    The purpose of S. 1829 is to repeal certain sections of the 
Act of May 26, 1936 (sections 1401-1401e of title 48, of the 
United States Code), to provide the Government of the United 
States Virgin Islands the ability to fully regulate real 
property tax matters in the territory.

                          Background and Need

    S. 1829 would repeal an outdated 1936 Federal statute which 
limits the authority of the Virgin Islands Government to assess 
and collect real property taxes in the Territory. The 1936 
statute was enacted to address the tax policies of the Danish-
era municipal councils in the Virgin Islands. The 1936 statute 
was generally thought to have been repealed by the enactment of 
the Revised Organic Act of 1954, as amended, which abolished 
the municipal councils and created a comprehensive system of 
local government with sufficient legislative powers to resolve 
local property tax issues without the need for Federal 
intervention.
    A 2004 Third Circuit Court of Appeals Federal court 
decision, however, has revived the 1936 statute, which requires 
that all real property be taxed at the same rate without regard 
to classification or use. The decision, among other things, 
struck down a local statute capping the amount of any increase 
in the assessment of residential real property (and therefore 
any increase in the property tax owed) in any assessment 
period.
    If not now repealed by Congress, the 1936 statute will 
hinder the exercise of the Government's power, as conferred by 
the Revised Organic Act, to assess, administer and collect real 
property taxes in the Virgin Islands. Indeed, by precluding 
classification of property by use and requiring a uniform rate 
of tax between residential and commercial property, the 1936 
statute puts at risk long-standing Government policies designed 
to develop the economy, promote social welfare, and protect 
homeownership in the Virgin Islands.
    Without the authority to limit such increases by capping 
such assessments or similar methods commonly used by other 
jurisdictions, the now revived 1936 statute may have the 
anomalous result of pricing land and homeownership beyond the 
reach of many Virgin Islanders.
    The 1936 statute has long outlived its usefulness and now 
interferes with the Virgin Islands ability to perform an 
essential governmental function. The assessment and collection 
of real property taxes is fundamentally a local government 
issue with no Federal impact. No other State, Territorial or 
local government is subject to such Federal restrictions. The 
Revised Organic Act of 1954, as amended, confers upon the 
people of the Virgin Islands full powers of local self-
government. The 1936 statute is an anachronism that needs to be 
repealed.

                          Legislative History

    S. 1829 was introduced by Senator Domenici (for himself, 
and Senator Bingaman), by request, on October 6, 2005. The 
Committee on Energy and Natural Resources held a hearing on 
October 25, 2003 (S. Hrg. 109-291). At the business meeting on 
March 15, 2006, the Committee ordered S. 1830, as amended, 
favorably reported.

                        Committee Recommendation

    The Committee on Energy and Natural Resources, in open 
business session on March 15, 2006, by unanimous voice vote of 
a quorum present, recommends that the Senate pass S. 1829.

                      Section-By-Section Analysis

    Section 1 repeals Sections 1 through 6 of the Act of May 
26, 1936 (48 U.S.C. 1401 et seq.), effective July 22, 1954.

                   Cost and Budgetary Considerations

    The following estimate of costs of this measure has been 
provided by the Congressional Budget Office.

S. 1829--A bill to repeal certain sections of the Act of May 26, 1936, 
        pertaining to the Virgin Islands

    S. 1829 would repeal sections 1 through 6 of the 1936 
Organic Act of the Virgin Islands, which governs the levying of 
property taxes in the United States Virgin Islands (a territory 
of the United States). CBO estimates that enacting S. 1829 
would have no impact on the federal budget because it would 
affect the territory's property taxes and would have no impact 
on federal revenue.
    S. 1829 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act. 
Enacting this bill would benefit the government of the Virgin 
Islands by repealing an existing federal preemption and 
establishing local authority over the territory's property tax. 
The long-term impact of this change on tax revenues in the 
territory would depend on local decisions regarding the 
structure of the property tax. This legislation would impose no 
costs on any other state, local, or tribal government.
    The CBO staff contact for this estimate is Matthew Pickford 
(for federal costs) and Marjorie Miller (for the state and 
local impact). This estimate was approved by Peter H. Fontaine, 
Deputy Assistant Director for Budget Analysis.

                      Regulatory Impact Evaluation

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out S. 1829. The bill is not a regulatory measure in 
the sense of imposing Government-established standards or 
significant economic responsibilities on private individuals 
and businesses.
    No personal information would be collected in administering 
the program. Therefore, there would be no impact on personal 
privacy.
    Little, if any, additional paperwork would result from the 
enactment of S. 1829, as ordered reported.

                        Executive Communications

    At a hearing before the Committee on Energy and Natural 
Resources on October 25, 2005, the Department of the Interior 
provided the following testimony with respect to S. 1829:

Statement of Nikolao I. Pula, Acting Deputy Assistant Secretary of the 
                      Interior for Insular Affairs

    Mr. Chairman and Members of the Committee on Energy and 
Natural Resources, I am pleased to appear before you today to 
discuss S. 1829. I am Nikolao Pula, Acting Deputy Assistant 
Secretary of the Interior for Insular Affairs.
    S. 1829 would repeal sections 1 through 6 of the 1936 
Organic Act of the Virgin Islands of the United States, which 
deal with property taxation in the territory. In 2004, the 
Third Circuit Court of Appeals held that the property tax 
provisions in the 1936 Organic Act, requiring market valuation, 
were still in effect despite enactment of the Revised Organic 
Act of 1954. This decision has had the effect of invalidating 
local Virgin Islands' statutes that give property tax 
exemptions to residents such as veterans and seniors.
    In a rapidly escalating real estate market, people on 
limited incomes, including many veterans and seniors, can be 
forced from their homes due to an inability to pay the 
increased levies. Adverse social consequences can follow.
    For decades, the Department of the Interior has sponsored 
or backed measures that increase self-government for the 
territories. S. 1829 advances Virgin Islands citizens' self-
government, consistent with Departmental policy. Additionally, 
it is my understanding that there is no Federal regulation of 
property taxation in any other state or territory under the 
American flag.
    S. 1829 would return control of the property tax to the 
Government of the Virgin Islands, and property taxes would be 
levied as they were prior to the Third Circuit's decision. The 
Administration supports enactment of S. 1829.

                        Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the bill S. 1829, as ordered reported, are shown as follows 
(existing law proposed to be omitted is enclosed in black 
brackets, new matter is printed in italic, existing law in 
which no change is proposed is shown in roman):

                          Act of May 26, 1936

                        [Ch. 450, 49 Stat. 1372]

  AN ACT To establish an assessed valuation real property tax in the 
                  Virgin Islands of the United States

    [Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled, That it 
is the policy of Congress to equalize and more equitably to 
distribute existing taxes on real property in the Virgin 
Islands of the United States and to reduce the burden of 
taxation now imposed on land in productive use in such islands.
    [Sec. 2. For the calendar year 1936 and for all succeeding 
years all taxes on real property in the Virgin Islands shall be 
computed on the basis of the actual value of such property and 
the rate in each municipality of such islands shall be the same 
for all real property subject to taxation in such municipality 
whether or not such property is in cultivation and regardless 
of the use to which such property is put.
    [Sec. 3. Until local tax laws conforming to the 
requirements of this Act are in effect in a municipality the 
tax on real property in such municipality for any such calendar 
year shall be at the rate of 1.25 per centum of the assessed 
value. If the legislative authority of a municipality shall 
fail to enact laws for the levy, assessment, collection, or 
enforcement of any tax imposed under authority of this Act 
within three months after the date of its enactment, the 
President shall then prescribe regulations for the levy, 
assessment, collection, and enforcement of such tax, which 
shall be in effect until the legislative authority of such 
municipality shall make regulations for such purposes.
    [Sec. 4. All taxes so levied and collected shall be 
deposited in the municipal treasury of the municipality in 
which such taxes are collected.
    [Sec. 5. The Virgin Islands Company shall pay annually into 
the municipal treasuries of the Virgin Islands in lieu of taxes 
an amount equal to the amount of taxes which would be payable 
on the real property in the Virgin Islands owned by the United 
States and in the possession of the Virgin Islands Company, if 
such real property were in private ownership and taxable, but 
the valuation placed upon such property for taxation purposes 
by the local taxing authorities shall be reduced to a 
reasonable amount by the Secretary of the Interior if, after 
investigation, he finds that such valuation is excessive and 
unreasonable. The Virgin Islands Company shall also pay into 
the municipal treasuries of the Virgin Islands amounts equal to 
the amounts of any taxes of general application which a private 
corporation similarly situated would be required to pay into 
the said treasuries. Similar payments shall be made with 
respect to any property owned by the United States in the 
Virgin Islands which is used for ordinary business or 
commercial purposes, and the income derived from any property 
so used shall be available for making such payments.
    [Sec. 6. Nothing in this Act shall be construed as 
altering, amending, or repealing the existing exemptions from 
taxation of property used for educational, charitable, or 
religious purposes. Subject to the provisions of this Act, the 
legislative authority of the respective municipalities is 
hereby empowered to alter, amend, or repeal, subject to the 
approval of the Governor, any law now imposing taxes on real 
and personal property.]

                                  
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