Payments in Lieu of Taxes: Revisions to DOE Order Could Provide Better Assurance That Payments Meet Goals
Released: 2019-10-29T00:00:00

Letter

Background

History of DOE PILT Orders

DOE has issued PILT orders and policies to articulate DOE’s procedures for carrying out the PILT provision of the Atomic Energy Act. DOE has changed its PILT procedures over time, which is reflected in multiple PILT orders and policies. These changes modified eligibility requirements for PILT, as well as how PILT payments were to be calculated.

In 1958, a predecessor agency to DOE issued the first order on PILT. Under the order, payments were to be based on the property value when the land was acquired and the tax rate of the year for which the payment was made; however, it allowed for exceptions to this rule. The 1958 order also allowed DOE to pay sites retroactively for years prior to their initial PILT application.

In 1987, DOE issued a new PILT order with changes to address budget constraints. The new order introduced more stringent requirements for new PILT applicants; prior PILT recipients were not subject to the new restrictions. The 1987 order included an eligibility requirement called a “gross benefits test.” Under this requirement, payments were only allowed if the tax loss that was incurred exceeded the total value of all benefits derived from DOE’s activities in the community. The 1987 order also included a provision that required payments to be reduced by the amount of tax benefits a community received from DOE’s activities and eliminated retroactive payments to communities for the years prior to their application for PILT.

In 1993, DOE revised its policy in response to concerns about inequities arising from the application of the 1987 order. Specifically, the 1993 policy eliminated the gross benefits test and modified the provision that required payments to be reduced to account for tax benefits from DOE activities. In addition, it allowed payments to all communities to be based on the current tax rates and value of the property in the condition in which it was acquired.

In 2003, DOE issued its most recent PILT order. This order updated responsibilities outlined in the 1993 policy and shifted some details to a separate policy document. It also eliminated a detail of the 1993 policy regarding special burdens payments.

PILT Process and Organizations

In order for a community to be eligible for PILT payments, it must submit to DOE an initial PILT application. DOE uses the one-time initial application to establish the eligibility of land at a certain community. Officials from the relevant DOE site and program offices, along with officials from DOE’s Office of the Chief Financial Officer (CFO), Office of Management, and General Counsel at DOE headquarters, evaluate the application based on several criteria, such as: (1) the property must have been subject to taxation by local or state authorities immediately prior to being acquired by the federal government, (2) payments must not be retroactive, (3) payments should not be in excess of the taxes that would have been collected if the property had remained on the local tax rolls in the condition in which it was acquired, and (4) property values will be based on the highest and best use of the property based on the classification of the property when it was acquired. The CFO makes the final determination of whether to approve or reject the application. Once an application is approved, DOE and the community enter into an intergovernmental assistance agreement, which emphasizes that payments are subject to the availability of funds and to legislative or administrative reductions and states that PILT is not an entitlement to the community.

After establishing eligibility through the application process, each community submits to DOE an annual PILT invoice reflecting its requested PILT amount. These annual PILT invoices specify how much a community estimates its PILT payments should be based on the community’s calculations for a specific tax year. DOE site offices—offices at various DOE sites across the United States that report to DOE program offices— review each PILT invoice and determine whether enough funding is available to pay the amount requested in the PILT invoice. If a community’s PILT invoice reflects a reclassification of the property to a new tax classification or category, a change in the amount of eligible land, or another significant change in the method of calculating the requested PILT payment by the community, the community must submit a new PILT application.

PILT processes involve multiple organizations, including several parts of DOE as well as local governments (see fig. 1). DOE headquarters— including the CFO, Office of Management, and General Counsel, and program offices—is responsible for reviewing and approving initial or revised PILT applications. The CFO and program offices are responsible for ensuring that funding needed for PILT payments is included in budget requests. As of fiscal year 2019, the program offices involved with PILT include: the Office of Environmental Management, which has the mission to clean up sites contaminated by nuclear weapons development and nuclear energy research; the National Nuclear Security Administration, which is responsible for maintaining and enhancing the safety, reliability, and performance of the U.S. nuclear weapons stockpile; the Office of Science, which manages national laboratories and supports research of physics, materials science, and chemistry; the Office of Nuclear Energy, which focuses on research, development, and demonstration of nuclear reactors; and the Office of Legacy Management, which is responsible for providing long-term surveillance and maintenance of DOE sites that have closed.

Under the current PILT order, DOE site offices are responsible for providing recommendations for any initial and revised PILT applications and for administering payments. These DOE site offices operate in their PILT recipient communities. DOE site offices are overseen by DOE program offices. For example, cleanup activities related to nuclear weapons production at the Hanford and Savannah River sites are overseen by the Office of Environmental Management, while the Argonne and Brookhaven National Laboratories are overseen by the Office of Science. The site of the now closed Fernald Plant is overseen by the Office of Legacy Management. At some sites, multiple communities at the site receive PILT payments. For example, three communities at the Oak Ridge site receive PILT payments: the City of Oak Ridge, Anderson County, and Roane County.

Property Taxes

Property taxes in the United States are levied by a number of different taxing authorities, including state and local governments, but mostly by local governments. Local governments, such as counties, can levy and collect taxes on behalf of smaller jurisdictions within their boundaries. Broadly speaking, property taxes are based on the assessed value of the property times the tax rate.

Assessed value. The assessed value of the property is generally a function of the market value and the assessment ratio. The market value depends on the characteristics of the property and can vary across locations as a result of local conditions, including the supply and demand for the type of property. The assessment ratio is a percentage modifier applied in certain circumstances to alter the market value of the property. Some states and counties apply a lower assessment ratio to certain classifications of property, such as agricultural property.

Tax rate. The tax rate is a figure—typically in the form of a percentage—that is applied to the assessed value of the property to determine the total property tax amount. Tax rates vary across locations, depending on local and state tax laws and policies. In addition, for a given property tax bill, local governments may apply a wide variety of tax rates, with different rates applied for different government-supported functions, such as education, emergency services, and roads. The classification of the property can thus influence the tax rates.

PILT Payments Vary Considerably across Sites and Have Generally Increased, Particularly at Two Sites

PILT payments vary considerably across DOE sites, with the communities at two sites with the most eligible land receiving the majority of payments. Total PILT payments made to communities at the 12 DOE sites that receive PILT payments have increased from approximately $9.5 million in 1994 to approximately $23 million in 2017 in fiscal year 2017 dollars. Payments to communities at the Hanford and Savannah River sites account for the majority of that growth.

Communities at Most of DOE’s 74 Sites Do Not Receive PILT Payments

According to DOE, communities at the majority of DOE sites do not receive PILT payments because they are ineligible for PILT or have not applied to receive payments. Specifically, of the 74 DOE sites, communities at 44 sites are ineligible for PILT. Of the 30 sites where communities are eligible or potentially eligible, 18 have communities that have not applied for PILT or currently do not receive PILT, while communities at 12 sites currently or recently received PILT as of 2017, according to DOE documents.

Of the over 2 million acres covered by DOE sites, approximately 70 percent—approximately 1.5-million acres—is ineligible for PILT, according to documents provided by DOE. According to DOE, communities at most of the 44 ineligible sites are not eligible under the provisions of the Atomic Energy Act because they are on property that either: was not on local tax rolls prior to acquisition, is private land, is land controlled by another federal agency, or is university-owned. Some examples of property that is ineligible include: the Waste Isolation Pilot Plant, New Mexico, which is situated on federal land and thus not subject to prior state or local taxation; Hazelwood Interim Storage Site, Missouri, which is on land DOE leases from a private owner; Sandia Lab, Kauai, Hawaii, which is on land controlled by another federal agency; and the Radiobiological Laboratory of Utah, Utah, which is on university-owned land. In addition, in some cases, sites include a mix of eligible and ineligible acreage.

Of the approximately 680,000 acres of property at the 30 sites that are eligible or potentially eligible for PILT, about 25 percent is located at the 18 sites where the communities did not receive PILT payments, according to fiscal year 2017 data provided by DOE. Examples of those sites with eligible property that have not received payments include the Weldon Spring Quarry in St. Charles County, Missouri, and the Atlas Complex in Clark County, Nevada. DOE headquarters officials that we spoke with stated that they are unsure why some communities with eligible property have not applied for PILT.

Of the property that is eligible for PILT, approximately 75 percent is located at the 12 sites where the community has applied for and receives PILT payments. These sites began receiving payments at least as early as the 1950s and as late as 2012. Some sites are located in communities that previously, but no longer, receive PILT payments. For example, the community at the Mound Site, which is under the Office of Legacy Management, received its last payment in 2006. Figure 2 shows PILT eligibility and receipt by site and by acreage.

In fiscal year 2017, communities at 12 DOE sites received or had pending PILT payments. These sites are located in 10 states. The sites vary in size and the amount of land at the site that is eligible under DOE’s PILT order. The two largest sites in terms of eligible acreage—Hanford and Savannah River—are the only sites that have more than 100,000 PILT- eligible acres, at nearly 180,000 and 200,000 respectively. Although the Idaho site includes about 570,000 acres, according to DOE officials, only 5 percent of those are eligible for PILT because they were previously on local tax rolls when DOE acquired the land, while the rest of the land was not on the tax rolls. Five sites—Brookhaven National Laboratory, Argonne National Laboratory, the Fernald Plant, Los Alamos National Laboratory, and Bettis Atomic Power Laboratory—have total PILT-eligible acreage of less than 2,000 acres, with the smallest, Bettis Atomic Power Laboratory, having around 200 PILT-eligible acres. Figure 3, below, shows the name, location, and PILT-associated acreage of DOE sites where local communities received PILT payments in 2017 or had pending PILT payments.

PILT Payments Varied Considerably, with Communities at Two Sites Receiving the Majority of Total Payments

Payments to communities at the 11 DOE sites that received PILT payments in fiscal year 2017 varied considerably, from less than $65,000 to more than $9 million, totaling over $23 million. Communities at the Hanford and Savannah River sites, representing over 75 percent of all PILT-eligible acreage, received approximately 70 percent of total PILT payments—approximately $9.7 million and $6.5 million, respectively. Of the communities at the remaining 9 sites, communities at 2 received more than $1 million, and communities at 2 received less than $100,000. Figure 4 shows payment amounts for the communities at the 11 sites that received payments in fiscal year 2017. See appendix III for detailed information on PILT payments from 1994 to 2017.

Growth in PILT Payments since 1994 Results from Increases in Payments to Communities at Two Sites and the Addition of New PILT Recipients

Growth in PILT payments since 1994 is primarily a result of increases in payments to communities at two sites—Hanford and Savannah River—in addition to new PILT recipient communities at DOE sites. Since 1994, total annual PILT payments have grown from $8,582,446 to $23,170,049 in fiscal year 2017 constant dollars, as figure 5 shows.

Since 1994, increases in payments to the communities at the Hanford and Savannah River sites are responsible for the nearly 60 percent of remaining total growth in PILT payments. PILT payments have increased from a total of over $19 million in 2012 to over $23 million by 2017 in real terms. Nearly all of that growth in total payments during that time is a result of higher payments to communities at the Hanford site, which community and DOE site officials attributed to increases in local land value resulting from the growth in agriculture in the region. PILT payments to the three communities at the Hanford site increased by 43 percent, or nearly $3 million, in that time frame. Communities at the Hanford site were not the only ones to experience a large payment growth rate. PILT payments to communities at two other sites, Pantex and Idaho National Laboratory, increased by approximately 90 percent and 55 percent respectively over the same time period; however, this growth was approximately $100,000 and $85,000 respectively for those communities and therefore did not account for much of the overall growth in PILT payments.

The majority of communities that currently receive PILT payments began receiving them beginning in or after 1994. DOE’s 1993 policy eliminated the gross benefits test and modified a provision that required payments to be reduced by the amount of tax benefits a community received from DOE’s activities. These changes allowed for additional sites to enter into PILT agreements with DOE and allowed other sites to obtain higher payment amounts. Since 1994, communities at seven additional sites were approved for and have begun receiving PILT payments. The addition of these new PILT recipient communities after the 1993 policy change, primarily Brookhaven National Laboratory, is responsible for approximately 15 percent of the growth of total annual payments.

PILT Payments Generally Vary Based on Local Differences, but DOE Is Not Providing Adequate Assurance That Payments Meet PILT Goals

Variations in PILT payments across sites are largely due to differences among the sites, including the different histories and market conditions at each site. However, the PILT order’s lack of requirements about PILT documentation, review of PILT invoices, and payment determinations has limited DOE’s ability to provide adequate assurance that payments fully reflect the terms of their original agreements and consistently meet PILT goals.

DOE’s PILT Order Allows for Variations in PILT Payments

The goal of PILT, as stated in the Atomic Energy Act and reflected in DOE’s order implementing the act, is to render financial assistance to communities, while generally not making payments in excess of the taxes that would have been payable for the property in the condition in which it was acquired. DOE officials stated that an additional PILT goal is to compensate communities for the revenues they would have received under those conditions. Although the order does not require payments to reflect the revenues communities would have received, it states that, on a case-by-case basis, PILT payments will be based on the same assessment values and tax rates that the communities apply to comparable properties with the same use and/or tax classification. Since these values and rates differ between sites, payments may also differ under the order.

PILT Payments Generally Vary Based on Local Differences That Influence Property Taxes

Consistent with DOE’s PILT order, PILT payments to communities vary given the characteristics of the property, market conditions, and tax policies applied at each site, in order to reflect the revenue the communities would have received had the property remained on their tax rolls. DOE generally bases PILT payments on the recipient communities’ estimates of the property taxes they would have received. The communities calculate their estimated payments and then communicate their requested payment amounts in annual invoices to DOE. DOE does not prescribe the use of a particular formula by communities seeking payments. However, DOE officials noted that communities usually base the calculations they use to develop their annual PILT invoices on property taxes and that they generally calculate these using a relatively standard formula. Key information in this calculation includes the amount of land, its estimated value, assessment ratio, and the property tax rate (see figure 6).

Differences in PILT payments to different sites are generally not a function of variations in the payment formula, but rather of variations among the inputs into the formula, although DOE has sometimes altered payments in other ways. Based on our analysis of PILT payments in fiscal year 2017, we found that values of property, assessment ratios, and property tax rates vary across DOE sites and communities. The assessed value of the property is partially determined by characteristics, or history, of the property and market conditions. State and local tax policies may determine both the assessment ratio and the property tax rate.

Characteristics of the property. The amount of PILT eligible property and its classification are factors that partially determine payment amounts. DOE provides the highest payments to communities at sites with the greatest amount of eligible acreage—the Hanford, Savannah River, and Oak Ridge sites. Similarly, lower acreage at some sites usually results in lower payments. For example, Los Alamos National Laboratory and the Fernald Plant are among the smallest sites and payments to these communities are among the smallest. In addition, the land use classification of the property, such as whether it was used for agricultural or commercial purposes when it was acquired, influences its value. Some classifications of land tend to have higher market values than others; for example, commercial land generally has a higher value than agricultural land. The land at the Bettis Atomic Power Laboratory site, located in western Pennsylvania, is classified as commercial property and was valued in 2017 for PILT purposes at an average of $64,476 per acre. As a result, although Bettis Atomic Power Laboratory has among the smallest acreage of any site—at approximately 200 acres—its payments are the fifth highest. In contrast, the land at the Pantex site, located in the Texas Panhandle, is classified as agricultural and homestead property and was valued in 2017 for PILT purposes at an average of $976 per acre.

Market conditions. The market value of property varies across PILT sites as a result of local market conditions. Greater demand for land contributes to higher per-acre values than when there is less demand for land. This contributes to variations among land values, even within a given classification, for the communities’ annual PILT invoices to DOE. For example, irrigable agricultural land at Benton County—one of the communities that hosts the Hanford site—was valued at about $6,500 per acre in 2017, which DOE and county officials attributed primarily to high demand for agricultural property in Washington State’s Columbia Valley River Basin. In contrast, Carson County— which hosts the Pantex Plant and is in a region with lower farm real estate values and is not near a major city—valued its land at $976 per acre in 2017, as previously noted.

State and local tax policies. Some states and counties reduce assessment ratios for certain types of property, such as agricultural property. For example, the assessed value of the property is reduced to a fraction of its market value. Some communities have reflected these assessment ratios in their calculations for their annual PILT invoices to DOE. Because assessment ratios can vary widely across locations—from 6 percent to 100 percent among communities that received PILT payments in fiscal year 2017—they can create large variations in PILT payments. For example, the communities at the Oak Ridge site assess agricultural property at 25 percent of the full market value, which they reflect in their annual PILT invoices to DOE. On the other hand, the Town of Brookhaven, which hosts Brookhaven National Laboratory, applied a 90 percent assessment ratio to its PILT-eligible property, which is categorized as residential. In addition, tax rates vary across communities. For example, in fiscal year 2017, the City of Oak Ridge applied a 2.5 percent tax rate to determine its payments; whereas, Carson County applied a 0.6 percent tax rate.

DOE’s PILT order requires DOE to deduct from PILT payments an amount equal to any payments by the federal government that will be used by the community for the same, identifiable, discrete purpose. In practice, when communities calculate their annual PILT requests, they subtract this amount from their total payment requests. According to DOE and some community officials, communities have made these deductions to offset payments they received through the Department of Education’s Impact Aid program.

DOE’s PILT Order Does Not Fully Incorporate Needed Internal Controls

DOE’s PILT order calls for communities to document key determinants of PILT payments in PILT applications, but it does not include requirements or procedures for DOE or communities to document key determinants of PILT payments after the initial PILT application. In addition, although the order lists evaluation criteria on which PILT payments should be based, it does not establish a process or requirements for DOE offices to review PILT invoices to ensure payments are consistent with those criteria. The order also does not require regular, independent—such as headquarters- level—involvement in such a review process. Lastly, the PILT order lacks specificity on how payments should be determined in certain scenarios. The PILT order’s lack of sufficient internal controls may have contributed to some cases in which payments may not reflect PILT goals.

DOE’s PILT Order Provides for Key Determinants in Applications, but Does Not Require DOE to Document Them in Agreements

DOE’s PILT order lists application and evaluation criteria that it says will serve as the basis of PILT payments. Those criteria include factors, which we refer to as “key determinants,” such as: description of the property; tax rates and assessment values for comparable property; use and zoning classification of the property; and payments from the federal government that will be used for the same identifiable, discrete purpose.

These key determinants are fundamental to determining how much revenue a community would have received if the property had remained on its tax rolls and to ensure that the communities’ PILT payments are not higher than that amount. The order calls for these key determinants to be documented in PILT applications.

However, DOE’s PILT order does not require communities or DOE to document such key determinants of PILT payments at any later stage. Specifically, the order does not require DOE or communities to include this information in PILT intergovernmental agreements, which are agreements between DOE and each community and serve as a basis for obligating funding under PILT. The order also does not require communities to include such information in their annual PILT invoices that they submit to request PILT payments.

GAO, Standards for Internal Control in the Federal Government, GAO-14-704G (Washington, D.C.: September 2014). key determinants of PILT payments for each community, DOE does not have adequate assurance that its payments are consistent with the agreed upon bases of PILT payments, and DOE is more likely to make payments that do not meet PILT goals.

DOE’s PILT Order Establishes DOE Site Office Administration of Payments but Lacks Requirement for Independent Review of PILT Invoices

DOE’s PILT order states that “DOE plans to evaluate applications for PILT, and to calculate” PILT payments using specific guidelines based on key determinants, such as the description of the property, tax rates and assessment values for comparable property, use and zoning classification of the property, and deductions equivalent to certain federal payments; however, it does not call for a review process to determine whether calculations used for PILT invoices follow those guidelines. DOE’s PILT order calls for site, program office, and headquarters review of original and revised PILT applications. However, most original applications were developed decades ago and revised PILT applications are only required if the community would like to reclassify property, change the amount of property, or make other significant changes.

DOE’s PILT order does not require independent, headquarters-level review at any later stage. The PILT order states that site offices will manage the administration of PILT payments. However, it does not specifically call for DOE organizations to review communities’ annual PILT invoices to determine whether PILT invoices follow payment calculation guidelines and do not exceed the amount communities would have received had the property remained on the tax rolls. DOE headquarters officials said that headquarters officials do not review annual PILT invoices. Some DOE CFO officials and officials at some sites stated that DOE sites treat the annual payments as bills to be paid, without applying much scrutiny. To the extent that PILT invoices are reviewed, they are reviewed at the site level by officials who may live in the same communities that receive PILT payments. DOE CFO officials stated that site offices are more knowledgeable of local tax authorities and local conditions than DOE headquarters and that they have expertise—in the form of local realty, legal, budget, and supervisory staff—that DOE headquarters staff rely on for the execution of PILT payments. Nevertheless, there may be an appearance of bias if the only review of PILT invoices is conducted at the site level by individuals who may benefit indirectly from payments to their communities.

Because DOE’s PILT order lacks a requirement for review and validation of annual PILT invoices, DOE is not well positioned to determine whether communities’ payment requests in PILT invoices are consistent with DOE goals. Under federal standards for internal control, management should design control activities to achieve objectives and respond to risks, such as by comparing actual performance to planned or expected performance and analyzing significant differences. By requiring site office and headquarters review of key payment determinants in PILT invoices, DOE may realize benefits, including the ability to (1) evaluate whether PILT invoices are consistent with agreed-upon bases of PILT payments and PILT goals, and (2) ensure greater independence in the review process to avoid the appearance of bias on the part of site officials, who may live in the communities receiving PILT payments and may indirectly benefit from the payments. Without requirements for DOE site offices to review key PILT payment determinants in communities’ invoices for accuracy and consistency with the agreed-upon bases of PILT payments and PILT goals and for headquarters-level review and validation of annual PILT invoices, DOE is more likely to have payments that do not meet PILT goals.

DOE’s PILT Order Lacks Specificity about Some Aspects of Payment Determinations

DOE’s PILT order lacks specificity about how it will determine PILT payment amounts in some scenarios. The PILT order includes information about some key determinants of PILT payments, such as tax rates, assessment values, and property classification, but the order does not provide guidance on other factors that may affect PILT payments, such as tax relief programs. In addition, the order states that the property value will exclude the value of improvements made after the federal government acquired the real property, but it does not state whether property values should include the value of resources such as timber. Last, the order states that payments will be reduced by an amount equal to any payments to the state or local jurisdiction for the same identifiable, discrete purpose. However, the order does not define the phrase “same identifiable, discrete purpose.” Under federal standards for internal control, management should design control activities to achieve objectives and respond to risks, such as by documenting internal control in management directives, administrative policies, or operating manuals. While DOE has documented some key determinants of PILT payments in its order, it does not clearly document how DOE should address tax relief programs in payment determinations. Without additional guidance in the PILT order on how communities should calculate payment requests for their PILT invoices, DOE is more likely to make payments that do not meet PILT goals, as is described in the following section.

DOE Has Limited Assurance That Payments Meet Goals

DOE does not have adequate assurance that payments are meeting PILT goals. This limited assurance that payments meet PILT goals may be in part a result of deficiencies in DOE’s internal controls for PILT. Based on our reviews of PILT documentation and interviews with DOE officials, we identified cases in which payments did not appear to meet the stated PILT goal of compensating communities for the revenue they would have received if the property had remained on the tax rolls. Specifically, we identified five examples of payments potentially not meeting goals as a result of issues with: property classification, determination of land value, application of state tax adjustments, payment deductions, and payment adjustments.

Property classification. We identified a case in which payments appear to be higher than the amount communities would have received had the property remained on the tax rolls in the condition in which it was acquired. In the case of Benton County, the property classification that forms the basis of its requested PILT payments does not appear to be based on the classification of the property when it was acquired. Benton County’s original PILT agreement from 1996 shows that, when acquired, Hanford property in the county was classified as 11 percent farmland and 88 percent rangeland. However, the agreement also states that, considering uses of the land at the time of the agreement, 72 percent of the land would be treated for the purpose of PILT as farmland in the category of “irrigable land” and only 27 percent as rangeland. In 2017, irrigable land in Benton County was valued at $6,495 per acre whereas rangeland was valued at $410 per acre—higher percentages of irrigable land compared to rangeland therefore result in higher payments. Using these land classifications is inconsistent with the PILT goal that payments will not exceed the taxes that would have been payable for the property in the condition in which it was acquired. DOE headquarters officials we spoke with were not aware of this discrepancy in Benton County’s property classification. In addition, DOE did not have documentation to explain DOE’s decision, but an Office of the General Counsel official noted that DOE agreed to these terms as part of a settlement agreement at a time when a number of issues, beyond just PILT issues, were in dispute between Benton County and DOE. Because of this inconsistency in land classifications, it appears that Benton County’s payments may not have reflected the revenues the county would have received had the property remained on the tax rolls in the condition in which it was acquired. Had DOE maintained more thorough documentation and had there been independent review of PILT invoices, these higher payments might have been avoided.

Determination of land value. We identified one case in which payments were not clearly linked to the revenue communities would have received if the property had remained on the tax rolls. Specifically, DOE negotiated with Savannah River Site counties to apply a dollar amount per acre that is not directly tied to assessed property values. DOE and the counties originally negotiated values in 1988 of $1,000 per acre for Aiken and Barnwell and $426 for Allendale counties. Those amounts remained flat until 2007, when DOE agreed to adjust them with a “time value of money” factor to $1,641 and $712 respectively. According to county officials, the counties and DOE agreed to use a negotiated rate rather than a rate based on current assessment values partly because of the difficulty of conducting appraisals because of the large amount of land, lack of comparable properties, and the high expense of an appraisal. Because of this reliance on a negotiated, rather than assessed value, it is unclear whether these payments reflect the revenues the counties would have received had the property remained on the tax rolls in the condition in which it was acquired. Had DOE required independent review of key determinants of PILT payments, this deviation from using assessed values might have been avoided.

Application of tax relief programs. We identified a third case in which payments may have been higher than the revenue communities would have received if the property had remained on the tax rolls. With regard to the Hanford Site, the Open Space Taxation Act of Washington State is a tax relief program that community officials said allows assessment ratios of about 40 percent to be applied for land that is being used for agriculture or as rangeland. In the past, none of the three counties that receive PILT at the Hanford site applied special assessment ratios under this tax relief program in calculating PILT payments. Hanford site officials informed us that they were aware of this tax law and requested that the three counties at the Hanford site apply it. The DOE officials explained that the counties refused because DOE was not using those lands for agriculture or rangeland. The officials stated that the counties at Hanford decided that DOE did not meet the purpose and the terms of the program. However, if the land had remained on the tax rolls in the condition in which it was acquired, it could also be assumed that it might have been farmed or used as rangeland, in which case the counties may have applied the special assessment ratios. Although DOE’s order does not state whether PILT payments should take into account such tax relief programs, failure to take such programs into account may have resulted in DOE paying the counties at Hanford more than they would have received had the property remained on the tax rolls in the condition in which it was acquired, contrary to the order. If DOE’s PILT order had included more specificity about how tax relief programs should be addressed, DOE might have had greater assurance that these payments were not higher than the revenue the communities would have received had the property remained on the tax rolls in the condition in which it was acquired.

Payment deductions. We identified a case in which it was unclear whether payments aligned with PILT goals. DOE has provided non- PILT funding to Los Alamos public schools and the Los Alamos fire department. According to DOE officials, DOE has annually provided $8 million to the county’s schools; DOE provided over $20 million for the county’s fiscal year 2020 firefighting services. DOE also provides PILT funding to Los Alamos County, which was $244,183 in fiscal year 2017. About a decade ago, DOE considered whether it should stop making PILT payments to Los Alamos County because of its other support for the community and the provision in the PILT order requiring deductions from PILT for other payments by the federal government that will be used for the same identifiable, discrete purpose. However, DOE has decided to continue paying Los Alamos County PILT. The county’s position is that the schools are a separate entity from the county government and that its payments should not be reduced to account for amounts received directly by the schools, but in 2017 the county nonetheless reduced its PILT request by the amount it would have provided to Los Alamos schools. It is unclear how the PILT order should be applied in situations like this where payments, including PILT payments, are made to multiple entities. Making continued payments in such a situation, however, may exacerbate perceptions of inequities across sites. If DOE’s PILT order had included more specificity about the reduction of payments to account for other federal payments for the same identifiable, discrete purpose, DOE might have had greater assurance that these payments meet PILT goals.

Payment adjustments. We identified a case in which the PILT order’s lack of specificity led to uncertainty for PILT payment recipients when DOE’s payments did not align with the communities’ calculations of what the communities determined they would have received if the property had remained on the tax rolls. When the PILT invoices from the three counties at the Hanford Site increased by about 73 percent in real terms from a total of about $6 million in 2010 to about $10.7 million in 2017, DOE began providing payments that were lower than what the counties requested in their PILT invoices. Specifically, in 2017, DOE provided 91 percent of what the counties requested, and in 2018 DOE provided 65 percent of what they requested, which DOE officials said was because payment requests exceeded the amounts set aside for PILT purposes. DOE did not cite problems in the counties’ PILT invoices or document problems with the counties’ PILT invoices. Payment adjustments are allowable under the PILT order—both the Atomic Energy Act and DOE’s PILT order give DOE discretion as to payment amounts. However, because the order also lists key determinants for PILT payments that are based on the taxes communities would have received had they remained on the tax rolls and because DOE has typically provided what communities have requested, communities we spoke with said they began to rely on PILT in their budget formulations. The communities had developed their budgets based on the assumption that payments would align with the amounts they determined they would have received had their property remained on the tax rolls, but it is now difficult for them to plan ahead with the new uncertainty. In response to this uncertainty in the payment amount, in 2019, one of the counties at Hanford—Benton County—provided DOE with a PILT invoice that was about $5 million lower than the previous year. According to the county officials we spoke with, the goal of providing a lower PILT payment invoice was to increase the likelihood that they would receive the full amount. DOE’s order does not include any information about under what conditions DOE will adjust payments— such as if payments calculations are not consistent with PILT payment determinants—to guide DOE’s oversight. The order also does not require DOE to document or communicate such information ahead of time. Had DOE’s PILT order included more specificity on these topics, communities might have had more clarity regarding whether their payment calculations were consistent with PILT goals and whether they were likely to receive the amounts they requested.

Conclusions

PILT payments help replace tax revenue that communities are no longer receiving because of DOE’s acquisition of property in their communities. Our past work reported that DOE allowed different standards for PILT invoices at different sites, depending on when the community applied for PILT payments, raising concerns about inequitable treatment of communities. In 1993, DOE updated its PILT order to address one of these concerns by eliminating the gross benefits test that had been applied to new communities. However, some concerns remained. DOE intentionally allows payments to communities to vary across locations because property characteristics, market conditions, and tax policies differ; this variance enables payments to reflect the taxes the communities would have received if the property had remained on local tax rolls. However, DOE’s PILT order lacks: (1) requirements for documenting key determinants of PILT payments in intergovernmental agreements and invoices, (2) requirements for independent review of PILT invoices for consistency with agreed-upon bases of payments, and (3) specificity about payment determinations in certain scenarios. This has resulted in a relatively hands-off approach to management and oversight of communities’ annual PILT invoices as well as some uncertainty about how to determine PILT payments. This is inconsistent with federal internal-control standards and has limited DOE’s ability to provide adequate assurance that DOE is meeting PILT goals. Until DOE strengthens its internal-control activities, communities may continue to perceive that there are inequities in PILT, and DOE will not be able to provide adequate assurance that it is meeting PILT goals.

Recommendations for Executive Action

We are making the following three recommendations to DOE: The Secretary of Energy should direct DOE’s Office of the Chief Financial Officer to revise DOE’s PILT order to require DOE to maintain documentation of key determinants of PILT payments for each community to help ensure that payments are consistent with the agreed-upon bases of PILT payments and PILT goals. (Recommendation 1)

The Secretary of Energy should direct DOE’s Office of the Chief Financial Officer to revise DOE’s PILT order to require DOE site offices to review key determinants of PILT payments in communities’ PILT invoices for accuracy and consistency with the agreed-upon bases of PILT payments and PILT goals and for DOE headquarters to document its review and validation of site office determinations. (Recommendation 2)

The Secretary of Energy should direct DOE’s Office of the Chief Financial Officer to revise DOE’s PILT order to provide additional guidance on how communities should calculate their payment requests for their PILT invoices. (Recommendation 3)

Agency Comments and Our Evaluation

We provided a draft of this product to DOE for review and comment. In its comments, reproduced in appendix IV, DOE neither agreed nor disagreed with our recommendations but did describe actions that it intends to take in response to our recommendations. DOE stated that it will undertake a comprehensive assessment of the PILT program, its objectives, and the manner in which DOE accomplishes PILT’s objectives. DOE also stated that it will convene a working group to identify high-level options for PILT and recommend appropriate changes, if necessary, to DOE leadership.

Although further analysis of PILT could be worthwhile, we believe our review sufficiently demonstrated that DOE’s PILT order lacks sufficient internal controls. As a result, we continue to believe that implementing our recommendations for revising the PILT order could provide better assurance that payments meet PILT goals.

DOE also provided technical comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional committees, the Secretary of Energy, and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have questions about this report, please contact David C. Trimble at (202) 512-3841 or trimbled@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

The objectives of our review were to assess: (1) how, if at all, PILT payments vary across sites and how they have varied over time, and (2) reasons for variations in payments and the extent to which the Department of Energy (DOE) is providing assurance that payments meet PILT goals.

To assess how, if at all, PILT payments vary across sites and how they have changed over time, we obtained and analyzed documentation from DOE regarding total number of DOE sites, their eligibility for PILT, and reasons for lack of eligibility, when applicable. We analyzed DOE documentation of eligible acreage at sites that are affiliated with communities that receive PILT payments and compared this with acreage of DOE property that is not eligible for PILT.

Idaho National Laboratory, Idaho: Bingham County, Butte County, Clark County, Jefferson County

Office of Legacy Management:

Fernald Plant, Ohio: Hamilton County We took several steps to assess the reliability of PILT payment data. We collected data in two phases. The first used PILT datasets that DOE had collected prior to our review. These covered years 1989–2009 and 2012– 2017. We used those data to develop a preliminary understanding of how PILT payments varied across sites and over time. We asked DOE to collect a second, complete, data set for the purpose of our review. That data set covered years 1994-2017. Using these data, we identified possible outliers and missing data and interviewed relevant agency officials at the headquarters, field office, and site office level to determine the extent to which the data were reliable. In addition, we interviewed relevant agency officials at the headquarters, field office, and site offices regarding their internal data reliability and data control measures. A number of written questions regarding their annual PILT invoices, PILT payments, federal offsets, and other related topics that were responded to by all 12 site offices. We also requested DOE payment information that would allow spot checking of the data that DOE provided. We requested that each of the 12 sites provide documentation of their payments for one in every 5 years between 1994 and 2017. We compared this documentation with data DOE submitted for those years to spot check the data for accuracy. We reviewed past GAO reports on PILT and past GAO and DOE reports on DOE financial management systems. We determined the data to be sufficiently reliable for our purposes.

For both objectives, we conducted interviews with or obtained written responses from the following DOE offices, which included representatives of all of the sites that received recent PILT payments:

DOE headquarters: Office of the Chief Financial Officer and General Counsel.

DOE program offices that manage sites hosted by PILT-recipient communities: National Nuclear Security Administration, Office of Environmental Management, Office of Legacy Management, Office of Nuclear Energy, and Office of Science.

DOE site offices hosted by PILT-recipient communities: Argonne National Laboratory, Bettis Atomic Power Laboratory, Brookhaven National Laboratory, Fernald Plant, Knolls Atomic Power Laboratory, Hanford site, Idaho National Laboratory, Los Alamos National Laboratory, Oak Ridge site, Pantex Plant, Portsmouth site, and Savannah River site.

To assess reasons for variations in payments, we identified how DOE communities calculate their requested PILT payment amounts and how DOE officials determine how much DOE will pay. We reviewed DOE’s PILT order, DOE Order 143.1, to determine how DOE specifies payments are to be calculated. We also interviewed DOE site office officials about how they expect communities to determine their requested payment amounts. We compared DOE expectations regarding annual payment request calculations with PILT invoices that communities submit to request payments. Because communities appeared to generally calculate payments to align with expected property tax revenue they would have received had the DOE-acquired property remained on the tax rolls in the condition in which it was acquired, we compared this information with information on how local and state governments determine property taxes. When we needed further clarification about how communities had determined their requested payment amounts, we sent follow up questions to DOE site officials regarding the PILT invoices they had reviewed. Once we identified how communities calculate PILT invoices, we analyzed communities’ fiscal year 2017 payment request documentation to determine how factors—such as characteristics of the property, market conditions, and state and local tax policies—influence payment amounts. We interviewed DOE site officials and some community officials, at the communities that received some of the largest payments, about instances when payments varied from what communities requested.

We analyzed PILT invoices, agreements, and payment data to identify how communities and sites had determined and documented key determinants and decisions, such as property classification, deductions because of other federal payments, land values, and assessment rates. We analyzed DOE’s PILT order to identify PILT goals and requirements related to: PILT payment determinations, DOE review of communities’ PILT invoices, and PILT documentation. We compared this with federal standards for internal control.

We interviewed officials from selected communities that received some of the largest payments to determine how they used PILT payments, how they assess land value, and challenges they have faced with PILT. These communities included all communities at the two sites with the largest aggregate PILT payments in fiscal year 2017: Benton, Franklin, and Grant counties at the Hanford site and Aiken, Allendale, and Barnwell counties at the Savannah River site. Regarding these same topics, we also interviewed staff at community organizations that represent communities that host DOE sites, including: the Energy Communities Alliance and the National Association of Counties. Findings from these communities at two sites and two community organizations cannot be generalized to those we did not interview as part of our review.

We conducted this performance audit from October 2018 to October 2019 in accordance with generally accepted government auditing standards.

Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on audit objectives.

Appendix II: Department of Energy’s (DOE) Sites That Provide Payments in Lieu of Taxes (PILT) to Communities

Argonne National Laboratory

The Argonne National Laboratory covers 1,363 acres in DuPage County outside of Chicago, Illinois. Established in 1946 to conduct “cooperative research in nucleonics” as part of the Atomic Energy Commission’s development of nuclear reactors, Argonne National Laboratory now has over 3,200 employees in addition to nearly 800 scientists who visit the site yearly. Additionally, Argonne has over 7,900 facility users who participate in research at five major user facilities located on site.

Bettis Atomic Power Laboratory

The Bettis Atomic Power Laboratory, covering approximately 200 acres in West Mifflin outside of Pittsburgh, Pennsylvania, is a part of the Naval Nuclear Propulsion Program in the Department of Energy. The Laboratory began operations in 1948 in order to support the engineering, design, and construction of the prototypes of the first nuclear powered submarine, and by 1955 the USS Nautilus was successfully launched. Since then, the Laboratory led development on other nuclear powered crafts including the first nuclear powered ship and aircraft carrier, the USS Long Beach and USS Enterprise, respectively. Today, the Laboratory focuses on design and engineering support for nuclear-powered submarines and aircraft carriers, in addition to development for the nuclear power elements of next generation aircraft carriers.

Brookhaven National Laboratory

The Brookhaven National Laboratory was established in 1947 by the Atomic Energy Commission. Formerly Camp Upton, a U.S. Army installation site, Brookhaven is located on a 5,263-acre site on Long Island in Upton, New York, approximately 60 miles east of New York City. Historically, Brookhaven was involved in the construction of accelerators and research reactors such as the Cosmotron, the High Flux Beam Reactor, and the Brookhaven Graphite Research Reactor. These research facilities led the way in high-energy physics experiments and subsequent discoveries but also resulted in creation of hazardous wastes. As a result, Brookhaven was listed as a Superfund Site in 1989 and a subsequent agreement with state and federal regulators led to the building and operation of groundwater remediation facilities, and the decontamination and decommissioning of the High Flux Beam Reactor and the Brookhaven Graphite Research Reactor including offsite waste disposal.

Fernald Plant

The Fernald Plant covers 839 acres in southwestern Ohio near Cincinnati, Ohio. The Fernald Plant’s production mission took place from 1951–1989 as it housed the Feed Materials Production Center, which processed uranium as the first step in the nuclear weapons production cycle. In 2006, the remediation and restoration of the site was completed and at the time was one of the largest environmental cleanup operations ever undertaken in the United States. Currently, monitoring of the site and a groundwater extraction and treatment remediation under the Office of Legacy Management is the remaining remediation activity. The site includes restored native plants and grasses and the largest manmade wetlands in Ohio.

Hanford Site

DOE is responsible for one of the world’s largest environmental cleanup projects: the treatment and disposal of millions of gallons of radioactive and hazardous waste at its 586 square mile Hanford Site in southeastern Washington State. Hanford facilities produced more than 20 million pieces of uranium metal fuel for nine nuclear reactors along the Columbia River. Five plants in the center of the Hanford Site processed 110,000 tons of fuel from the reactors, discharging an estimated 450 billion gallons of liquids to soil disposal sites and 53 million gallons of radioactive waste to 177 large underground tanks. Plutonium production ended in the late 1980s. Hanford cleanup began in 1989 and now involves (1) groundwater monitoring and treatment, (2) deactivation and decommissioning of contaminated facilities, and (3) the construction of the waste treatment and immobilization plant intended, when complete, to treat the waste in the underground tanks.

Idaho Site

DOE’s Idaho Site is an 890-square-mile federal reserve, only some of which is eligible for PILT, situated in the Arco Desert over the Snake River Plain Aquifer in central Idaho. The site is home to both the Idaho National Laboratory (INL) and the Idaho Cleanup Project. Work at the INL focuses on research and development of nuclear energy technologies, critical infrastructure protection research, and support of national defense and homeland security. The environmental cleanup mission includes remediation of contaminated legacy wastes generated from World War II- era conventional weapons testing, government-owned research and defense reactors, spent nuclear fuel reprocessing, laboratory research, and defense missions at other DOE sites.

Knolls Atomic Power Laboratory

The Knolls Atomic Power Laboratory, located on 173 acres in Niskayuna, near Schenectady, NY, was established in May 1946. The original mission of the Knolls laboratory was to provide technical support for the chemical separation of plutonium and uranium from irradiated fuel. In the 1950s, Knolls changed focus to Navy submarine propulsion development. Knolls developed a series of nuclear reactor and propulsion plant designs for the U.S. Navy. Knolls is the lead design laboratory for the newest Virginia Class fast attack submarines and is leading the design effort on the next generation ballistic missile submarine.

Los Alamos National Laboratory

The laboratory, founded in 1943 during World War II, served as a secret facility for research and development of the first nuclear weapon. The site was chosen because the area provided controlled access, steep canyons for testing high explosives, and existing infrastructure. The Manhattan Project’s research and development efforts that were previously spread throughout the nation became centralized at Los Alamos and left a legacy of contamination. Today, the Los Alamos National Laboratory Cleanup Project is responsible for the treatment, storage, and disposition of a variety of radioactive and hazardous waste streams; removal and disposition of buried waste; protection of the regional aquifer; and removal or deactivation of unneeded facilities.

Oak Ridge Site

DOE’s Oak Ridge Reservation is located on approximately 33,500 acres in East Tennessee. The reservation was established in the early 1940s by the Manhattan Engineer District of the United States Army Corps of Engineers and played a role in the production of enriched uranium during the Manhattan Project and the Cold War. DOE is now working to address excess and contaminated facilities, remove soil and groundwater contamination, and enable modernization that allows the National Nuclear Security Administration to continue its national security and nuclear nonproliferation responsibilities and the Oak Ridge National Laboratory to continue its mission for advancing technology and science.

Pantex Plant

The Pantex Plant covers 2,000 acres and is located northeast of Amarillo, Texas. One of six production facilities in the National Nuclear Security Administration’s Nuclear Security Enterprise, since 1975 the Pantex Plant has operated as the nation’s primary facility for the assembly, dismantlement, and maintenance of nuclear weapons. The last new nuclear weapon was completed in 1991, and since then, the Pantex Plant has dismantled, retired, or stored thousands of nuclear weapons.

Portsmouth Site

The Portsmouth Gaseous Diffusion Plant is located in Pike County, Ohio, in southern central Ohio, approximately 20 miles north of the city of Portsmouth, Ohio. This facility was initially constructed to produce enriched uranium to support the nation’s nuclear weapons program and, later, commercial nuclear reactors. Decades of uranium enrichment and support activities required the use of a number of typical and special industrial chemicals and materials. Plant operations generated hazardous, radioactive, mixed (both hazardous and radioactive), and nonchemical (sanitary) wastes. Past operations also resulted in soil, groundwater, and surface water contamination at several sites located within plant boundaries.

Savannah River Site

The Savannah River Site complex covers 198,344 acres, or 310 square miles, encompassing parts of Aiken, Barnwell, and Allendale counties in South Carolina, bordering the Savannah River. The site is a key DOE industrial complex responsible for environmental stewardship, environmental cleanup, waste management, and disposition of nuclear materials. During the early 1950s, the site began to produce materials used in nuclear weapons, primarily tritium and plutonium-239. Five reactors were built to produce nuclear materials and resulted in unusable by-products, such as radioactive waste. About 35 million gallons of radioactive liquid waste are stored in 43 underground tanks. The Defense Waste Processing Facility is processing the high-activity waste, encapsulating radioactive elements in borosilicate glass, a stable storage form. Since the facility began operations in March 1996, it has produced more than 4,000 canisters (more than 16 million pounds) of radioactive glass.

Appendix III: Payments In Lieu of Taxes (PILT) by the Department of Energy (DOE) since 1994

Appendix IV: Comments from the Department of Energy

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the individual named above, Amanda Kolling, Assistant Director; Antoinette Capaccio; Ellen Fried; Laura Holliday; Skip McClinton; and Sara Sullivan made key contributions to this report. Also contributing to this report were Jeff Arkin, Cindy Gilbert, Michael Kendix, Richard Johnson, and Oliver Richard.