‘PILT’ payments were shortchanged, lawsuit alleges

By Marcy Stamper

Okanogan County has joined a class-action suit against the federal government to recover almost $100,000 the county says it was due as compensation for nontaxable land.

The lawsuit, originally filed by Kane County, Utah, contends that the U.S. government violated the law by not appropriating the full amount guaranteed to counties through the Payments in Lieu of Taxes (PILT) program.

Since Kane County first filed the lawsuit in the U.S. Court of Federal Claims, more than 300 counties — in all but three states — have joined the class-action suit.

The PILT statute sets out specific formulas to calculate payment due each local government. But in fiscal years 2015 and 2016, Congress didn’t appropriate enough money to make full PILT payments. As a result, the Secretary of the Interior proportionally reduced each payment.

The judge ruled that the U.S. has an obligation to all PILT recipients who were underpaid. The court rejected the government’s claim that the fact that Congress hadn’t appropriated enough money relieved the obligation to make full payments, according to Okanogan County Chief Civil Deputy Prosecuting Attorney Dave Gecas.

The judge hasn’t ruled yet on the amount of underpayment, in total or to individual counties,  said Gecas. Still, while the judge hasn’t ruled on the dollar amounts, attorneys for the plaintiffs and the government have agreed on the numbers for all three years, said Gecas.

This April, the court agreed to certify a class-action suit in the matter. If they win the lawsuit, counties would be due an additional 1.33 percent of their PILT payments for the three years, according to an attorney handling the case. Depending on their federal acreage, counties could get from $100 to more than $130,000 in additional compensation, he said.

The PILT program was started in 1976 as a way of compensating counties for nontaxable lands. Okanogan County gets between $2.2 million and $2.4 million annually, said Okanogan County Treasurer Leah Mc Cormack. But from 2015 to 2017, Okanogan County was underpaid in PILT by $95,716, according to an attorney in the lawsuit.

Joining the class-action suit doesn’t cost the county any money. The attorney representing the counties is doing so on a contingency basis and, if successful, would receive about one-third of the PILT settlement, meaning Okanogan County would get $65,000 instead of $96,000, said Gecas.

Counties have until mid-September to join the lawsuit.

PILT windfall?

PILT monies for 2018 were distributed to counties at the end of June. Okanogan County was anticipating $2.4 million, but was surprised to find an additional $800,000 in the account, said Mc Cormack.

Nevertheless, the county was told not to expect extra payments next year, and was advised to calculate the 2019 budget using the $2.4-million figure, said McCormack.

The U.S. Department of the Interior announced that this year’s payments are the largest ever allocated, but did not explain why.

PILT monies are deposited in the county’s general fund and can be used as needed. With the extra windfall, on Mc Cormack’s suggestion the county commissioners used $550,000 to create a reserve fund. Because funds had been so tight, the county had no reserve fund this year.

“We had zero dollars, which has always kept Leah McCormack on the edge of her seat,” said the treasurer. “It’s not the first year with no reserve, but it’s a scary thought.” The recommendation is for a county to have a reserve fund with 10 percent of its total budget — which would be approximately $2 million for Okanogan County — she said.

Beyond the extra PILT money, things are looking up for county coffers because interest rates have finally started to climb from the depths of the 2008 recession, when they nose-dived to a mere 0.1 percent, said Mc Cormack. With such low returns on its investments, the county was earning only $20,000 a year in interest.

Interest rates have now reached almost 1.8 percent, said Mc Cormack. While she doesn’t anticipate a return to “the good-old days” when rates of 5 or 6 percent generated $1 million a year, prospects are improving, she said.

Compensation for nontaxable lands

Okanogan County has 1,564,382 acres of federal land, almost half the county’s land base and more than in any other county in the state. But because the PILT formula accounts for population, Chelan County, despite fewer acres in the PILT program, received $300,000 more than Okanogan this year.

Other, similar programs that compensate for nontaxable lands are restricted. Money Okanogan County receives from the Secure Rural Schools and Community Self-Determination Act (SRS) must be divided evenly between the county’s eight school districts and the Public Works Department road fund, said Mc Cormack.

Like PILT, SRS payments have also fluctuated in recent years. “When the authorization for SRS lapsed in fiscal year 2014, federal forest payments to counties decreased by over 80 percent on average,” according to the National Association of Counties (NACo). In 2016, the county received just $180,000, while in previous years the county got more than $700,000, said Mc Cormack. This year, the county got $1.37 million in SRS funds.

The county also gets PILT money from the state. That, too, has been cut by two-thirds in recent years.

The SRS program is even older than PILT. Nearly 100 years ago, Congress passed legislation specifying that 25 percent of revenues from timber harvests on federal lands would be shared with affected counties for “the benefit of the public schools and public roads in … counties in which national forests are situated.”

SRS was first enacted in 2000 to make up for the drop in timber revenues. Without SRS, counties receive only the original 25-percent allocation.

This March, Congress reauthorized the SRS program for 2017 and 2018, but it will expire at the end of this year if it’s not reauthorized. Without Congressional action, after 2019 PILT would become a discretionary program subject to annual Congressional appropriations, according to NACo.