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Show 2. Reservoir Inundation and Tax Losses to Local Areas The Problem Local difficulties caused through reservoir inundation and utility purchase. The Situation Reservoir development and integration of a Federal power system has had unfavorable as well as favorable effects on some local communities and governmental units in the valley. A large part of the unfavorable effects resulted from reservoir inundations, which displaced farmers and business enterprise and reduced the tax base of communi- ties and counties. Reservoir surface at maximum normal operating level covers about 600,000 acres in the valley. Some other lands had to be with- drawn from their previous uses, and several pre- viously taxable public utilities were purchased. This caused a real problem of fair compensation to local areas, communities, and counties suffering from the impoundments. Section 13 of the original TVA Act of 1933 " provided for payments in lieu of taxes only to Ala- bama and Tennessee, computed at the rate of 5 percent of TVA proceeds from the sale of hydro- electric power, and divided between the two States on the basis of place of generation of the power. After several years of operating experience, and expansion into other States, revision of the payment formula became desirable. Intensive study of the problem by TVA staff members, followed by a series of conferences with officials and representatives of the State and local units of government concerned, led to the conclusion that the basis of in-lieu pay- ments should be broadened and their distribution extended to all the States affected by TVA opera- tions. In June 1940 the Congress enacted such a law. Under the act as amended, TVA pays to States and counties in which it conducts power operations, and in which it has acquired property previously subject to State and local taxation, 5 percent of the gross proceeds derived by it from the sale of power during the preceding fiscal year. One-half of the payment is apportioned by paying the States on the basis of the gross proceeds of TVA power sales within such States. The remaining half is 17 Act of May 18,1933, § 13, 48 Stat 58, 66 as amended, 16 U. S. C. 8311. apportioned on the basis of the book value of the power property held by TVA within such States. This system of payments to the States is subject to three provisos. First, the minimum annual pay- ment to each State, including its counties, is to be not less than the 2-year average of State and local ad valorem property taxes levied against power property purchased and operated by TVA in the State, and against that portion of lands in reservoirs constructed by the Government, and operated by TVA, allocated to power, the 2-year average being calculated for the last two tax years the power properties and the reservoir lands were privately owned. Second, the annual payment to each State, including its counties, is not to be less than $10,000. Third, TVA pays directly to the counties the 2-year average of county ad valorem property taxes upon power property and reservoir lands al- locable to power, calculated on the same basis as to the States, with the payment to each county deducted from the payment otherwise due the State. Conclusions Experience in the valley illustrates the variety of problems that arise and the need for flexibility in meeting them when water and land resources are put to best use. For example, reductions of ac- tual property tax revenues brought about by TVA acquisition of private utility properties and reser- voir lands formerly on the tax rolls made the re- placement of county ad valorem tax losses a matter of primary importance. This problem would not arise in States where Federal river programs apply to public domain lands which have never been subject to taxation. The percentage rate of TVA power revenues to be paid in lieu of taxes, and the formula for allocating such payment among the States, were worked out in consultation with the States after due considera- tion of the tax policies and the theory and practice of revenue allocation. Reasonable payments in lieu of taxes measured by proceeds received from sales of electric power, with provision for minimum payments to replace ad valorem taxes actually lost have proved both workable and generally satisfactory. Additional special payments to local governments may be nec- essary to meet hardship situations resulting from augmented demands caused by Federal activities for public services such as schools or roads. 763 |