Why It Matters

Federal lands cover vast swaths of the country but generate no local property tax revenue. Counties containing those lands must still fund schools, roads, fire protection, and law enforcement. The Payment in Lieu of Taxes (PILT) program, a Congressional Research Service report updated August 31, shows how Congress has wrestled with compensating these communities, and reveals three central ongoing debates about the program's future.

On June 23, the Department of the Interior distributed $733 million in PILT payments to more than 1,900 counties across 49 states, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands. The report identifies three central ongoing debates regarding PILT: funding mechanism, eligible land types, and payment formula.

The Big Picture

Congress enacted PILT in 1976 in response to the federal government's shift toward permanently retaining federal lands. The program compensates local governments for tax revenue lost on federal property administered by agencies like the Bureau of Land Management, the National Park Service, and the U.S. Fish and Wildlife Service.

From 1976 through 2007, PILT relied on annual discretionary appropriations. In many of those years, funding fell short of the full authorized level, forcing counties to accept prorated payments. Beginning in 2008, Congress moved to mandatory appropriations, which stabilized funding, though discretionary funding returned for fiscal years 2016 and 2017, and sequestration affected FY2013.

The FY2026 payment of $733.6 million (of which $733 million was distributed to recipients and $0.6 million was allocated for program administration) marked the highest amount in at least the past decade, both in nominal and inflation-adjusted terms. That increase was primarily driven by a decrease in prior-year timber deductions. P.L. 119-4 provided $645.2 million for FY2025 and P.L. 119-74, Division C, Section 114 provided $733.6 million for FY2026 in mandatory PILT appropriations.

Section 6902 payments account for 99.9 percent of all FY2026 PILT payments and are determined based on a multipart formula including the number of acres of entitlement land, a per-acre calculation, a population-based maximum payment, selected prior-year payments, and the amount appropriated.

The Bottom Line

Pending legislation signals where disagreement lies: some proposals would extend mandatory funding indefinitely or expand which federal lands qualify for payments, while others focus on whether the formula adequately serves small counties with populations under 5,000. The Small County PILT Parity Act, introduced March 27, 2025, would affect more than 160 counties across 25 states. As of August 26, no FY2027 appropriation for PILT had been enacted.

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