A-65343, OCTOBER 10, 1935, 15 COMP. GEN. 295

A-65343: Oct 10, 1935

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AS FOLLOWS: ONE OF THE MOST SERIOUS DIFFICULTIES WHICH WILL BE ENCOUNTERED IN THE OPERATION OF THE LOW-COST HOUSING AND SLUM CLEARANCE PROJECTS CONSTRUCTED BY ME. ARISES FROM THE FACT THAT PROPERTY OWNED BY THE FEDERAL GOVERNMENT IS NOT SUBJECT TO TAXATION BY STATES AND MUNICIPALITIES. UNLESS THE TENANTS OF THESE PROJECTS RECEIVE POLICE AND FIRE PROTECTION AND THE USE OF SCHOOLS AND OTHER MUNICIPAL FACILITIES FURNISHED BY CITIES IN WHICH SUCH PROJECTS ARE LOCATED. FEW PEOPLE WILL CARE TO RESIDE THEREIN. THESE MUNICIPAL SERVICES ARE FURNISHED TO THE INHABITANTS OF THE CITY WITHOUT A DIRECT CHARGE THEREFOR. THE COST IS MET BY THE CITY THROUGH TAXATION. MANY CITIES HAVE INFORMED US THAT. IN VIEW OF THE FACT THAT THEY WILL NOT RECEIVE ANY TAXES FROM THESE PROJECTS.

A-65343, OCTOBER 10, 1935, 15 COMP. GEN. 295

HOUSING AND SLUM CLEARANCE PROJECTS - MUNICIPAL TAX PAYMENTS MONEYS RECEIVED FROM RENTALS OR OTHERWISE IN CONNECTION WITH HOUSING AND SLUM CLEARANCE PROJECTS UNDERTAKEN PURSUANT TO THE AUTHORITY CONTAINED IN SECTION 203 OF THE ACT OF JUNE 16, 1933, 48 STAT. 202, MAY NOT BE USED FOR PAYMENT TO MUNICIPALITIES OF REAL-ESTATE TAXES, OR PAYMENTS IN LIEU OF SAID TAXES, ON THE PROPERTY INVOLVED.

COMPTROLLER GENERAL MCCARL TO THE ADMINISTRATOR, FEDERAL EMERGENCY ADMINISTRATION OF PUBLIC WORKS, OCTOBER 10, 1935:

THERE HAS BEEN RECEIVED YOUR LETTER OF SEPTEMBER 9, 1935, AS FOLLOWS:

ONE OF THE MOST SERIOUS DIFFICULTIES WHICH WILL BE ENCOUNTERED IN THE OPERATION OF THE LOW-COST HOUSING AND SLUM CLEARANCE PROJECTS CONSTRUCTED BY ME, PURSUANT TO THE AUTHORITY CONFERRED BY THE NATIONAL INDUSTRIAL RECOVERY ACT AND THE EMERGENCY RELIEF APPROPRIATION ACT OF 1935, ARISES FROM THE FACT THAT PROPERTY OWNED BY THE FEDERAL GOVERNMENT IS NOT SUBJECT TO TAXATION BY STATES AND MUNICIPALITIES. UNLESS THE TENANTS OF THESE PROJECTS RECEIVE POLICE AND FIRE PROTECTION AND THE USE OF SCHOOLS AND OTHER MUNICIPAL FACILITIES FURNISHED BY CITIES IN WHICH SUCH PROJECTS ARE LOCATED, FEW PEOPLE WILL CARE TO RESIDE THEREIN. NORMALLY, THESE MUNICIPAL SERVICES ARE FURNISHED TO THE INHABITANTS OF THE CITY WITHOUT A DIRECT CHARGE THEREFOR, BUT THE COST IS MET BY THE CITY THROUGH TAXATION. MANY CITIES HAVE INFORMED US THAT, IN VIEW OF THE FACT THAT THEY WILL NOT RECEIVE ANY TAXES FROM THESE PROJECTS, THEY WILL NOT BE ABLE TO FURNISH SUCH SERVICES TO OUR PROJECTS. IT MUST BE ACKNOWLEDGED THAT THE POSITION TAKEN BY SUCH CITIES IS NOT UNREASONABLE. THE COST TO THE GOVERNMENT OF SUPPLYING THESE SERVICES DIRECTLY WOULD BE PROHIBITIVE AND FOR THE OPERATION OF THE PROJECTS SOME ARRANGEMENT MUST BE MADE WHICH WILL BE SATISFACTORY TO THE CITIES IN WHICH THESE PROJECTS ARE LOCATED.

AS A TYPICAL EXAMPLE OF THE PROBLEM WITH WHICH WE ARE CONFRONTED, THE CITY OF ATLANTA, IN WHICH THE TECHWOOD AND UNIVERSITY PROJECTS ARE LOCATED, HAS ADVISED US THAT IT WILL NOT SUPPLY THESE FACILITIES AND SERVICES UNLESS PAID THEREFOR. IN THE INSTANCE OF THE TECHWOOD PROJECT THE REAL ESTATE TAXES PRIOR TO THE ACQUISITION OF THE PROPERTY BY THE GOVERNMENT AMOUNTED TO APPROXIMATELY $4,470.38. THE AREA WAS OCCUPIED BY 228 FAMILIES, SO THAT THE CITY WAS RECEIVING APPROXIMATELY $15.22 FOR EACH FAMILY RESIDING WITHIN THE AREA.

THE TAX RATE FOR THE CITY OF ATLANTA IS $15 PER THOUSAND AND THE BASIS OF THE ASSESSMENT IS APPROXIMATELY 70 PERCENT OF THE PROPERTY'S ACTUAL VALUE. IF THE PROJECT WAS PRIVATELY OWNED, THE CITY TAX WHICH WOULD HAVE TO BE PAID ON THE PROPERTY WOULD BE APPROXIMATELY $31,999.50, THE ESTIMATED VALUE OF THE PROJECT WHEN COMPLETED BEING $2,875,000. THE PROJECT WHEN COMPLETED WILL HOUSE 604 FAMILIES OR PRACTICALLY THREE TIMES THE NUMBER OF PEOPLE WHO FORMERLY LIVED IN THIS AREA AND, USING THE FAMILY UNIT AS A BASIS AND MEASURING THE AMOUNT TO BE PAID TO THE CITY, THE CITY WOULD BE ENTITLED TO $9,192.88. IN DISCUSSIONS WITH THE CITY OF ATLANTA THE OFFICIALS HAVE INDICATED A WILLINGNESS TO ACCEPT 5 PERCENT OF THE RENTALS OF THIS PROPERTY. THE ESTIMATED RENTALS WILL AMOUNT TO $192,000 A YEAR. THIS 5 PERCENT IS SOMEWHAT MORE THAN THE TAXES PREVIOUSLY COLLECTED BY THE CITY, BUT IS MUCH LESS THAN THE TAXES THAT AN INDIVIDUAL WOULD HAVE TO PAY BASED ON THE VALUE OF THE PROPERTY AS IMPROVED, AND IS PRACTICALLY IDENTICAL WITH THE RATE PER FAMILY WHICH THE CITY RECEIVED BEFORE THE TAKING OVER OF THE LAND BY THE GOVERNMENT.

I CONSIDER A 5 PERCENT PAYMENT TO THE CITY A FAIR AND REASONABLE COMPENSATION FOR THE SERVICES AND FACILITIES WHICH IT WILL SUPPLY AND FEEL THAT IT WOULD BE FOR THE BEST INTERESTS OF THE GOVERNMENT TO ENTER INTO AN AGREEMENT WITH THE CITY OF ATLANTA TO OBTAIN SUCH SERVICES.

IT IS TO BE NOTED THAT THIS WILL NOT IN EFFECT BE A PAYMENT BY THE GOVERNMENT, BUT WILL RATHER BE AN INDIRECT PAYMENT BY THE TENANTS, COLLECTED BY THE GOVERNMENT AS PART OF THE RENT AND TURNED OVER TO THE CITY. YOUR ATTENTION IS ALSO DIRECTED TO PREVIOUS RULINGS OF YOUR OFFICE HOLDING THAT THE PAYMENT FOR WATER AND LIKE SERVICES IS NOT THE PAYMENT OF TAXES BY THE GOVERNMENT. I CONSIDER PAYMENT FOR SCHOOL FACILITIES AND FIRE AND POLICE PROTECTION TO BE IN THE SAME CATEGORY.

BEFORE ENTERING INTO ANY NEGOTIATIONS WITH THE CITY, HOWEVER, I SHOULD LIKE YOUR ADVICE AS TO WHETHER OR NOT YOU WILL INTERPOSE ANY OBJECTIONS TO THE PAYMENT BY THE GOVERNMENT TO THE CITY OF ATLANTA OF A SUM EQUAL TO 5 PERCENT OF THE AMOUNT OF THE RENTALS RECEIVED FROM THE TENANTS OF THE PROJECT IN RETURN FOR THE USE OF THE CITY'S FACILITIES AND SERVICES.

THE RECOGNIZED AND INTENDED PURPOSE OF THE LOW-COST HOUSING PROJECT IS THE ELIMINATION OF UNDESIRABLE LOCAL HOUSING CONDITIONS AND THE SUBSTITUTION THEREFOR OF SUITABLE HOUSING FACILITIES FOR PEOPLE IN LOW INCOME BRACKETS. WHILE THE LAND ACQUIRED BY THE UNITED STATES FOR THIS PURPOSE AND THE BUILDINGS CONSTRUCTED THEREON ARE, FOR THE TIME BEING, TO BE RENTED, IT APPEARS POSSIBLE THAT EVENTUALLY PROVISION WILL BE MADE FOR THEIR SALE, PERHAPS ON A LONG-TIME BASIS. IN SUCH EVENT, THE PARTY TO WHOM THE PROPERTY IS SOLD WILL BE, OF COURSE, LIABLE FOR SUCH TAXES AS ARE THEREAFTER PROPERLY ASSESSED BY THE LOCAL AUTHORITIES BASED ON THE THEN VALUE OF THE PROPERTY.

THE CONSTRUCTION OF SUCH HOUSING PROJECTS HAS, NO DOUBT, CREATED EMPLOYMENT AND IT IS TO BE ASSUMED THE BUILDINGS CONSTITUTE IMPROVEMENTS OF RECOGNIZED SOCIAL AND ECONOMIC VALUE TO THE COMMUNITY. COMPARING THE VALUE OF THE PROPERTY AS THUS IMPROVED WITH THE VALUE OF THE PROPERTY PRIOR TO PURCHASE BY THE UNITED STATES, IT CAN READILY BE SEEN THAT WHEN THE PROPERTIES AGAIN BECOME TAXABLE THE LOCAL AUTHORITIES WILL MORE THAN MAKE UP THE LOSS OF A FEW YEARS' TAXES WHILE THE PROPERTY IS OWNED BY THE UNITED STATES. ALSO, THERE IS THE FACT THAT PROFIT MAKING IS NOT ONE OF THE PURPOSES OF THE RELIEF PROGRAM, AND THE FURTHER FACT THAT THE STATE OR LOCAL AUTHORITIES WERE NOT CALLED UPON TO MATCH FEDERAL FUNDS OR TO CONTRIBUTE ANY PART OF THE MONEYS BEING USED IN CONNECTION WITH THE CONSTRUCTION OF THE PROJECTS. CONSIDERING THE MATTER IN SUCH LIGHT IT WOULD SEEM THAT THE MUNICIPALITIES AND OTHER LOCAL AGENCIES INVOLVED WOULD BE WILLING, IN VIEW OF THE VALUABLE AND LASTING IMPROVEMENTS ERECTED AT FEDERAL EXPENSE, TO FURNISH WITHOUT QUESTION NECESSARY FACILITIES AND SERVICES TO THE PROJECTS WHILE IN FEDERAL OWNERSHIP, SUCH AS SCHOOLS, POLICE AND FIRE PROTECTION, ETC.; AND WHETHER SUCH MUNICIPALITIES MAY DISCRIMINATE AMONG THE RESIDENTS THEREOF IN FURNISHING SCHOOLS, POLICE, FIRE PROTECTION, AND OTHER FACILITIES, ACCORDING TO WHAT HOUSES THEY MAY BE LIVING IN, AND PARTICULARLY HOUSES OF THE UNITED STATES, AS YOUR LETTER STATES THE CITY OF ATLANTA THREATENS TO DO, AND ALSO WHETHER THE CITY OFFICIALS MAY FIX AND ENFORCE COLLECTION OF A PERCENT OF THE RENTS IN LIEU OF OTHER FIXED RATES OF TAXATION, ARE MATTERS PRIMARILY FOR DETERMINATION BY THE OFFICIALS OF THE PARTICULAR CITIES. NO PUBLIC MONEYS OF THE UNITED STATES CAN FORCIBLY BE SO IMPRESSED.

ASIDE FROM THE FOREGOING, THE RULE IS WELL ESTABLISHED THAT THE FEDERAL GOVERNMENT OR ITS ACTIVITIES MAY NOT BE TAXED. SEE MCCULLOCH V. MARYLAND, 4 WHEAT. 316; PANHANDLE OIL CO. V. MISSISSIPPI, 277 U.S. 229; AND STANDARD OIL CO. V. CALIFORNIA, 291 U.S. 242. FURTHERMORE, SECTION 203 OF THE ACT OF JUNE 16, 1933, 48 STAT. 202, UNDER WHICH THESE PROJECTS WERE UNDERTAKEN, AUTHORIZED THE PRESIDENT, THROUGH THE ADMINISTRATOR OF PUBLIC WORKS:

* * * (3) TO ACQUIRE BY PURCHASE, OR BY EXERCISE OF THE POWER OF EMINENT DOMAIN, ANY REAL OR PERSONAL PROPERTY IN CONNECTION WITH THE CONSTRUCTION OF ANY SUCH PROJECT, AND TO SELL ANY SECURITY ACQUIRED OR ANY PROPERTY SO CONSTRUCTED OR ACQUIRED OR TO LEASE ANY SUCH PROPERTY WITH OR WITHOUT THE PRIVILEGE OF PURCHASE: PROVIDED, THAT ALL MONEYS RECEIVED FROM ANY SUCH SALE OR LEASE OR THE REPAYMENT OF ANY LOAN SHALL BE USED TO RETIRE OBLIGATIONS ISSUED PURSUANT TO SECTION 209 (210) OF THIS ACT, IN ADDITION TO ANY OTHER MONEYS REQUIRED TO BE USED FOR SUCH PURPOSES; * *

ACCORDINGLY, IN VIEW OF THE EXPRESS STATUTORY PROVISION FOR THE DISPOSITION OF ALL MONEYS RECEIVED FROM THE PROJECTS, WHETHER AS RENTALS OR OTHERWISE, THERE IS NO AUTHORITY FOR THE USE OF ANY PART THEREOF FOR THE PAYMENT OF REAL ESTATE TAXES ON THE PROPERTY INVOLVED IN THE PROJECTS OR FOR ANY SUCH PAYMENTS, IN LIEU OF TAXES, AS ARE BY YOUR SUBMISSION PROPOSED. SEE, ALSO, SECTIONS 3617 AND 3618, REVISED STATUTES.