Payment in lieu of taxes changes fly in face of NRTF's nature

Michigan lawmakers continue to seek ways to overhaul state spending practices in light of the depressed revenue stream of the past few years. In an attempt to reduce spending from the General Fund and School Aid Fund, two bills recently introduced in the House would require the Legislature to make appropriations from the Michigan Natural Resources Trust Fund (NRTF) each fiscal year to make full payments in lieu of taxes (PILT) on state-owned land purchased with NRTF funds. Lawmakers who support the bills are trying to free up General Fund and School Aid Fund monies for other purposes — a laudable endeavor on its face — but the legislation leaves us uneasy because it at the very least flies in the face of the spirit behind the NRTF.

The trust fund is a restricted fund established in 1976 to provide money for the acquisition and development of land for resource protection and outdoor recreation. The funding is derived from royalties from the sale and lease of state-owned mineral rights. In 1985, state voters chose to make the NRTF part of the Michigan Constitution, ensuring the program’s future. Not more than one-third of NRTF revenues received during each fiscal year can be spent during the subsequent fiscal year.

Payments in lieu of taxes are allocations by the state to local units of government instead of property taxes for the land owned by the state and administered by the Department of Natural Resources (DNR). The PILT program replaces some of the property tax revenues a municipality would collect on DNR land, which like all government property is tax-exempt.

State law currently requires that no more than 50 percent of the payments in lieu of taxes on NRTF-purchased lands may be paid from the NRTF. The rest is supposed to come from the state’s General Fund. Meanwhile, payments in lieu of taxes sent to public schools are paid out of the School Aid Fund.

For the past few years, there hasn’t been enough money in the state’s General Fund to make full payments in lieu of taxes to local governments, which suffer a loss in revenue. Similarly, the School Aid Fund continues to help support the PILT program at a time when per-pupil funding cuts have become severe.

Therefore, House Bill (HB) 4577 has been introduced to require all PILT payments on NRTF-purchased land to be paid from the NRTF. Meanwhile, HB 4579 specifies how the payments will be made. State Reps. Bill Rogers (R-Milford), Hugh Crawford (R-Walled Lake, Wixom), and Eileen Kowall (R-Highland, White Lake) are co-sponsors of that bill.

According to a legislative analysis on the bills, based on fiscal year 2011 payments, the legislation would save the state’s General Fund about $350,400. They could create savings for the School Aid Fund of approximately $774,500 based on executive estimates for Fiscal Year 2011-12 payments.

The bills are founded on a fair measure of logic. Requiring the NRTF to be fully responsible for payments in lieu of taxes is hardly a ridiculous proposition: If land was purchased through the NRTF, the same fund should be used cover PILT obligations. We can also appreciate that enacting the bills into law may heighten the need for trust fund administrators to make prudent decisions on land purchases, since the General Fund and School Aid Fund would no longer contribute toward PILT allocations.

Still, the proposed changes would undermine the fundamental nature of the NRTF program — using the state’s revenue from non-renewable resources to preserve land for the people of Michigan and develop some of it for public recreation. State voters were enamored enough with that notion to enshrine the NRTF in constitutional protection.

While we’re sensitive to the idea that perhaps the state has preserved enough land, and that it has for some years now struggled to maintain the recreation facilities it already has, we’re not comfortable with the revisions proposed by HBs 4577 and 4579.

Remember that the NRTF must operate under an annual cap — no more than one-third of revenues can be spent during the subsequent fiscal year. The legislation would work in tandem with that cap to limit the acquisition of additional property and reduce allocations for development. Also remember that it’s not only the DNR that benefits from NRTF allocations. Local governments also receive NRTF monies to acquire or develop land for recreation. That’s how West Bloomfield has acquired and begun to transform a former railway into a non-motorized trail, and how the county acquired land that is now Highland Oaks park, for example.

We’re not convinced that the benefits of the bills on the General Fund and School Aid Fund outweigh the impairment they would have on the NRTF program. If the Legislature is serious about helping local governments, it should simply live up to revenue sharing commitments of the past. Spreading out less than $1 million in annual School Aid Fund savings to state schools won’t go as far as making tough decisions on cuts elsewhere in order to bolster funding for schools.

At the very least, the public should have a chance to have a say in such significant changes in the NRTF program.