Payments in Lieu of Taxes: Revisions to DOE Order Could Provide Better Assurance That Payments Meet Goals

The Atomic Energy Act, as amended, authorizes DOE to make PILT payments to communities that host DOE sites that meet specific criteria. PILT is discretionary financial assistance that provides payments to communities based on the property taxes they would have received had the property remained on their tax rolls.

House Report 115-230 accompanying a bill for the Energy and Water Development and Related Agencies Appropriations Act of 2018 included a provision for GAO to review DOE PILT. This report assesses (1) how PILT payments vary, if at all, by site and over time, and (2) reasons for variations in payments and the extent to which DOE is providing assurance that payments meet PILT goals.

GAO analyzed data on DOE payments to communities that DOE reported as having received PILT payments between 2008 and 2017. GAO compared 2017 data across sites and identified changes in payments to those communities between 1994 and 2017. GAO reviewed PILT's authorizing statute, DOE's PILT order, and PILT documentation. GAO interviewed officials from DOE, communities, and community organizations.

The Department of Energy's (DOE) payments in lieu of taxes (PILT)—payments made to some local communities that host DOE sites—vary considerably across the sites and have generally increased over time. Communities at 11 DOE sites received PILT payments in fiscal year 2017 (the most recent fiscal year for which complete data were available), totaling approximately $23 million (see figure). Payments to communities at the Hanford and Savannah River sites accounted for approximately 70 percent of that total, while payments to six sites combined accounted for less than 5 percent. Total PILT payments have more than doubled since 1994, primarily because of growth in payments to communities at the Hanford and Savannah River sites and because communities at other sites began receiving payments since 1994.

DOE intentionally allows for variations of payments across sites so that payments may reflect the revenues communities would have received had the property remained on the tax rolls in the condition in which it was acquired, which DOE officials stated is a goal of PILT. However, DOE's PILT order's lack of requirements has limited DOE's ability to provide adequate assurance that payments consistently meet this and other PILT goals. The PILT order does not require documentation of the key determinants that went into the calculation of payments, or an independent review process to determine whether payment calculations are consistent with PILT goals. The PILT order also lacks specificity about payment determinations in certain scenarios. Without updates to the PILT order to strengthen DOE's internal controls, DOE will continue to lack adequate assurance that payments meet PILT goals.

GAO is making three recommendations that DOE update its PILT order to: improve collection and documentation of key determinants of PILT payments, implement a review process, and clarify how communities should calculate payment requests. DOE neither agreed nor disagreed and plans instead to further study PILT. We believe our report supports implementation of these recommendations.

The federal government has acquired over 2 million acres of property  nationwide for use by the Department of Energy (DOE) and its  predecessor agencies. Most of the property was acquired decades ago  for activities related to the Manhattan Project and the subsequent  development, production, and testing of nuclear weapons, as well as for  energy research. Once acquired by the federal government, such  property was not subject to state or local property taxes. The Atomic  Energy Act, as amended, authorizes DOE to make payments in lieu of  taxes (PILT) that would have been payable to communities if these  properties had remained subject to state or local taxes. The goal of PILT,  as stated in the act and reflected in DOE’s order implementing the act, is  to render financial assistance to these communities, while generally not  making payments in excess of the taxes that would have been payable  for the property in the condition in which it was acquired. An additional  goal of PILT, according to DOE officials we met with, is to compensate  communities for the revenue they would have received if the property had  remained on the tax rolls. DOE may provide PILT payments subject to the  availability of funds; PILT is not an entitlement, and the amounts, the  timing, and the terms of the payments are at the discretion of the  Secretary of Energy.

DOE provides PILT payments to communities—mostly counties—that  host DOE sites. According to DOE and community officials, these  communities use PILT payments for a variety of purposes. Typically, a  community applies PILT payments to the local government’s general  fund, which supports a wide variety of public goods and services, such as  emergency response, roads, and schools. In some cases, DOE makes  PILT payments directly to school districts or other local entities, for  example a water district.

We last reported on DOE’s management of PILT in 1994. At that time,  we found that, as DOE revised PILT policies over time, DOE had applied  different criteria to determine payments for different communities,  depending on when communities applied for PILT. To address concerns  about inequities resulting from the application of different criteria to  different communities, DOE had revised its PILT policy in 1993 to apply  more consistent criteria across PILT. We noted that this revision  addressed some communities’ concerns about inequities because newer  PILT applicants were no longer subject to stricter criteria, and that PILT  payments would likely increase. We also concluded that because communities hosting about 78 percent of DOE property were not eligible  for PILT and the changes could increase payments to some PILT  recipients, some might view the changes as contributing to further  disparities. We stated that Congress may wish to consider reassessing  the broad authority that the Atomic Energy Act provided DOE to make  PILT payments. Congress has not made changes to that authority.

The committee report accompanying H.R. 3266, a bill for the Energy and  Water Development and Related Agencies Appropriations Act of 2018,  includes a provision for GAO to assess DOE’s management of PILT,  including changes made to PILT since GAO’s last review. The joint  explanatory statement accompanying H.R. 1625, a bill for the  Consolidated Appropriations Act, 2018 reiterates the report’s direction for  GAO to provide an update on DOE PILT since GAO’s last review. This  report examines (1) how, if at all, PILT payments vary across sites and  how they have varied over time; and (2) reasons for variations in  payments, and the extent to which DOE is providing assurance that  payments meet PILT goals.

To examine how, if at all, PILT payments have varied by site and how  they have varied over time, we analyzed DOE data on PILT payments  from fiscal years 1994 to 2017. We compared payment amounts across  sites. We also analyzed the data to determine how payment amounts  varied over time. We assessed the reliability of the data by checking for  errors, cross checking data against DOE documentation, and interviewing  DOE officials about the data. We determined the data are sufficiently  reliable for the purposes our report.

To identify reasons for variations in payments and the extent to which  DOE is providing assurance that payments meet PILT goals, we analyzed  DOE’s PILT order, DOE intergovernmental agreements, and PILT  invoices submitted by communities. We examined DOE’s policies and  procedures regarding PILT, and we interviewed DOE officials at a variety  of levels within the agency, including at the headquarters, program, and  site level. We also interviewed officials from five communities at the two  sites that receive the highest PILT payments to describe how they have  used PILT payments, how they assess land value, and challenges they  have faced with PILT. Findings from these five communities cannot be  generalized to all communities receiving PILT payments. See appendix I  for additional information on our objectives, scope, and methodology.

We conducted this work from October 2018 to October 2019 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

DOE has issued PILT orders and policies to articulate DOE’s procedures  for carrying out the PILT provision of the Atomic Energy Act. DOE has  changed its PILT procedures over time, which is reflected in multiple PILT  orders and policies. These changes modified eligibility requirements for  PILT, as well as how PILT payments were to be calculated.

In 1958, a predecessor agency to DOE issued the first order on PILT.  Under the order, payments were to be based on the property value  when the land was acquired and the tax rate of the year for which the  payment was made; however, it allowed for exceptions to this rule.  The 1958 order also allowed DOE to pay sites retroactively for years  prior to their initial PILT application.

In 1987, DOE issued a new PILT order with changes to address  budget constraints. The new order introduced more stringent  requirements for new PILT applicants; prior PILT recipients were not  subject to the new restrictions. The 1987 order included an eligibility  requirement called a “gross benefits test.” Under this requirement,  payments were only allowed if the tax loss that was incurred  exceeded the total value of all benefits derived from DOE’s activities  in the community. The 1987 order also included a provision that  required payments to be reduced by the amount of tax benefits a  community received from DOE’s activities and eliminated retroactive  payments to communities for the years prior to their application for  PILT.

In 1993, DOE revised its policy in response to concerns about  inequities arising from the application of the 1987 order. Specifically,  the 1993 policy eliminated the gross benefits test and modified the  provision that required payments to be reduced to account for tax  benefits from DOE activities. In addition, it allowed payments to all  communities to be based on the current tax rates and value of the  property in the condition in which it was acquired.

In 2003, DOE issued its most recent PILT order. This order updated  responsibilities outlined in the 1993 policy and shifted some details to  a separate policy document. It also eliminated a detail of the 1993  policy regarding special burdens payments.

In order for a community to be eligible for PILT payments, it must submit  to DOE an initial PILT application. DOE uses the one-time initial  application to establish the eligibility of land at a certain community.  Officials from the relevant DOE site and program offices, along with  officials from DOE’s Office of the Chief Financial Officer (CFO), Office of  Management, and General Counsel at DOE headquarters, evaluate the  application based on several criteria, such as: (1) the property must have  been subject to taxation by local or state authorities immediately prior to  being acquired by the federal government, (2) payments must not be  retroactive, (3) payments should not be in excess of the taxes that would  have been collected if the property had remained on the local tax rolls in  the condition in which it was acquired, and (4) property values will be  based on the highest and best use of the property based on the  classification of the property when it was acquired. The CFO makes the  final determination of whether to approve or reject the application. Once  an application is approved, DOE and the community enter into an  intergovernmental assistance agreement, which emphasizes that  payments are subject to the availability of funds and to legislative or  administrative reductions and states that PILT is not an entitlement to the  community.

After establishing eligibility through the application process, each  community submits to DOE an annual PILT invoice reflecting its  requested PILT amount. These annual PILT invoices specify how much a  community estimates its PILT payments should be based on the  community’s calculations for a specific tax year. DOE site offices—offices  at various DOE sites across the United States that report to DOE program  offices— review each PILT invoice and determine whether enough  funding is available to pay the amount requested in the PILT invoice. If a  community’s PILT invoice reflects a reclassification of the property to a  new tax classification or category, a change in the amount of eligible land,  or another significant change in the method of calculating the requested  PILT payment by the community, the community must submit a new PILT  application.

PILT processes involve multiple organizations, including several parts of  DOE as well as local governments (see fig. 1). DOE headquarters— including the CFO, Office of Management, and General Counsel, and  program offices—is responsible for reviewing and approving initial or  revised PILT applications. The CFO and program offices are responsible  for ensuring that funding needed for PILT payments is included in budget  requests. As of fiscal year 2019, the program offices involved with PILT  include:  the Office of Environmental Management, which has the mission to  clean up sites contaminated by nuclear weapons development and  nuclear energy research;  the National Nuclear Security Administration, which is responsible for  maintaining and enhancing the safety, reliability, and performance of  the U.S. nuclear weapons stockpile;  the Office of Science, which manages national laboratories and  supports research of physics, materials science, and chemistry;  the Office of Nuclear Energy, which focuses on research,  development, and demonstration of nuclear reactors; and  the Office of Legacy Management, which is responsible for providing  long-term surveillance and maintenance of DOE sites that have  closed.

Under the current PILT order, DOE site offices are responsible for  providing recommendations for any initial and revised PILT applications  and for administering payments. These DOE site offices operate in their  PILT recipient communities. DOE site offices are overseen by DOE  program offices. For example, cleanup activities related to nuclear  weapons production at the Hanford and Savannah River sites are  overseen by the Office of Environmental Management, while the Argonne  and Brookhaven National Laboratories are overseen by the Office of  Science. The site of the now closed Fernald Plant is overseen by the  Office of Legacy Management. At some sites, multiple communities at the  site receive PILT payments. For example, three communities at the Oak  Ridge site receive PILT payments: the City of Oak Ridge, Anderson  County, and Roane County.

Property taxes in the United States are levied by a number of different  taxing authorities, including state and local governments, but mostly by  local governments. Local governments, such as counties, can levy and  collect taxes on behalf of smaller jurisdictions within their boundaries.  Broadly speaking, property taxes are based on the assessed value of the  property times the tax rate.

Assessed value. The assessed value of the property is generally a  function of the market value and the assessment ratio. The market  value depends on the characteristics of the property and can vary  across locations as a result of local conditions, including the supply  and demand for the type of property. The assessment ratio is a  percentage modifier applied in certain circumstances to alter the  market value of the property. Some states and counties apply a lower  assessment ratio to certain classifications of property, such as  agricultural property.

Tax rate. The tax rate is a figure—typically in the form of a  percentage—that is applied to the assessed value of the property to  determine the total property tax amount. Tax rates vary across  locations, depending on local and state tax laws and policies. In  addition, for a given property tax bill, local governments may apply a  wide variety of tax rates, with different rates applied for different  government-supported functions, such as education, emergency  services, and roads. The classification of the property can thus  influence the tax rates.

PILT Payments Vary Considerably across Sites and Have Generally Increased, Particularly at Two Sites

PILT payments vary considerably across DOE sites, with the communities  at two sites with the most eligible land receiving the majority of payments.  Total PILT payments made to communities at the 12 DOE sites that  receive PILT payments have increased from approximately $9.5 million in  1994 to approximately $23 million in 2017 in fiscal year 2017 dollars.  Payments to communities at the Hanford and Savannah River sites  account for the majority of that growth.

Communities at Most of DOE’s 74 Sites Do Not Receive PILT Payments

According to DOE, communities at the majority of DOE sites do not  receive PILT payments because they are ineligible for PILT or have not  applied to receive payments. Specifically, of the 74 DOE sites,  communities at 44 sites are ineligible for PILT. Of the 30 sites where  communities are eligible or potentially eligible, 18 have communities that  have not applied for PILT or currently do not receive PILT, while  communities at 12 sites currently or recently received PILT as of 2017,  according to DOE documents.

Of the over 2 million acres covered by DOE sites, approximately 70  percent—approximately 1.5-million acres—is ineligible for PILT,  according to documents provided by DOE. According to DOE,  communities at most of the 44 ineligible sites are not eligible under the  provisions of the Atomic Energy Act because they are on property that  either: was not on local tax rolls prior to acquisition, is private land, is land  controlled by another federal agency, or is university-owned. Some  examples of property that is ineligible include: the Waste Isolation Pilot  Plant, New Mexico, which is situated on federal land and thus not subject  to prior state or local taxation; Hazelwood Interim Storage Site, Missouri,  which is on land DOE leases from a private owner; Sandia Lab, Kauai,  Hawaii, which is on land controlled by another federal agency; and the  Radiobiological Laboratory of Utah, Utah, which is on university-owned  land. In addition, in some cases, sites include a mix of eligible and  ineligible acreage.

Of the approximately 680,000 acres of property at the 30 sites that are  eligible or potentially eligible for PILT, about 25 percent is located at the  18 sites where the communities did not receive PILT payments, according  to fiscal year 2017 data provided by DOE. Examples of those sites with  eligible property that have not received payments include the Weldon  Spring Quarry in St. Charles County, Missouri, and the Atlas Complex in  Clark County, Nevada. DOE headquarters officials that we spoke with  stated that they are unsure why some communities with eligible property  have not applied for PILT.

Of the property that is eligible for PILT, approximately 75 percent is  located at the 12 sites where the community has applied for and receives  PILT payments. These sites began receiving payments at least as early  as the 1950s and as late as 2012. Some sites are located in communities  that previously, but no longer, receive PILT payments. For example, the  community at the Mound Site, which is under the Office of Legacy  Management, received its last payment in 2006. Figure 2 shows PILT  eligibility and receipt by site and by acreage.

In fiscal year 2017, communities at 12 DOE sites received or had pending  PILT payments. These sites are located in 10 states. The sites vary in  size and the amount of land at the site that is eligible under DOE’s PILT  order. The two largest sites in terms of eligible acreage—Hanford and  Savannah River—are the only sites that have more than 100,000 PILT- eligible acres, at nearly 180,000 and 200,000 respectively. Although the  Idaho site includes about 570,000 acres, according to DOE officials, only  5 percent of those are eligible for PILT because they were previously on  local tax rolls when DOE acquired the land, while the rest of the land was  not on the tax rolls. Five sites—Brookhaven National Laboratory, Argonne  National Laboratory, the Fernald Plant, Los Alamos National Laboratory,  and Bettis Atomic Power Laboratory—have total PILT-eligible acreage of  less than 2,000 acres, with the smallest, Bettis Atomic Power Laboratory,  having around 200 PILT-eligible acres. Figure 3, below, shows the name,  location, and PILT-associated acreage of DOE sites where local  communities received PILT payments in 2017 or had pending PILT  payments.

PILT Payments Varied Considerably, with Communities at Two Sites Receiving the Majority of Total Payments

Payments to communities at the 11 DOE sites that received PILT  payments in fiscal year 2017 varied considerably, from less than $65,000  to more than $9 million, totaling over $23 million. Communities at the  Hanford and Savannah River sites, representing over 75 percent of all  PILT-eligible acreage, received approximately 70 percent of total PILT  payments—approximately $9.7 million and $6.5 million, respectively. Of  the communities at the remaining 9 sites, communities at 2 received more  than $1 million, and communities at 2 received less than $100,000. Figure  4 shows payment amounts for the communities at the 11 sites that  received payments in fiscal year 2017. See appendix III for detailed  information on PILT payments from 1994 to 2017.

Growth in PILT Payments since 1994 Results from Increases in Payments to Communities at Two Sites and the Addition of New PILT Recipients

Growth in PILT payments since 1994 is primarily a result of increases in  payments to communities at two sites—Hanford and Savannah River—in  addition to new PILT recipient communities at DOE sites. Since 1994,  total annual PILT payments have grown from $8,582,446 to $23,170,049  in fiscal year 2017 constant dollars, as figure 5 shows.

Since 1994, increases in payments to the communities at the Hanford  and Savannah River sites are responsible for the nearly 60 percent of  remaining total growth in PILT payments. PILT payments have increased  from a total of over $19 million in 2012 to over $23 million by 2017 in real  terms. Nearly all of that growth in total payments during that time is a  result of higher payments to communities at the Hanford site, which  community and DOE site officials attributed to increases in local land  value resulting from the growth in agriculture in the region. PILT  payments to the three communities at the Hanford site increased by 43  percent, or nearly $3 million, in that time frame. Communities at the  Hanford site were not the only ones to experience a large payment  growth rate. PILT payments to communities at two other sites, Pantex  and Idaho National Laboratory, increased by approximately 90 percent  and 55 percent respectively over the same time period; however, this  growth was approximately $100,000 and $85,000 respectively for those  communities and therefore did not account for much of the overall growth  in PILT payments.

The majority of communities that currently receive PILT payments began  receiving them beginning in or after 1994. DOE’s 1993 policy eliminated  the gross benefits test and modified a provision that required payments to  be reduced by the amount of tax benefits a community received from  DOE’s activities. These changes allowed for additional sites to enter into  PILT agreements with DOE and allowed other sites to obtain higher  payment amounts. Since 1994, communities at seven additional sites  were approved for and have begun receiving PILT payments. The  addition of these new PILT recipient communities after the 1993 policy  change, primarily Brookhaven National Laboratory, is responsible for  approximately 15 percent of the growth of total annual payments.

PILT Payments Generally Vary Based on Local Differences, but DOE Is Not Providing Adequate Assurance That Payments Meet PILT Goals

Variations in PILT payments across sites are largely due to differences  among the sites, including the different histories and market conditions at  each site. However, the PILT order’s lack of requirements about PILT  documentation, review of PILT invoices, and payment determinations has  limited DOE’s ability to provide adequate assurance that payments fully  reflect the terms of their original agreements and consistently meet PILT  goals.

DOE’s PILT Order Allows for Variations in PILT Payments

The goal of PILT, as stated in the Atomic Energy Act and reflected in  DOE’s order implementing the act, is to render financial assistance to  communities, while generally not making payments in excess of the taxes  that would have been payable for the property in the condition in which it  was acquired. DOE officials stated that an additional PILT goal is to  compensate communities for the revenues they would have received  under those conditions. Although the order does not require payments to  reflect the revenues communities would have received, it states that, on a  case-by-case basis, PILT payments will be based on the same  assessment values and tax rates that the communities apply to  comparable properties with the same use and/or tax classification. Since  these values and rates differ between sites, payments may also differ  under the order.

PILT Payments Generally Vary Based on Local Differences That Influence Property Taxes

Consistent with DOE’s PILT order, PILT payments to communities vary  given the characteristics of the property, market conditions, and tax  policies applied at each site, in order to reflect the revenue the  communities would have received had the property remained on their tax  rolls. DOE generally bases PILT payments on the recipient communities’  estimates of the property taxes they would have received. The  communities calculate their estimated payments and then communicate  their requested payment amounts in annual invoices to DOE. DOE does  not prescribe the use of a particular formula by communities seeking  payments. However, DOE officials noted that communities usually base  the calculations they use to develop their annual PILT invoices on  property taxes and that they generally calculate these using a relatively  standard formula. Key information in this calculation includes the amount  of land, its estimated value, assessment ratio, and the property tax rate  (see figure 6).

Differences in PILT payments to different sites are generally not a  function of variations in the payment formula, but rather of variations  among the inputs into the formula, although DOE has sometimes altered  payments in other ways. Based on our analysis of PILT payments in fiscal  year 2017, we found that values of property, assessment ratios, and  property tax rates vary across DOE sites and communities. The assessed  value of the property is partially determined by characteristics, or history,  of the property and market conditions. State and local tax policies may  determine both the assessment ratio and the property tax rate.

Characteristics of the property. The amount of PILT eligible  property and its classification are factors that partially determine  payment amounts. DOE provides the highest payments to  communities at sites with the greatest amount of eligible acreage—the  Hanford, Savannah River, and Oak Ridge sites. Similarly, lower  acreage at some sites usually results in lower payments. For  example, Los Alamos National Laboratory and the Fernald Plant are  among the smallest sites and payments to these communities are  among the smallest. In addition, the land use classification of the  property, such as whether it was used for agricultural or commercial  purposes when it was acquired, influences its value. Some  classifications of land tend to have higher market values than others;  for example, commercial land generally has a higher value than  agricultural land. The land at the Bettis Atomic Power Laboratory site,  located in western Pennsylvania, is classified as commercial property  and was valued in 2017 for PILT purposes at an average of $64,476  per acre. As a result, although Bettis Atomic Power Laboratory has  among the smallest acreage of any site—at approximately 200  acres—its payments are the fifth highest. In contrast, the land at the  Pantex site, located in the Texas Panhandle, is classified as  agricultural and homestead property and was valued in 2017 for PILT  purposes at an average of $976 per acre.

Market conditions. The market value of property varies across PILT  sites as a result of local market conditions. Greater demand for land  contributes to higher per-acre values than when there is less demand  for land. This contributes to variations among land values, even within  a given classification, for the communities’ annual PILT invoices to  DOE. For example, irrigable agricultural land at Benton County—one  of the communities that hosts the Hanford site—was valued at about  $6,500 per acre in 2017, which DOE and county officials attributed  primarily to high demand for agricultural property in Washington  State’s Columbia Valley River Basin. In contrast, Carson County— which hosts the Pantex Plant and is in a region with lower farm real  estate values and is not near a major city—valued its land at $976 per  acre in 2017, as previously noted.

State and local tax policies. Some states and counties reduce  assessment ratios for certain types of property, such as agricultural  property. For example, the assessed value of the property is reduced  to a fraction of its market value. Some communities have reflected  these assessment ratios in their calculations for their annual PILT  invoices to DOE. Because assessment ratios can vary widely across  locations—from 6 percent to 100 percent among communities that  received PILT payments in fiscal year 2017—they can create large  variations in PILT payments. For example, the communities at the  Oak Ridge site assess agricultural property at 25 percent of the full  market value, which they reflect in their annual PILT invoices to DOE.  On the other hand, the Town of Brookhaven, which hosts Brookhaven  National Laboratory, applied a 90 percent assessment ratio to its  PILT-eligible property, which is categorized as residential. In addition,  tax rates vary across communities. For example, in fiscal year 2017,  the City of Oak Ridge applied a 2.5 percent tax rate to determine its  payments; whereas, Carson County applied a 0.6 percent tax rate.

DOE’s PILT order requires DOE to deduct from PILT payments an  amount equal to any payments by the federal government that will be  used by the community for the same, identifiable, discrete purpose. In  practice, when communities calculate their annual PILT requests, they  subtract this amount from their total payment requests. According to DOE  and some community officials, communities have made these deductions  to offset payments they received through the Department of Education’s  Impact Aid program.

DOE’s PILT Order Does Not Fully Incorporate Needed Internal Controls

DOE’s PILT order calls for communities to document key determinants of  PILT payments in PILT applications, but it does not include requirements  or procedures for DOE or communities to document key determinants of  PILT payments after the initial PILT application. In addition, although the  order lists evaluation criteria on which PILT payments should be based, it  does not establish a process or requirements for DOE offices to review  PILT invoices to ensure payments are consistent with those criteria. The  order also does not require regular, independent—such as headquarters- level—involvement in such a review process. Lastly, the PILT order lacks  specificity on how payments should be determined in certain scenarios.  The PILT order’s lack of sufficient internal controls may have contributed  to some cases in which payments may not reflect PILT goals.

DOE’s PILT Order Provides for Key Determinants in Applications, but Does Not Require DOE to Document Them in Agreements

DOE’s PILT order lists application and evaluation criteria that it says will  serve as the basis of PILT payments. Those criteria include factors, which  we refer to as “key determinants,” such as: description of the property;  tax rates and assessment values for comparable property; use and zoning classification of the property; and payments from the federal government that will be used for the same  identifiable, discrete purpose.

These key determinants are fundamental to determining how much  revenue a community would have received if the property had remained  on its tax rolls and to ensure that the communities’ PILT payments are not  higher than that amount. The order calls for these key determinants to be  documented in PILT applications.

However, DOE’s PILT order does not require communities or DOE to  document such key determinants of PILT payments at any later stage.  Specifically, the order does not require DOE or communities to include  this information in PILT intergovernmental agreements, which are  agreements between DOE and each community and serve as a basis for  obligating funding under PILT. The order also does not require  communities to include such information in their annual PILT invoices that  they submit to request PILT payments.

GAO, Standards for Internal Control in the Federal Government, GAO-14-704G  (Washington, D.C.: September 2014). key determinants of PILT payments for each community, DOE does not  have adequate assurance that its payments are consistent with the  agreed upon bases of PILT payments, and DOE is more likely to make  payments that do not meet PILT goals.

DOE’s PILT Order Establishes DOE Site Office Administration of Payments but Lacks Requirement for Independent Review of PILT Invoices

DOE’s PILT order states that “DOE plans to evaluate applications for  PILT, and to calculate” PILT payments using specific guidelines based on  key determinants, such as the description of the property, tax rates and  assessment values for comparable property, use and zoning classification  of the property, and deductions equivalent to certain federal payments;  however, it does not call for a review process to determine whether  calculations used for PILT invoices follow those guidelines. DOE’s PILT  order calls for site, program office, and headquarters review of original  and revised PILT applications. However, most original applications were  developed decades ago and revised PILT applications are only required if  the community would like to reclassify property, change the amount of  property, or make other significant changes.

DOE’s PILT order does not require independent, headquarters-level  review at any later stage. The PILT order states that site offices will  manage the administration of PILT payments. However, it does not  specifically call for DOE organizations to review communities’ annual  PILT invoices to determine whether PILT invoices follow payment  calculation guidelines and do not exceed the amount communities would  have received had the property remained on the tax rolls. DOE  headquarters officials said that headquarters officials do not review  annual PILT invoices. Some DOE CFO officials and officials at some sites  stated that DOE sites treat the annual payments as bills to be paid,  without applying much scrutiny. To the extent that PILT invoices are  reviewed, they are reviewed at the site level by officials who may live in  the same communities that receive PILT payments. DOE CFO officials  stated that site offices are more knowledgeable of local tax authorities  and local conditions than DOE headquarters and that they have  expertise—in the form of local realty, legal, budget, and supervisory  staff—that DOE headquarters staff rely on for the execution of PILT  payments. Nevertheless, there may be an appearance of bias if the only  review of PILT invoices is conducted at the site level by individuals who  may benefit indirectly from payments to their communities.

Because DOE’s PILT order lacks a requirement for review and validation  of annual PILT invoices, DOE is not well positioned to determine whether  communities’ payment requests in PILT invoices are consistent with DOE  goals. Under federal standards for internal control, management should  design control activities to achieve objectives and respond to risks, such  as by comparing actual performance to planned or expected performance  and analyzing significant differences. By requiring site office and  headquarters review of key payment determinants in PILT invoices, DOE  may realize benefits, including the ability to (1) evaluate whether PILT  invoices are consistent with agreed-upon bases of PILT payments and  PILT goals, and (2) ensure greater independence in the review process to  avoid the appearance of bias on the part of site officials, who may live in  the communities receiving PILT payments and may indirectly benefit from  the payments. Without requirements for DOE site offices to review key  PILT payment determinants in communities’ invoices for accuracy and  consistency with the agreed-upon bases of PILT payments and PILT  goals and for headquarters-level review and validation of annual PILT  invoices, DOE is more likely to have payments that do not meet PILT  goals.

DOE’s PILT Order Lacks Specificity about Some Aspects of Payment Determinations

DOE’s PILT order lacks specificity about how it will determine PILT  payment amounts in some scenarios. The PILT order includes  information about some key determinants of PILT payments, such as tax  rates, assessment values, and property classification, but the order does  not provide guidance on other factors that may affect PILT payments,  such as tax relief programs. In addition, the order states that the property  value will exclude the value of improvements made after the federal  government acquired the real property, but it does not state whether  property values should include the value of resources such as timber.  Last, the order states that payments will be reduced by an amount equal  to any payments to the state or local jurisdiction for the same identifiable,  discrete purpose. However, the order does not define the phrase “same  identifiable, discrete purpose.” Under federal standards for internal  control, management should design control activities to achieve  objectives and respond to risks, such as by documenting internal control  in management directives, administrative policies, or operating manuals.  While DOE has documented some key determinants of PILT payments in  its order, it does not clearly document how DOE should address tax relief  programs in payment determinations. Without additional guidance in the  PILT order on how communities should calculate payment requests for  their PILT invoices, DOE is more likely to make payments that do not  meet PILT goals, as is described in the following section.

DOE Has Limited Assurance That Payments Meet Goals

DOE does not have adequate assurance that payments are meeting PILT  goals. This limited assurance that payments meet PILT goals may be in  part a result of deficiencies in DOE’s internal controls for PILT. Based on  our reviews of PILT documentation and interviews with DOE officials, we  identified cases in which payments did not appear to meet the stated  PILT goal of compensating communities for the revenue they would have  received if the property had remained on the tax rolls. Specifically, we  identified five examples of payments potentially not meeting goals as a  result of issues with: property classification, determination of land value,  application of state tax adjustments, payment deductions, and payment  adjustments.

Property classification. We identified a case in which payments  appear to be higher than the amount communities would have  received had the property remained on the tax rolls in the condition in  which it was acquired. In the case of Benton County, the property  classification that forms the basis of its requested PILT payments  does not appear to be based on the classification of the property  when it was acquired. Benton County’s original PILT agreement from  1996 shows that, when acquired, Hanford property in the county was  classified as 11 percent farmland and 88 percent rangeland.  However, the agreement also states that, considering uses of the land  at the time of the agreement, 72 percent of the land would be treated  for the purpose of PILT as farmland in the category of “irrigable land”  and only 27 percent as rangeland. In 2017, irrigable land in Benton  County was valued at $6,495 per acre whereas rangeland was valued  at $410 per acre—higher percentages of irrigable land compared to  rangeland therefore result in higher payments. Using these land  classifications is inconsistent with the PILT goal that payments will not  exceed the taxes that would have been payable for the property in the  condition in which it was acquired. DOE headquarters officials we  spoke with were not aware of this discrepancy in Benton County’s  property classification. In addition, DOE did not have documentation  to explain DOE’s decision, but an Office of the General Counsel  official noted that DOE agreed to these terms as part of a settlement  agreement at a time when a number of issues, beyond just PILT  issues, were in dispute between Benton County and DOE. Because of  this inconsistency in land classifications, it appears that Benton  County’s payments may not have reflected the revenues the county  would have received had the property remained on the tax rolls in the  condition in which it was acquired. Had DOE maintained more  thorough documentation and had there been independent review of  PILT invoices, these higher payments might have been avoided.

Determination of land value. We identified one case in which  payments were not clearly linked to the revenue communities would  have received if the property had remained on the tax rolls.  Specifically, DOE negotiated with Savannah River Site counties to  apply a dollar amount per acre that is not directly tied to assessed  property values. DOE and the counties originally negotiated values in  1988 of $1,000 per acre for Aiken and Barnwell and $426 for  Allendale counties. Those amounts remained flat until 2007, when  DOE agreed to adjust them with a “time value of money” factor to  $1,641 and $712 respectively. According to county officials, the  counties and DOE agreed to use a negotiated rate rather than a rate  based on current assessment values partly because of the difficulty of  conducting appraisals because of the large amount of land, lack of  comparable properties, and the high expense of an appraisal.  Because of this reliance on a negotiated, rather than assessed value,  it is unclear whether these payments reflect the revenues the counties  would have received had the property remained on the tax rolls in the  condition in which it was acquired. Had DOE required independent  review of key determinants of PILT payments, this deviation from  using assessed values might have been avoided.

Application of tax relief programs. We identified a third case in  which payments may have been higher than the revenue communities  would have received if the property had remained on the tax rolls.  With regard to the Hanford Site, the Open Space Taxation Act of  Washington State is a tax relief program that community officials said  allows assessment ratios of about 40 percent to be applied for land  that is being used for agriculture or as rangeland. In the past, none  of the three counties that receive PILT at the Hanford site applied  special assessment ratios under this tax relief program in calculating  PILT payments. Hanford site officials informed us that they were  aware of this tax law and requested that the three counties at the  Hanford site apply it. The DOE officials explained that the counties  refused because DOE was not using those lands for agriculture or  rangeland. The officials stated that the counties at Hanford decided  that DOE did not meet the purpose and the terms of the program.  However, if the land had remained on the tax rolls in the condition in  which it was acquired, it could also be assumed that it might have  been farmed or used as rangeland, in which case the counties may  have applied the special assessment ratios. Although DOE’s order  does not state whether PILT payments should take into account such  tax relief programs, failure to take such programs into account may  have resulted in DOE paying the counties at Hanford more than they  would have received had the property remained on the tax rolls in the  condition in which it was acquired, contrary to the order. If DOE’s PILT  order had included more specificity about how tax relief programs  should be addressed, DOE might have had greater assurance that  these payments were not higher than the revenue the communities  would have received had the property remained on the tax rolls in the  condition in which it was acquired.

Payment deductions. We identified a case in which it was unclear  whether payments aligned with PILT goals. DOE has provided non- PILT funding to Los Alamos public schools and the Los Alamos fire  department. According to DOE officials, DOE has annually provided  $8 million to the county’s schools; DOE provided over $20 million for  the county’s fiscal year 2020 firefighting services. DOE also  provides PILT funding to Los Alamos County, which was $244,183 in  fiscal year 2017. About a decade ago, DOE considered whether it  should stop making PILT payments to Los Alamos County because of  its other support for the community and the provision in the PILT order  requiring deductions from PILT for other payments by the federal  government that will be used for the same identifiable, discrete  purpose. However, DOE has decided to continue paying Los  Alamos County PILT. The county’s position is that the schools are a  separate entity from the county government and that its payments  should not be reduced to account for amounts received directly by the  schools, but in 2017 the county nonetheless reduced its PILT request  by the amount it would have provided to Los Alamos schools. It is  unclear how the PILT order should be applied in situations like this  where payments, including PILT payments, are made to multiple  entities. Making continued payments in such a situation, however,  may exacerbate perceptions of inequities across sites. If DOE’s PILT  order had included more specificity about the reduction of payments  to account for other federal payments for the same identifiable,  discrete purpose, DOE might have had greater assurance that these  payments meet PILT goals.

Payment adjustments. We identified a case in which the PILT  order’s lack of specificity led to uncertainty for PILT payment  recipients when DOE’s payments did not align with the communities’  calculations of what the communities determined they would have  received if the property had remained on the tax rolls. When the PILT  invoices from the three counties at the Hanford Site increased by  about 73 percent in real terms from a total of about $6 million in 2010  to about $10.7 million in 2017, DOE began providing payments that  were lower than what the counties requested in their PILT invoices.  Specifically, in 2017, DOE provided 91 percent of what the counties  requested, and in 2018 DOE provided 65 percent of what they  requested, which DOE officials said was because payment requests  exceeded the amounts set aside for PILT purposes. DOE did not  cite problems in the counties’ PILT invoices or document problems  with the counties’ PILT invoices. Payment adjustments are allowable  under the PILT order—both the Atomic Energy Act and DOE’s PILT  order give DOE discretion as to payment amounts. However, because  the order also lists key determinants for PILT payments that are  based on the taxes communities would have received had they  remained on the tax rolls and because DOE has typically provided  what communities have requested, communities we spoke with said  they began to rely on PILT in their budget formulations. The  communities had developed their budgets based on the assumption  that payments would align with the amounts they determined they  would have received had their property remained on the tax rolls, but  it is now difficult for them to plan ahead with the new uncertainty. In  response to this uncertainty in the payment amount, in 2019, one of  the counties at Hanford—Benton County—provided DOE with a PILT  invoice that was about $5 million lower than the previous year.  According to the county officials we spoke with, the goal of providing a  lower PILT payment invoice was to increase the likelihood that they  would receive the full amount. DOE’s order does not include any  information about under what conditions DOE will adjust payments— such as if payments calculations are not consistent with PILT payment  determinants—to guide DOE’s oversight. The order also does not  require DOE to document or communicate such information ahead of  time. Had DOE’s PILT order included more specificity on these topics,  communities might have had more clarity regarding whether their  payment calculations were consistent with PILT goals and whether  they were likely to receive the amounts they requested.

PILT payments help replace tax revenue that communities are no longer  receiving because of DOE’s acquisition of property in their communities.  Our past work reported that DOE allowed different standards for PILT  invoices at different sites, depending on when the community applied for  PILT payments, raising concerns about inequitable treatment of  communities. In 1993, DOE updated its PILT order to address one of  these concerns by eliminating the gross benefits test that had been  applied to new communities. However, some concerns remained. DOE  intentionally allows payments to communities to vary across locations  because property characteristics, market conditions, and tax policies  differ; this variance enables payments to reflect the taxes the  communities would have received if the property had remained on local  tax rolls. However, DOE’s PILT order lacks: (1) requirements for  documenting key determinants of PILT payments in intergovernmental  agreements and invoices, (2) requirements for independent review of  PILT invoices for consistency with agreed-upon bases of payments, and  (3) specificity about payment determinations in certain scenarios. This  has resulted in a relatively hands-off approach to management and  oversight of communities’ annual PILT invoices as well as some  uncertainty about how to determine PILT payments. This is inconsistent  with federal internal-control standards and has limited DOE’s ability to  provide adequate assurance that DOE is meeting PILT goals. Until DOE  strengthens its internal-control activities, communities may continue to  perceive that there are inequities in PILT, and DOE will not be able to  provide adequate assurance that it is meeting PILT goals.

We are making the following three recommendations to DOE:  The Secretary of Energy should direct DOE’s Office of the Chief Financial  Officer to revise DOE’s PILT order to require DOE to maintain  documentation of key determinants of PILT payments for each community  to help ensure that payments are consistent with the agreed-upon bases  of PILT payments and PILT goals. (Recommendation 1)

The Secretary of Energy should direct DOE’s Office of the Chief Financial  Officer to revise DOE’s PILT order to require DOE site offices to review  key determinants of PILT payments in communities’ PILT invoices for  accuracy and consistency with the agreed-upon bases of PILT payments  and PILT goals and for DOE headquarters to document its review and  validation of site office determinations. (Recommendation 2)

The Secretary of Energy should direct DOE’s Office of the Chief Financial  Officer to revise DOE’s PILT order to provide additional guidance on how  communities should calculate their payment requests for their PILT  invoices. (Recommendation 3)

We provided a draft of this product to DOE for review and comment. In its  comments, reproduced in appendix IV, DOE neither agreed nor disagreed  with our recommendations but did describe actions that it intends to take  in response to our recommendations. DOE stated that it will undertake a  comprehensive assessment of the PILT program, its objectives, and the  manner in which DOE accomplishes PILT’s objectives. DOE also stated  that it will convene a working group to identify high-level options for PILT  and recommend appropriate changes, if necessary, to DOE leadership.

Although further analysis of PILT could be worthwhile, we believe our  review sufficiently demonstrated that DOE’s PILT order lacks sufficient  internal controls. As a result, we continue to believe that implementing our  recommendations for revising the PILT order could provide better  assurance that payments meet PILT goals.

DOE also provided technical comments, which we incorporated as  appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Energy, and other interested parties. In  addition, this report will be available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff members have questions about this report, please  contact David C. Trimble at (202) 512-3841 or trimbled@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. GAO staff who made  key contributions to this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

The objectives of our review were to assess: (1) how, if at all, PILT  payments vary across sites and how they have varied over time, and (2)  reasons for variations in payments and the extent to which the  Department of Energy (DOE) is providing assurance that payments meet  PILT goals.

To assess how, if at all, PILT payments vary across sites and how they  have changed over time, we obtained and analyzed documentation from  DOE regarding total number of DOE sites, their eligibility for PILT, and  reasons for lack of eligibility, when applicable. We analyzed DOE  documentation of eligible acreage at sites that are affiliated with  communities that receive PILT payments and compared this with acreage  of DOE property that is not eligible for PILT.

Idaho National Laboratory, Idaho: Bingham County, Butte County,  Clark County, Jefferson County

Fernald Plant, Ohio: Hamilton County  We took several steps to assess the reliability of PILT payment data. We  collected data in two phases. The first used PILT datasets that DOE had  collected prior to our review. These covered years 1989–2009 and 2012– 2017. We used those data to develop a preliminary understanding of how  PILT payments varied across sites and over time. We asked DOE to  collect a second, complete, data set for the purpose of our review. That  data set covered years 1994-2017. Using these data, we identified  possible outliers and missing data and interviewed relevant agency  officials at the headquarters, field office, and site office level to determine  the extent to which the data were reliable. In addition, we interviewed  relevant agency officials at the headquarters, field office, and site offices  regarding their internal data reliability and data control measures. A  number of written questions regarding their annual PILT invoices, PILT  payments, federal offsets, and other related topics that were responded to  by all 12 site offices. We also requested DOE payment information that  would allow spot checking of the data that DOE provided. We requested  that each of the 12 sites provide documentation of their payments for one  in every 5 years between 1994 and 2017. We compared this  documentation with data DOE submitted for those years to spot check the  data for accuracy. We reviewed past GAO reports on PILT and past GAO  and DOE reports on DOE financial management systems. We determined  the data to be sufficiently reliable for our purposes.

For both objectives, we conducted interviews with or obtained written  responses from the following DOE offices, which included representatives  of all of the sites that received recent PILT payments:

DOE headquarters: Office of the Chief Financial Officer and General  Counsel.

DOE program offices that manage sites hosted by PILT-recipient  communities: National Nuclear Security Administration, Office of  Environmental Management, Office of Legacy Management, Office of  Nuclear Energy, and Office of Science.

DOE site offices hosted by PILT-recipient communities: Argonne  National Laboratory, Bettis Atomic Power Laboratory, Brookhaven  National Laboratory, Fernald Plant, Knolls Atomic Power Laboratory,  Hanford site, Idaho National Laboratory, Los Alamos National  Laboratory, Oak Ridge site, Pantex Plant, Portsmouth site, and  Savannah River site.

To assess reasons for variations in payments, we identified how DOE  communities calculate their requested PILT payment amounts and how  DOE officials determine how much DOE will pay. We reviewed DOE’s  PILT order, DOE Order 143.1, to determine how DOE specifies payments  are to be calculated. We also interviewed DOE site office officials about  how they expect communities to determine their requested payment  amounts. We compared DOE expectations regarding annual payment  request calculations with PILT invoices that communities submit to  request payments. Because communities appeared to generally calculate  payments to align with expected property tax revenue they would have  received had the DOE-acquired property remained on the tax rolls in the  condition in which it was acquired, we compared this information with  information on how local and state governments determine property  taxes. When we needed further clarification about how communities had  determined their requested payment amounts, we sent follow up  questions to DOE site officials regarding the PILT invoices they had  reviewed. Once we identified how communities calculate PILT invoices,  we analyzed communities’ fiscal year 2017 payment request  documentation to determine how factors—such as characteristics of the  property, market conditions, and state and local tax policies—influence  payment amounts. We interviewed DOE site officials and some  community officials, at the communities that received some of the largest  payments, about instances when payments varied from what  communities requested.

We analyzed PILT invoices, agreements, and payment data to identify  how communities and sites had determined and documented key  determinants and decisions, such as property classification, deductions  because of other federal payments, land values, and assessment rates.  We analyzed DOE’s PILT order to identify PILT goals and requirements  related to: PILT payment determinations, DOE review of communities’  PILT invoices, and PILT documentation. We compared this with federal  standards for internal control.

We interviewed officials from selected communities that received some of  the largest payments to determine how they used PILT payments, how  they assess land value, and challenges they have faced with PILT. These  communities included all communities at the two sites with the largest  aggregate PILT payments in fiscal year 2017: Benton, Franklin, and Grant  counties at the Hanford site and Aiken, Allendale, and Barnwell counties  at the Savannah River site. Regarding these same topics, we also  interviewed staff at community organizations that represent communities  that host DOE sites, including: the Energy Communities Alliance and the  National Association of Counties. Findings from these communities at two  sites and two community organizations cannot be generalized to those we  did not interview as part of our review.

We conducted this performance audit from October 2018 to October 2019  in accordance with generally accepted government auditing standards.

Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on audit objectives.

Appendix II: Department of Energy’s (DOE) Sites That Provide Payments in Lieu of Taxes (PILT) to Communities

The Argonne National Laboratory covers 1,363 acres in DuPage County  outside of Chicago, Illinois. Established in 1946 to conduct “cooperative  research in nucleonics” as part of the Atomic Energy Commission’s  development of nuclear reactors, Argonne National Laboratory now has  over 3,200 employees in addition to nearly 800 scientists who visit the  site yearly. Additionally, Argonne has over 7,900 facility users who  participate in research at five major user facilities located on site.

The Bettis Atomic Power Laboratory, covering approximately 200 acres in  West Mifflin outside of Pittsburgh, Pennsylvania, is a part of the Naval  Nuclear Propulsion Program in the Department of Energy. The Laboratory  began operations in 1948 in order to support the engineering, design, and  construction of the prototypes of the first nuclear powered submarine, and  by 1955 the USS Nautilus was successfully launched. Since then, the  Laboratory led development on other nuclear powered crafts including the  first nuclear powered ship and aircraft carrier, the USS Long Beach and  USS Enterprise, respectively. Today, the Laboratory focuses on design  and engineering support for nuclear-powered submarines and aircraft  carriers, in addition to development for the nuclear power elements of  next generation aircraft carriers.

The Brookhaven National Laboratory was established in 1947 by the  Atomic Energy Commission. Formerly Camp Upton, a U.S. Army  installation site, Brookhaven is located on a 5,263-acre site on Long  Island in Upton, New York, approximately 60 miles east of New York City.  Historically, Brookhaven was involved in the construction of accelerators  and research reactors such as the Cosmotron, the High Flux Beam  Reactor, and the Brookhaven Graphite Research Reactor. These  research facilities led the way in high-energy physics experiments and  subsequent discoveries but also resulted in creation of hazardous wastes.  As a result, Brookhaven was listed as a Superfund Site in 1989 and a  subsequent agreement with state and federal regulators led to the  building and operation of groundwater remediation facilities, and the  decontamination and decommissioning of the High Flux Beam Reactor  and the Brookhaven Graphite Research Reactor including offsite waste  disposal.

The Fernald Plant covers 839 acres in southwestern Ohio near  Cincinnati, Ohio. The Fernald Plant’s production mission took place from  1951–1989 as it housed the Feed Materials Production Center, which  processed uranium as the first step in the nuclear weapons production  cycle. In 2006, the remediation and restoration of the site was completed  and at the time was one of the largest environmental cleanup operations  ever undertaken in the United States. Currently, monitoring of the site and  a groundwater extraction and treatment remediation under the Office of  Legacy Management is the remaining remediation activity. The site  includes restored native plants and grasses and the largest manmade  wetlands in Ohio.

DOE is responsible for one of the world’s largest environmental cleanup  projects: the treatment and disposal of millions of gallons of radioactive  and hazardous waste at its 586 square mile Hanford Site in southeastern  Washington State. Hanford facilities produced more than 20 million  pieces of uranium metal fuel for nine nuclear reactors along the Columbia  River. Five plants in the center of the Hanford Site processed 110,000  tons of fuel from the reactors, discharging an estimated 450 billion gallons  of liquids to soil disposal sites and 53 million gallons of radioactive waste  to 177 large underground tanks. Plutonium production ended in the late  1980s. Hanford cleanup began in 1989 and now involves (1) groundwater  monitoring and treatment, (2) deactivation and decommissioning of  contaminated facilities, and (3) the construction of the waste treatment  and immobilization plant intended, when complete, to treat the waste in  the underground tanks.

DOE’s Idaho Site is an 890-square-mile federal reserve, only some of  which is eligible for PILT, situated in the Arco Desert over the Snake  River Plain Aquifer in central Idaho. The site is home to both the Idaho  National Laboratory (INL) and the Idaho Cleanup Project. Work at the INL  focuses on research and development of nuclear energy technologies,  critical infrastructure protection research, and support of national defense  and homeland security. The environmental cleanup mission includes  remediation of contaminated legacy wastes generated from World War II- era conventional weapons testing, government-owned research and  defense reactors, spent nuclear fuel reprocessing, laboratory research,  and defense missions at other DOE sites.

The Knolls Atomic Power Laboratory, located on 173 acres in Niskayuna,  near Schenectady, NY, was established in May 1946. The original  mission of the Knolls laboratory was to provide technical support for the  chemical separation of plutonium and uranium from irradiated fuel. In the  1950s, Knolls changed focus to Navy submarine propulsion development.  Knolls developed a series of nuclear reactor and propulsion plant designs  for the U.S. Navy. Knolls is the lead design laboratory for the newest  Virginia Class fast attack submarines and is leading the design effort on  the next generation ballistic missile submarine.

The laboratory, founded in 1943 during World War II, served as a secret  facility for research and development of the first nuclear weapon. The site  was chosen because the area provided controlled access, steep canyons  for testing high explosives, and existing infrastructure. The Manhattan  Project’s research and development efforts that were previously spread  throughout the nation became centralized at Los Alamos and left a legacy  of contamination. Today, the Los Alamos National Laboratory Cleanup  Project is responsible for the treatment, storage, and disposition of a  variety of radioactive and hazardous waste streams; removal and  disposition of buried waste; protection of the regional aquifer; and  removal or deactivation of unneeded facilities.

DOE’s Oak Ridge Reservation is located on approximately 33,500 acres  in East Tennessee. The reservation was established in the early 1940s by  the Manhattan Engineer District of the United States Army Corps of  Engineers and played a role in the production of enriched uranium during  the Manhattan Project and the Cold War. DOE is now working to address  excess and contaminated facilities, remove soil and groundwater  contamination, and enable modernization that allows the National Nuclear  Security Administration to continue its national security and nuclear  nonproliferation responsibilities and the Oak Ridge National Laboratory to  continue its mission for advancing technology and science.

The Pantex Plant covers 2,000 acres and is located northeast of Amarillo,  Texas. One of six production facilities in the National Nuclear Security  Administration’s Nuclear Security Enterprise, since 1975 the Pantex Plant  has operated as the nation’s primary facility for the assembly,  dismantlement, and maintenance of nuclear weapons. The last new  nuclear weapon was completed in 1991, and since then, the Pantex Plant  has dismantled, retired, or stored thousands of nuclear weapons.

The Portsmouth Gaseous Diffusion Plant is located in Pike County, Ohio,  in southern central Ohio, approximately 20 miles north of the city of  Portsmouth, Ohio. This facility was initially constructed to produce  enriched uranium to support the nation’s nuclear weapons program and,  later, commercial nuclear reactors. Decades of uranium enrichment and  support activities required the use of a number of typical and special  industrial chemicals and materials. Plant operations generated  hazardous, radioactive, mixed (both hazardous and radioactive), and  nonchemical (sanitary) wastes. Past operations also resulted in soil,  groundwater, and surface water contamination at several sites located  within plant boundaries.

The Savannah River Site complex covers 198,344 acres, or 310 square  miles, encompassing parts of Aiken, Barnwell, and Allendale counties in  South Carolina, bordering the Savannah River. The site is a key DOE  industrial complex responsible for environmental stewardship,  environmental cleanup, waste management, and disposition of nuclear  materials. During the early 1950s, the site began to produce materials  used in nuclear weapons, primarily tritium and plutonium-239. Five  reactors were built to produce nuclear materials and resulted in unusable  by-products, such as radioactive waste. About 35 million gallons of  radioactive liquid waste are stored in 43 underground tanks. The Defense  Waste Processing Facility is processing the high-activity waste,  encapsulating radioactive elements in borosilicate glass, a stable storage  form. Since the facility began operations in March 1996, it has produced  more than 4,000 canisters (more than 16 million pounds) of radioactive  glass.

Appendix III: Payments In Lieu of Taxes (PILT) by the Department of Energy (DOE) since 1994

Appendix IV: Comments from the Department of Energy

Appendix V: GAO Contact and Staff Acknowledgments

In addition to the individual named above, Amanda Kolling, Assistant  Director; Antoinette Capaccio; Ellen Fried; Laura Holliday; Skip  McClinton; and Sara Sullivan made key contributions to this report. Also  contributing to this report were Jeff Arkin, Cindy Gilbert, Michael Kendix,  Richard Johnson, and Oliver Richard.

The federal government has acquired over 2 million acres for nuclear weapons development and energy research. This property is not subject to property taxes. In lieu of taxes, the Department of Energy provides payments to some local communities that host DOE sites. In fiscal year 2017, payments totaled $23 million for eligible acreage, with 70% going to communities near the largest sites—Hanford, Washington, and Savannah River, South Carolina.

DOE tries to make payments reflect what communities would have received had the property remained on the tax rolls. However, DOE has not consistently met this goal. We recommended actions to make payments more consistent.


State Department: Additional Steps Are Needed to Identify Barriers to Workforce Diversity

State has expressed a commitment to maintaining a diverse workforce and has undertaken efforts to increase diversity in its Civil and Foreign Services. EEOC directs federal agencies to regularly evaluate their employment practices to identify barriers to equal opportunity, take measures to eliminate any barriers, and report annually on these efforts. This testimony examines (1) the demographic composition of State's workforce in fiscal years 2002 through 2018; (2) any differences in promotion outcomes for various demographic groups in State's workforce; and (3) the extent to which State has identified any barriers to diversity in its workforce. For the January 2020 report on which this testimony is based (GAO-20-237), GAO analyzed State's data for its full-time, permanent, career workforce in fiscal years 2002 through 2018. GAO also analyzed the number of years until promotion from early career ranks to the executive rank in both the Civil and Foreign Services. (GAO's analyses do not completely explain the reasons for differences in promotion outcomes, which may result from various unobservable factors. Thus, GAO's analyses do not establish a causal relationship between demographic characteristics and promotion outcomes.) In addition, GAO reviewed State documents and interviewed State officials and employee group representatives.

The overall proportion of racial or ethnic minorities in the Department of State's (State) full-time, permanent, career workforce grew from 28 to 32 percent from fiscal year 2002 to fiscal year 2018. The direction of change for specific groups varied. For instance, the proportion of African Americans fell from 17 to 15 percent, while the proportions of Hispanics, Asians, and other racial or ethnic minorities rose by varying percentages. The proportion of racial or ethnic minorities and women was lowest in the higher ranks of State's workforce.

GAO's analyses of State data for fiscal years 2002 through 2018 found differences in promotion outcomes for racial or ethnic minorities and whites and for men and women. GAO found these differences in both descriptive analyses (calculating simple averages) and adjusted analyses (controlling for certain individual and occupational factors that could influence promotion). For example, GAO's descriptive analysis of data for State's Civil Service found that rates of promotion for racial or ethnic minorities were 16 to 42 percent lower, depending on the rank, than for whites. Similarly, after controling for certain additional factors, GAO's adjusted analysis of these data found that promotion for racial or ethnic minorites was 4 to 29 percent less likely than for whites. Also, both types of analysis generally found that promotion outcomes for women relative to men were lower in the Civil Service and higher in the Foreign Service. For example, women in the Foreign Service were more likely than men to be promoted in early to mid career.

State has identified some diversity issues, but it should consider other issues that could indicate potential barriers to diversity in its workforce. State's annual reports to the Equal Employment Opportunity Commission (EEOC) for fiscal years 2009 through 2018 identified issues such as underrepresentation of Hispanic employees and underrepresentation of minorities in the senior ranks. However, GAO's analysis and GAO's interviews with State employee groups highlighted additional issues that could indicate barriers to diversity. For example, State's reports have not identified lower promotion outcomes for racial or ethnic minorities relative to whites, which GAO found in its analysis. Until State takes steps to explore such issues, it could be missing opportunities to investigate and remove barriers that impede members of some demographic groups from realizing their full potential.

In its January 2020 report, GAO recommended that State take additional steps to identify diversity issues that could indicate potential barriers to equal opportunity in its workforce. State concurred with this recommendation.

Thank you for the opportunity to discuss our review of diversity in the  Department of State’s (State) workforce. While State has expressed a  commitment to maintaining a diverse workforce, Congress’ concerns  about the racial and gender demographic composition of State’s  workforce are longstanding. As of the end of fiscal year 2018, State had  nearly 23,000 full-time, permanent, career employees in its Civil Service  and Foreign Service workforce.

This statement is based on our January 2020 report examining (1) the  demographic composition of State’s workforce in fiscal years 2002  through 2018, (2) any differences in promotion outcomes for various  demographic groups in State’s workforce, and (3) the extent to which  State has identified any barriers to diversity in its workforce.

For our January 2020 report, we analyzed data from State’s Global  Employment Management System for the department’s full-time,  permanent, career workforce in fiscal years 2002 through 2018. To  examine promotion outcomes for various racial or ethnic minorities and  for women and men in State’s workforce, we conducted two types of  analyses of State’s workforce data for fiscal years 2002 through 2018.  First, we conducted descriptive analyses, calculating simple averages to  compare promotion rates for racial or ethnic minorities and whites and for  women and men. Second, we conducted a more sophisticated analysis  using a duration analysis method that took into account certain individual  factors other than racial or ethnic minority status and gender that could  influence promotion, including the length of time it takes to be promoted.  Specifically, we examined the statistical relationship between promotion  and racial or ethnic minority status and gender, incorporating various  individual characteristics such as occupation, veteran status, and  education. Our analyses do not completely explain the reasons for  differences in promotion outcomes, which may result from various  unobservable factors. Thus, our analyses do not establish a causal  relationship between demographic characteristics and promotion  outcomes. In addition, to examine the extent to which State has identified  any barriers to diversity in its workforce, we reviewed State documents  and interviewed State officials and employee group representatives.

Detailed information on our objectives, scope, and methodology can be  found in the issued report. We conducted the work on which this  testimony is based in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.

State had 22,806 full-time, permanent, career employees at the end of  fiscal year 2018—an increase of more than 38 percent from fiscal year  2002. Over this period, the number of full-time, permanent, career  employees in State’s Civil Service rose by nearly 40 percent, from 6,831  in fiscal year 2002 to 9,546 in fiscal year 2018. Over the same period, the  number of full-time, permanent, career employees in State’s Foreign  Service increased by 36 percent, from 9,739 to 13,260.

To increase diversity in its workforce, State carries out a variety of efforts  focused on recruiting and retention. For example, the Thomas R.  Pickering Foreign Affairs Fellowship Program and Charles B. Rangel  International Affairs Program recruit diverse candidates for the Foreign  Service by providing graduate fellowships to college seniors and college  graduates. Additionally, according to State officials, recruiters for the  department participate in career fairs and discussion panels and host  information sessions at conferences with a focus on diversity and  inclusion, such as those held by the Hispanic Association of Colleges and  Universities and the Congressional Black Caucus Foundation. Some  regional and functional bureaus also undertake efforts to increase  diversity. According to State’s Senior Advisor for Diversity, Inclusion, and  Outreach, bureau leaders set the tone, and provide support for bureau- level initiatives.

The Equal Employment Opportunity Commission’s (EEOC) Management  Directive 715 (MD-715) provides policy guidance and standards for  establishing and maintaining effective affirmative programs of equal  employment opportunity. Through MD-715, EEOC directs federal  agencies to regularly evaluate their employment practices to identify  barriers to equal opportunity in the workplace, take measures to eliminate  identified barriers, and report annually on these efforts to EEOC.

Overall Proportion of Racial or Ethnic Minorities at State Has Grown, but Proportions of African Americans and Women Have Fallen Proportion of Racial or Ethnic Minorities at State Increased, While Proportion of African Americans Decreased

Among State’s full-time, permanent, career employees, the proportion of  racial or ethnic minorities grew from 28 percent in fiscal year 2002 to 32  percent in fiscal year 2018. During this period, as figure 1 shows,  the proportion of racial or ethnic minorities in the Civil Service  decreased slightly, from 44 to 43 percent, and  the proportion of racial or ethnic minorities in the Foreign Service  increased from 17 to 24 percent.

Although the overall proportion of racial or ethnic minorities at State  increased from fiscal year 2002 to fiscal year 2018, the direction of  change for specific racial or ethnic minority groups varied, as shown in  figure 1.

The proportion of African Americans at State overall declined from 17  percent in fiscal year 2002 to 15 percent in fiscal year 2018. The  proportion of African Americans in State’s Civil Service decreased  from 34 to 26 percent, while the proportion of African Americans in  State’s Foreign Service increased from 6 to 7 percent.

The proportions of Hispanics, Asians, and other racial or ethnic  minorities at State overall and in both the Civil and Foreign Services  increased by varying percentages from fiscal year 2002 to fiscal year  2018.

As figure 2 shows, the proportions of racial or ethnic minorities in the Civil  and Foreign Services were generally much smaller in higher ranks in  fiscal year 2018.

The proportion of racial or ethnic minorities in fiscal year 2018 was  lower than the proportion of whites at GS-11, GS-13, and higher ranks  in the Civil Service and at all ranks in the Foreign Service.

The proportion of racial or ethnic minorities in fiscal year 2018 was  progressively lower in each rank above GS-12 in the Civil Service and  above Class 5 in the Foreign Service.

Among State’s full-time, permanent, career employees, the overall  proportion of women at State decreased slightly, from 44 percent in fiscal  year 2002 to 43 percent in fiscal year 2018. During this period, as figure  3 shows,  the proportion of women in State’s Civil Service decreased from 61 to  54 percent and  the proportion of women in State’s Foreign Service increased from 33  to 35 percent.

In addition, the proportion of women at State was generally lower than  that of men in the higher ranks of both the Civil and Foreign Services in  fiscal year 2018, as figure 4 shows.

The proportion of women was lower than the proportion of men at GS- 14 and higher ranks in the Civil Service and at Class 4 and higher  ranks in the Foreign Service in fiscal year 2018. For example, the  proportion of women at Class 4 was 36 percent, while the proportion  of men was 64 percent.

The proportion of women in the Civil and Foreign Services in fiscal  year 2018 was generally progressively smaller from the lower to the  higher ranks.

Promotion Outcomes Were Generally Lower for Racial or Ethnic Minorities Than for Whites and Differed for Women Relative to Men

Our analyses of State data for fiscal years 2002 through 2018 found  differences between promotion outcomes for racial or ethnic minorities  relative to whites and for women relative to men. We found these  differences when conducting descriptive analyses, which calculated  simple averages, as well as adjusted analyses, which controlled for  certain individual and occupational factors other than racial or ethnic  minority status and gender that could influence promotion. Our analyses  do not completely explain the reasons for differences in promotion  outcomes, which may result from various unobservable factors. Thus, our  analyses do not establish a causal relationship between demographic  characteristics and promotion outcomes. The following are some  highlights of our analysis.

Promotion outcomes in State’s Civil Service were generally lower  for racial or ethnic minorities than for whites. Our descriptive  analysis of State data for fiscal years 2002 through 2018 found that  rates of promotion from GS-11 through the executive rank were 16.1  to 42.0 percent lower for racial or ethnic minorities in the Civil Service  than for their white counterparts, depending on the GS level. Our  adjusted analysis, controlling for factors other than race or ethnicity  that could influence promotion, found that racial or ethnic minorities in  the Civil Service were 4.3 to 29.3 percent less likely to be promoted  from GS-11 through the executive rank than their white counterparts.

Promotion rates in State’s Foreign Service were generally lower  for racial or ethnic minorities than for whites, but the differences  in promotion odds were generally not statistically significant. Our  descriptive analysis of State data for fiscal years 2002 through 2018  found that, relative to whites, the rate of promotion for racial or ethnic  minorities in the Foreign Service was 5.0 to 15.8 percent lower for  promotions from Class 4 through Class 1. Controlling for factors  other than race or ethnicity that could influence promotion, our  adjusted analysis found that differences in the odds of promotion for  racial or ethnic minorities and whites were generally not statistically  significant. However, the odds of promotion from Class 4 to Class 3  were statistically significantly lower for racial or ethnic minorities than  for their white counterparts.

Promotion rates were generally lower for women than men in  State’s Civil Service, but differences in the odds of promotion  were not statistically significant. Our descriptive analysis of State  data for fiscal years 2002 through 2018 found that the rate of  promotion in the Civil Service was generally lower for women than for  men. Specifically, for promotions from GS-11 through the executive  rank, promotion rates for women were generally 0.7 to 11.6 percent  lower than the promotion rates for men, depending on the GS level.  However, our adjusted analysis, controlling for factors other than  gender that could influence promotion, did not find any statistically  significant differences in the odds of promotion for women and men in  the Civil Service.

Our adjusted analysis found that the odds of promotion were  generally higher for women than men in State’s Foreign Service.  Our descriptive analysis of State data for fiscal years 2002 through  2018 found that women in the Foreign Service experienced a higher  rate of promotion than men from Class 3 to Class 2 and from Class 2  to Class 1. Our adjusted analysis, controlling for factors other than  gender that could influence promotion, found that women in the  Foreign Service had higher odds of promotion than men in early to  mid career. For example, the odds of promotion from Class 4 to Class  3 were 9.4 percent higher for women than for men.

State Has Identified Some Diversity Issues but Should Consider Other Issues That Could Indicate Potential Barriers

State has identified some diversity issues in its reports to EEOC. As table  1 shows, in fiscal years 2009 through 2018, State’s annual MD-715  reports identified and analyzed a total of 11 diversity issues related to  participation of racial or ethnic minorities and women. State identified  most of these issues in multiple years.

However, State employee groups and our analysis have identified  additional diversity issues, such as differences in promotion outcomes for  racial or ethnic minorities relative to whites in early to mid career. For  example, during our structured interviews with 11 employee groups,  representatives of the groups discussed a variety of issues related to  diversity at State. Examples include the following:

Employee group representatives expressed concern about  representation of minorities in the higher ranks of both the Civil and  Foreign Services. For example, representatives told us that for some  minority groups, it is difficult to be promoted above the GS-13 level.

Employee group representatives voiced perceptions that it takes  longer for women and racial or ethnic minorities to be promoted. For  example, representatives of one group told us that it takes longer for  employees with diverse backgrounds to reach GS-13 in the Civil  Service and Class 2 in the Foreign Service and that very few of these  employees are promoted beyond those levels.

We recommended that the Secretary of State take additional steps to  identify diversity issues that could indicate potential barriers to equal  opportunity in its workforce. For example, State could conduct additional  analyses of workforce data and of employee groups’ feedback. State  concurred with the recommendation and noted that the agency will  continue to work on initiatives to recruit, retain, develop, and empower a  diverse, capable workforce.

In conclusion, although State has implemented several plans, activities,  and initiatives to improve diversity and representation throughout the  ranks of its workforce, longstanding diversity issues—for example,  underrepresentation of racial or ethnic minorities and women in the senior  ranks—persist at the agency. Until State takes steps to explore such  issues, it could be missing opportunities to investigate, identify, and  remove barriers that impede members of some demographic groups from  realizing their full potential.

Chairman Castro, Ranking Member Zeldin, and Members of the  Subcommittee, this concludes my prepared statement. I would be  pleased to respond to any questions that you may have at this time.

If you or your staff have any questions about this testimony, please  contact Jason Bair, Director, International Affairs and Trade, at (202) 512- 6881 or bairj@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this  statement. GAO staff who made key contributions to this testimony are  Emil Friberg (Assistant Director), Julia Jebo Grant (Analyst-in-Charge),  Nisha Rai, Moon Parks, Justin Fisher, Melinda Cordero, Courtney  Lafountain, Kathleen McQueeney, Dae Park, K. Nicole Willems, Reid  Lowe, and Christopher Keblitis.

This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.

The State Department has expressed a commitment to building a workforce that reflects the diverse composition of the United States. We testified on State’s progress.

Though State's workforce has grown more diverse, racial or ethnic minorities are still underrepresented, especially in the senior ranks.

Racial or ethnic minorities in State’s Civil Service were 4% to 29% less likely to be promoted than their white coworkers with similarities such as education, occupation, or years of federal service.

In our related report, we made a recommendation to help State better address barriers to equal opportunity in its workforce.