Public Ownership and Tax Replacement by the T.V.A.

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The state and county governments in the Tennessee Valley area, particularly in Tennessee, completed 1940 with one of their most pressing financial problems solved or well on the way to solution. The threatened loss of taxes to governmental units, resulting from the program of public ownership of power and the purchase by the Tennessee Valley Authority and the municipalities of the properties of private electrical power companies, had been serious to many counties facing bankruptcy, curtailment of services, or exorbitant taxes. Besides the financial effects, the situation strikingly demonstrated the need for reforms in local government, mainly the consolidation of counties and the introduction of better budgeting and accounting practices. Moreover, the problem has also been significant because of certain issues resulting from the venture into public ownership. Should proprietary agencies of the national government engaged in competition with private business and acquiring existing taxable facilities be responsible for the taxes thereby displaced and replace them as a matter of policy? Are proprietary functions of the national government subject to state and local taxing authority? These issues have demanded widespread consideration not only in the Tennessee Valley area but also in other sections where public power programs are being tried on a large scale. A bill was introduced into Congress on September 30, 1940, to provide for payments to governmental units affected by displacement of taxes arising from the Bonneville Power Project, and a more recent bill applies to the proposed Arkansas Valley Authority Project. The passage of the Norris-Sparkman amendment by Congress in June, 1940, whereby payments in lieu of taxes are being made by the T.V.A., has answered these questions and relieved the pressing financial aspects of the situation. The tax replacement provision has now been in operation more than six months, and an analysis of the period affords an interesting insight into its effects on the various governments concerned.