"1. The records of this office show that you were retired as a master sergeant, and under the provision of section 8, act of June 6, 1924 (43 Stat. 472; U. S. C. 10: 981), you are receiving the retired pay of a warrant officer on account of having served as a commissioned officer during the World War. Retired enlisted men, retired for any cause, are exempted from the acts of July 31, 1894 (28 Stat. 205), as amended, and May 10, 1916 (39 Stat. 120). In this connection attention is invited to the act of May 31, 1924 (43 Stat. 245).

2. Attention is further invited to the decision of the Comptroller General (13 Comp. Gen. 60), which reads as follows:

""The National Recovery Administration may employ retired enlisted personnel, who have been retired on enlisted service only, and fix their rates of compensation for such civilian service on the same basis as that for any other officer or employee without restriction other than the value of the services and such employees would be entitled to continue to receive their retired pay.' “3. Attention is further invited to the decision of the Comptroller General (12 Comp. Gen. 38), wherein it is stated as follows:

"In application of section 212 of the act of June 30, 1932 (47 Stat. 406), limiting the combined rate of compensation in the civilian position and retired pay for or on account of commissioned service to $3,000 per annum, retired pay of enlisted men on account of commissioned service under the terms of the act of June 6, 1924 (43 Stat. 472), should not be reduced below that which they would have received had they only enlisted service.'

"4. In view of the fact that you were retired as a retired enlisted man and on account of having served as a commissioned officer during the World War, you are entitled to your commissioned rank and the retired pay of a warrant officer. There is no restriction of law which prohibits you from holding any position, the only reservation is that your retired pay will be reduced from the pay of a warrant officer to the pay of a master sergeant."

In your decision of December 29, 1938 (18 Comp. Gen. 573), there was quoted section 204 of the act of June 30, 1932 (47 Stat. 404), which provides: "That no such person heretofore or hereafter separated from the service of the United States or the District of Columbia under any provision of law or regulation providing for such retirement on account of age shall be eligible again to appointment to any appointive office, position, or employment under the United States or the District of Columbia: Provided further, That this section shall not apply to any person named in any Act of Congress providing for the continuance of such person in the service."

In this case there is involved the proposed employment of a retired army officer whose rank is to be reduced from warrant officer to that of master sergeant, and this fact, of course, distinguishes it from the case considered by you under date of December 29, 1938.

The Commissioners have been advised by the Finance Department of the War Department that Captain Reynolds will receive retired pay of $133.87 per month, and it is proposed to pay him a salary of $1,800 per annum as military instructor in the public schools. There are several teachers in the public schools now receiving salaries ranging from $1,600 to $2,800 who are also acting as military instructors. In order to employ, a few years ago, a retired officer of the United States Army, it was necessary to obtain special legislation. See act of June 4, 1935 (49 Stat. 320).

In view of the fact that the proposed salary and the present retirement pay exceed the $3.000 limitation imposed by section 212 of the Economy Act of June 30. 1932, it is requested that you advise the Commissioners whether they are authorized to accept the services of Captain Reynolds, and appoint him in the public school system at a salary which, together with his retired pay, would exceed $3,000.

The view expressed by the Finance Department, United States Army, to the effect that retired enlisted men of the Army are not subject to any of the dual compensation statutes-except that under the provisions of section 212 of the act of June 30, 1932, 47 Stat. 406, an enlisted man of the Army retired on account of service as a commissioned officer during the World War who accepts a civilian position must have his retired pay reduced to a rate not

in excess of the rate he would have received if he had been retired upon the basis of enlisted services, only, if the combined rate of the salary of the civilian position and the retired pay computed on account of commissioned service would exceed $3,000 per annumappears to be correct. 12 Comp. Gen. 37.

Section 204 of the act of June 30, 1932, 47 Stat. 404, prohibiting the reemployment of personnel retired for age relates only to civilian personnel retired under laws applicable to civilian personnel and does not prohibit the employment in a civilian position of a retired enlisted man of the Army.

Referring to the penultimate paragraph of the letter, supra, it is understood that the amount of $133.87 per month is the rate of retired pay to which Captain Reynolds would be entitled as a retired enlisted man excluding the benefit he acquired under the act of June 6, 1924, 43 Stat. 472, to be retired as a warrant officer on account of having served as a commissioned officer during the World War. If that be the fact, there would be no legal objection to his employment as military instructor in the public schools of the District of Columbia even though the salary rate of the civilian position and his reduced retired pay exceed $3,000 per annum.

(B-17876)

RESETTLEMENT PROJECT PROPERTY-PAYMENTS IN LIEU OF STATE AND LOCAL TAXES

The payments in lieu of taxes authorized to be made to local tax units on resettlement project property under section 2 of the act of June 29, 1936, are required by the statute to be based upon "the cost of the public or municipal services to be supplied * taking into consideration the benefits to be derived by * * * taxing unit from such project," and may not be determined merely by applying the established tax rate of the district in which the property is located to the appraised value of the property as fixed by the Farm Security Administration. Where it is clearly stated in the agreement, or in an administrative certificate accompanying the agreement, that the amount to be paid under authority of section 2 of the act of June 29, 1936, to local taxing units in lieu of taxes on resettlement project property is based on or is less than the actual cost of the public or municipal services to be supplied less the benefits accruing to the taxing unit from the project, this office will not ordinarily question the amount so determined nor require the itemization of the costs considered in arriving at the amount fixed in the agreement. Comptroller General Warren to the Secretary of Agriculture, July 25, 1941: I have your letter of June 12, 1941, as follows:

In connection with the payment of sums in lieu of taxes pursuant to section 2 of the act of June 29, 1936 (49 Stat. 2036; 40 U. S. C. 432 (Supp. V, 1939)), the Farm Security Administration has received a number of requests from your office "that there be furnished for filing with the contract a break-down and cost of the items of the public or municipal services rendered to the Government." Thus, in Mr. McGinn's letter of October 23, 1940 (his file A-TBR-CE), it is requested that such information be furnished with respect to an agreement for a payment in lieu of taxes, covering the period from August 1, 1938, to July 31,

1939, inclusive, entered into with School District No. 52, Polk County, Minn., on August 1, 1938.

It is noted that the information is requested in order that "a proper examination and audit may be made." Since it is, of course, not possible to furnish a "breakdown" of the cost of every item of service which is furnished by the school district to the project and to the inhabitants thereof, so that an audit can be made of each such item, it is assumed that what is desired is an explanation of the basis upon which the payment provided for in the agreement was determined.

The payment was computed under the so-called "property valuation method." That is, the duly established tax rate of the district was applied to the appraised valuation of the project property lying within the jurisdictional limits of the district, as determined by the Farm Security Administration. The appraised valuation was found to be $1,314, and the tax rate for the district for the period covered by the agreement was 10.335 mills on the dollar. The product of the two figures, $13.58, is the amount of the payment provided in the agreement.

With respect to the computation of payments in lieu of taxes, the Farm Security Administration points out the following matters:

(1) The primary functions of local government are the provision of highways, police and fire protection, schools, and facilities pertaining to health, etc. The benefits of governmental expenditures for these purposes are ordinarily widely diffused, and there appears to be no real basis by which the specific "cost" of a particular service can be allocated among the citizens of a governmental unit who are benefitted thereby. Even in the case of schools, where, by dividing costs by the number of pupils, an apparent cost per capita is obtained, there are obvious discrepancies between the actual costs to a governmental unit and the costs so computed.

(2) The benefits derived from local governmental services are difficult to isolate and measure, and the per capita comparison basis for measuring benefits is consequently an unreal approach to measuring costs. For example, if the owner of a large and valuable industrial property, who may have a small family, paid for public services on a per capita basis, he would pay less toward the costs of government than the factory worker living with a large family in poor quarters. The factory owner, however, demands and receives protection for his property, as well as other governmental services, to a far greater extent than the workman. The benefits to the community of educating the workman's children and the value to the employer's property of adequate school buildings and other public facilities illustrate the complicated nature of determining benefits offered by governmental units.

(3) The property valuation method fits into local financing and accounting methods and thus simplifies administration. Financing by a local government is built around the exigencies of the property tax system, and surpluses and deficits are automatically provided for in the rate of property tax levy. By basing payments in lieu of taxes on the tax rate, surpluses in the local treasury make possible reductions in rates, which are taken advantage of when payments are made by the Farm Security Administration, and local officials and taxpayers universally accept this method as the proper one for apportioning public costs. Any other device is confusing and unintelligible to them when money received is to be allocated to various tax funds. Property taxes are the principal and most common method of spreading local public costs.

The opinion of the solicitor of this Department in connection with this matter, à copy of which is enclosed, indicates that it is his opinion that, in ascertaining what the "cost of the public or municipal services" is, the act of June 29, 1936, supra, permits the determination to be based either on the benefits to the project considered as real property or, in the alternative, on the benefits to the project inhabitants; that is, that it is permissible to make the determination on a property valuation or on a per capita basis.

The Farm Security Administration desires to adopt the former approach, and makes several pertinent observations in support of its position. The traditional and most accurate method would be that utilized in the normal taxing systems of the local governmental units involved. That is to say, the taxing units raise, through taxation, the sums necessary to pay the costs of the services. Allocation of such taxes among the citizens is made on the basis of the value of the property served. While it has always been recognized that this proration is, at best, a necessary approximation and can never represent an exact division of the cost of the services, it has further been recognized that it

most feasible method from a practicable standpoint. It is certainly far more accurate and just than a proration by means of dividing costs among all the persons residing in the unit on a per capita basis, without relation to other factors. This method would, moreover, more adequately reflect any reduction in payments because of benefits derived by the local government from the project than would a per capita cost determination.

The Farm Security Administration further informs me that such property valuation method has proven to be far more economical in operation than the per capita method. Thus, during the period covered by the agreement with the above-mentioned school district, there were 18 pupils, including 2 project children, enrolled in the district school, and the total cost to the district of supplying educational services was $708.06, or $39.34 per pupil. On a per capita basis, the payment in lieu of taxes would have been $78.68, which is $65.10 more than the Government actually paid. Similarly, on a payment of $590.87 to Rio Grande County, Colorado, covering public and municipal services supplied during the calendar year 1940, the Farm Security Administration was able to effect a saving of $1,462.63-over 247%-by the use of the property valuation method. With respect to the other taxing units listed in Mr. McGinn's letter of October 23, 1940, and to those listed in Mr. York's letter of October 25, 1940 (his file A-TVR-CE), which are typical of the taxing units to which payments have been made, no payment was in excess of the payment which would have been made on a per capita basis, and savings up to over $16,000 in a single payment, in the case of the payment to Prince Georges County, Maryland, resulted from the adoption of the property valuation method of computation. In all of these instances, it was impossible to estimate the benefits derived by the local units from the projects involved.

The savings under the property valuation method are readily understandable. Only a portion of the total costs of local government are raised by taxes levied on real property, the remainder being derived from various sources, including income from investments, allocations by the State and Federal Governments, and taxes levied on personalty, occupations, amusements, and gasoline, etc. Then, too, the Farm Security Administration is able to, and does, deduct homestead and other exemptions on project property held by rehabilitation clients in possession under purchase contracts. If the payments were made on the basis of a per capita apportionment of the actual costs of government, the Farm Security Administration would have to include in the payments part of the costs of government not raised through taxes levied on real property, and it would not be able to claim the above-mentioned exemptions. Furthermore, the taxes paid by clients on other than real property do reflect, to some extent, the benefits to local units from the projects, and result in a reduction in the amounts to be paid by the Government when the payments are computed on a property valuation basis.

During the first two years the act of June 29, 1936, supra, was in effect, the payments were computed either on a per capita basis or on a property valuation basis, whichever resulted in a lesser amount. Computations on a per capita basis, however, involved the compilation of a vast amount of statistics. Because of the fluctuation, from month to month, of the number of persons on each project, the administrative expense of gathering these statistics was very high and, with the increase in the number of requests for payment received, became almost prohibitive. Since, in the vast majority of cases, the per capita method would have resulted in larger payments than under the property valuation method, it was felt that the extra administrative expense which would be necessary in continuing such a comparison in each instance was not justified.

Your opinion is requested, therefore, as to whether objection need be raised by your office to the utilization of the property valuation method in computing the payments made under the act of June 29, 1936, supra.

Section 2 of the act of June 29, 1936, 49 Stat. 2036, provides:

Upon the request of any State or political subdivision thereof, or any other local public taxing unit, in which any such project, described in section 1, has been or will be constructed, the Resettlement Administration is authorized to enter into an agreement, and to consent to the renewal or alteration thereof, with such State or political subdivision thereof, or other local taxing unit, for the payment by the United States of sums in lieu of taxes. Such sums shall be fixed in such agreement and shall be based upon the cost of the public or municipal services to be supplied for the benefit of such project or the per

sons residing on or occupying such premises, but taking into consideration the benefits to be derived by such State or subdivision or other taxing unit from such project.

* *

While the property valuation basis, in a majority of cases, may offer a simpler method of arriving at the amounts to be paid in lieu of taxes and may in some cases even result in payment of lesser amounts than by other methods, it must not be overlooked that the statute itself prescribes the basis for fixing the payments in lieu of taxes, that is, the amounts to be paid must be based upon "the cost of the public or municipal services to be supplied taking into consideration the benefits to be derived by * taxing unit from such project." The act also provides, however, that the sums to be paid shall be fixed in the agreements between the Secretary of Agriculutre (as successor to the Resettlement Administration) and the taxing units. Hence, the responsibility for taking into consideration the factors required by the statute must necessarily be primarily that of the Secretary of Agriculture.

*

Consequently, where it is clearly stated in the agreement, or in an administrative certificate accompanying the agreement, that the amount to be paid in lieu of taxes is based on or is less than the actual cost of the public or municipal services to be supplied less the benefits accruing to the taxing unit from the project, this office will not ordinarily be required to question the amount so determined and will not require the itemization of the costs considered in arriving at the amount fixed in the agreement.

In the absence of other objection, the amounts fixed in agreements for payments in lieu of taxes executed prior to the date of this decision will be presumed to have been computed upon the basis provided for in the statute, and previous requests for itemization with respect to said agreements may be disregarded.

(B-18169)

RETIREMENT-FOREIGN SERVICE-EFFECT OF AMENDATORY ACT

ON PRIOR ANNUITIES

Since the legal effect of the act of May 13, 1941, was to repeal the provisions of section 26 (d) of the act of April 24, 1939, with respect to the deferred or reduced annuity of Foreign Service officers retired below the age of 60 years, there is no authority to continue to make such reduced or deferred annuity payments after August 1, 1941, the effective date of the 1941 act, but, as there appears to have been no intention to deprive the officers of retirement benefits, their annuities may be computed from August 1, 1941, and not retroactively to date of retirement, under and in accordance with the amended section 26 (d).

Comptroller General Warren to the Secretary of State, July 26, 1941:

There has been considered your letter of June 21, 1941, as follows: By the act approved May 13, 1941 (Public, No. 69, 77th Cong., ch. 115, 1st sess amending the act entitled "An Act to amend the Act entitl