Some counties and communities in Kentucky are getting a big payday from the Tennessee Valley Authority, but local taxpayers may be left scratching their heads and questioning why they’re paying the bill but not reaping the benefits.

Under the Federal TVA Act passed in 1933, which created the public utility, TVA doesn’t pay income taxes and is exempt from property taxes. Instead, the utility pays back 5 percent of its total revenues each year to the seven states in which it provides power and owns assets such as transmission lines, substations, power equipment and generating plants.

Kentucky receives 11.73 percent of that total and TVA will pay the state $42,936,785 in lieu of taxes for 2008, according to TVA Kentucky District Manager for Valley Relations Nancy K. Mitchell, which is an increase of $5,245,098 over 2007.

TVA makes some small direct payments back to local governments, but the great majority of the money is given directly to the states to dole out to county and city schools and governments based on individual state laws.

Kentucky takes 30 percent off the top for the general budget then distributes the other 70 percent back to the cities and counties that TVA serves. The payments are based on an apportioning formula that gives the most money to areas where TVA owns property and assets in the state.

The Glasgow Electric Plant Board, which primarily serves customers in the city of Glasgow, is TVA’s sole power customer in Barren County.

“The in lieu of tax system was created when the TVA Act was passed in the 1930s,” explained EPB superintendent Billy Ray. “The thinking was if you’re taking this government-owned utility to replace these privately owned utilities, then the property tax revenue that the state and the local governments used to enjoy is going to go away. So to keep everybody whole, you need to create a system that mimics property taxes. So you make this payment instead of taxes and it’s roughly equivalent to what your taxes would be.”

The problem arose in Kentucky when state legislators decided to apportion the revenue based on where TVA owns property in the counties, rather than where the money is generated.

Last year, local school districts and governments received $164,879 from the state. Of that amount, the following payments were allocated: Barren County Fiscal Court, $30,528; city of Glasgow, $416; Barren County Schools, $133,057; and Glasgow Independent Schools, $869.

“Glasgow city schools and the city of Glasgow are golden examples,” said Ray. “We pay TVA something like $25 million a year, 5 percent of that would be $1.25 million.”

EPB collects that amount for TVA, which returns part of it to the state, then the distribution formula is based on where the property is owned, instead of where the money is collected.

TVA owns very little property in Barren County, but that’s still more than it owns in Glasgow. That is the reason why the county receives the largest share of the money and Glasgow receives so little, even though the city’s EPB customers are the ones paying in the money.

“Truthfully, most of our money that gets collected in Glasgow … winds up going to Muhlenberg County where TVA owns Paradise Steam Plant,” Ray said. “That’s where the major amount of property is. They get the lion’s share and the inequity in this environment is that the people of Glasgow are ponying up $1.25 million a year and it’s getting sent to Muhlenberg County and McCracken County where the major TVA property is owned.”

A more correct and equitable formula to redistribute the money would be to somehow send it back to where people pay it in, according to Ray.

“I’m sure well-meaning people put it in place and it made perfect sense at the time, but it’s not the 1930s anymore and now where the property is and where the people are paying the money are two completely different areas,” Ray said. “You have major population centers where people are (paying) all this money, but where TVA doesn’t own any facilities, so this money isn’t coming back.”