Subsidies Anonymous #5

December 1, 1996

Table of Contents

  1. Status of Range Reform
  2. The Draft 1995 RPA Program
  3. The Seventh American Forest Congress
  4. Means vs. Ends
  5. Recent GAO and CRS Reports

1 -- Status of Range Reform

Last spring, New Mexico Senator Pete Domenici introduced S. 852, the Livestock Grazing Act of 1995 (which he later renamed the Public Rangelands Management Act of 1995). The bill would have vetoed Secretary of the Interior Bruce Babbitt's proposed range reforms and greatly loosened the rules under which public land ranchers have to operate.

As recently as last August, the bill appeared certain to sail through the Senate and probably the House as well. But then Karl Hess wrote a devastating editorial that appeared in the Wall Street Journal. Hess showed that, far from being fiscally conservative in any sense (which the bill claimed to be because it slightly increased grazing fees), the bill was in fact a massive giveaway of public resources.

Hess then joined with Forest Guardians, of Santa Fe, New Mexico, and Johanna Wald, of the Natural Resources Defense Council, to write a "statement of principles" for future change on the range. As described in greater detail in issue 3 of Subsidies Anonymous, these included:

  1. Let ranchers voluntarily rest public lands from livestock grazing. Under both Babbitt's rules and Domenici's S. 852, ranchers face loss of their rangeland permits if they fail to make substantial grazing use of them.
  2. Give all Americans equal opportunity to acquire, hold and use rangeland permits. Today, people are not allowed to buy permits on the open market and voluntarily devote them to wildlife, fisheries, endangered species, or wilderness.
  3. Cut the federal grazing deficit by trimming costs, not raising grazing fees. Today, taxpayers pay almost $500 million a year to keep the Forest Service and BLM grazing programs afloat.
These principles were endorsed by numerous environmental groups, including the Wilderness Society and National Wildlife Federation, as well as several fiscally conservative groups, including the Cato Institute and the Competitive Enterprise Institute.

By mid-November, the Domenici bill appeared to be dead. But it was resurrected in a new, streamlined form that is scheduled for mark up by the Senate Energy and Natural Resources Committee in early December. Domenici hopes for passage by March, 1996. In response, environmental and conservative groups signed a joint letter to members of the Energy and Natural Resources Committee endorsing the above three principles and opposing S. 852.

Knowing that Democrats might try to filibuster his bill, Domenici added provisions to it that could effectively kill the support ranchers have for it. For example, under the latest bill, any ranchers found guilty of failing to comply with any environmental law or rule would lose their permits.

Supporters of the market approach outlined in the above three principles hope that ranchers will feel threatened enough by the revised S. 852 to consider supporting a market plan. Ranchers would almost certainly prefer this system to the new Babbitt rules, so if the Domenici bill dies a rancher-conservative-environmental coalition is even more likely. We'll keep you posted in future issues of Subsidies Anonymous.

2 -- The Draft 1995 RPA Program

The Forest Service has published its draft 1995 RPA Program and is asking for public comment by January 16, 1996. As usual, the agency is late, but as usual few people are paying any attention to RPA anyway.

There is good reason to ignore RPA. Much of it is vague and much of the substance of the past has been overriden by Congress anyway. But the 1995 incarnation has a few interesting points.

Under "user fees," the document says that the Forest Service will "work toward a system in which fees are based on the [greater of] fair market value and the cost of production." When current laws prevent this, "the agency will propose new legislation."

The agency may sell a resource below fmv/cost of production if doing so would be the least cost way of achieving some other objective or would meet some specific social objective. For an example of the latter, the document suggests below-cost sales might be phased out rather than ended abruptly.

This is a good policy and one I've never seen explicitly stated before. Of course, more user fees are only half of the picture; the other half is changing the incentives generated by such fees.

Less inspiring was a promise to "integrate people's values into management decisions" by having more public involvement in decisions, developing new constituencies, and sharing decisions with other groups.

At first glance, public involvement sounds great. But after twenty years of being involved, this program seems to me to be a recipe for disaster. Public involvement gives people incentives to polarize. New constituencies are likely to become new enemies.

Many people in the socio-forestry community idealistically believe that the agency can resolve conflicts by bringing interest groups to the table and "sharing" the decision-making process. This works only when all the groups, including local Forest Service officials are willing to participate. Groups that do participate are likely to be accused of "selling out," so the pressure is strong to quit.

Perhaps the most successful case of joint decisionmaking today is the Quincy Library Group, in which some California environmentalists wrote a forest plan for the Plumas National Forest with local timber industry officials. In this case, however, the Forest Service refused to participate.

Despite the endorsement of the Clinton Administration, the Plumas Forest attempted to sell a salvage sale in an area that the Quincy Library Group agreed would be off limits. The timber industry refused to bid on the sale. The Quincy Library Group could be a model for good decision making, but only in cases where everyone comes to the table.

In other areas, the RPA Program seems to have been written by environmentalists. Under "roadless areas," the draft says that "The Forest Service will increase the proportion of areas being managed to maintain their roadless character." For roadless areas included in the timber base of forest plans, the volume cut from the areas will be a "non-interchangeable component of the ASQ." If environmentalists successfully stall sales in such roadless areas, this mean that the Forest Service won't simply overcut somewhere else.

Under "old growth," the draft directs forest plans to establish old-growth reserves and old-growth management areas, something many forests refused to do in the past.

Under "sawtimber availability," the draft commits the Forest Service to reducing wood prices "by conservation and substitution of other materials" rather than by cutting national forest timber.

In terms of outputs, the program proposes to maintain grazing and timber at roughly current levels, which means about 4.5 million board feet of timber sold and 8 million aums of permitted grazing per year. The number of acres clearcut is expected to fall from 133,000 in 1993 to just 25,000 per year by 2045.

Recreation use is expected to increase by about 50 percent over 50 years. But recreation user fees are expected to increase by 150 percent in just 10 years and another 150 percent (for a total of 600 percent over current) by 2045. By comparison grazing fees double and timber receipts increase by just 50 percent in 50 years.

Still, recreation receipts will fall well short of market value. The document estimates that the current market value of recreation (including fish & wildlife recreation) is nearly $9.5 billion, an amount expected to double in 50 years. This not willingness to pay, which is a much larger $16 billion, but the amount that the Forest Service thinks it could actually collect if Congress allowed it to charge fees of all forest users.

By comparison, the willingness to pay for timber is just 10 percent over market value which is virtually identical to actual receipts. This is a technical improvement over the 1990 RPA, which outlandishly claimed that timber's willingness to pay was hugely greater than actual receipts.

Given the expenses claimed by the document, most resources will remain below-cost throughout the 50-year projection period. The projected increase in recreation receipts would be sufficient to cover recreation's current operating costs of about $320 million per year, but by the time receipts reach that level costs have increased to $560 million. Range operating costs are around $40 million, but receipts never top $20 million. None of these costs count capital costs, which are $100 million per year for recreation and $10 to $15 million per year for range.

RPA projects that timber will make money, but then it projects that timber made money in 1993--which it did not. Receipts hover around $1.1 billion per year, while operating plus capital costs are slightly less than $800 million. Typically, the agency ignores the fact that nearly all of the costs are paid by taxpayers while most of the receipts are kept by the Forest Service (see below).

RPA demonstrates the Forest Service's dramatic movement toward environmentalist views. It reveals the glimmerings of attempts to promote more efficient management of the national forests. But it also shows that the agency remains unaware of some of its fundamental problems, including the fact that "public involvement" actual stimulates, rather than prevents, conflict.

3 -- The Seventh American Forest Congress

I answered the phone a few weeks ago and the voice of a prominent Northwest environmentalist boomed from the other end of the line. "What do you know about the Seventh American Forest Congress?" he asked. Never heard of it, I admitted.

"It looks to me like a timber industry plot to eliminate all environmental legislation," he pronounced. "Most of the people listed on the board of directors work for Weyerhaeuser or other timber companies." He went down the list.

"Who is Art Smyth?" he asked. "He seems to be one of the leaders." I didn't think I had heard of him either, but when I looked in my computer-rolodex file, there he was, living in Alexandria, Virginia, and listed as a "retired Weyerhaeuser employee." Despite this, I said that, although some companies might "plot" to repeal environmental laws, I didn't think that Weyerhaeuser worked that way.

A few minutes later the mail brought me my own bundle from the Seventh American Forest Congress, evidentally the same as my friend had received. A history by Arthur Smyth revealed that previous American forest congresses had been held in 1882, 1905, 1946, 1953, 1963, and 1975. Most of them had little consequence, but the 1905 one supposedly led to the creation of the Forest Service. (I suspect that would have happened anyway, but Pinchot certainly used the 1905 congress to his political advantage.)

The Congress appears to have a luminous range of supporters, and not just timber industry although they are well represented. Prominent universities, state and federal government agencies, and conservation groups including the Izaak Walton League, Wilderness Society, and Heartwood were all listed.

The literature also indicated that, while the actual Congress would be held in Washington, DC, on February 20 through 24, preliminary "roundtables" would be held in cities across the country. A cover letter invited me to the next one, in Corvallis, Oregon, on November 28. I decided to attend to see what was going on.

Upon registering, I was sent an agenda that indicated participants would be asked to write a "vision for Oregon's forests," "principles" for achieving that vision, and "concrete first steps people can take" to move toward the vision and principles.

The meeting had about eighty people, at least a quarter of whom appeared to be active in the Congress organization. In introductory remarks, Gretchen Lloyd (a BLM employee who also happens to be Art Smyth's daughter) said that the idea of the roundtables was so successful that they had to turn people away.

After a few other introductory remarks, we broke into nine groups of about seven people, each led by a facilitator. Groups had been carefully devised to include some industry, some envirors, and some agency people. Other interests such as Native Americans were scattered around to as many groups as possible.

Members of each group presented their personal "vision statement," which were then merged by the groups into a group statement. Representatives from each group then met together to synthesize the group statements into one statement representing the entire roundtable.

Everyone made efforts to be conciliatory, with the result that most vision statements contained vague but appealing phrases such as "sustainable," "forest health," and "diverse ecosystems." As I will describe below, I objected to it all, but everyone else appeared comfortable with the process.

I was therefore a bit surprised when many people expressed disappointment in the synthsized vision statement. "That didn't sound like anything we wrote," said Ward Armstrong, an Oregon timber industry lobbyist who is on the Congress' board of directors. But few people protested in detail because the vision was so vague as to be meaningless.

In the next step, small group members were asked to offer any principles they wanted in the areas of policy, management, research, education, and communities. No attempt was made to get consensus on these principles (at least in my group). Instead, group members were asked to "vote" on the principles that they felt were most important by placing round stickers next to each principle. Each member of our group was allowed to use a maximum of three stickers. Again, representatives of each group met to synthesize the principles.

As with the visions, the synthesized principles were totally unrecognizable. For example, the principle I offered naturally emphasized incentives, and read "Allocate marketable resources using markets and protect nonmarketable resources using positive incentives." I heard people at other groups also talk about using positive incentives rather than regulation to protect nonmarketable resources.

In the synthesized principles, this was distorted to read, "forest policy shall include incentives to increase both commodity and non-commodity outputs." In the case of at least some outputs, increases would only be possible with subsidies. So what started out as an emphasis on markets and positive incentives turned into a mandate to use government subsidies to increase all forest outputs.

Distortions like this led to minor revolution within the group, both among industry and enviros. One shocked Congress staff member claimed that, of the forty roundtables held to date, this was the only one where the process "broke down." By a 24 to 22 vote (with numerous abstentions), the group decided to stick with the synthesized principles. This hardly indicates the "consensus" that the Congress was seeking.

Obviously, it took time between the small group meetings and the presentation of the synthisized principles to the entire roundtable for the group representatives to develop their synthesis. The Congress filled this slot with a presentation by former Region 5 Regional Forester Zane Grey Smith on a forest plan that Smith had helped prepare for the Lake Baikal region of central Russia.

"Russia had command-and-control for many years," said Smith, "which handed down targets that had little to do with the land's capabilities. As a result, many areas were overcut." I thought it was ironic that retired representatives of the U.S. Forest Soviet--excuse me, Forest Service--should be telling Russians how to run their forests. And it was doubly ironic that this was being presented to a group that was being asked to hand down its vision from on high.

The final step, development of concrete actions, took place too late in the day for any synthesis to take place. Once again, people were asked to vote on the actions offered by their fellow group members. The roundtable concluded with each group briefly presenting the actions with the most votes to the roundtable as a whole.

Advertisments for the February Congress say that organizers expect to attract 1,000 to 3,000 people. Participants "will sit around a table with people from a wide variety of backgrounds . . . guided by professional facilitators using state-of-the-art techniques in ."

The agenda is by now familiar. On February 21 people will write a "shared vision statement." On February 22 people will "create the principles to support the vision." On February 23 people "recommend the next steps . . . to make your vision a reality." On the last day, "participants will confirm and celebrate [their] accomplishments."

On one hand, there doesn't seem to be any attempt by Congress leaders to skew the results toward the timber industry or any other interest. Instead, I believe that these are sincere people who are looking for a way out of some of the dilemmas America is facing regarding its forests and natural resources.

On the other hand, I have little faith in "state-of-the-art large group decisionmaking." A process that worked poorly for sixty people will be a disaster for 1,000 or more. I suspect that the results will be a meaningless hodge-podge that, like most previous forest congresses, will have little effect on forest policy.

I don't want to rain on anyone else's parade. If the process works, I will probably applaud the result. I certainly appreciate the work being done by so many committed people. I just am skeptical of the inflexible group "decisionmaking" process.

Perhaps Corvallis was the only roundtable where the process broke down. You can judge for yourself as the results from many of the other roundtables are posted on the Web.

4 -- Means vs. Ends

In addition to my doubts about group decisionmaking, I also object to the concept of developing a vision and then basing an action plan on that vision. This process emphasizes the "ends" over the "means."

There are two distinct problems with such a process. First, although we have an idea what we want from our forests today, we have no idea what people will want in the future. An emphasis on ends leads to an inflexible plan that may produce things that no one will ever want (such as "increases in both commodities and non-commodities).

I am reminded of a story I once heard about the Danish Forest Service, which may be apocryphal but which is typical of many forest agencies. During the nineteenth century, tall straight trees were highly prized as shipmasts. The navies of many countries convinced their governments to set aside forests as "naval reserves" for the production of such masts.

The development of steam technology and metallurgy virtually eliminated the need for wooden masts. But according to the story, a few years ago the Danish Forest Service called up the Danish Navy and announced, "Your masts are ready." That is the result of a planning process that places ends over means.

The second problem with ends-over-means planning is that, once the ends are defined, the wrong means are usually chosen to reach them. If we know where we want to go, why rely on something as uncertain as the market to get there? Instead, just have the government pass a law directing people to move in that direction. The fact that this has rarely worked doesn't stop us, it just means we need more and tighter laws.

To go along with the process used at the forest roundtable, I based my vision of future forests on means, not ends. My vision read something like, "Promote personal freedom with institutions that encourage people to cooperate with one another" rather than fight as they have been doing over forests. My vision didn't even mention forests; it focused on freedom and institutions as a vehicle for making decisions about forests.

The facilitator said she wanted to include my vision in the group statement, so the people in my group decided to make it a preamble to their more ends-oriented visions. So our group vision read something like,

"Create instutitions that promote personal freedom by encouraging people to cooperate with one another in achieving the goals of stakeholders, including: healthy forests, sustainable management, diverse ecosystems, etc."

I felt comfortable with that. But I objected to one of the "visions" that several of the timber people supported, which was to "protect the forest land base." In Oregon, this is shorthand for zoning laws that forbid anyone who owns forests outside of urban areas to use those forests for anything else. While I would prefer that those forests remain forests, I would rather use means that are less coercive.

Why does the Oregon timber industry, many of whose members own land that they might profitably develop, support such zoning? Such zoning helps assure sawmills that buy timber from other landowners a steady supply of wood. But that doesn't explain why companies that own their own land, such as Weyerhaeuser, or companies that own land and no processing facilities support the measure.

One reason may be that there is a quid pro quo in the zoning process. As Oregon counties zone land to huge minimum lot sizes--often 160 acres or more--they also include in the plans requirements that, if you ever build a house on your 160-acre lot, you will get a permit to do so only if you agree to never object to the forest or agricultural practices of your neighbors. Timber land owners are thus protecting themselves from controversy. If nothing else, this illustrates an unintended consequence of a seemingly sound government policy based on placing ends over means.

Back to the roundtable, I admit that I appreciate the efforts of my facilitator and group to include my "vision" in our statement. It was all for nothing, though, as the synthesized vision eliminated any mention of personal freedom or insitutions. I pointed this out to the large group and asked that it be restored, so it may be put back.

But my point remains: If we focus on ends without talking about means, we are likely to come up with the wrong means and the wrong ends.

5 -- Recent GAO and CRS Reports

A recent GAO report confirms what Robert Wolf and I have been saying for years: Most Forest Service timber sales cost taxpayers money, even the ones that the Forest Service says earn a profit, because the Forest Service keep most of the receipts. The GAO report was probably inspired by Wolf's prodding, but specifically responds to inquiries by Illinois Representative Sid Yates, the ranking minority member of House Appropriations.

The report, Forest Service: Distribution of Timber Sales Receipts Fiscal Years 1992-94, compares timber-sale-related costs with receipts after deducting all of the receipts retained by the Forest Service or that go into some other fund. Annual figures are presented for each national forest for fiscal years 1992 through 1994.

In total, over the three years, the Forest Service collected $3 billion from timber purchasers. After all the deductions, only $300 went to the U.S. Treasury.

The Thoreau Institute has published a similar analysis of Forest Service sales each year. Most recently, the the Reinventing the Forest Service issue of Different Drummer published numbers for fiscal 1993 and 1994 on pages 32 through 35. These same numbers are on the World Wide Web at

The GAO report differs from my analyses in four significant ways. First and second, the GAO deducts purchaser elect road costs and the 10-percent road fund from Forest Service receipts. Neither are counted by my analyses.

The 10-percent road fund exists on the law books but isn't really functional, so I ignore it. According to the law, the Forest Service is allowed to keep 10 percent of all its receipts to spend on road construction. In fact, Congressional appropriators give the agency far more for road construction than this 10 percent. The legal fiction is that, of the amount appropriated, an amount equal to the 10 percent fund comes from Forest Service receipts and the rest comes from other sources. In reality, the appropriators would probably give the agency just as much money if the 10-percent law didn't exist.

The purchaser elect fund is more real, though it represent less than $10 million per year. Under the law, small businesses who buy sales that require road construction may request that the Forest Service build the road. The business pays its bid price for the sale and the Forest Service keeps the cost of the road. The Forest Service doesn't keep track of this in TSPIRS and, because it is small, I have also tended to ignore it.

The third difference between GAO and my analyses is more serious and has to do with treatment of salvage sale funds. The Forest Service is allowed to keep salvage sale receipts and spend them on more salvage sales. The agency's TSPIRS analysis doesn't keep track of how much of timber sale costs are paid out of the salvage sale fund vs. out of tax dollars. So the GAO simply counted all costs--including those paid by the salvage sale fund--even though it deducted the salvage sale fund from receipts.

As a result, the GAO has underestimated net returns to the Treasury. Since the salvage sale fund is very large, the difference is in the tens of millions of dollars per year.

These three differences between GAO and my results all count against timber receipts. By my count, after payments to counties and Forest Service deductions, the Treasury received $508 million in 1992 through 1994. This is $210 million more than the GAO calculates.

Of these three differences, the GAO is correct about purchaser elect funds. I left those out simply because of laziness. This accounts for less than $23 million for the three years in question. The 10-percent road fund is more debateable. It accounts for $134 million of the difference for the three years.

The remaining difference--about $60 million--must be due to the salvage sale fund. Here it was the GAO that was lazy. Its report says that it ignored this fund "to be consistent with the Forest Service's annual reports." But if consistency was the goal, why change anything?

During each of the past several years, I have cajoled the Forest Service into giving me forest-by-forest data on how much is spent out of the salvage sale fund. I deducted these costs from other timber-related costs before counting them against receipts. This is more accurate and no less devastating.

The fourth difference is that the GAO only counted timber-sale-related costs, whereas I counted all costs paid by taxpayers included in TSPIRS. Reforestation, timber stand improvement, and genetic tree programs are the primary costs not counted by the GAO. The difference is around $85 million per year.

In the end, these differences aren't really important, though the GAO leaves itself open to criticism for not fixing the salvage sale problem. The important thing is that the authority of the GAO now supports Wolf's and my contention that most national forests lose money on timber. Very few national forests ever show a profit after all of the deductions counted by the GAO.

GAO reports are available by writing the GAO at P. O. Box 6015, Gaithersburg, MD 20884-6015 or by faxing 301-258-4066. Ask for report number RCED-95-237FS.

You can download any GAO report from a Government Printing Office mirror site. You can ask for the reports by number or ask for all recent reports relating to, say the Forest Service.

Ross Gorte of the Congressional Research Service has also prepared a report on national forest receipts. His report is number CRS 95-1077 ENR. I haven't read the report, but it appears to be more descriptive and less data intensive than the GAO report.

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