Running national forests, parks, and BLM lands like a business will save taxpayers $21.2 billion in five years, calculated by adding the current annual losses to the projected annual returns. During the first, transition year, savings are estimated to be half of the current annual losses with no returns until the second year.
The Waste of a Valuable Public Resource
Three federal agencies--the Forest Service, Bureau of Land Management, and Park Service--together manage nearly 500 million acres of federal land. These lands are conservatively valued at well over $100 billion. Yet this value is not realized by the agencies, which collectively lose nearly $4.15 billion per year managing these lands (see table one).These lands are also beset by enormous controversies over conflicting uses and environmental disputes. Fisheries advocates conflict with cattle and sheep ranchers; recreationists conflict with miners; wildlife supporters conflict with timber cutters. Such conflicts have sometimes grown violent as people feel that their livelihoods or the resources they cherish are threatened by supporters of other land uses.
Natural resource issues are often presented as a conflict between economics and the environment. Yet in this case, the financial losses and the environmental controversies have the same cause: the federal budgetary process. For decades, we have acted as though there is no limit to either the federal budget or to the federal government's ability to do good. Today, we know that there are very real limits to both.
Both problems--the environmental conflicts and the financial losses--can be solved the same way: by running the public lands like a business. Just as public lands produce many products--timber, recreation, domestic forage, wildlife, minerals, and water--so too a business like a dairy produces many products--milk, cheese, ice cream, and yogurt, to name a few.
But you never see people suing a dairy for producing too much cheese and not enough yogurt. Nor do you see people picketing grocery stores for having too much ice cream and not enough milk.
What do we mean when we say run a government agency like a business? Why can a dairy produce multiple products without conflict but public land agencies cannot? The answer is in the incentives faced by public and private land managers.
Running Public Agencies Like a Business
Managers of private businesses and government agencies are alike in many ways. They are often optimistic about the returns from investments in the enterprises they manage. They also tend to be empire builders, seeking bigger budgets, more staff, and expanded operations.Private business managers have two restraints that do not limit public agencies. First, businesses are ultimately funded out of their receipts. Receipts tie managers to consumers and give them incentives to produce things that consumers want.
Second, the owners of the business usually demand a return on their investments. This forces business managers to not just cover their costs but to produce a profit and discourages them from cross-subsidizing unprofitable activities with profitable ones. Stockholders would not support General Motors for very long if it systematically lost money selling Buicks simply because it could cover that loss with profits from Chevrolets.
Managers of most government agencies face no such restraints. Since the agencies are funded mainly out of tax dollars, not receipts, they make little effort to insure that investments are worthwhile. Their fiscal and budget offices never voluntarily compare receipts with costs.
Since no one demands that they make a profit, they tend to keep whatever receipts they can and spend them cross-subsidizing other activities. The Forest Service, for example, is allowed to keep an unlimited share of its timber receipts to spend on sale area improvements. Not surprisingly, most forests simply keep most of their receipts and forest managers openly describe funds that they return to the Treasury as losses because they lose control of them.
Vice-President Gore's National Performance Review accurately identified the basic problem with the federal government. As the review noted, Large, top-down bureaucracies don't work very well. The review also suggested sound solutions, such as decentralization and market incentives.
When it came to implementation, however, the review's most important change--a requirement that most agencies reduce personnel by 12 percent--was the same old, top-down central planning that the federal government has suffered from for decades.
The classic problem with reforming most government agencies is that, unlike private businesses, they do not produce marketable products. But this is not the problem with the Forest Service, Park Service, or Bureau of Land Management. Nearly all of the resources produced by these agencies are marketable and are actively bought and sold on private lands. The problem these agencies face is that the prices they are allowed to charge and the rewards they get for selling resources have been politically regulated.
So if Congress is serious about running natural resource agencies like a business--and it should be--then it must make two basic changes in agency budgets:
- Congress must allow land managers to charge fair market value for all uses,
including timber, grazing, recreation, hunting, fishing, minerals, and even,
when state law allows, water.
- Congress must establish and maintain a formula that funds individual forests, parks, and BLM districts exclusively out of a fixed share of the net income they earn each year.
These changes will have the dramatic effect of converting three highly centralized agencies into some 500 individual forests, parks, and districts, each operated as a separate entity. This will improve land management in many ways, including:
- Funding from the bottom up, not the top down, will insure that management and planning are based on the needs of the land and the people who use it, not dictated from thousands of miles away
- The elimination of much of the bureaucracy will allow managers to reduce costs to levels more in line with private and state lands
- Recreation fees will give federal, state, and private land managers new incentives to protect scenery, clean water, wildlife habitat, and other amenities without regulations or takings
- Competition between forests, parks, and districts will promote innovation and responsiveness to forest users.
Two additional steps will protect such resources:
- Congress must allow federal managers to sell conservation easements to
people who want to protect special areas. Current rules require holders of
federal timber, grazing, or other permits to use it or lose it. If permit
holders could use it or conserve it, some people might buy timber or other
permits to protect resources from disturbance.
- Congress must dedicate a fixed share of public land receipts to biodiversity, historic, and wilderness trust funds. Boards of trustees appointed by the Secretary of Interior or elected by wilderness users would use such funds to give managers incentives to protect resources that user fees might not cover.
Altogether, these four changes--fair market value user fees, funding out of net income, conservation easements on federal land, and trust funds for nonmarketable resources--will save taxpayers nearly $5 billion per year and eliminate most of the environmental controversies that now surround federal land management. They will also give state and private land managers new incentives and new sources of income.
Table One
Agency Acres, Land Values, Receipts, and Costs in 1995
Value of Returns to Costs to Net
Acres Assets Treasury Treasury Returns
(millions) (billions) (millions) (millions) (millions)
Forest Service 192 $100 $465 $2,399 -$1,934
BLM 220 25 134 1,047 -913
Park Service 87 25 1 1,302 -1,301
Total 499 $175 $600 $4,748 -$4,148
Asset values are conservative estimates based on Clawson (1976). Returns include all revenues that go to the Treasury from sale, lease, or other use of resources whose receipts are not administered by the Minerals Management Service, but not receipts retained by the agencies in one or another trust fund or revolving fund.
Costs include all land management activities paid out of tax or deficit dollars including fire protection, construction, and payments to counties in lieu of taxes, but not land acquisition.
Making the System Work
The above four steps provide the framework for reforms of the Forest Service, Park Service, and Bureau of Land Management. Implementation of such major changes will be a little more complicated. Decisions must be made regarding:
- The transition from the current system;
- The percentages of net income returned to managers;
- The organizational structure;
- Management of wilderness areas;
- Trust funds; and
- A process in the event that particular forests, parks, or districts are unable to fund themselves out of receipts.
Transition: Just Do It
Clear lessons have been learned in Britain, New Zealand, Poland, the Czech Republic, and other nations attempting to streamline their governments: Attempts to phase in such reforms over a lengthy transition period usually fail. The greatest success stories are from countries that have insisted upon rapid change.To provide for rapid reform, Congress should give individual national forests, parks, and BLM districts seed money equal to their previous year's budget. Since as much as 60 percent of agency budgets are consumed by higher levels of the bureaucracy, this will immediately save around $2 billion. Managers should be assured that they will receive no further funding from tax dollars thereafter, which translates to a $4.15 billion savings each year after the first year. This represents an $18.7 billion reduction in federal expenses over five years.
From then on, at the end of each fiscal year, managers will be allowed to keep a fixed share of the net receipts they earned that year. All remaining receipts will go either to trust funds, county treasuries, or the U.S. Treasury. The amount that managers have to give up will be based on their total receipts minus total expenditures and will, in effect, be the rent paid by public land users to the owners of that land.
Managers will be under no obligation to immediately spend either their seed money or the share of net receipts that they earn. Instead, as private firms do, they may choose to carry over funds from particularly good years to spend during poor years.
Percentages of Net
Funding based on a percentage of net income gives managers incentives to produce the most valuable resources. But the actual percentage could be anywhere from 1 to 1,000 percent or more. The percentage must be large enough to allow managers to fund essential functions yet small enough to provide funds for trust funds and county and federal treasuries.While managers will be allowed to carry funds over from year to year, in the long run they will spend all the funds they are allowed to keep. Since expenditure plus net equals gross income, the share of gross income that managers will keep can be estimated based on the percentage of net they are allowed to keep. If managers can keep 100 percent of net, for example, then they will keep roughly half of gross. If they can keep 200 percent of net, they will get about two-thirds of gross.
Estimates of potential receipts (below) suggest that 100 percent of net will be sufficient to operate most forests, parks, and BLM districts, although many will have to make significant budget cuts. If 20 percent of gross receipts are dedicated to trust funds for biodiversity and historic preservation, this leaves about 30 percent of gross receipts to split between counties and the U.S. Treasury.
The maximum feasible rate is no more than 200 percent. At this rate, forest, park, and district budgets will be about 50 to 60 percent greater than at the 100 percent rate. But if 10 percent of gross receipts are dedicated to trust funds for biodiversity and historic preservation, only 23 percent will be left to be split between the counties and the U.S. Treasury. This is sufficient to maintain historic payments to most counties, but a lower percentage would force Congress to either subsidize counties or to reduce payments to many counties below historic levels.
Beyond user fees, managers should be allowed to seek grants and donations and to keep all of such donations. Managers could also be allowed to borrow funds for short periods and--possibly--to sell non-government guaranteed bonds. Loans would not count as income when calculating net.
Boards of Directors
To provide public oversight of management activities on federal lands, Congress should create boards of directors for every national forest, park, and BLM district. The boards would have the authority to hire and fire the unit supervisor, approve or reject annual operating plans, and decide how much money to spend each year.Every forest, park, and district would be affiliated with a non-profit friends association. Any U.S. citizen would be able to join a friends association by paying, perhaps, $20 per year, which would be counted among the unit's receipts. Board members would be selected by association members, who would also receive regular reports on the unit's operations and, at the discretion of the board, be eligible for discounts for certain user fees.
Trust Funds
To protect certain resources that user fees might not sufficiently protect, Congress should create several different trust funds.
- A biodiversity trust fund would give public and private land managers incentives to protect biodiversity.
- A historic preservation trust fund would give managers incentives to protect historic and archeological resources.
- Finally, a series of state and regional wilderness trust funds would manage existing Forest Service and BLM wilderness and use wilderness user fees to expand the wilderness system by buying conservation easements.
Trust fund revenue would be $800 million per year. The trustees could use these funds in a variety of ways:
- Buying conservation easements;
- Paying public land managers or private land owners to use or avoid certain practices;
- Offering bounties to landowners or managers whose land provides habitat for rare or endangered species;
- Making grants to landowners or managers for projects protecting rare species or biodiversity.
Separate wilderness trust funds would be created for each state with large acreages of designated wilderness--mainly the western states and possibly Minnesota--plus two to four regional trust funds for the rest of the nation. All designated national forest and BLM wilderness acres, along with all wild and scenic rivers, would be managed by the appropriate fund. Wilderness boards of trustees would be elected by purchasers of wilderness permits in that state or region.
The fund would keep all user fees collected from wilderness and river users--estimated at about $100 million of revenue per year. After payment of administrative expenses, the boards could use remaining revenues to purchase land, conservation easements, or to otherwise expand and enhance the wilderness system. Wilderness revenues would not be diverted to the biodiversity or historic trust funds.
Takeover Process
Given the incentive, people have amazing abilities to increase revenues and decrease expenses in order to cover costs and earn a profit. But some areas still may not be able to survive on user fees alone. Most vulnerable will be a number of recently created historic sites that receive too few visitors to cover the basic costs of protection and maintenance.For example, the Ulysses S. Grant Historic Site, in St. Louis, Missouri, has an annual budget of nearly $500,000, yet it received fewer than 3,000 visitors in 1993. If the site cuts costs by 75 percent and quadruples visitation, entrance fees would still have to be $20 per person to cover costs out of 100 percent of net. That is a lot to ask of visitors who typically stay at the site for less than two hours.
Managers of such sites can use ingenuity to raise funds from outside sources, such as local businesses. They may also be able to supplement budgets with grants from the natural or historic trust funds. But ultimately, some are likely to fail. Congress must create a formal process to allow nearby forests, parks, districts, state agencies, or non-profit organizations to take over such failures.
Former Park Service director James Ridenour notes that the parks least able to cover costs out of user fees are mostly those that he terms park barrel--created more as local economic development projects than as legitimate additions to the National Park System. House Bill 260 proposes that the Park Service submit an annual list to Congress of such sites that might be deauthorized.
A generic takeover process would eliminate the need for Congress to make the potentially controversial decision of deauthorizing sites. Under this process, a site unable to cover its costs out of its share of user fees and other income would, at the discretion of its board, be put up for bid. Eligible bidders would include other federal forests, parks, or districts; state agencies; and non-government, non-profit organizations.
The successful high bidder would hold the site in trust for the people of the United States. Their bid might include a single payment or an annual payment to the Treasury. After making such payments they could fund their programs out of all user fees and donations that they collect. However, successful bidders would have to put up a bond that would insure protection for the area should they fail.
Effects of Proposed Reforms
Applying these four steps to the Forest Service, Park Service, and BLM will:
- Save taxpayers nearly $5 billion per year;
- Generate adequate funds for on-the-ground resource management;
- Give public land user groups incentives to cooperate with one another instead of fighting as they do now;
- Give both public and private land managers incentives to protect the resources cherished by recreationists and environmentalists;
- Reduce political interference in the production of timber and other commodities; and
- Produce enough receipts to maintain payments to counties in lieu of property taxes.
Receipts and Costs
Management of the national forests, parks, and BLM districts currently costs taxpayers $4.1 billion more than it returns to the Treasury each year. In 1995, land management activities cost the Treasury $4.35 billion. The lands produced nearly $1.5 billion in receipts (not counting receipts collected by the Minerals Management Service), but most of the receipts were dedicated to the agencies themselves and were not retained by the Treasury.Actual Treasury receipts totaled to $600 million. After making payments to states of nearly $400 million, the Treasury gets to keep just $200 million. With a $4.35 billion cost, the net return is minus $4.15 billion.
Allowing agencies to charge fair market value for all resources could nearly triple current receipts, from under $1.5 billion to $4.2 billion. At 100 percent of net, the agencies would get to keep $2.1 billion of this amount. While this is a substantial decrease from their current budgets, it is not much different from their on-the-ground expenditures: More than 60 percent of Forest Service, Park Service, and BLM budgets are absorbed by higher levels of their bureaucracies.
After dedicating $840 million in receipts to biodiversity and historic trust funds, the Treasury would split the remaining $1.26 billion with counties. Under the county payment formula discussed below, counties would get half of this, leaving $630 million for the U.S. Treasury. In the first five years, the Treasury would receive about $2.5 billion. When combined with the $18.7 billion reduction in expenses, this proposal represents a $21.2 billion savings over five years.