Review of the Proposed 1999 Forest Service Budget

Table of Contents

  • 6. Conclusions
    In 1976, Marion Clawson, then one of the leading forest economists in the nation, estimated that the asset value of the national forests was about $50 billion dollars. Despite setbacks in the timber program and the crudity of Clawson's measurements, it is likely that the forests' value remains at least $50 billion and probably closer to $100 billion today.

    So, if the national forests are so valuable, why do taxpayers have to fork over $2 billion per year to run them? People have a lot of glib, sometimes self-serving, answers to this question. But the real answer is that the agency's budgeting process encourages managers to inflate costs and discourages managers from collecting and returning to the Treasury receipts for most resources.

    This can be seen by looking at the Forest Service's 1999 budget proposal, as it is presented in the document titled "1999 Budget Explanatory Notes for Appropriations Committee." The long-term solution to this problem is a major overhaul in the budgeting process, but such an overhaul is unlikely before 1999.

    This report will suggest some short-term or incremental solutions that can move in the direction of such a major overhaul without generating too much controversy. Taken together, the recommendations in this report could boost receipts and reduce costs, reducing Forest Service losses by $500 million or more per year. This report will also briefly examine parts of the Forest Service budget that do not relate to the national forests.

    1. The Ideal: A Profitable Forest Service

    In 1952, Newsweek magazine reported that the Forest Service "is undoubtedly one of Uncle Sam's soundest and most businesslike investments." At that time, the agency was proud to say that it was the only federal agency that made a profit.

    The agency's desire to earn profits for taxpayers goes back to Gifford Pinchot. Pinchot promised Congress that, if it transferred the national forests out of the Department of the Interior into his tiny Bureau of Forestry, he would run them at a profit.

    But since the 1960s, at least, the Forest Service has incurred steadily increasing losses. Ironically, in view of Pinchot's original promise, agency officials today commonly excuse their red ink by claiming that "the national forests were never intended to make money."

    Newsweek said that the agency was successful in 1952 because it was decentralized and run by foresters who were "force-fed a diet of responsibility and loyalty." Today, the agency is highly centralized and its managers are a hodge-podge of foresters, engineers, biologists, hydrologists, archeologists, and any number of other professions who are more loyal to their resources than to the agency or to taxpayers.

    We will never again get the Forest Service of 1952, and considering that foresters cannot truly be omniscient that is in some respects a good thing. But we can make the agency more efficient and more responsive to the land and land users than to red tape, bureaucracy, and internal and external squabbling.

    The basic solution is to fund the national forests out of their net receipts rather than out of tax dollars plus gross receipts. This will encourage managers to control costs, boost receipts, and minimize cross-subsidies that are not needed to maintain the health of the forest.

    Profitability is a sound goal for the national forests. For marketable resources, profits are a symptom of good management: They mean that managers are producing things that people want. Not all resources are marketable, but most are, including timber, forage, minerals, recreation, hunting, fishing, and even water. For those resources that are truly nonmarketable, most will probably be better off once the Forest Service's current incentives to lose money are changed to incentives to make money.

    Of course, this raises many questions. Will all forests be able to produce enough net receipts to cover their costs? How will non-market resources such as biodiversity, forest health, and restoration be funded? What about the extraordinary costs of wildfire on some forests? And most importantly, how do we make the transition from the mess we are in today to the ideal agency we would like the Forest Service to be?

    Fortunately, these questions are beyond the scope of this article (though I have attempted to answer them elsewhere). But if a profitable National Forest System is a worthwhile goal, we have to keep that goal in mind as we tinker with the budget today. Otherwise, we may make it even harder to reach that goal in the long run.

    2. The Reality: Billions and Billions Wasted

    Some calculations based on the "highlights" section of the budget explanatory notes show just how far we are from the goal of profitability. Of the costs listed on page 8, six lines can be attributed to the national forests: National Forest System, emergency supplemental, wildland fire, recon and construction, emergency recon and con, and the reforestation trust fund.

    These total to $2.29 billion in 1997, $2.13 billion in 1998, and $2.26 billion under the proposed 1999 budget. Other than county payments, about which more later, other costs either do not pertain to the national forests or are paid out of receipts, not tax dollars.

    On the receipts side, only two lines on page 9 can really be counted: the National Forest Fund subtotal and National Grasslands subtotal. The other lines are either retained by the Forest Service or are "noncash receipts deposited to DOI and Dept. of Energy." The forest and grassland subtotals total to $278 million in 1997, $309 million in 1998, and an estimated $295 million in 1999.

    Not even all of these receipts stay in the U.S. Treasury. as noted on page 229, the Forest Service gets to keep 10 percent of its receipts for roads and trails. This amounted to $50 million in 1997, $28 million in 1998, and an estimated $27 million in 1999.

    Finally, there are payments to counties, traditionally 25 percent of receipts in most forests, but recently much higher in the Northwest because of the spotted owl plan. This fund includes 25 percent of many of the receipts we haven't counted, including Knutson-Vandenberg funds, salvage sale funds, and purchaser road credits. For the sake of fairness, I won't count the spotted owl payments and just show what 25 percent of the relevant line items would be.

    The results are in the table below.

                       Table One
           National Forest Receipts and Costs
                 (millions of dollars)             
                           1997      1998      1999
    Receipts               $278      $309      $295
    Minus 10% road fund      50        28        27
    Net receipts            228       281       268
    Costs                 2,286     2,128     2,263
    "Before tax" net     -2,058    -1,847    -1,995
    County payments         149       166       157
    Net to Treasury      -2,207    -2,013    -2,152
    Note: 1997 is final, 1998 is estimated, 1999 is proposed.
    Payments to counties are supposed to be "in lieu of taxes," so we can count a "before-tax" loss of $1.8 to $2.0 billion and an "after-tax" loss of $2.0 to $2.2 billion per year. Clearly, the Forest Service has a long way to go before the national forests become profitable.

    A hint at the reason behind the agency's unprofitability is its steadily declining productivity in numerous areas. In timber, reforestation, grazing, and many other areas, Forest Service costs per unit of output are steadily rising.

    Other unit costs have no doubt increased as well, but they are not all calculable from the explanatory notes because the Forest Service has lumped many line items, such as reforestation and timber stand improvement, together.

    Why do per-unit costs increase? Because they can. Since costs are funded out of tax dollars plus gross receipts, managers have little incentive to control them. As timber receipts have declined, the Forest Service has simply kept a larger percentage of them, rising from 26 percent in 1988 to 58 percent in 1998. As timber sales have declined, budgets have declined as well, but at a much slower rate.

    Achieving profitability requires two things: boosting receipts and controlling costs. Each of these will be discussed below with reference to specific sections in the explanatory notes.

    3. Improving National Forest Revenues

    According to the Forest Service's 1990 RPA program, the market value of all national forest resources is approximately $6 billion per year CHECK. For those of you who know a little economics, that is the "market clearing price," not "willingness to pay," which is even more. Basically, it is the amount that the Forest Service thinks it could collect if all legal and social obstacles to user fees were removed.

    It will be some time before those obstacles are gone, and even if they disappeared tomorrow, the Forest Service is probably overestimating some of the values. But even if they are overestimated by three or four times, this represents a lot more revenue than the agency is collecting today.

    With timber receipts down and appropriations uncertain, many forest managers would love to collect more user fees--provided that they get to keep the fees and don't lose other funds in the process. This hardly moves toward the goal of profitability. But it is clear that managers must be motivated or they will not bother to collect fees.

    This can be seen in the recreation fee demo program. Congress started by letting the Forest Service keep 15 percent of user fees. Managers responded with a yawn, since 15 percent would begin to cover their costs and trouble collecting fees. Then Congress said managers could keep all fees after paying 104 percent of 1994 costs. This didn't help much because fees in many places are not likely to be much more than that 104 percent.

    Finally, Congress let forests keep all, or nearly all, of the fees and promised not to reduce appropriations where fees were collected. To this many managers responded with enthusiasm. Although the fee demo program is beginning in a rather halting fashion, many innovative fee projects are being tried throughout the National Forest System.

    The problem is that letting managers keep all the fees is simply too much. First, forests will never be profitable if they aren't required to turn something over to the Treasury. Second, managers who produce a profit will be motivated to lose that money somewhere else since it would be silly for them to turn any profits over to the Treasury when they don't have to.

    But losing money somewhere else will probably require recreation developments that will become environmentally controversial. This will make recreation appear to be the enemy of the environment, just as timber has been the enemy, when in fact in both cases the true problem is a fee system that encourages money-losing behavior.

    The impossibility of accurately allocating costs rules out any attempt to fund recreation or any other single resource out of net income. Funding out of net is only possible for a forest as a whole, since in that case there is no need to allocate costs to individual resources. But an interim measure might be to let managers keep one-quarter to one-half of all fees they generate. This leaves one-quarter for counties and a quarter to a half for the U.S. Treasury.

    Congress should build upon the recreation fee demo project by creating other fee demo projects that allow managers to keep a quarter to a half of all new fees they generate. The following changes could bring in $100 million or more per year.

    Hunting and Fishing

    Under the Sykes Act, forest managers can charge fees for hunting and fishing only with the permission of the states. As a result, such fees are collected in only three or four states. But in most states, private landowners may charge for hunting and fishing. Congress should, at the least, authorize the forest Service to charge hunting and fishing fees to the same degree the private landowners may do so in the individual states. User fees would give the agency a greater incentive to protect wildlife and fish habitat.

    Recreation Concessions

    The Forest Service charges concessionaires 3 percent of their gross receipts, but the agency doesn't get to keep any of those receipts. As a result, the agency has little incentive either to help concessionaires or to make sure they are paying their full 3 percent. Congress should allow the agency to negotiate higher or lower payments and let it keep a quarter to half of the fees.

    Recreation Special Uses

    Special uses are often allowed at low rates, sometimes because of politics and sometimes because the Forest Service has no incentive to collect more. Again, give the Forest Service flexibility to negotiate rates and let it keep a share of the receipts.

    I must confess I have a conflict of interest here because I share ownership of a summer cabin on the Mt. Hood National Forest. If the lease rates are tripled, as is proposed elsewhere, I will have to pay $1,000 more per year and will lose about $10,000 of the market value of my cabin. I am willing to pay those costs provided that the increase in rates is a part of a comprehensive program of improving national forest efficiency and stewardship.

    I oppose efforts to keep the lease rates low but would like to see everyone else pay their fair share as well. The market value of most summer cabins is rising so fast that cabin owners who keep their cabins a few years will soon recover the losses, though if they bought the cabin as an investment they won't earn as high a rate of return as if the rates are kept below market value.

    Other Special Uses

    The Forest Service is continually negotiating special use permits for electronic sites and other facilities. As with recreation, the agency makes little effort to get fair market value because it has no incentive to do so. Letting it keep a share of the receipts would provide that incentive.


    Many people say that water is the most value product of the national forests. While I suspect they may be comparing apples and oranges, it is true that water is valuable. The $64 million question is how does the federal government capture that value? The answer is to give forest managers flexibility to negotiate contracts and let them keep a share of the receipts. In some states, they may be able to trade water rights with other users. In other states, the FERC process may provide opportunities to profit from water. The answer is not to pre-guess all the possibilities but to encourage creative solutions.

    There are other areas where revenues could be increased, but at least some of them are even more politically hazardous than trying to raise grazing fees.

    4. Reducing Costs

    Unless we can give managers incentives to control costs, reducing costs can be more difficult than raising revenues. But many parts of the Forest Service budget are far too costly, and Congress should at the least scrutinize these and if possible take some steps to get costs under control. Implementing the following ideas in the 1999 budget could save as much as $400 million per year.


    Fire may be the Forest Service's biggest slush fund and is now the largest item in the agency's budget. It is conventional wisdom among forest fire fighters that "the Forest Service treats fires by throwing money on them until it rains--and the rain puts the fire out."

    The problem is that Congress has a history of reimbursing fire fighting costs with little question. Thus, the agency can charge all sorts of costs to fire and tends to lavishly spend on fire suppression when it gets the chance. In the early 1980s, Congress repealed the emergency fire suppression law that gave the Forest Service a blank check for putting out fires, it has still reimbursed the agency after bad fire years, allowing forest managers to continue their spendthrift habits.

    Most private, state, and county forest landowners manage to pay fire fighting costs out of receipts. Yet few believe that the Forest Service could possibly cover its fire costs out of its receipts. Partly this is because its costs have been far too high and its receipts far too low, making the gap between them seem impossible to close.

    Around half of the agency's fire-fighting budget is spent in southern California, where homes have been built in chaparral on private land near the national forests. There may be no easy solution to this problem. In many other places, however, the Forest Service could save money by letting fires burn through large expanses of forest with little risk to homes or other improvements.

    In many places, the sensible thing to do would be to prepare broad fire breaks along forest boundaries. Such breaks would involve either heavy thinnings or prescribed fires. The breaks would protect adjacent land from fire damage as fires burned within the breaks. This is a policy adopted by Parks Canada.

    One solution would be some sort of insurance program. In the short run, however, Congress can do two things. First, it can provide a better mix of funding, since more funding for fire prevention should mean less spending on fire suppression. In doing so, it should focus on fire breaks rather than trying to treat fuels on every acre of the national forests.

    Second, Congress should ask the General Accounting Office to review Forest Service fire-suppression activities to insure that the agency is not wasting money. Does the agency use expensive aerial tankers because they look good on the six o'clock news, but do little to stop fires? Do forest managers use fires to augment their budgets for vehicles and office supplies? A close scrutiny could save millions of dollars.


    Between 1988 and 1998, the Forest Service's timber sale offerings declined by 66 percent. Yet the agency's timber sale budget (including resource support) declined by only 3 percent. One or both of two things are happening: The Forest Service is protecting its employees despite a lack of work for them to do or Congress is throwing money at the agency hoping some timber will come out the other end.

    This is crazy. Environmentalists who want to attack the timber sale program would do much better focusing on the sale budget than the roads budget. Counting sale costs alone (i.e., leaving out roads and reforestation), unit costs have risen from $19 per thousand board feet offered in 1988 to $55 per thousand in 1998.

    In the long run, the best way to deal with this is to fund the national forests out of their own receipts. In the short run, Congress should simply reduce the budget to reflect actual outputs, not wishful thinking. A proportionate reduction would save roughly $135 million per year.


    Roads are such a controversial and emotional issue that they are not susceptible to rational analysis. President Clinton's proposal to get rid of purchaser credits, for example, may please environmentalists. But in fact it will have no effect on the ground. Proposals to zero out the road engineering budget ignore the fact that much of this budget goes for erosion-reduction activities, not new roads. Given the political forces at work on this subject, there is little that Congress can do to improve the efficiency and effectiveness of the national forest roads budget.


    Forest planning as envisioned by the Resources Planning Act and National Forest Management Act is a total failure, but few seem willing to admit it. Planning does not resolve controversies or provide a rational analysis of management options. Instead, it simply employs lots of planners who manipulate obsolete or fabricated data to produce preconceived results. The Forest Service has changed dramatically in the past decade, but virtually all of those changes have been in spite of, not because of, the planning process.

    The new wave of ecosystem plans are supposed to correct for the problems of forest plans by planning along ecosystem boundaries instead of political boundaries. But the real problem with forest plans was not a boundaries problem but a matter of scale: A one- to two-million acre national forest is simply too large to plan effectively. Blowing up the scale to ten or twelve such forests makes this problem ten to twelve times worse.

    For example, early in the process of the ill-fated Sierra Nevada Ecosystem Plan (SNEP), analysts asked the biologists to identify the minimum amount of information they needed about each forest to compare alternatives. The analysts then ran the computers for each forest in the ecosystem to calculate that minimum amount of information. The stack of paper containing just that minimum amount of data for every alternative and every national forest in the ecosystem was eight feet tall.

    The fact is that planning doesn't work in the national forests any better than it did in the Soviet Union. The best thing Congress can do is to simply stop funding this inane program. That would save about $30 million per year or more.


    Grazing fees seem to be an intractable problem. But a growing number of environmentalists and ranchers agree that a solution might be found by making the permit process more flexible. This would involve, among other things, letting conservationists buy permits from ranchers and temporarily or permanently retire those permits. This wouldn't necessarily increase revenues but it could allow the Forest Service to reduce costs, which are several times revenues.

    Unfortunately, range management costs have been going the other way. In 1988, the range management budget was $29 million. But two-thirds of that was range planning, which was transferred to the new planning line item in 1995. The 1995 range budget was $18.5 million, but that quickly bloated out to $45 million in 1998 and a proposed $66 million in 1999.

    It is not clear that we are getting anything for this additional money. The "performance indicators" on page 113 of the explanatory notes says that the Forest Service is building more range structures but otherwise getting no more grazing or other activities. Congress should cut the grazing budget at least in half, which would save $20 to $30 million per year.


    Now that timber has declined, many national forest officials see recreation as their budgetary salvation. Congress has given them grounds to hope this by letting them keep all fees collected in fee demo projects on top of existing recreation appropriations. This will only lead to problems when environmentalists start to target developed recreation as a threat to water, wildlife, and other resources.

    Like grazing, recreation received a significant hidden boost in 1995, when $34 million of recreation funds were transferred to the planning line item and another $13 million of resource support funds were transferred from recreation to the line items being supported. This should have resulted in a $47 million drop in the recreation budget. In fact, the 1995 recreation budget was increased by $7 million, which means it was really increased by $54 million, or almost a third.

    This huge but hidden increase has been maintained over the years, and the administration now proposes to add another $20 million to the recreation budget in 1999. But, as with grazing, there is no indication that we are really getting anything for all this extra money.

    In the long run, recreation like other national forest resources should be funded out of its receipts. In the medium run, when Congress extends the fee demo program (set to expire in 1999), it should begin to fund forests more out of receipts and less out of tax dollars. For the 1999 budget, Congress should resist adding to the recreation budget and consider a reduction. That would save $20 million or more per year.

    Special Funds

    The Forest Service budget describes the Knutson-Vandenberg fund and cooperative work fund as "trust funds." But they aren't trust funds in any legal sense. They might better be described as "permanent appropriations," since they work almost exactly the same way as the salvage sale fund and brush disposal fund, both of which are grouped in the budget under permanent appropriations.

    These funds give agency managers incentives to run wild, spending freely without concern for where the money comes from or where it is really going. Many national forests effectively keep all of their receipts from timber sales in one of these funds.

    In 1996, without counting any costs, the Gifford Pinchot National Forest returned minus $13 million in timber receipts to the Treasury, the Deschutes returned minus $10 million, and the Clearwater returned minus $5 million. How can a forest return minus receipts to the Treasury? By deciding to take back money it had earlier returned to the Treasury to put into one of these special funds.

    The Knutson-Vandenberg Fund used to be the big offender. Many forests typically spent $2,000 to $5,000 per acre cut on reforestation and other Knutson-Vandenberg activities, simply because they could. Because K-V is limited to the vicinities of timber sales, and timber sales are down, the big fund today is the salvage sale fund, which is not limited to the sales that generated it.

    The worst of the incentives created by these funds is overhead. Around a third of these moneys are not spend on reforestation, salvage sales, or their other intended activities but on overhead. Yet there is little authorization in the law for such overhead. The Forest Service Employees for Environmental Ethics is suing the Forest Service for misusing these funds as overhead. Congress should make it plain to the agency that these funds are not to be used as overhead, which could save around $80 million per year.

    5. Non-National Forest Activities

    Outside the national forests, the Forest Service has three other activities: research, state & private forestry, and international forestry. Eliminating selected programs of questionable value could save taxpayers $45 million per year.

    International Forestry

    International forestry is supposed to offer American expertise to other countries. Due to resistance from Congress, the Forest Service has buried international forestry into other items of its budget. But the explanatory notes admit that it spends about $3.5 million per year on this item.

    It is ironic that a dying agency is telling other countries how they should manage their forest agencies. I recommend cutting this item altogether.

    State & Private Forestry

    In recent years, the Forest Service has added several items to its traditional state & private forestry activities of extension and pest management services. These include urban forestry, forest "legacy," and economic action programs. The main reason for these programs is so that the agency can build new constituencies that will support future budget increases.

    The entire state & private forestry program is of questionable value. Cooperative fire protection, for example, began in the days when the Forest Service had little land outside the West but wanted more authority over private land management. The agency was successful in influencing private land managers to reduce wildfire. But states are now running successful fire protection programs, so why is federal involvement still needed except as a subsidy to certain landowners?

    While there is some justification for cooperative fire programs where national forests exist, there is no need for the federal government to get involved in such things as giving private landowners incentives to thin their forests. These older programs, with their strong constituencies, are hard to kill. But there is no need to create more constituencies for more federal entitlements. I recommend killing the urban forestry, forest legacy, and economic action programs, which would save around $42 million per year.


    Forest Service research has historically been objective, useful, and in most cases more than worth its cost. Some of the research, such as that done by the Forest Products Laboratory, ought to be privately financed, but a lot of the research could not be done without some sort of outside funding. While I question selected projects, such as whether we need to spend more on global warming research, I don't recommend any major cuts in the research program as a whole.

    6. Conclusions

    The recommendations in this paper would save taxpayers some $450 million per year and could increase revenues by another $100 million or so. But these all involve micromanagement by Congress. Such micromanagement is ultimately unproductive, since the incentives will always be to micromanage to please special interests, not to benefit taxpayers in general.

    In the long run, the Forest Service will need a major overhaul of its budget. An incremental step toward that overhaul has been proposed by the Forest Options Group, a group of industry, environmental, and Forest Service leaders facilitated by the Thoreau Institute. Their complete proposal and report is available at

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