(From: Trends in federal landownership and management : hearing before the Committee on Resources, House of Representatives, One Hundred Fourth Congress, first session, on the effect that federal ownership and management of public lands and the condemnation and restriction of private property has on local areas, March 2, 1995--Washington, D.C.)

Testimony Before
House Committee on Resources
2 March 1995

presented by
Terry L Anderson
Professor of Economics and Senior Associate
PERC, Bozeman, MT
John M. Olin Visiting Scholar
Cornell Law School

For the first one hundred years of the nation's history, land policy focused on transferring the public domain to private owners. Believing that a nation of yeomen farmers was the backbone of democracy, our forefathers set out on the nation's first privatization movement. Not only did this early land policy encourage productivity and resource stewardship based on the incentives associate with private ownership, it provided the fledgling country with a source of revenue for retiring the federal debt by the mid-1930s.

Today United States land policy has reversed. At the turn of the century, the federal government began reserving millions of acres for the federal estate. The U.S. Forest Service, the Bureau of Land Management (BW, the U.S. Fish and Wildlife Service (FWS), and the National Park Service (NPS) became custodians of more than one-third of the nation! s land. In the late 1970s, the "Sage Brush Rebellion!" brought pressure to reverse federal land policy. The rebellion subsided with hopes pinned on the Reagan administration, but little changed.

Indeed budgets for the agencies that manage these lands have increased, funds for acquisition have marched upward, and the amount of land managed has increased substantially. The figures in the GAO report on Federal Lands: Information on Land Owned and on Acreage with Conservation Restrictions, are startling. Excluding two large transfers of federal land in Alaska to the state and to Indian tribes, the four agencies increased their domain by about 34 million acres between 1964 and 1993. Forest Service holding increased by 5 million acres, FWS by 65 million acres, and NPS by 49 million acres. The BLM experienced a decrease of about 85 million acres mainly because of transfers to FWS and NPS. Since 1993 the Forest Service has acquired 72,000 acres, BLM 27,000 acres, FWS 82,000 acres. and NPS 22,000 acres, for a total of 203,000 acres.

At the same time that the federal estate was expanding substantially, the amount "encumbered" for conservation purposes grew from 51 million acres or 7 percent of federal holdings in 1964, to 131 million acres or 19 percent in 1979, to 271 million acres or 44 percent in 1993! With the wilderness bills pending such as the one for Montana that would have added more than a million acres to this list, it is only likely that this trend will continue.

Knowing this, we must ask what is the economic impact of expanding the federal domain and encumbering it with conservation restrictions. The first and obvious impact is that we have added more red ink to the federal deficit. Every one of the agencies consistently loses money despite the fact they manage billions of dollars in land assets. The losses associated with commodity production such as below-cost timber sales receive attention especially from environmental interests, but losses associated with recreation are also substantial, and most of this recreation occurs on the conservation encumbered lands. In fiscal year 1993, the U.S. Forest Service alone lost $557 million on commodity production (timber, grazing, mining, and minerals) and $474 million on recreation. All federal lands were projected to lose over $1.25 billion on recreation. In FY 1992 the forests in Region 1 lost money on every activity, but it was not logging, mining, or grazing that topped the list. Rather it was recreation that lost $23 million - 25 percent more than logging and nearly five times more than grazing. The budgetary impact of land acquisition and encumbrances for conservation purposes are tremendous. [For details see Terry L Anderson, ed. Multiple Conflicts Over Multiple Uses (Bozeman, MT: PERC, 1994).]

Quantifying impacts on the economy in general is a much more difficult task, but case studies on which I have worked are suggestive. In 1993 Donald Leal, my associate at PERC, and I reviewed a BLM Resource Management Plan/Environmental Impact Statement relating to the acquisition of land in several eastern Montana counties. That study [Adding to the Political Estate: A Land Policy in Regress," Working Paper 92-10, PERC, Bozeman, MT] is attached for the record. According to the BLM's draft RMP/EIS [U.S. Department of the Interior, Bureau of Land Management, Judith-Valley-Phillips Resource Management Plan and Environmental Impact Statement (Draft), Billings, MT (July 1991)], the alternative land acquisition proposals ranged from a net decrease in BLM land of 146,021 acres to a net increase of 465,698 acres under the "preferred" alternative. The BLM claimed that the preferred alternative would generate an additional $6.0 million in economic benefits annually. Close examination of this estimate, however, revealed that $5.2 million of the benefits would be generated from privatizing 100,000 acres of BLM land. This was agricultural land that the agency was admitting would be managed more profitably by the private sector. The BLM estimates showed that livestock production on the newly acquired lands would lose $2.2 million and that forest products would generate a mere $0.1 million. The BLM claimed that recreation would generate an additional $19 million, assuming that there would be no recreational benefits if the land remained in private hands. This assumption is not sustainable. In fact the growth in fee-based recreation on private lands suggests that recreation can be profitable in the private sector, in which case it would not be a drain on the treasury as it is under public ownership.

No fiscal impacts on local governments were also important. Buried in the RMP/EIS were assumptions that made it appear that payments-in-lieu-of-taxes would compensate local governments. Closer examination of the data, however, showed that a net-transfer of nearly 500,000 acres to the BLM would reduce county property tax revenue by $125,000 annually. In these sparsely populated counties, this revenue impact was not trivial.

I can only conclude from this case study that the economic impact of privatizing public land was positive, but the economic impact of adding 500,000 acres to the federal estate was negative. I have no reason to believe that this general conclusion would be different if similar studies were done for the 34 million acres added since 1964.

The economic impact of encumbering land for conservation purposes is a hotly debated topic. There is a growing number of studies arguing that the economies of western states are no longer tied to primary industries such as agriculture, mining, timber, or energy, and that these industries are being replaced by recreation and tourism. The basic idea is captured in the title of a Wilderness Society study, "The Wealth of Nature." The main contention of this and similar studies is that recreation and tourism creates jobs and that conservation encumbrances that protect the environment attract people and business to the western states. As Thomas Power put it in a report for "Voice of the Environment,"

[A comprehensive review of studies making these claims can be found in Leslie Kerr, The Impact on Wages of Wilderness Designation in Montana, Professional Paper for Masters Degree in Economics, Montana State University, May 1992.]

Romantic as this position might be, the data do not necessarily support it. In the first place, a thesis by Kim Christy at Utah State University (1988) entitled "Benefit/Cost Variables and Comparative Recreation Use Patterns of Wilderness and Non-Wilderness Arm" found that between 1967 and 1996 wilderness recreation was growing, but that the growth occurred between 1967 and 1976. Between 1977 and 1986, he found a negative growth rate. If the data can be extrapolated to other federal lands, we are forced to ask how much is enough.

I worked with Leslie Kerr (cited above), a graduate student at Montana State University in 1992, on this question. It is possible to test the hypothesis that wilderness reservations constitute a positive contribution to Montanans' incomes using similar techniques to studies that test whether sunshine adds to the incomes of people in Arizona. If additional wilderness acres (or sunshine) are a positive amenity, then we would expect people to accept lower wages to live near the amenities. Studies of sunshine in Arizona and of other amenities produce this result. Leslie Kerr collected data on personal income for several wilderness counties in Montana. Using regression analysis, she estimated the relationship between personal income per capita and wilderness, controlling for other variables such education and age. Her results show that an increase in wilderness acreage forces wages up. This implies that additional wilderness is a disamenity rather than an amenity. Therefore we must be cautious in accepting the Power argument that additional wilderness land is a form of income." While these data do not measure the amenity or disamenity value of other public land classifications, they teach us to be cautious of assuming that encumbering more public lands with conservation restrictions is good for the economy.

Let me conclude by applauding the committee for undertaking this study of public land acquisition over the past 30 years. Not only do we need to find a way to balance the budget, we need to find a way to balance the management of natural resources by the private and public sectors. At a minimum we should make land management agencies earn a profit on the valuable assets they control. If they cannot and I doubt that they can given the incentives of bureaucracy, then we should reverse the trend found in the GAO report, and privatize some of the federal estate. It is worth recalling the words of Adam Smith in The Wealth of Nations published in 1776.

Smith's insights from the eighteenth century apply no less to the federal government of the United States as we approach the twenty-first century.

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