2nd Century cover

The Forest Options Group Proposal

Table of Contents

An Agency at the Crossroads

The Forest Service was founded in 1905 under the leadership of Gifford Pinchot, a charismatic visionary who had definite ideas about how a conservation agency should be structured. The structure he had in mind was a decentralized military-like hierarchy similar to the Prussian civil service. Today, that hierarchy has four levels: a chief in Washington, DC; regional foresters in nine regions; forest supervisors for 115 or so national forests; and district rangers for 525 or so ranger districts.

This structure served the agency well for its first sixty years, when it was one of the most respected agencies in the federal or any government. During this time there was a relative consensus among American conservation leaders about the mission of the national forests.

In a 1952 cover story, for example, Newsweek gushed that "No one can deny that the Forest Service is one of Uncle Sam's soundest and most businesslike investments." The magazine noted that the agency was "the only major government branch showing a cash profit and a growing inventory."

"In 47 years, the foresters have been untouched by scandal," added Newsweek. As a result, "Most congressmen would as soon abuse their own mothers as be unkind to the Forest Service."

The magazine credited the Forest Service's "phenomenal efficiency to two policies: decentralization and cooperation with anyone who will cooperate." It added that "the service's 2,500 foresters are spoon-fed from the junior forester stage on a diet of responsibility and loyalty to the organization."

After about 1965, however, management of the national forests suffered from a growing debate over their appropriate role in American life. The Forest Service responded to this debate by increasingly centralizing the agency. By 1980, regional foresters were making decisions that had once been made by district rangers; the chief was making decisions that had once been made by forest supervisors.

Hidden beneath the conflicts were two problems that the agency's leaders failed to anticipate. First, the top-down governing structure gave interest groups incentives to polarize issues, rather than cooperate with one another, so that they could stake their claims to the largest possible share of the national forest pie. Centralization only made this problem worse.

Second, the budgetary process that developed in the Forest Service's later years contained hidden incentives rewarding forest managers for losing money on certain resources, while penalizing managers for earning a profit or emphasizing other resources. The rewards pervaded all levels of the agency, making it difficult for either centralized or decentralized decisionmakers to make objective judgments.

Top-down, centralized management combined with a skewed decisionmaking process set the stage for ever-increasing conflicts over national forest management. These conflicts reached the point of violence in the late 1980s and early 1990s, when forest managers sometimes received death threats and protesters burned or bombed several national forest offices.

In 1952, Newsweek reported that the Forest Service enjoyed widespread public support partly because it made a profit and "is one of Uncle Sam's soundest and most business-like investments." "The Forest Service owes much of its phenomenal efficiency to two policies," added the magazine: "decentralization and cooperation with anyone who will cooperate."

All that has changed today: National forest management now costs taxpayers $2 billion per year, the Forest Service is heavily centralized, and polarization has replaced cooperation on almost every national forest. An institutional structure that had worked well for sixty years was completely broken down by the agency's ninetieth year. Today, it is an open question whether the Forest Service will survive to begin its second century in 2005.

The Forest Options Group

Whatever happens to the Forest Service, it is clear that the agency's structure no longer works. In 1997, several groups of people began meeting to find ways to help the Forest Service survive and thrive into its second century. All of these groups reached similar conclusions: that the Forest Service as currently designed does not work and that we need to experiment with alternative designs before attempting wholesale reform of the agency. The Idaho Federal Lands Task Force published its report, New Approaches for Managing Federally Administered Lands, in July 1998.

The Forest Options Group published a draft report in February 1998 and received comments on it from many members of the public. In response to those comments this final report includes numerous improvements and refinements of the draft proposal.

When they first met in 1997, members of the Forest Options Group asked themselves: "If we were Gifford Pinchot in 1905, but knowing what we know today, how would we design the Forest Service?" This question had rarely been asked. Most national forests debates centered on either the Forest Service's "mission" or on-the-ground practices such as clearcutting or conservation biology. Such debates had proven unresolvable. But the focus on structure liberated members of the Forest Options Group from the rhetoric and values of the interest groups they represented.

Our society has developed many sorts of institutions. Some institutions promote cooperation among people even if they have widely differing values. Other institutions promote polarization among people who have only slightly differing values. The Forest Options Group agreed that many of the problems with the Forest Service resulted from an institutional design that promoted polarization, not cooperation.

The Forest Options Group set a goal of designing an institutional structure that would:

Many members of the group agreed that these objectives could be achieved by: The group also agreed that two kinds of structural changes would be needed:

Budgeting and Governance Systems

The Forest Options Group examined a number of alternative governing structures, including: The Forest Options Group also examined several alternatives to the current budgetary process:

Pilot Forests

The Forest Options Group agreed that identifying the best combination of alternative governing and budget structures was an empirical question. To answer that question, the group proposes to test several different ideas on a number of pilot forests. The group proposes to test five different pilot models. Other pilots could also be developed using the basic building blocks of the Second Century pilots.

None of the pilots attempts to define a new mission for the forest, nor do any prescribe certain on-the-ground management practices. Instead, each is focused on changing either the governing or budgetary structures or both.

Each of the pilots proposed by the Forest Options Group is described in detail below. Briefly, they are:

  1. Entrepreneurial Budgeting: The forest is funded out of net receipt. Forest managers set user fees with no other changes in governance. Twenty percent of gross receipts go into a special fund dedicated to nonmarket stewardship activities.
  2. Collaborative Governance: A collaborative board oversees the operations of the forest, approving the annual budget and operating plan. Other than open-bucket budgeting, the budget process is unchanged.
  3. Collaborative Planning: A collaborative board writes the forest plan. When the plan is done, the forest will be funded out of three-quarters of its gross receipts, with any excess of the forest's share of gross receipts over the historic budget to be dedicated to facilities maintenance and nonmarket stewardship.
  4. Forest Trust: The forest is made into a legal trust with a board of trustees appointed by the Secretary of Agriculture and state governor. The trustees are obligated to preserve the corpus of the trust and to produce revenue for the beneficiaries, who are the counties and a nonmarket stewardship fund to be managed by an outside entity. The forest itself is funded out of half of its gross receipts.
  5. Gross Receipts/Rate Board: The forest is funded out of three-quarters of gross receipts. A rate board sets forest user fees to insure against monopolistic pricing and take equity considerations into account.

Selecting the Pilots

Pilot forests will be selected by the secretary of agriculture in consultation with local congressional delegations and the governors of the states in which the pilots are located. A pilot forest advisory committee representing a full range of interests would assist the secretary. Pilots could be national forests, ranger districts, or combinations of ranger districts.

Selections would be made after a nominating process in which forests, ranger districts, or multiple ranger districts nominate themselves to be pilot forests. In the case of collaborative pilots, nominations would come from the collaborative groups that want to govern or plan the forests or districts.

Applicants would be encouraged to demonstrate how they would improve stewardship, public satisfaction, and efficiency. Collaborative applicants must also show that their council represents a full range of interest groups.

The secretary and advisory committee should attempt to select pilots that:

No forest will perfectly satisfy all of these criteria, but they are a useful guide for selecting between competing proposals. After the pilots are selected, the advisory committee may continue to exist to monitor pilot implementation.

Pilot Features in Common

The pilots have the following features in common:
  • All will nominally report to an Office of Pilot Projects rather than to the regional office of the geographic region in which they are located;
  • All file an annual report to the Office of Pilot Projects detailing how well the pilot is working and what changes might be made to make it work better;
  • All will have open-bucket budgeting;
  • All are relieved of following the Forest Service Manual, Handbook, or memo direction; and
  • All pilots last for five years with an option to renew for another five years. At the end of the first five-year test period, the test forests may generate enough information to develop a recommendation for how Forest Service governing and budget structures should be reformed as a whole. If so, those reforms could be implemented. Alternatively, a different set of pilot models might be tested on other forests while continuing the original pilots for another five years.

    Pilot Governance

    Of the various possible ways of governing national forests:

    Pilot Budgets

    Of the various possible ways of funding national forests:

    User Fees, Safety Nets, and Phase-Ins

    All pilots except pilot 2 may charge user fees subject to valid existing rights. Pilot 3 may charge such fees only after revising its forest plan. Except for open-bucket budgeting, the budgetary process for pilots 2 and (until its forest plan is revised) 3 remains the same as today. Other pilots are funded out of their gross or net user fees.

    To insure adequate funding, user-fee-funded pilots are provided with seed money and safety nets based on their historic budgets. As used here and throughout this document, historic budget means the average appropriations out of tax dollars (not counting funds spent out of receipts) over the previous ten years.

    Pilots would also keep whatever Knutson-Vandenberg, brush disposal, and other funds are in their accounts at the time the pilot begins. After pilots begin, pilots 1, 4, and 5, as well as 3 after its plan is revised, would collect no new receipts into their Knutson-Vandenberg, salvage sale, and similar funds.

    For pilots 1, 4, and 5, seed money would equal 100 percent of the pilot's historic budget the first year and 75 percent the second year. Thereafter, a safety net is provided to maintain the forest's budget to at least half its historic level. If at the end of any year the share of receipts retained by the forest falls below this amount, appropriated funds would be added to bring total budgets up to half the historic level. After its forest plan is done, pilot 3's safety net is 100 percent of its historic budget. Forests could carry unspent seed money and retained receipts over to future years.

    Most pilots would continue to pay counties 25 percent of their receipts. The fee distribution formula for pilot 4 changes somewhat, but many counties will probably earn more receipts under the new formula. Payments to counties are not counted as a cost when calculating net revenues in pilot 1.

    Office of Pilot Projects

    The Office of Pilot Projects will not be a regional office but will be closer to what the regions originally were: an "inspection district." It will have the following responsibilities: The Office of Pilot Projects will not be located in a particular city. Instead, it will be a "virtual office" with staff in various parts of the country dedicated to specific tasks for the office. The director of the office will report directly to the chief or deputy chief of the National Forest System, not to a resource director.


    The Office of Pilot Projects will distribute a request for proposals to outside consultants for a contract to monitor the pilots. The office will work with the selected consultant to develop monitoring criteria. The same contractor should monitor all of the pilots as well as one or more control forests.

    The monitoring reports generated by the contractor will supplement the annual reports prepared by the forest supervisor. Of course, outside interest groups are likely to monitor the pilots using their own criteria as well.

    Needed Legislation

    To implement the pilots without interfering with other national forest budgets, Congress should create a new pilot forest line item in the Forest Service budget. In the first year, this line item will go for selecting the pilot forests and identifying evaluation criteria. In the second year, the line item will include seed money for the pilots. In later years, it will be budgeted according to the needs of the individual pilots.

    To begin the pilots, a minimal amount of legislation is needed, including:

    1. Specific authorization for a pilot line item in the Forest Service budget and then appropriations to that item;
    2. Allow pilots to charge market rates subject to valid existing rights;
    3. Allow pilots to retain revenues;
    4. Allow pilots to keep mineral revenues (rather than most going to the Department of the Interior);
    5. Allow forest trust pilots to divert a portion of revenues to the nonmarket stewardship fund;
    6. Set up the Office of Pilot Projects;
    7. Set up the pilot advisory committee;
    8. Authorize or mandate a contract with the outside monitor;
    9. Relieve pilot forests that have boards from the "perfect-representation" and OMB-review requirements, but not from the open-meeting requirement, of the Federal Advisory Board Act;
    10. Change the Knutson-Vandenberg, salvage sale, brush disposal, and similar funds for the pilots; and
    11. Authorize the creation of the forest trust.
    For test purposes, all pilot forests would still be required to obey existing environmental laws and regulations. They would be given discretion, however, to depart from agency manual provisions or directives.

    Pilot tests would run for five years with the option to renew the test for an additional five years. At the end of each year, the forest supervisor would prepare a report to Congress on the pilot that particularly specified what obstacles might hinder the success of the pilot and how those obstacles could be removed.

    Varying the Pilots

    Although the group has developed five specific pilots, it recognizes that the pilots are in fact made up of major building blocks that can be varied from pilot to pilot. The group recommends that at least one forest or district be managed under each of its five pilot proposals. Other pilots can vary by rearranging the building blocks provided that at least two pilots test each of the major building blocks listed below: Another building block that forests might want to consider, but that need not be tested in at least two pilots each, would be a board of directors that is elected by holders of forest permits costing at least $20 each. The election process could use a proportional voting system such as is used in some nations, such as Germany, and some American cities, such as Cambridge, MA, that would insure a broad representation of interests on the board. This could particularly apply to a forest trust pilot. Forests may also propose other combinations, such as a collaborative board combined with a forest trust or entrepreneurial budgeting.

    Forests could design other features as well. For example, a forest or district might propose to become a "strategic entrepreneur," meaning that it would reduce its staff to a handful of people and contract out most of its work to other Forest Service offices or outside vendors. This and other on-the-ground management changes are compatible with any of the pilots.

    Evaluation Criteria

    Ideally, evaluation criteria should be quantitative, easily measurable, and consistent. But if this ideal were easy to achieve, then national forest management would rarely be controversial. The best that can be done is to provide some suggestion of what to look for when reviewing pilot forests.

    The Forest Options Group agrees that successful pilots should:

    Here are some measures by which the pilots should be judged. These measures are not all quantitative, nor will it be possible to achieve them all simultaneously. But they can be used by the Office of Pilot Projects as a starting point for developing detailed evaluation criteria.

    Land Stewardship

    How do the pilots affect efforts to:

    Tax Burden and Efficiency

    What effect do pilots have on:

    Public Satisfaction

    Do pilots:

    Pilot 1: Entrepreneurial Budgeting

    Hypothesis to be tested: Will giving national forest managers incentives to maximize net income turn them into entrepreneurs and result in better land stewardship?

    Rationale: Although national forest resources are often divided into "commodities" and "amenities," in reality nearly all forest resources are marketable. Both private landowners and various public land agencies actively market timber, livestock forage, minerals, hunting, fishing, hiking, camping, winter sports, and many other forest resources. Water markets are also developing in many states.

    National forest managers have ignored many of these markets because they have not been allowed to charge fees for many resources. In other cases, the agency is allowed to charge but is not allowed to keep any of the receipts, giving it no incentive to emphasize the resource. Giving the agency the authority to charge a broad range of user fees and to keep a similar share of all fees would give managers incentives to have a balanced program, taking into account the relative values of all marketable resources.

    An important key to this pilot is that forests would be funded out of their net receipts, not their gross income. This would encourage managers to reduce costs and emphasize the resources that produce the greatest net value. It would also discourage them from cross-subsidizing unprofitable activities with the receipts from profitable ones. The pilot does not forbid such cross-subsidies, and managers may decide that certain cross-subsidies are in the best interest of the forest, but they would have no incentive to do so when it was not needed.

    A few resources, such as habitat for non-game wildlife and certain historic and prehistoric sites, are not clearly marketable. Forests may also need some base appropriations to recover from nearly a century of fire suppression and other management problems. This pilot aims to give forest managers an incentive to market the marketable resources while providing a safety net of funding for nonmarketable resources and stewardship activities.

    Governance: Pilot 1 forests would continue to be governed as they are today but under the Office of Pilot Projects rather than the regional office.

    User fees: Pilot 1 forests would be allowed to charge user fees for all resources subject to valid existing rights. This would not alter preexisting contracts, but rates could be revised at time of contract renewal. One problem is that some preexisting contracts will outlast the five-year test period, but many will not.

    Funding: Pilot 1 forests would be funded from the net income they earn out of user fees. At the end of each year, forests would be audited to determine their total receipts and total expenses for the past year. The net of receipts over expenses would be added to their budgets for the next year. Unspent funds from previous years could be carried over.

    Since the net income is only a part of total income, and expenses were paid out of the previous year's net, money would be left over after giving the pilot forest its net. Counties would receive 25 percent of gross receipts.

    Another 20 percent of gross receipts would go to a fund that could be spent by the pilot forest exclusively on nonmarket stewardship activities. At least 20 percent of the pilot's safety net must also be spent on nonmarket stewardship activities. The Office of Pilot Projects would monitor these funds to insure that they are not spent on marketable resources. Any remaining receipts would go to the U.S. Treasury.

    Safety net and phase-in period: As described above, pilot 1 forests would receive seed money equal to 100 percent, 75 percent, and 50 percent of their historic budgets over their first three years. Thereafter, in any year that the previous years' net receipts fell below 50 percent of their historic budgets, they would receive a sufficient appropriation to bring their funding up to 50 percent of historic budgets. Pilots would be allowed to carry over unspent seed money and net receipts to future years.

    Example: Suppose that over the past ten years a forest's appropriated budget (not counting Knutson-Vandenberg, salvage sale, and other funds paid out of receipts) had averaged $10 million per year. The forest would be seeded with 100 percent of this amount the first year, 75 percent the second year, and 50 percent the third year.

    Suppose that in the first year of the test, the forest earned $13 million and spent $8 million of its seed money. The $5 million net would be added to the forest's funds for the second year. The forest would keep another $2.6 million, or 20 percent of its gross receipts, to spend exclusively on nonmarket stewardship activities. The $2 million in unspent seed money would also be carried over.

    In later years, the forest could draw upon any net income plus 20 percent of the gross income it earned the previous year as well as unspent carry over funds. After the third year, the safety net would take hold only if the forest's net income fell below 50 percent of its historic budget. So long as its net income was greater than this amount, the pilot would need no appropriated funds.

    Estimated evaluation using Forest Option Group criteria

    Land stewardship--Pilot 1 should partly reverse some of the conditions that have led to productivity declines on many forests. Whether this reversal is complete enough to restore forests and improve productivity may depend on local conditions. The drive to earn net income could lead a forest to neglect certain needed activities, but not necessarily any more than they are being neglected today.

    Public satisfaction--Pilot 1 should reduce red tape and clarify a forest's mission, at least for marketable resources. To reduce costs, employees will probably spend more time on the ground, which is where their revenues will come from, than in the office. To the extent that employee morale is based on these considerations, pilot 1 should boost that morale.

    But pilot 1 does not change forest governance in a way that permits better involvement by a broad spectrum of interests. Disaffected parties may still appeal forest decisions. The effect of this pilot on the percentage of a forest available for active management or on our global responsibility strongly depends on local conditions.

    Tax burden and efficiency--Pilot 1 would greatly reduce the burden of forest management on taxpayers. After the phase-in period, that burden would at most be half what it is today. In most, if not all, cases, costs to taxpayers would fall to zero and returns to the Treasury would increase.

    Pilot 1 would produce strong incentives for forest managers to avoid below-cost activities and to balance conflicts between revenue-producing resources. Managers would have funds to protect non-marketable resources. The forest might neglect some resources that are marketable but that are bound by preexisting contracts at low rates.

    Actual examples of similar programs in other agencies: Before 1990, the Texas State Parks Division received 60 percent of its funds from legislative appropriations. But in that year, the legislature zeroed out any further general funds to state parks.

    Rather than close numerous parks, the Parks Division made an offer to park managers: Save money, and they could keep some of the savings for their next year's budget. Increase receipts and they could keep some of the increase for their next year's budget. The rest of the savings and receipts were shared with other parks or used to manage the park system as a whole.

    This program was so successful that no parks had to be closed and managers believe that parks are in better shape than ever. The Texas Parks Division calls this system "entrepreneurial budgeting" and has described it in numerous places, including the appendix to the draft Second Century report.

    What type of forests should be used for the test: Any forest that has prospects for a decent revenue stream would make sense for this test. The Forest Options Group suggests that an excellent choice would be a forest that has both high timber and high recreation values to see how they influence one another.

    Pros and cons for the pilot: Pilot 1 addresses some, but not all, of the problems with the Forest Service today.

    The pilot does not give members of the public a new avenue for involvement other than payment of user fees. Instead, people who care about non-marketable resources may still have incentives to polarize and to challenge agency decisions. This could prevent a major reduction in red tape.

    Pilot 2: Collaborative Governance

    Hypothesis to be tested: Will resource use conflicts decrease if interest groups have more authority over the national forests through the use of a collaborative board?

    Rationale: The Forest Service often acts in its own self-interest, which may or may not be the same as the public interest. One tactic the agency uses is to play interest groups off against one another, ensuring the Forest Service retains its management prerogatives while the combatants spend their energies fighting each other. Giving interest groups more direct power over a national forest might increase the agency's willingness to meet public demands.

    The problem has always been to choose representatives of interest groups in a way that fairly represents the full range of public interests and is not biased towards one side or another. Pilot 2 addresses this problem by inviting the creation of "collaborative councils" that will bid on the opportunity to manage a pilot forest. The secretary of agriculture will choose an entire council, rather than individual members. Councils desiring to be selected will have an incentive to include a full and balanced range of interest group representatives.

    Governance: A citizens' council, selected by the secretary of agriculture, would have authority similar to that which a school board enjoys over a school district. The forest supervisor would make regular reports to the council; the council would advise the supervisor on annual forest budgets and work plans; and the council would assist the supervisor in implementing these plans. The supervisor would be an ex officio (non-voting) member of the council.

    School boards have the power to hire and fire school superintendents and formally approve school district budgets. But for the purposes of the pilot test, the collaborative council would have largely advisory powers. The council could:

    These mechanisms should make the supervisor highly accountable to the collaborative council.

    Councils for pilot 2 forests would be selected by the secretary as an entire group from applications made by self-selected groups of ten to fifteen individuals. The secretary would be directed to select the applicant group that reflected the broadest range of interests relevant to the management of the pilot forest. The Secretary could not pick and choose from among the members of an applicant group, nor could the secretary take members from one applicant group and mix them with those from another applicant group.

    The objective of these constraints is to help insure that the councils can work together as a team and to limit administration interference in a council's membership. Applicant groups could include geographically non-local members with a stake in the forest's management, such as a hunting representative from a major urban area that contributes most of the hunting use on the forest. Thus, the applicant group is not necessarily local but a community-of-interests group that represents those who use and care about the national forest.

    User fees and funding: The forest would get its budget through the current system of appropriations. Although the budget would be an open bucket, the forest supervisor could change each line item's share of the budget from historic levels only with the approval of the council. The forest supervisor would be likely to work closely with the council to ensure council support at budgeting time.

    Safety net and phase-in period: Pilot 2 forests do not need a safety net since their budget remains based on the existing system of appropriations.

    Example: As today, the forest supervisor would be responsible for the day-to-day management of the forest, preparing budgets and work plans, conducting forest operations, selecting personnel, and so forth. Unlike today, the supervisor would report to the council on an as-directed basis and give great weight to the council's recommendations.

    The forest supervisor need not accept all council recommendations, but a forest supervisor that repeatedly disagreed with his or her council would risk a poor performance review and a public recommendation to the chief that he or she should be transferred from the forest. Given that such a recommendation would be the result of a significant breakdown in communication with the local community, it is unlikely that such a recommendation would be long ignored by the forest supervisor `s superiors.

    All federal prohibitions against double-dealing and council members profiting from their positions on the council would be in full force and effect. That is, council members could not contract with the council per se, nor receive salaries or gratuities from the council.

    Service on the council would be without remuneration except for travel expenses at no more than prevailing federal government rates. Council members would be prohibited from receiving any gifts from the Forest Service or employees of the council's national forest.

    Council members would be expected to declare any financial conflicts of interest on Forest Service matters under council consideration. However, since many of the council's decisions are only advisory, council members with declared conflicts of interest would be permitted to participate in and vote on such matters. Council members with conflicts of interest would be expected to abstain from votes on budgetary matters. Initial terms on the council would be limited to five years.

    Estimated evaluation using Forest Option Group criteria

    Land stewardship--The constraints imposed by existing environmental laws, which would continue in place, already circumscribe the Forest Service's discretion to harm the environment. These constraints would continue. Restoration activities would probably increase under this form of governance, assuming the collaborative group is more politically successful in gaining public or private dollars for these activities than the Forest Service alone. The restoration activities may or may not be environmentally beneficial.

    Public satisfaction--This pilot will significantly change the institutional independence the Forest Service has traditionally enjoyed. The pilot, if successful, will encourage Forest Service leadership that is collaborative, that is flexible, and that is not wedded to standard operating procedures. A dynamic forest supervisor could use the council to great mutual advantage by forming political alliances among council members to gain prestige and funding.

    On the other hand, the council may quickly become a target by critics who do not feel their interests are well represented by the council. The council's strength will depend largely upon the political skills of the council's members.

    Tax burden and efficiency--Pilot 2 might increase, rather than decrease, federal appropriations for the national forest. A smoothly operating council would have the political clout to gain additional federal dollars its national forest.

    Actual examples of similar programs in other agencies: Boards or commissions rather than individual supervisors run numerous state resource agencies. However, these boards are generally picked as individuals rather than as a collaborative group.

    What type of forests should be used for the test: Pilot 2 could work on any forest where people are willing to work together.

    Pros and cons for the pilot: This pilot is designed to test the potential for alternative governance structures to solve national forest controversies. If a collaborative council had real authority over a national forest, interest groups might have a greater incentive to work together instead of polarizing issues as they do now.

    Since this pilot does not significantly change the source of a forest's budget, neither the forest supervisor nor the council would have a strong incentive to act efficiently. Instead, the council may choose to solve local problems by throwing money at them, providing enough benefits to satisfy the various interest groups. The council would have an incentive to be efficient only to the extent that Congress rewards efficiency.

    Pilot 3: Collaborative Planning

    Hypothesis to be tested: Can forest planning take place with less polarization and result in improved land stewardship if national forest managers have the flexibility and incentives to implement a plan developed by a collaborative council?

    Rationale: Many national forests will soon begin revising their forest plans. Unfortunately, the round of forest planning that took place in the 1980s was usually hampered, and sometimes gridlocked, by polarization. The few relatively uncontroversial forest plans involved forest supervisors who were willing to share their authority with a collaborative group representing a broad range of interests. Such collaboration may be essential to break the gridlock between opposing special interest groups.

    Pilot 3 creates a collaborative council similar to that of pilot 2, but gives that council the power to develop and monitor the forest plan rather than supervise the month-to-month operations of the forest. As an incentive to complete the forest plan in a timely manner, pilot 3 changes the incentives and budgetary process after the plan is completed. New user fees, particularly recreation fees, could give the forest new funds for forest health and ecosystem restoration.

    Governance: Pilot 3 forests would continue to be managed as they are today but under the Office of Pilot Projects rather than the regional office. But the forest plan would be developed under a new hierarchy in which a collaborative council helps the forest planning team prepare and evaluate alternatives. Forest planners act as staff for the council, and the council replaces the regional forester in selecting the final plan.

    The council would follow the basic planning process outlined in the Resources Planning Act and the Code of Federal Regulations, including publishing an environmental impact statement. However, it could alter the process specified by the Forest Service Manual or other internal directives. For example, the council would have to obey the minimum viable population rule but it could choose not to use FORPLAN as a modeling tool. After the plan is revised, the council will monitor plan implementation and amend the plan as needed.

    User fees: After the plan is revised, forest managers could charge user fees for the full range of resources at rates specified in the plan.

    Funding: After completion of the forest plan, the forest would be funded out of three-quarters of its gross receipts, with the remaining quarter going to counties. Base-level funds equal to the average level of funding over the previous ten years would be in an open bucket. The forest's share gross receipts over this base would be dedicated to facilities maintenance, forest health, and ecosystem restoration. Unspent funds could be carried over from year to year.

    As with pilot 2, the council may choose to form a non-profit organization that can receive grants and donations that would be spent on research, education, forest health, and ecosystem restoration.

    Safety net: Pilot 3 would have a safety net equal to 100 percent of its historic budget. Funding would fall to this level only if gross receipts fell below the base. There would be no phase-in period since the safety net is 100 percent of the base. However, the forest would not actually start to keep gross receipts until its plan was revised.

    Example: The collaborative council would work with the forest planning team to choose basic planning procedures, collect data, develop and evaluate alternatives, and solicit public input. The council might choose, for example, to handle basic alternative development itself rather than let the planning team develop the alternatives.

    Since the council would consist of a full range of interest groups, it would be expected to develop a full range of alternatives. But the council would also have an incentive to find alternatives that produce win-win situations rather than the win-lose alternatives that were typical of many past plans. One alternative might focus on the principles of conservation biology, another on ecosystem restoration.

    The council, rather than the regional forester, would select the final plan. The forest supervisor and the council would each have an incentive to prepare the plan in a timely manner because the forest would start to keep its gross receipts only on plan implementation.

    Estimated evaluation using Forest Option Group criteria

    Land stewardship--Pilot 3 should improve funding for land stewardship, particularly for the facilities and ecosystem activities provided by the gross receipts collected above base budgets.

    Public satisfaction--A plan written with a collaborative council is likely to respond to and satisfy more public concerns than a plan that is written in the traditional manner.

    Tax burden and efficiency--To the extent that increased user fees and new incentives could change a below-cost forest to a self-sufficient forest, pilot 3 should reduce the burden of forest management on the taxpayer. On the few forests that currently return more receipts to the Treasury than they spend, funding out of gross receipts would increase the burden on the taxpayer since the surplus returns would disappear.

    Actual examples of similar programs in other agencies: Collaborative planning helped to minimize controversy on the White Mountain, Bridger-Teton, and a few other national forests during the 1980s round of planning. Collaborative planning in other contexts has also been useful in increasing public land revenues.

    What type of forests should be used for the test: Pilot 3 would best be applied to a forest that is about to begin revising its forest plan. It would also work best on a forest that is likely to be able to collect user fees in excess of its historic base budget.

    Pros and cons for the pilot: On most forests, pilot 3 would reduce taxpayers' burden while providing increased funds for ecosystem restoration and land stewardship. Increased funding and timely completion of the forest plan revision would improve employee morale. The council would provide a check on the possibility of over-exploiting resources.

    Funding out of gross receipts could create problems with cross-subsidization. While the council will insure that funding is not biased towards one particular resource, it could also have a tendency to try to solve problems by throwing money at them--to the limit of the gross revenues collected by the forest.

    Pilot 4: Forest Trusts

    Hypothesis to be tested: Will a trust structure improve forest stewardship and public satisfaction with national forest management while reducing the burden on taxpayers?

    Rationale: Pilot 4 uses the legal structure of the trust, which is a familiar, simple, flexible structure backed by centuries of common law. This structure will clarify Forest Service goals and provide the accountability long associated with private trust law. To further improve management incentives, pilot 4 combines the trust structure with a budgeting system similar to pilot 1.

    The trust is a tool that has evolved over many centuries to assure accountability when one person or institution holds and manages property for the benefit of another. Trusts are used to achieve that goal in many contexts, and are a familiar part of many citizen's lives.

    For example, trusts are typically used when a grandmother wants to provide support for her grandchildren's education: she gives the money or other assets to a bank or similar trustee who manages the resources to provide for the beneficiaries' education. Similarly, twenty-two states manage a total of 135 million acres of state-owned land in trust for the benefit of common schools and similar institutions.

    The clarity and accountability that characterizes trust management can be used to improve Forest Service management by:

    1. Clarifying the mission of the agency;
    2. Emphasizing the manager's obligation to maintain the productive capacity of the resource in perpetuity;
    3. Establishing a transparent system of financial management and reporting; and
    4. Simplifying the process of public accountability.
    The trust imposes several fundamental obligations on the forest trustee. Among the most important are: Governance: The essential elements of any trust are the trust assets, the trustee, the beneficiary or beneficiaries, and the common and statutory obligations, listed above, that bind the trustee to use the assets to serve the beneficiary. In pilot 4: Forest revenues would be distributed as follows: The forest would keep half of its receipts for its management costs; 20 percent of the total would go to counties, 20 percent to the nonmarket stewardship fund, and 10 percent to a permanent fund. Interest from the permanent fund would be divided equally between the counties and the nonmarket stewardship fund.

    The nonmarket stewardship fund is to be managed by an outside agency such as the state fish & wildlife department, state natural heritage office, or a nonprofit group such as the Nature Conservancy. The fund manager would be required to use the fund to give forest managers incentives to maintain and restore nonmarket resource values. Because the most appropriate fund manager may vary from region to region, each forest nominating itself as a pilot 4 forest should specify the fund manager for that pilot.

    User fees: Pilot 4 forests will be allowed to charge a full range of user fees. This would not alter preexisting contracts, but rates could be revised at time of contract renewal.

    Funding: Pilot 4 forests would be funded from the half the gross income they earn out of user fees, including fees for timber, grazing, water, recreation, wildlife, minerals, special uses, and any other forest uses. Unspent funds from previous years could be carried over.

    The remaining half of the gross receipts would be divided between the counties (20 percent), the nonmarket stewardship fund (20 percent), and a permanent fund (10 percent) whose interest is equally shared by counties and the stewardship fund.

    Safety net and phase-in period: As described above, pilot 4 forests would receive seed money equal to 100 percent, 75 percent, and 50 percent of their historic budgets over their first three years. Thereafter, in any year that half of the previous years' receipts fell below 50 percent of their historic budgets, they would receive a sufficient appropriation to bring their funding up to 50 percent of historic budgets. Pilots would be allowed to carry over unspent funds, whether seed money or its share of gross receipts, to future years.

    Example: To form a trust, the owners of the assets or their legal representative--in this case, Congress--must prepare a trust document. This document identifies the trust assets, the beneficiary or goal of the trust, the trustee, and the trust obligations that guide management and are enforceable in the courts.

    For pilot 4, the trust document should not embellish existing law and common law notions defining the trustee's obligations with potentially difficult-to-interpret phrases about specific goals or constraints for trust forest management. If embellishments are necessary, they will be identified during the test period.

    The one exception to unembellished trust principles is a clear statement that, although the test period is for five years, the trust is perpetual. The trustee is not allowed, in producing returns for the beneficiary, to prefer present or future beneficiaries, but must act with undivided loyalty to all generations of beneficiaries. This explicit embrace of perpetual management is a key element in assuring that the time frame over which the productive capacity of the trust must be maintained is without foreseeable limit.

    The most important criterion in selecting a beneficiary is that the funds generated by the trust must be sufficient and sufficiently visible to the beneficiary so that the beneficiary will pay attention to management of the trust. Currently, national forest revenues not retained by the Forest Service go either to counties or to the U.S. Treasury. To minimize political conflicts, the trust document should identify counties and federal taxpayers as the trust beneficiaries. Counties, at least, will likely find the receipts from the trust to be important enough that they will pay attention to trust management.

    It also helps for beneficiaries to have a long-term view rather than a budget-year-to-budget-year emphasis on receiving funds. Taking some of the revenues from the trust and depositing them into a permanent fund, the interest from which is given to the beneficiaries, can promote such a long-term view. The pilot 4 trust document should state that, after deducting the forest's share of receipts, half the revenues should be deposited into a such a permanent fund, while the other half would be divided between counties and the U.S. Treasury.

    The trust document should also state that the trust goal is to produce the maximum return, sustainable in perpetuity, to the beneficiaries. The trust assets are the national forest plus the permanent fund.

    The forest supervisor under the supervision of the board of trustees would manage all of the assets. There are many ways of selecting the trustees, some of which are described in the section above titled "Varying the Pilots." But experience with state land trusts indicates that the trust mandate and accountability requirements are sufficiently confining that the actual trustee is less important than the creation of the trust itself.

    The major advantages of trusts are that they give the beneficiaries incentives to monitor trust management plus they make the trustees more accountable for their actions than current national forest managers. The trust normally relies upon the culture of accountability that suffuses the trustee's role.

    In addition, the courts have established extensive rules for assessing whether trustees are acting with undivided loyalty. Access for beneficiaries is automatic. Generally speaking, rules regarding standing, exhaustion of remedies, and kindred doctrine applicable to plaintiff's opportunities to sue administrators do not apply.

    Courts are not required by notions of separation of powers to defer to the alleged expertise of the trustee. The standard for evaluating the trustee's performance is not, "Did the manager act in an arbitrary and capricious manner?" Instead, it is "Did the manager act prudently as defined by the standard prudent investor rule?" The core of this standard is utilization of research and analysis to achieve careful assessment of risks and benefits, and diversification of the asset portfolio to minimize risk. This shifts the burden from the public to show that managers acted poorly to the managers to show that they acted prudently.

    Estimated evaluation using Forest Option Group criteria

    Land stewardship--Pilot 4 should significantly improve land stewardship, both because managers are obligated to preserve the corpus of the trust and because the nonmarket stewardship fund should protect resources for which no fees are charged.

    Public satisfaction--Pilot 4 may pose the usual problem of people objecting to new user fees. Otherwise, this pilot should result in improved employee morale and increased public confidence in national forest managers.

    Tax burden and efficiency--This pilot will save taxpayers' money on most national forests. Forests that lose money today will no longer lose money--or at least no more than the safety net. Forests that make money today will no longer make money because all receipts are dedicated to the forest, the counties, or the nonmarket stewardship fund, but few forests are profitable today.

    Actual examples of similar programs in other agencies: The most extensive examples of trust land management are found in the state school and institutional land trusts. Many of these trusts have been successful in several important respects.

    What type of forests should be used for the test: Pilot 4 should be tested on forests that can produce significant revenues relative to local county budgets so that counties will take an active role in monitoring. It would also work well on forests with a mix of resource values where managers have the opportunity to balance those values. It may also be useful to select forests in states that have a significant record of state trust management so that there can be coordination and comparison of the trust regimes.

    Pros and cons for the pilot: The trust and its perpetuity commitment preserves public ownership and provides a flexible and familiar management regime for what is essentially very business-like management of public resources. The trust provides a clear goal and clear means of measuring accomplishment.

    Of course, some people will not consider efficiency or business-like management appropriate goals for public resource management and will oppose profit motives in any setting on public lands. The nonmarket stewardship fund may mitigate this objection. The Forest Service may not appreciate external direction of the type proposed, which may make it hard to find forest supervisors willing to try this model.

    Pilot 5: Gross Receipts/Rate Board

    Hypothesis to be tested: Can sufficient revenue be generated through sales of commodities and user fees for recreation goods and services to fully support national forests without resorting to profit-maximizing pricing where monopoly conditions exist?

    Rationale: Many recreation opportunities on national forest lands are unique with no true substitutes available. In areas of fairly large populations or of national reputation, demand for these opportunities may often exceed supply, particularly if experiential quality concerns are addressed through attempts to limit congestion. Monopoly pricing is the likely outcome in the common situation where there are limitations on supply and marginal costs are declining (in some cases approaching zero).

    Direct government provision of recreation goods and services at prices below those that can be demanded by the monopolist should be tested as a means of achieving self-sustaining national forest management. Pilot 5 forests would be allowed to charge user fees and to keep three-quarters of the gross receipts--paying the other quarter to counties--but recreation fees would be regulated by a rate board set up to consider public concerns about high fees and social equity.

    Governance: Pilot 5 forests would continue to be governed as they are today but under the Office of Pilot Projects rather than the regional office. However, pilot 5 forests would also have a "rate board" comprised of local, regional, and national interests which would work in conjunction with the forest supervisor to set prices for recreation goods and services.

    The board would particularly focus on areas where unique services/opportunities are provided in the absence of effective competition resulting in the potential for monopoly pricing. The board would also assist in deciding how some of those fees were spent, such as on special low-cost recreation programs for the poor.

    User fees: Pricing for goods with market prices readily established in a competitive market, such as timber, grazing, and minerals, will be based on what the market will bear. For those goods and services for which competition is limited and monopoly pricing is likely--namely, certain forms of unique recreation--pricing will be determined by the rate board in cooperation with the forest supervisor.

    Funding: A pilot 5 forest will keep 75 percent of its gross receipts in lieu of funding out of appropriations. Funds would be spent out of an open bucket and unspent funds could be carried over from one year to the next.

    Safety net and phase-in period: As described above, a pilot 5 forest would receive seed money equal to 100 percent, 75 percent, and 50 percent of their historic budgets over their first three years. Thereafter, in any year that 75 percent of the previous years' gross receipts fell below 50 percent of its historic budgets, it would receive a sufficient appropriation to bring its funding up to 50 percent of historic budgets. The pilot would be allowed to carry over unspent seed money and its share of gross receipts to future years.

    Example: A pilot 5 manager would invite members of the public to nominate or volunteer to become members of the rate board. A three-person committee of local recreationists selected by the supervisor might make actual selection of rate board members. The committee would seek a full range of recreation interests to be on the board, which would range in size from seven to eleven members. The three-person committee might be reconvened from time to time to replace retiring members of the rate board.

    Once established, the rate board would work with the forest supervisor to set rates for various forms of recreation. Some rates might be at market levels, especially for already-marketed forms of recreation such as camping and certain forms of hunting or fishing. More unique or unusual forms of recreation might have rates below market value to insure that the forest does not monopoly price.

    Among the key questions to be addressed by the rate board is the degree to which some potentially profitable goods and services should be used to "cross-subsidize" other goods and services. The board could also help in setting up subsidized programs to continue to allow provision/access to financially disadvantaged public landowners if this is deemed to be a desirable goal.

    The board might find, for example, that recreation in a popular area produces huge profits for the forest even at moderate fees. The board could advise the supervisor to spend those profits on ecosystem restoration, recreation subsidies to financially disadvantaged people, or the maintenance of historic sites or facilities elsewhere on the forest. The people paying the fees would know that their money is going for a good cause and not being used to subsidize some environmentally destructive activity.

    In addition to annual reports required of all pilots, the rate board should publish an annual report detailing the rationale for pricing decisions, the extent to which pricing exceeds the average costs of provision (if any), and the allocation of any "profit" above average costs of provision.

    Estimated evaluation using Forest Option Group criteria

    Land stewardship--Commodity activities will need to be at least self-sustaining, which should result in fewer actions that have potential to degrade the environment. The safety net plus support from profitable recreation and other activities such as recreation could fund improvements in ecological health.

    Public satisfaction--Charging user fees for goods and services that have previously been free is unpopular in many areas. However, this pilot has the benefit of retaining revenue at the local level resulting in improvements which are readily evident to forest users. This is in sharp contrast to many current situations whereby concessionaires or other permittees profit from forest resources (sometimes charging monopoly prices) with little to no return to the forest resources and facilities.

    Tax burden and efficiency--This pilot will improve incentives for operating in an economically efficient manner over the status quo. Forests could very well prove to be nearly self-sustaining without resorting to monopoly pricing. This will reduce the burden on the taxpayer in forests that currently return less to the Treasury than they spend. In those few forests that currently return more than they spend, however, funding out of gross receipts will eliminate those returns, thereby increasing taxpayer burdens.

    Actual examples of similar programs in other agencies: The current "fee demonstration program" authorized by Congress in 1996 and continuing through September, 1999, provides the best example of charging user fees and retaining the revenue at the local level. These pilots are just now being implemented with mixed results but will provide good information over the next two years.

    Mill Creek Canyon on the Wasatch-Cache National Forest outside of Salt Lake City has been charging user fees in cooperation with Salt Lake County and retaining the revenue locally for several years. The results are very positive with good public acceptance, reductions in vandalism, improved recreation facilities, and substantial improvements in habitat protection, stream-bank stability, and water quality.

    Many state park systems are collecting increasing amounts of user fees. These fees often governed by legislatures or state parks boards. While there are no true examples of boards specifically set up to determine rates for recreation fees, several national forests and other government entities have citizens' advisory boards chosen by a small selection committee.

    What types of forests should be used for the test: Forests with high recreation use should be selected. Those forests close to large urban centers and/or with recreation attractions of national/regional renown would be good candidates. Also, the selected forest should have sites at which fees can be effectively collected, that is, for which exclusion costs are not prohibitively high. It is less important that the forest also have potentially high commodity values, but perhaps one forest with such resources would be a good contrast to one which mainly has high recreation values.

    Pros and cons for the pilot: The creation of any new fee is always controversial, especially among members of the public who have come to regard free use of the national forests as their natural right. The rate board can help mitigate such controversy by assuring the public that their fees will not be excessive and that the fees they pay will be put to good use.

    Funding out of gross receipts will help reduce the damage done by below-cost activities. But it will also allow continued cross-subsidization of below-cost projects with the profits from others. The rate board can help insure that such cross-subsidization works to the benefit, not the harm, of the environment.

    On those forests that either return a profit to the Treasury today or which could be highly profitable if allowed to charge a full range of user fees, any plan to fund out of gross receipts could cost taxpayers those revenues or potential revenues. Such funding could also lead to unduly lavish spending on forest activities, spending which may be environmentally harmful. Again, the rate board can mitigate the environmental problems, but it would not increase returns to the Treasury.

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