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. The hierarchy today has four levels: a chief in Washington, DC; regional foresters in nine regions; forest supervisors for 120 or so national forests; and district rangers for 600 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.

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

Hidden beneath the conflicts were two problems that the agency's founders 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 after Pinchot retired from the Forest Service contained hidden incentives that rewarded managers for losing money on certain activities, while it penalized managers for earning a profit or for emphasizing other activities. 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 the national forests. These conflicts reached the point of violence in the late 1980s and early 1990s, when forest managers sometimes received death threats and several national forest offices were burned or bombed.

Pinchot's structure worked beautifully for sixty years but was completely broken down by the agency's ninetieth year. The agency's governing and budgeting structures promoted polarization, which in turn reduced employee morale. 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 Pinchot's system no longer works. In 1997, the Thoreau Institute brought together the "Forest Options Group"--industry, environmental, Forest Service, and other interest group leaders--and asked them: "If you were Gifford Pinchot in 1905, but knowing what you know today, how would you design the Forest Service?"

This was a question that had rarely been asked. Most national forests debates centered around either the Forest Service "mission" or on-the-ground practices such as clearcutting or conservation biology. Such debates had proven unresolvable. But the focus on structure liberated participants in the Forest Options Group from the rhetoric and values of the interest groups they represented.

Our society has developed many sorts of institutions. Some of those 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 achieving these objectives would require such steps as: 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 governance 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 has developed five different pilot models which it suggests should be tested on two forests each.

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 is described in detail below. Briefly, they are:

  1. Entrepreneurial Budgeting: The forest is funded out of net receipts with a safety net equal to 50 percent of historic funding. User fees are set by forest managers with no changes in governance.
  2. Collaborative Governance: A collaborative board oversees the operations of the forest, approving the annual budget and operating plan. The budgeting 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 its gross receipts, with any excess of gross receipts over the historic budget to be dedicated to facilities maintenance and nonmarket stewardship activities.
  4. Forest Trust: The forest supervisor is made the trustee with the obligation to preserve the corpus of the trust and to produce revenue for the beneficiaries, who are the county school districts and road departments. The forest itself is funded out of net receipts with a safety net.
  5. Rate Board: This pilot funds the forest out of gross receipts with a safety net equal to 50 percent of historic funding. Forest user fees are set by a rate board which insures that forests will not price monopolistically and takes equity considerations into account.

Table One
Summary of Pilot Characteristics

Pilot number   1               2             3               4         5
Pilot name     Entrepreneurial Collaborative Collaborative   Forest    Rate
               Budgeting       Management    Planning        Trust     Board


Board          No              Collaborative Collaborative   No        No
Authority over                 Management    Plan./Implement.          
Trust          No              No            No              Yes       No


User fees      Full            Status quo    Full            Full      Set by board
Net vs. gross  Net 100%        Status quo    Gross 100%      Net 100%  Gross 100%
Special funds  No              No            Yes1            No        No
Phase in       100-75-50       No            No              100-75-50 100-75-50
Safety net     50%             Status quo    100%            50%       50%
Open bucket    Yes             No            Part (1)        Yes       Yes

Explanation of Terms

Full means user fees on all resources
Set by board means some fees are set by a rate board
Net vs. gross means forests are funded from a percentage share of their net or gross receipts
Special funds means selected receipts are dedicated to certain tasks
Phase in is the percentage of historic budgets appropriated to the pilot forests in years 1, 2, and 3 of the tests
Safety net is the percentage of historic budgets guaranteed to the forest after the phase-in period
Open bucket means funds are not dedicated to particular line items.

1. In pilot 3, receipts up to the historic budget level are in an open bucket; additional receipts are dedicated to facilities maintenance and land stewardship.

Implementing the Pilots

After reviewing existing Forest Service laws, the Forest Options Group concluded that all of the pilots except pilot 4 could be implemented at least in part by administrative action. For example, although the law does not provide for forests keeping gross or net user revenues, the administration has the discretion to budget an individual forest as if it were keeping its gross or net revenues. Implementation of pilots will uncover any obstacles presented by existing law and generate ideas for any necessary statutory change.

Pilot 4 is a special case because of the nature of a trust. Setting up a trust requires the designation of the trustee and beneficiaries, establishment of the goal of the trust, and identification of the assets placed within the trustee's care. Under existing laws, only Congress would have the authority to take such actions.

The Forest Options Group was concerned about two other factors. First, without Congressional support, the Forest Service might not be enthusiastic or even willing to test pilots. Second, the group felt that a single standard should be set for monitoring the pilots.

To meet these objectives, the Forest Options Group proposes that Congress include funding in an appropriations bill dedicated to monitoring the pilots. This funding would go to the U.S.D.A. Inspector General. The appropriations bill would also specify how forest trusts would work and delegate to the secretary of agriculture the authority to select forests to be trusts.

The appropriations committees should also write in their committee reports that they expect the Forest Service to test these pilot models on two forests each, using a selection, implementation, and monitoring process as described here. This would minimize the need for new legislation and give the Forest Service the flexibility to test these pilots.

For test purposes, all pilot forests would be required to adhere to existing environmental laws and regulations. They would be given discretion, however, to depart from agency manual provisions or directives.

For some of the pilot models, pilot forests would be nominated by the forests themselves. For others, they would be nominated by outside citizens' groups. In all cases, selection of the pilot forests would be made by the secretary of agriculture.

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 for Congress a report that assesses the pilot's performance, identifies obstacles to the pilot's success, and specifies whether the pilot could be improved by changing any existing laws or regulations.

Pilots would also be reviewed by the Inspector General's office, which would report in particular how the pilots fared against the evaluation criteria described below. Naturally, various interest groups and members of the public would also be expected to monitor the pilots.

At the end of the first five-year test period, the pilot forests may generate enough information to develop recommendations for reforming other national forests. If so, those reforms could be implemented. Alternatively, a different set of pilot models might be tested on other forests while continuing some or all of the original ten pilot tests for another five years.

Criteria for Evaluating Pilots

Ideally, evaluation criteria should be quantitative, easily measurable, and consistent. But if this ideal were easy to achieve, then national forest management would never 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:

Evaluation criteria are listed below for each of these goals. These criteria are not all quantitative, nor will it be possible to achieve them all simultaneously. But they can be used to evaluate the pilots as they are implemented and after the first five-year period.

It is important to understand that these criteria will be used to judge the pilots, not the forest managers. Depending on the pilot, different sets of criteria, such as profitability, responsiveness to boards, or fulfillment of trust obligations, are likely to be used to evaluate managers. But the purpose of the pilot program is to determine which institutional structures work best, not how well individual managers respond to those structures.

Land Stewardship

How do the pilots affect efforts to:

Taxpayer Burden

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. Timber, livestock forage, minerals, hunting, fishing, hiking, camping, winter sports, and many other forest resources are actively marketed by both private landowners and various public land agencies. 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 the case of other resources, the agency is permitted to charge but may not keep any of the receipts, giving it little incentive to emphasize those resources. 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. Such cross-subsidies are not forbidden, and managers may decide that certain cross-subsidies are in the best interest of the forest, but they would have no incentive to cross subsidize when it was not in the forest's best interest.

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: Unless combined with a collaborative group pilot (pilots 2 or 3), pilot 1 forests would continue to be governed as they are today under the chief-region-supervisor-district hierarchy.

User fees: Pilot 1 forests would be allowed to charge user fees for all resources. 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 and the U.S. Tresaury would receive the remainder.

Safety net: To provide for nonmarketable resources, assist in ecosystem health and restoration, and minimize transitional problems, pilot 1 forests would have a safety net equal to one-half of the average of the past ten years of appropriations (not counting Knutson-Vandenberg, salvage sale, and other funds paid out of receipts). If at the end of any year net receipts were less than this amount, pilot 1 forests would get to add this amount to their funds for the next year.

All funds--the net and the safety net--would be in an "open bucket" instead of dedicated to specific line items. Pilot 1 forests could use some of these funds as employee bonuses or incentive pay.

Phase-in period: The safety net would be phased in over three years. In the first year, pilot 1 forests would be seeded with funds equal to 100 percent of their past ten years of appropriations from tax dollars plus whatever K-V and other funds they have at the time. In the second year, the safety net would be 75 percent of their past ten years of funding. In the third and later years it would remain at 50 percent. Unspent funds from the first year's seed money and later years' safety nets could be carried over into future years.

Example: Suppose that over the past five 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. This might become the "base budget" and would be appropriated to the forest each year during the test period.

Now suppose that the forest can collect receipts of $13 million per year. Then its net income is $3 million. Finally, suppose we let the forest keep one-half of its net or, in this case, $1.5 million per year.

In this case, the forest would quickly learn to spend around $11 million per year. This would produce a net income of $2 million, of which it could keep half or $1 million. This $1 million, when added to the $10 million base appropriation, would equal its $11 million expenses.

Of course, the forest could choose to spend less than $11 million in any year. This would increase its net income, allowing it to keep more money for future years. It might want to bank a fund to use for emergency purposes, such as fire suppression, or to spend on capital improvements. But eventually it would spend that fund and its average annual expenses would equal $11 million.

The forest would have an incentive to reduce expenditures on programs that were not earning more revenue than their expenses. And it would have an incentive to increase expenditures on programs that could significantly increase forest revenues. Suppose it spent a little less on one program and more on another and increased its total revenues to $16 million per year. Then it could increase its average budget to $12 million, earning a net of $4 million, half of which it could add to its base appropriation to cover its $12 million cost.

Non-market stewardship activities might not directly add to a forest's net revenue. But forests would still be willing to dedicate funds to these activities if the activities could potentially add to the forest's long-term revenue stream.

Monitoring and accountability: As with other pilots, pilot 1 requires forests to follow all existing environmental laws, including the National Environmental Policy Act, National Forest Management Act, and Endangered Species Act. As with other pilots, the forest would also make annual reports to Congress about the test. As today, the pilot forests would be subject to annual audits of their expenses and receipts. Such audits should be considerably less expensive than at the present time since there would be no need to audit individual line items. Beyond this, no major new monitoring requirements would be imposed.

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 appropriate monitoring activities, but not necessarily any more so 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.

Taxpayer burden--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 still lack incentives to protect non-marketable resources, and some resources that are marketable but which are bound by preexisting contracts at low rates might be neglected by the forest.

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 summer, 1995, issue of Different Drummer magazine.

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 Option Group suggests that a major timber forest and a major recreation forest each be selected for testing. An excellent choice would be a forest that has both high timber and recreation values to see how they influence one another.

Need for new legislation: Theoretically, major portions of this test could take place with a minimum of new legislation. Currently, the Forest Service has the authority to:

Rates for livestock grazing are fixed by executive order. Higher rates might appeal to some ranchers if they translated to lower costs, more stability, or other benefits to the ranchers. To the extent that rates are fixed by permits, new rates could not be charged until permits were renewed in any case.

Except on the fee demonstration sites (authority for which expires in 1999), the Forest Service's authority to charge for a broad range of recreation uses is limited. But the agency can give special use permits to others who will charge fees. Pilot forests can deal with this by giving a permit to a local natural-history or friends-of-the-forest society (which already exist on most national forests). The society would collects the fee and spend the appropriate share of the net or gross, depending on the pilot, on recreation and other stewardship activities.

Pilot 1 tests can deal with fees that can be collected but not retained by juggling with other receipts or appropriations. The Forest Service would essentially contract with the pilot 1 forest supervisor to provide sufficient appropriations so that the forest's budget is equal to its net income.

Selection process: Forest supervisors would be invited to submit proposals to become a pilot 1 forest. The secretary of agriculture, in consultation with local Congressional delegations and state governors, would select from those proposals.

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

The pilot protects non-marketable resources by changing incentives that currently may promote harm to such resources. But it provides no additional protection. Nor does the pilot give members of the public a new avenue for involvement other than payment of user fees. People who care about non-marketable or below-cost resources may still 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 interests. One tactic the agency uses is to play interest groups off against one another, ensuring that 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" which will bid on the opportunity to manage a pilot forest. The secretary of agriculture will choose an entire council, rather than individual members. To be selected, potential councils will have an incentive to include a full and balanced range of interest group representatives.

Governance: A collaborative 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 serve at the council's pleasure; the council would advise the supervisor on annual forest budgets and work plans; and the council would assist the supervisor in implementing these plans.

While existing environmental laws and regulations would continue to apply, the council could relieve the national forest from discretionary agency policies that do not result from a higher-level public informal rule-making process. For example, an internal, non-public Forest Service Manual provision requiring that forms be signed in triplicate could be overturned by the council, but a publicly determined plan for managing a particular species could not.

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 better ensure 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: No changes from the current system. The forest would get its budget through the current channels. However, 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: Not applicable.

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 supervisor need not accept all council recommendations. But a vote supported by three-fourths of the council could compel the Forest Service to replace the supervisor. All other council decisions would be according to rules established by the council, such as majority or supermajority vote, consensus, and so forth.

The council would be incorporated as a 501(c)(3) non-profit organization and would comply with any applicable requirements regarding financial reporting and limitations on partisan electoral activities. The council may requisition support staff, services, equipment, and office space from the national forest. It may also, if it so chooses, use other funds it raises for these expenses.

All the 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, insofar as the council does not make Forest Service decisions, only recommendations, council members with declared conflicts of interest would be permitted to participate in and vote on such matters. Initial terms on the council would be limited to five years.

Monitoring and Accountability: Pilot 2 requires the national forest to follow all existing environmental laws, including NEPA, NFMA, and ESA. The council would prepare an annual report of its activities similar to that prepared by most non-profit organizations. The national forest would be subject to the usual auditing and reporting requirements of NFMA and other relevant laws or regulations.

Estimated evaluation using Forest Option Group criteria:

Land stewardship--Difficult to judge the environmental consequences. 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. Non-market stewardship 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.

Public satisfaction--This pilot will significantly change the institutional independence the Forest Service has enjoyed traditionally. 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 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.

Taxpayer burden--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 for its national forest.

Actual examples of similar programs in other agencies: Numerous state resource agencies are run by boards or commissions rather than individual supervisors. 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.

Need for new legislation: This pilot may require enabling legislation to establish the council and define its role and authority. However, it is possible the secretary of agriculture could use existing authorities under the Federal Advisory Commission Act (FACA) to create the council and vest with it the authority called for in the pilot. The short-coming of this approach is that it may not survive changes in administration and it does not carry the imprimatur of Congressional approval.

Selection process: Applications from prospective collaborative councils will be reviewed by the secretary, focusing on which best represent the full range of interests for prospective pilot 2 forests. Applicants will also be encouraged to describe how they would improve stewardship, public satisfaction, and reduce taxpayer burdens. The secretary will make the final selections after consultation with local Congressional delegations and state governors.

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 change the budgetary process, 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 encouraging Congress to spend enough money 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. An important factor in the few relatively uncontroversial forest plans was a forest supervisor who was willing to share 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. Pilot 3 also changes the incentives and budgetary process, potentially giving the forest new funds for non-market stewardship activities. Those funds would come from new user fees, particularly recreation fees.

There is growing evidence that the public is willing to pay for recreation as well as the other marketable resources found on public lands. Preliminary results from recreation fee demonstration projects to charge user fees on public lands are showing great promise in producing revenue to replace dwindling appropriations.

Governance: Actual forest operations would be conducted under the traditional chief-region-supervisor-ranger hierarchy. 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 and selects the final plan.

The council would follow the basic planning process outlined in the National Forest Management Act and Forest Service regulations. 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. The council has no further authority except to monitor the plan implementation and amend the plan as needed.

User fees: Forest managers would be allowed to charge user fees for the full range of resources at rates specified in the final forest plan or by the council in a forest plan amendment.

Funding: After completion of the forest plan, the forest would be funded out of its gross receipts. Base-level funds equal to the average level of funding over the previous ten years would be in an open bucket. All gross receipts over and above base would be dedicated to facilities maintenance and non-market stewardship activities. 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, and nonmarket stewardship activities.

Safety net: Pilot 3 would have a safety net equal to 100 percent of the average of the past ten years of appropriations (not counting Knutson-Vandenberg, salvage sale, and other funds paid out of receipts). Funding would decline to this level only if gross receipts fell below the base.

Phase-in period: None, since the safety net is 100 percent of the base. However, the forest would not actually start to keep gross receipts until the plan was finished.

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.

The council 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.

Monitoring and accountability: The supervisor would be completely responsible for plan implementation, including the allocation of funds within whatever guidelines were set by the plan. The council would monitor implementation and would have the authority to amend the plan as needed. For example, the council could alter user fees or the process by which fees are determined if it feels a change is needed. The forest would still undergo current monitoring and auditing procedures as well as prepare the annual reports required of all the pilots.

Estimated evaluation using Forest Option Group criteria:

Land stewardship--Pilot 3 should improve funding for land stewardship, particularly for the facilities and nonmarket stewardship 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 written in the traditional manner.

Taxpayer burden--Where increased user fees and new incentives change a below-cost forest to a self-sufficient forest, pilot 3 should reduce the burden 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.

For example, the Northern Cascades Institute is a non-profit organization based in the Pacific Northwest. This organization has entered into a collaborative partnership with the National Park Service and the city of Seattle to conduct seminars to educate the public about environmental and cultural heritage. This program has been very successful at generating revenue by providing educational opportunities.

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.

Need for new legislation: A legislative endorsement might make this pilot more successful. But if fees could be collected and distributed (except on a gross rather than net basis) as described in pilot 1 and if the council could be formed as described in pilot 2, then this pilot could be tested with no specific new legislation.

Selection process: As with pilot 2, the secretary of agriculture, in consultation with local Congressional delegations and state governors, would select the pilot forest from applications by prospective collaborative councils. Criteria for selection would be similar to those in pilot 2.

Pros and cons for the pilot: On most forests, pilot 3 would reduce taxpayers' burden while providing increased funds for non-market stewardship activities. 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 the funding system used in pilot 1.

The trust is a tool which has evolved over several 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.
Governance: The essential elements of any trust are the trust assets, the trustee, the beneficiary or beneficiaries, and the common and statutory obligations which bind the trustee to use the assets to serve the beneficiary. In pilot 4, the trust assets would be the national forest and permanent funds generated by the forest. The trustee would be the forest supervisor and the beneficiaries would be the counties and schools that get 25 percent of gross receipts along with the taxpayers who would benefit from the remaining receipts which, after expenses, would be deposited in the U.S. Treasury.

The trust imposes several fundamental obligations on the forest trustee. Among the most important are:

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 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 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 and the remainder would be given to the U.S. Treasury.

Safety net: To provide for nonmarketable resources and stewardship activities, pilot 4 forests would have a safety net equal to one-half of the average of the past ten years of appropriations (not counting Knutson-Vandenberg, salvage sale, and other funds paid out of receipts). If at the end of any year net receipts were less than this amount, pilot 4 forests would get to add this amount to their funds for the next year.

All funds--the net and the safety net--would be in an "open bucket" instead of dedicated to specific line items. Pilot 4 forests could use some of these funds as employee bonuses or incentive pay as permissible by law.

Phase-in period: The safety net would be phased in over three years. In the first year, pilot 1 forests would be seeded with funds equal to 100 percent of their past ten years of appropriations from tax dollars plus whatever K-V and other funds they have at the time. In the second year, the safety net would be 75 percent of their past ten years of funding. In the third and later years it would remain at 50 percent. Unspent funds from the first year's seed money and later years' safety nets could be carried over.

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 which guide management and are enforceable in the courts.

For pilot 4, the trust document should not embellish on existing statutory law and common law precepts 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. This view can be created by taking some of the revenues from the trust and depositing them into a permanent fund, the interest from which is given to the beneficiaries. 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.

All of the assets would be managed by the forest supervisor, who is designated the trustee. While another trustee could be designated, such as a board of directors, 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.

Monitoring and Accountability. 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 doctrines that limit plaintiffs' 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 management is funded out of net receipts and because managers are obligated to preserve the corpus of the trust. This obligation effectively makes the sustained yield provisions of the Multiple-Use Sustained-Yield Act enforceable.

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.

Taxpayer burden--This pilot will both save money and increase returns to the Treasury. 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 have incentives to make even more money under pilot 4.

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.

The state trust record has not been perfect, and developers of a federal forest trust can learn much from state trust problems. 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 so that 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.

Need for new legislation: Congress would have to pass legislation authorizing forest trusts and specifying the terms of the trust document.

Selection process: Forest supervisors would be invited to submit proposals to become a pilot 4 forest. The secretary of agriculture would select from those proposals after consultation with local delegations and governors.

Pros and cons for the pilot: The trust and its perpetuity commitment preserve public ownership and provide 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.

Except for the obligation to preserve the corpus of the trust, nothing about pilot 4 explicitly protects nonmarketable goods. But that is true of the existing situation and the other pilots as well; the trust obligation actually could do more to protect nonmarketable goods than any of the other models.

Of course, some people will not consider efficiency or business-like management appropriate goals for public forests and will oppose profit motives in any setting on public lands. 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: 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 which 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 the gross receipts, but recreation fees would be regulated by a rate board set up to consider public concerns about high fees and social equity.

Governance: Management would remain under the chief-region-supervisor-district system. 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--such as certain forms of unique recreation or harvest of nontraditional forest resources such as mushrooms--pricing will be determined by the rate board in cooperation with the forest supervisor.

Funding: Pilot 5 forests will be allowed to keep 100 percent of their 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: There will continue to be some forest resources which simply cannot be effectively provided for a fee, at least in the short term. This might include habitat protection for many species, ecological health, water quality, and so forth. To protect these resources, pilot 5 forests would have a safety net equal to 50 percent of their ten-year historic average budgets (not counting Knutson-Vandenberg and other funds that come from receipts).

Phase-in period: The safety net would be phased in over three years, with seed money equal to 100 percent of the ten-year average budget in the first year; followed by a 75-percent safety net in the second year and 50 percent thereafter. If gross receipts fall below the safety net, unspent funds from the safety net could be carried over from one year to the next.

Example: A pilot 5 forest supervisor would invite members of the public to nominate or volunteer to become members of the rate board. Actual selection of rate board members might be made by a three-person committee of local recreationists selected by the supervisor. 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 and nontraditional uses. 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 set prices monopolistically.

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 land owners 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 stewardship activities, 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 controversial activity.

Monitoring and accountability: Monitoring would be much the same as today with the additional requirement of an annual report from the forest and rate board which details 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 permanently degrade the environment. The safety net plus support from profitable recreation and other activities such as recreation could fund non-market stewardship activities.

Public satisfaction--Charging user fees for goods and services which have previously been provided at no charge is not a popular concept 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 in which concessionaires or other permittees profit from forest resources (sometimes charging monopoly prices) with little to no return to the forest resources and facilities.

Taxpayer burden--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 but 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 are 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.

Need for new legislation: New legislation could allow pilot 5 forests to charge fees and retain all revenues at the local level and to authorize the existence of the rate boards to help make pricing decisions. But this pilot could be tested without such legislation by collecting fees through local natural history societies and by budgeting the forest as if it were keeping all of its revenues. The rate boards could also be authorized by the secretary of agriculture.

Selection process: Pilots would be selected by the secretary of agriculture in consultation with local congressional delegations and state governors. Forest supervisors would be encouraged to nominate their forests as pilot 5 forests, and the secretary would select from such nominations.

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 minimize 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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