State Lands and Resources: Conclusions and Recommendations

Table of Contents


States have often proven to be better fiscal managers of their land than the federal government. Ironically, however, that is usually because of federal policy. Many states make money from their timber lands because the federal government granted those lands to the states with what turned into a trust obligation that they be managed for maximum revenues.

Similarly, few states lose money on fish & wildlife because access to Pittman-Robertson funds requires that they let wildlife agencies keep all their hunting & fishing license revenues. While this doesn't forbid state subsidies, most states have apparently concluded that, if they can't spend license revenues on other programs (as some did before Pittman-Robertson), they'll fund the agencies exclusively out of user fees plus federal grants.

In the absence of such federal controls, states have proven themselves just as susceptible to pork barrel and special interests as the federal government. Most state legislatures insist on setting user fees for parks and wildlife and micromanaging appropriations for land and resources. They often fall prey to pleadings from certain users such as ranchers or timber companies. They frequently cross-subsidize some users with income from other users or taxpayers. And they appear no more conscious than Congress of the misincentives they create when passing various laws. For every fiscally good example of state resource management, such as New Hampshire parks, there are a dozen bad examples of subsidies, cross-subsidies, and bloated bureaucracies.

Against all of these problems stands one institutional structure that, when defended, has proven itself able to withstand numerous assaults by legislatures, governors, and bureaucrats: the trust. State trust law imposes a clear obligation on land managers to maximize revenues to beneficiaries--an obligation repeatedly upheld in court decisions.

The financial responsibility imposed by trusts should translate to better land management:

Potentially, trusts can have goals other than maximum revenues. A wilderness land trust can maximize wilderness values. A national forest trust can be managed in the best interests of the people of the U.S. While these responsibilities can be harder to measure, they would clearly forbid certain activities, such as road construction in wilderness or selling timber at low prices without competitive bidding.

By themselves, trusts don't change the incentives that lead public resource managers to lose money. All they do is provide some people with standing to oppose such losses. The actual performance of state trusts varies widely, depending mainly on whether the trust beneficiaries vigilantly protect their interests.

Implications for Federal Policy

So, what would happen to federal lands transferred to states? The answer depends on what conditions the federal government would place on such land transfers.

Given, say, the national forests, the states would manage them very differently if they were supposed to manage them to produce income for state schools than if they were required to manage them "for multiple use in trust for the people of the United States," and different still if there were no strings attached.

Of course, the federal government could achieve the benefits of diversity, improved land management, and savings to taxpayers without transferring the lands to the states. But to do so, members of Congress and other policy makers need to design effective incentives that will produce those benefits--something that neither Congress nor state legislators have yet done.

One thing is certain: The financial problems faced by many state agencies would be eased if the federal government were to get its fiscal house in order. For example, increasing recreation user fees on federal lands would help state parks and other state lands earn more fees. In turn, this could provide more income for non-game and other underfunded programs.

Recommendations for States

Based on this information, Different Drummer has five recommendations for state policy makers:
  1. Get state resources off the dole
  2. Grant independence to resource agencies
  3. Give agencies sound incentives to do good management
  4. Diversify sources of income
  5. Promote better federal land management

Get Off the Dole

State tax dollars contribute to park management in 48 states, to fish & wildlife agencies in at least 36 states, and to state forest lands in as many as 19 states. Such subsidies are not sustainable in an era of unmanageable federal debts, taxpayer revolts, and declining state resources.

Some states appear to have successfully secured funding from dedicated taxes, such as Missouri's sales taxes and Florida's real estate transfer tax. Such taxes have two problems.

  • Second, voters irate about federal taxes could easily demolish state resource programs by ending such taxes. Missouri park managers addicted to a tax that funds better than 80 percent of their program will be in dire straights if voters turn down the sales tax renewal in 1998.

    Then there is the argument, successfully used in North Carolina and possibly elsewhere, that fish & wildlife agencies should receive the share of state sales taxes paid on sporting goods. But if sales taxes are allocated based on the products they were paid on, which product sales taxes will be dedicated to schools? If sales taxes are allocated based on a popularity contest, as in Missouri, how will important but less sexy programs, such as indigent health care, receive the funds they need?

    The biggest argument against funding resource agencies out of tax dollars is that it isn't necessary, and taxes should be reserved for those programs that can only be funded out of taxes. New Hampshire and Vermont have shown that state parks can be run with no funding other than user fees. Alabama, Idaho, Minnesota, and Pennsylvania are just a few of the states that fund fish & wildlife out of user fees plus federal grants. Washington, Wisconsin, and Florida are among the many states that profit from their timber lands.

    Creative managers should be able to find ways to fund even those resources that have traditionally relied on tax dollars. Fire protection should be funded out of land assessments, not state general funds. Non-game wildlife funding can come from a share of recreation fees and donations (possibly including income tax checkoffs). Only by maintaining independence from taxes can agencies and their resources be insulated from the whims of voters and legislators.

    Agency Independence

    Legislative meddling in fee setting, spending, and other agency programs may be good for favored users, but it is usually costly to taxpayers and often harmful to the land. To the greatest extent possible, agencies should be given the freedom to determine land uses, set fees, and select where to invest funds.

    The state trust arrangements shine the brightest in this regard. Especially where beneficiaries have asserted their rights, state elected officials have been prevented from manipulating resources for special interests.

    This doesn't mean that trusts or any land agencies should be exempt from basic environmental laws. They should comply with at least the same standards as any other private land owners. Higher standards should be imposed when needed to meet trust obligations or the goals of the agency. For example, for some activities parks should meet higher standards than, say, forests.

    Create Better Incentives

    Giving agencies policy freedom does not mean they should be allowed to set their own goals or avoid financial accountability. But neither should states assume that agencies are inherently altruistic. Legislatures must consider, as they rarely do, the incentives implied by the budgetary structures they create.

    Texas' entrepreneurial budgeting takes an important step in giving managers incentives to increase revenues and reduce costs--the opposite of normal. Similar systems could be devised for all kinds of resource agencies.

    A number of states fund their trust managers out of a percentage of the gross income they earn for the trust. Washington's Department of Natural Resources, for example, retains 25 percent of most timber receipts for timber land management. This encourages the agency to maximize gross income.

    This arrangement is superior to that of, say, Montana, whose state land agency keeps a tiny percentage of receipts and is funded mainly out of tax dollars. The agency's incentive for maximizing revenue is thus weak.

    But Washington's arrangement could be improved by funding the agency out of 33 percent of the net income rather than 25 percent of the gross. Since the trust beneficiaries get the net income, rather than the gross, they would prefer that the agency maximize net--and it is unlikely that maximum net and maximum gross would produce similar management programs.

    Checks and balances can also be devised for agencies managing truly non-market resources. Such resources should not be funded from a narrow user fee or the managers will end up beholden to that user rather than to the resource.

    Diversify Income

    State lands seem to be managed according to more of a dominant use philosophy than many federal lands. This has narrowed agency thinking into certain slots: this land is for timber, that for recreation, over there is wildlife. Few forest agencies, for example, charge recreation fees and even fewer seek market value.

    Both the land and users would be better off if agencies started thinking about all of the potential resource values on their lands. Recreation is potentially the greatest untapped resource, and recreation fees would encourage agencies funded out of their receipts to adjust management of other resources to cater to recreationists.

    Promote Better Federal Management

    So long as the federal government sells its resources below cost and below market value, state agencies will have a difficult time collecting fair market value for recreation and other resources on state lands. State officials should take steps to let Congress know that federal policies are harming state interests and encourage Congress to promote better management.

    Recommendations for Congress

    This examination of state resource management offers several lessons to Congress and other federal policy makers. These include:
    1. State management is nearly as imperfect as federal.
    2. Trust lands tend to be managed better than most.
    3. A few states, such as Texas and New Hampshire, point the way to major change.
    4. Congress can score greater improvements in land management by fixing incentives than by transferring lands to the states.

    States No Panacea

    Giving federal lands to the states won't automatically solve resource problems or even save taxpayers much money. At best, state budget constraints will lead states to lose a little less money, and the great variety of states will insure that some of them won't mismanage lands as much as others. But the majority of state agencies studied here are heavily subsidized, and there is no reason to expect that to change if the states get more land.

    Nor are the states laboratories of innovation and rapid change. The same pressures that freeze the federal government into outdated and wrongheaded policies exist at the state level--and may even be worse in a few states. Giving lands to the states would lead to some initial innovation. But states would quickly be locked into whatever they initially decide, and they seem unable to learn or improve from the lessons learned by other states.

    The federal government could improve land management if it gave the land to the states with strict strings attached, such as protective covenants or trust obligations. But in this case it would be the strings, not the states, that improved the management, and they can be attached without the added controversy of transferring the lands.

    Emulate the Trusts

    The most positive feature of state management is the rules and obligations imposed by the state trusts. The trusts protect the independence of agency managers and make them more receptive to new ideas and new sources of income.

    Trusts alone don't guarantee good incentives; but if they are combined with funding out of a share of receipts--particularly net receipts--then the incentives are vastly improved over those faced by existing federal agencies. Trusts of various sorts can also be used to protect nonmarket resources such as biodiversity.

    Rather than give federal lands to the states, Congress could create a variety of land trusts that will manage federal lands in trust for the people of the U.S. The trusts need not have a maximum revenue obligation, but where appropriate they could be funded out of their net receipts.

    The exact size of each trust and how boards of trustees would be selected are open for debate. Different Drummer's suggestions:

    Crisis Provokes Change

    Although states resist change, innovations offered by Texas, New Hampshire, and a few other states show that such resistance can be overcome by a significant crisis--particularly a budgetary one. The question is, what crisis will cause the federal government to change federal resource management? The nature of the crisis could dictate changes for the better--or for the worse.

    Public land advocates should recognize that a federal budgetary crisis is coming if it is not already here. This means that major changes are coming, and these changes could be painful for many. The solution is to promote changes that resolve the budgetary crisis while they also improve land management.

    Focus on Incentives

    Any transfer of federal lands to the states faces two political hurdles. First, some people will strongly oppose such transfers. Second, others will debate at length over what strings should be attached to the transfers. Lands transferred without requirements that improve incentives will be no better off than they are today.

    All of the benefits claimed for transferring lands to the states can be achieved simply by changing the incentives that face federal managers. In other words, why fight two battles--one over whether to transfer and one over any strings attached to the transfer--when the same results, including savings to taxpayers, can be accomplished by focusing on just the strings--that is, on giving managers good incentives?

    What kind of incentives are good ones? The temptation is to turn federal land agencies into nonprofit organizations, similar to many state fish & wildlife agencies. But such organizations suffer from two major problems.

    First, they are tempted to set fees based on cost-recovery, not on fair market value. This underprices many resources and leads users to want more than is available. The second problem is that, when such an agency does earn a profit from some resources, it will tend to use that profit to cross-subsidize overdevelopment of some other resource.

    These problems can both be solved by treating public lands as profit centers. Public land management will be at its best if Congress insists that managers fund themselves out of their own net income and return some money to the Treasury.

    State lands provide resources that are valuable to many and important lessons for everyone interested in public land management. But the most important lesson is that there is nothing magical about state management; the magic is in the incentives given to users and managers.

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