Misincentives: The K-V Connection

Several important laws give national forest managers incentives to lose money on environmentally destructive activities. The most important is the Knutson-Vandenberg (K-V) Act of 1930, which allowed forest managers to keep an unlimited share of timber receipts to spend on reforestation.

In 1976, Congress expanded the use of K-V funds to cover any "sale area improvement." The Forest Service interprets this to mean that managers can spend timber receipts on improvements (but not monitoring or maintenance) of timber, wildlife, recreation, range, or other resources within a quarter mile of the cutting units that generated the dollars.

Not surprisingly, many managers keep all timber receipts except for a nominal 50 cents per thousand board feet that agency rules (written in 1930 and not amended since) require they return to the Treasury. Some managers have timber that is so valuable they can't find ways to spend it all within a quarter mile of the sales. As one manager told Different Drummer, the surplus money is "lost--it goes to the U.S. Treasury."

In effect, a sale that makes money for the Treasury is a loss for managers; a sale that loses money for the Treasury is a gain for managers. The bigger the losses for the Treasury, the bigger the gains for the managers.

Several other laws add to the misincentives. In 1976, Congress allowed the Forest Service to keep all receipts from timber salvage sales to spend on more salvage sales. Since many salvage sale costs are still paid out of tax dollars, such sales represent a dead loss to the Treasury. A 1916 law allows managers to spend timber receipts on prescribed burning, but only in areas that have been cut--thus discouraging prescribed burning outside of timber sale areas.

A 1978 law allows range managers to keep half of grazing fees for "range improvements." At best, such improvements allow temporary increases in below-cost grazing.

In contrast, recreation managers are not allowed to charge fees for most recreation, and they aren't allowed to keep most of the fees that they can charge. In 1993, Congress allowed managers to keep 15 percent of some recreation fees--but only to spend on fee collection. The result is that forest managers have powerful incentives to sell timber and to maintain livestock grazing, but negligible incentives to emphasize recreation, wildlife, or other amenities.

In addition, Congress gives a quarter of nearly all forest receipts to local governments. Since most of those receipts come from timber, local officials have a powerful incentive to push for commodity production.

Commodities make better pork than recreation, so Congress has a natural bias. Yet it is not clear that these perverse incentives are intentional. Instead, Congress just seems to freely hand out receipts to agencies or special interests (such as local governments), apparently on the theory that taxpayers won't notice funding out of receipts as much as they would notice funding out of tax dollars.

In reality, of course, taxpayers lose either way. But the misincentives created by Congressional budgeting encourage managers to vastly increase the losses from national forest timber and grazing.

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