Forest Service Receipt-Sharing Payments: Proposals for Change

Order Code RS20178

Updated April 26, 2000

CRS Report for Congress

Received through the CRS Web

Forest Service Receipt-Sharing Payments:

Proposals for Change

Ross W. Gorte

Natural Resource Economist and Policy Specialist

Resources, Science, and Industry Division

Summary

In lieu of property taxes, the Forest Service generally shares 25% of receipts from

the sale, lease, rental, or other use of the national forests to the states for use on roads

and schools in the counties where the national forests are located. Some interests are

concerned about the equity and stability of the payments, especially with the decline in

timber sales over the past decade, and about the incentives of the current system. Bills

have been introduced to modify the current system; one passed the House in 1999, and

another has been ordered reported by the Senate Energy Committee. This report will be

updated to reflect legislative action.

Current Forest Service Program

Since 1908, the Forest Service (FS) has shared 25% of its receipts from the sale,

lease, rental, or other fees for using the national forests to be used for roads and schools

in the counties where the national forests are located.1 This receipt-sharing was enacted

to compensate local governments for the tax-exempt status of the national forests, but the

compensation rate (25%) was not discussed in the congressional floor debate over the

measure. This program is called FS Payments to States, because the states allocate the

funds to road and school programs, although the FS determines each county's payment

based on national forest acreage in each county. (The states cannot retain the funds; they

are to be passed through to local governments). These 25% payments are permanently

appropriated from the National Forest Fund (an account used to collect receipts).

Congress has twice expanded the definition of receipts. Originally, the agency paid

25% of stumpage (timber) fees, grazing fees, and other charges on users. In the 1970s,

the counties argued that agency decisions to allocate timber receipts to the Knutson-

1

Department of Agriculture Appropriations Act for FY1909. Act of May 23, 1908; ch. 192; 6th

unnumbered paragraph under “Forest Service.” The Weeks Law (Act of March 1, 1911; ch. 186)

contains an identical provision for acquired lands. Both are codified at 16 U.S.C. 500.

Congressional Research Service ˜ The Library of Congress

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Vandenberg (K-V) Fund (primarily for reforestation) and to finance road construction with

purchaser credits were discretionary, and were unfairly reducing receipts for sharing with

the counties.2 Congress agreed, and in the National Forest Management Act of 1976

(NFMA; P.L. 94-588) defined “gross receipts” to include K-V Fund deposits and timber

purchaser credits. In the Continuing Resolution for FY1988 (P.L. 100-202, 101 Stat.

1329), Congress directed that deposits to the Salvage Sale Fund be counted as receipts,

because timber salvage following large forest fires in California and Oregon would have

eliminated the payments in these areas for a year or more. (As authorized in NFMA,

Salvage Fund deposits were excluded from receipt-sharing.3) Similar provisions were

contained in the subsequent annual appropriations acts, until it was permanently enacted

in the Interior Appropriations Act for FY1993 (P.L. 102-381, 106 Stat. 1374).

The FS has four other county compensation programs. The largest is the Payments

to Counties for National Grasslands (7 U.S.C. 1012), which provides 25% of net (rather

than gross) receipts for roads and schools directly to the counties where the grasslands are

located. In 1948, Congress enacted a payment for three counties in northern Minnesota

of 3/4 of 1% of the appraised value of the land, without restrictions on how to use the

money (ch. 593, 62 Stat. 570). In 1988, Congress established the Quinault Special

Management Area, and directed the FS to share 45% of timber sale receipts with the

Quinault Indian Tribe and 45% with the State of Washington — 90% in total, with the

remaining 10% to cover agency timber sale costs (P.L. 100-638, 102 Stat. 3327). Also

in 1988, Congress directed the FS to sell quartz from the Ouachita NF as common variety

mineral materials (rather than being available under the 1872 General Mining Law), with

50% of the receipts to the State of Arkansas for roads and schools in the counties with

Ouachita NF lands (§423, Interior Appropriations Act for FY1989; P.L. 100-446, 102

Stat. 1774).

In 1993, President Clinton proposed a 10-year program to address regional economic

problems resulting from efforts to protect northern spotted owls and other values that

reduced federal timber harvests in the Pacific Northwest.4 Congress enacted this program

in §13982 of the 1993 Omnibus Budget Reconciliation Act (P.L. 103-66, 107 Stat. 681).

These “spotted owl” payments began in 1994 at 85% of average FY1986-1990 payments,

declining by 3 percentage points annually, to 58% in 2003; from FY1999-2003, however,

the payment is the higher of either this formula or the standard 25% payment.

Congress created another program for compensating counties for the tax-exempt

status of federal lands in the Payments in Lieu of Taxes (PILT) Act of 1976 (P.L. 94-565,

31 U.S.C. 6901-6907). PILT, administered by the Bureau of Land Management (BLM),

provides a fixed payment per acre of “entitlement” lands, including national forests. PILT

payments are to be reduced by receipt-sharing payments to counties, although there is a

minimum payment per acre. However, some states pass their FS payment through to some

other (non-county) local governmental entity (e.g., a road maintenance district), and thus

2

These programs are described more fully in CRS Report 97-14 ENR, The Forest Service Budget:

Trust Funds and Special Accounts, at pp. 29-31 and 40-41, respectively.

3

Ibid., pp. 22-23.

4

See CRS Report 93-664 ENR, The Clinton Administration’s Forest Plan for the Pacific

Northwest.

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avoid the PILT reduction for payments to counties. One other difference is that PILT

requires annual appropriations from Congress (all the FS payments are permanently

appropriated), and the appropriations for PILT have increased much more slowly than the

authorized payments.5

BLM Payment Program

The BLM has numerous programs enacted to share receipts from various types of

resource uses and from various classes of land. One program accounts for the majority

of BLM receipt-sharing payments — counties in western Oregon containing the revested

O&C lands (Oregon & California Railroad grant lands returned to federal ownership for

failure to fulfill the terms of the grant) receive 50% of receipts from using the lands and

resources. Concerns about FS receipt-sharing payments also generally apply to the O&C

payments, because both are substantial payments derived from timber sale revenues.

Proposals to alter FS payments also often include the O&C payments; for example, the

O&C payments were temporarily set at a declining percentage of their average historic

level in the Omnibus Budget Reconciliation Act of 1993, as was done with the FS “spotted

owl” payments.

Payment Issues

Several concerns have been expressed about FS and O&C compensation. Three

particular concerns have become manifest: the equity of the payments; the stability of the

payments; and the incentives resulting from the current system.

Payment Equity. Various groups have expressed concerns about the fairness or

adequacy of the revenue-sharing payments to local governments. In 1978, the Advisory

Commission on Intergovernmental Relations examined the issue, particularly whether

federal lands reduced the local tax base or imposed additional costs, and concluded that

the pre-PILT "compensation, based on receipt sharing, was generally adequate to offset

any adverse effect of federal land ownership ..."6

While average compensation may be adequate, other studies have suggested that FS

payments differ from taxes on privately owned timberlands. A 1985 FS study compared

25% payments plus PILT with state and local tax rates for 40 counties in 8 states scattered

across the country.7 The report showed that a private landowner in Michigan would have

paid much more than the federal government did, while in California, Louisiana, Oregon,

and Washington the federal payments were higher than a private landowner would have

paid. The payments in Colorado differed little, while Georgia and Idaho had some higher

5

PILT is a very complicated program. For a discussion of PILT operations and issues, see CRS

Report 98-574 ENR, PILT (Payments in Lieu of Taxes): Somewhat Simplified.

6

Advisory Commission on Intergovernmental Relations. The Adequacy of Federal Compensation

to Local Governments for Tax Exempt Federal Lands. Report A-68. Washington, DC: U.S.

Govt. Print. Off., July 1978. p. 5. (Hereafter referred to as Adequacy of Compensation.)

7

Anne E. Huebner, Clifford A. Hickman, and H. Fred Kaiser. A Tax Equivalency Study on

National Forest System Lands in the United States. FS-396. Washington, DC: USDA Forest

Service, Dec. 1985. 50 pp.

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private landowner payments and some higher federal payments. This report also noted

that state yield taxes on timber (ranging from 21/4% to 61/2%) were also being paid on FS

timber harvests in California, Louisiana, and Washington.

Payment Stability. More recently, the counties have expressed concerns about

declining FS payments. The national forest receipts subject to sharing declined to $557

million in 1998 from the peak of $1.44 billion in 1989; O&C receipts declined to $51

million in 1998 from the peak of $235 million in 1989. These drops are due largely to the

decline in timber sales volume and value. The decline in timber sales from the O&C lands

and national forests in the Pacific Northwest prompted the special “owl” payment

program, but the timber sale program has declined in all FS regions in the past decade.

Another concern has been the fluctuations in payments. As noted, timber has been

the principal source of receipts. The FS determines the volume of timber offered for sale

in any given year, but not all offered sales are bought (reflecting economic conditions), and

purchasers adjust the rate and timing of their harvests to meet the economic situation.

Thus, harvests (and receipts) fluctuate according to the condition of the economy. For

example, in FY1982, FS receipts fell substantially (by $384 million, or 42%) from FY

1981, because of a recession. This decline led to a 42% decline in FY1983 FS receiptsharing payments (because of the lag between receipts and payments) — a significant

burden on counties that were already under stress from the general decline in markets for

wood and other products.

In 1978, the Advisory Commission on Intergovernmental Relations concluded that

the significant annual fluctuations in receipt-sharing payments “inhibits orderly budget

planning” for the counties, and recommended that Congress alter the payment formula to

use a “several-year moving average of the several factors in the National Forest receipt

sharing formula.”8 A bill to effect such a change was introduced in the 103rd Congress, but

was not enacted.

Perverse Incentives? Several authors have described the county incentives that

result from FS receipt-sharing.9 Because the timber programs account for the majority of

FS receipts, critics argue that counties are rewarded for advocating timber sales and

opposing management that reduces or prevents timber sales (e.g., protecting sport and

commercial fish harvests or designating wilderness areas).10 Thus, counties have often

allied themselves with the timber industry, and have opposed environmental groups, in

debates over FS management and budget.

8

Adequacy of Compensation, p. 10.

9

See: U.S. Congress, Office of Technology Assessment. Forest Service Planning: Accommodating Uses, Producing Outputs, and Sustaining Ecosystems. OTA-F-505. Washington, DC:

U.S. Govt. Print. Off., Feb. 1992. pp. 26-27, 151. (Hereafter referred to as OTA, FS Planning.)

10

V. Alaric Sample. The Impact of the Federal Budget Process on National Forest Planning.

New York, NY: Greenwood Press, 1990. pp. 220-221.

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Legislation to Change the System

Numerous proposals to alter the system for compensating the counties for the tax

exempt status of the national forests have been suggested over the years. Agriculture

Assistant Secretary John Crowell suggested tax equivalency (with a floor to “guarantee”

payments) to replace receipt-sharing in 1984. The counties argued that the proposal was

intended to reduce the payments, and the budget request included $40.5 million in savings

from the change.11 The FY1986 budget proposed to change the 25% sharing to net

receipts (after deducting agency administrative costs), thereby saving $207.4 million.12 A

bill in the 103rd Congress would have allowed the counties to receive the higher of a 5-year

moving average of payments or the current year’s 25% for their payments. In 1992, the

Office of Technology Assessment recognized the problems with the current system, and

stated that: “Congress could replace the current program of returning 25 percent of gross

Forest Service receipts with a system to compensate counties fairly for the tax exempt

status of Federal lands and activities.”13

The Administration, in its FY1999 budget request, announced that it would propose

a bill “to stabilize the payments.” The proposed bill would have directed annual payments

either at the FY1997 payment or at 76% of the average payments for FY1986-FY1990,

to be made from “any funds in the Treasury not otherwise appropriated,” but the bill was

not introduced. The FY2000 budget request also announced a legislative proposal to

stabilize receipt-sharing payments.

The National Association of Counties (NACo) also has a proposal that would

compensate the counties with the greater of the 25% payment or a “replacement” payment

— based on the average of the three highest consecutive years’ payments for FY1986FY1995, indexed for inflation.14 In addition, the proposal would provide "a long term

solution ... to allow for the appropriate, sustainable, and environmentally sensitive removal

of timber from the National Forests” by establishing local advisory councils.

H.R. 1185 (DeFazio). The Timber-Dependent County Stabilization Act of 1999.

For FY2000-FY2004, states with FS lands and counties with O&C lands would receive

a special payment of 76% of the average of the three highest payments between FY1986

and FY1995, indexed for inflation. For FY2005 and all subsequent years, each state or

O&C county would choose between the special payment and the standard 25% or 50%

receipt-sharing before the end of FY2004 (i.e., a one-time choice). No source of funds

is identified for the special payments.

11

U.S. Congress, House, Committee on Appropriations. Department of the Interior and Related

Agencies Appropriations for FY1985. Hearings: Part 2, Justification of Budget Estimates.

Washington, DC: U.S. Govt. Print. Off., 1984. p. 1453.

12

U.S. Congress, House, Committee on Appropriations. Department of the Interior and Related

Agencies Appropriations for FY1986. Hearings: Part 2, Justification of Budget Estimates.

Washington, DC: U.S. Govt. Print. Off., 1985. p. 1379.

13

OTA, FS Planning, p. 26.

14

National Association of Counties. NACo RESOLUTION in Support of a Forest Counties

“Safety Net.” Washington, DC: April 21, 1999. The bill would provide a similar payment for

certain counties in Oregon that currently receive 50% of BLM receipts.

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H.R. 2389 (Deal, et al.). The County Schools Funding Revitalization Act of 1999.

The bill was reported by the House Agriculture Committee on October 18 (H. Rept. 106392), and passed by the House on November 3. Under the bill as passed, for FY2000FY2006, full payment would be 100% of the average of the three highest payments

between FY1984 and FY1999, indexed for inflation; states with FS lands and counties

with O&C lands would receive the higher of the full payment or the standard 25% or 50%

receipt-sharing. However, the additional funds needed to achieve the full payment would

require annual appropriations by Congress. The FS payments to the states would be

allocated to counties based on the average allocation for FY1984-FY1999. In addition,

20% of the payment (for counties receiving more than $100,000) would be required to be

spent on projects on the federal lands; the projects would be nominated by the eligible

counties, recommended by local advisory committees, in compliance with all applicable

environmental laws and resource management plans, and approved by the appropriate

Secretary. Finally, the bill would also create an advisory Forest Counties Payments

Committee, composed of three Administration officials, two local elected officials, and

two school officials, to make long-term recommendations to maximize payments from

receipts and to ensure sustainable forest management.

H.R. 2868 (DeFazio, et al.). Beginning in FY2000, counties with O&C lands and

states with FS lands would receive a guaranteed payment of 100% of either the average

of the three highest payments between FY1986 and FY1999 or the FY1998 payment, with

either indexed for inflation. No source of funds is identified for the guaranteed payments.

S. 1608 (Wyden, et al.). Secure Rural Schools and Community Self-Determination

Act of 1999. The Senate Committee on Energy and Natural Resources reported the bill

on April 25, 2000 (S.Rept. 106-275). Counties with FS or O&C lands could choose,

every two years, to receive either the standard receipt-sharing payment or a “full payment”

of 100% of the average of the three highest payments between FY1984 and FY1999,

indexed for inflation. Additional funds to achieve the full payment would be permanently

appropriated, and would come first from agency receipts (excluding deposits to trust funds

and special accounts) and then from “any funds in the Treasury not otherwise

appropriated,” as determined by the Treasury Secretary (i.e., from the General Fund of the

Treasury). Except for counties receiving less than $100,000 annually, 15–20% must be

spent on special projects on federal lands; the projects would be proposed by local

resource advisory committees and approved by the appropriate Secretary if the proposal

met the specified criteria (including compliance with all applicable laws and regulations and

with resource management and other plans). The local advisory committees would be

composed of 15 members representing three categories of local interests — users and

development proponents; environmental and other protection advocates; and local

governmental interests — with project approval requiring a majority from each of the three

groups. Funding for the projects would come from the 15–20% of county payments

reserved by each county or from a special account for each federal agency, funded from

15% of the county payments for counties choosing not to reserve funds themselves and

from any revenues generated by the projects, and spent based on priorities established by

the Secretaries.