Endowing Federal Public Land Counties

Reforming county payments by establishing a permanent Trust to fund Secure Rural Schools (SRS).

  • County payments—made to compensate local governments for non-taxable federal lands—paid more than $750 million in 2015 through Payments in Lieu of Taxes (PILT) and the Secure Rural Schools and Community Self-Determination Act (SRS).
  • The current system—revenue-sharing payments and discretionary appropriations from Congress—has failed to provide predictable and fair compensation to counties.
  • This failure has exacerbated fiscal crises in rural communities and left them unprepared to meet the economic challenges and opportunities facing federal land counties in the 21st-century economy.
  • Establishing an endowment by creating a permanent Trust would provide predictable funding without the need for continued congressional appropriations, and with flexibility to address the economic development needs of federal land counties.

History of County Payments

This paper, in review with the Humboldt Journal of Social Relations, discusses long-term problems with the county payment programs and proposes building an endowment for federal public land counties by creating a permanent Trust.

Federal land management agencies, including the U.S. Forest Service and Bureau of Land Management (BLM), make payments to local governments to compensate for the non-taxable status of federal public lands. The original “county payments” program began in 1908 and paid an estimated $4.9 million (in 2015 dollars) to local governments based the value of commercial activities on federal lands, primarily timber harvesting (County Payments 1.0).

As the timeline below shows, Congress added programs to address the shortcomings of revenue sharing payments–including fairness and predictability–by adding PILT in 1976 (County Payments 2.0); and the changing economy and land management priorities with a variety of “transition payments” between 1990 and 2015 (County Payments 3.0).

By 2015, county payments were made to nearly 2,000 local governments in 52 U.S. states and territories totaling more than $750 million largely from three county payment programs—revenue sharing payments, Payments in Lieu of Taxes (PILT), and the Secure Rural Schools and Community Self-Determination Act (SRS).

County Payments Are Under Threat

More recently, the President’s FY 2018 proposed budget would not extend SRS—ending transition payments—and would limit appropriations for PILT. If this budget proposal is accepted by Congress, overall county payments would decline by $304 million (39 percent) compared to FY 2015 (the last year SRS was paid).

Some rural western counties would see their payments fall by as much as 97 percent. The proposal also would return the inequity, uncertainty, and perverse incentives inherent to revenue sharing payments that transition payments sought to address.

Why Are County Payments Important?

County payments make up a significant share of total governmental revenue in many rural communities and therefore play a leading role in economic development and community well-being in these places.

The current county payment programs often do not address the many economic challenges facing rural communities.

For example, the original revenue sharing policy did not anticipate the major changes in the volume and types of activities on federal lands–and federal lands changing contribution to rural economies—that have evolved over the past century leading to unequal compensation among counties, uncertain payments from year to year.

The U.S. economy’s shift away from employment in manufacturing and natural resources to new services activities have changed and expanded economic opportunities related to federal public lands. The changing economy also has increased the economic importance of critical rural institutions, such as education, infrastructure, health and social services, and other public amenities provided by local governments.

County governments are playing an increasing role in economic development, public-private partnerships, and services. These changes increase the importance of county payments that are fair, predictable, and decoupled from commodity receipts that undervalue and too narrowly constrain economic opportunities related to federal lands.

Policy Solution: Endowing Federal Public Land Counties

Headwaters Economics has studied a variety of solutions, including a proposal described here to form a permanent natural resources Trust—County Payments 4.0. A long-term county payments solution must address two fundamental concerns: the economic challenges and opportunities for counties with federal public lands in the 21st century economy, and the problems of uncertainty, fairness, and incentives generated by previous county payment policies.

A permanent Trust has several advantages in concept. First, it still utilizes receipts to fund county payments, but stabilizes these revenues over time to guarantee predictable and increasing payments year over year.

Second, the trust would not require discretionary appropriations from Congress after the endowment grows to a size sufficient to meet payment obligations.

Third, decoupling county payments from annual commercial receipts would allow forest management reform to move forward with a focus on management strategies intended to restore forest health and on economic development strategies sensitive to the varied needs of different types of public land counties.

How a Permanent Trust Would Work

Revenue
The Trust would be funded with receipts already dedicated to county payments, including the Forest Service 25% Fund receipts and BLM O&C 50% Revenue Sharing receipts.
Congress also could make discretionary appropriations from other revenue sources to capitalize the Trust more quickly. For example, there is precedent for allocating revenue from tariff or settlement revenue related to Canadian softwood imports to the U.S. into a permanent fund that benefits public land counties.

Investing Funds to Earn Income
The principal balance of the Trust would be held in perpetuity and invested to earn income. To ensure the Trust is held in perpetuity, Congress would authorize an independent entity to establish and manage the Trust. Congress could charter a new organization, as it did when it created the U.S. Endowment for Forestry and Communities. Congress also could authorize an existing organization—for example, the National Forest Foundation, a congressionally chartered nonprofit partner organization to the U.S. Forest Service.

Benefits to Counties
Federal land counties would be the beneficiaries of the Trust. The investment strategy would seek to achieve a five percent real rate of return, and would distribute no more than five percent of the ending fund balance (or total market value of the Trust) in each fiscal year. Limiting distributions to the average real rate of return on the investment will inflation-proof the Trust and ensure it will provide stable and predictable payments in perpetuity.

Replacing Appropriations
The Trust would take some time to grow and make distributions equal to existing revenue-sharing payments or recent SRS payments. In the interim, Congress would extend appropriations that fund SRS. Over time, as distributions from the Trust increase in size, the cost of appropriations would decrease until they reach zero. After than point, county payments would increase year over year in perpetuity.