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. This report discusses concerns about the equity and stability of Forest Service receipt-sharing payments, especially with the decline in timber sales over the past decade, and about the incentives of the current system

Gorte, Ross W.

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1Department of Agriculture Appropriations Act for FY1909.  Act of May 23, 1908; ch. 192; 6thunnumbered 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 CongressCRS Report for CongressReceived through the CRS WebOrder Code RS20178Updated April 26, 2000Forest Service Receipt-Sharing Payments:Proposals for ChangeRoss W. GorteNatural Resource Economist and Policy SpecialistResources, Science, and Industry DivisionSummaryIn lieu of property taxes, the Forest Service generally shares 25% of receipts fromthe sale, lease, rental, or other use of the national forests to the states for use on roadsand schools in the counties where the national forests are located.  Some interests areconcerned about the equity and stability of the payments, especially with the decline intimber sales over the past decade, and about the incentives of the current system.  Billshave been introduced to modify the current system; one passed the House in 1999, andanother has been ordered reported by the Senate Energy Committee.  This report will beupdated to reflect legislative action.Current Forest Service ProgramSince 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 schoolsin the counties where the national forests are located.1  This receipt-sharing was enactedto compensate local governments for the tax-exempt status of the national forests, but thecompensation rate (25%) was not discussed in the congressional floor debate over themeasure.  This program is called FS Payments to States, because the states allocate thefunds to road and school programs, although the FS determines each county's paymentbased on national forest acreage in each county.  (The states cannot retain the funds; theyare to be passed through to local governments).  These 25% payments are permanentlyappropriated from the National Forest Fund (an account used to collect receipts).Congress has twice expanded the definition of receipts.  Originally, the agency paid25% 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-CRS-22These 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.3Ibid., pp. 22-23.4See CRS Report 93-664 ENR, The Clinton Administration’s Forest Plan for the PacificNorthwest.Vandenberg (K-V) Fund (primarily for reforestation) and to finance road construction withpurchaser credits were discretionary, and were unfairly reducing receipts for sharing withthe 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 timberpurchaser 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 haveeliminated 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 werecontained in the subsequent annual appropriations acts, until it was permanently enactedin 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 Paymentsto Counties for National Grasslands (7 U.S.C. 1012), which provides 25% of net (ratherthan gross) receipts for roads and schools directly to the counties where the grasslands arelocated.  In 1948, Congress enacted a payment for three counties in northern Minnesotaof 3/4 of 1% of the appraised value of the land, without restrictions on how to use themoney (ch. 593, 62 Stat. 570).  In 1988, Congress established the Quinault SpecialManagement Area, and directed the FS to share 45% of timber sale receipts with theQuinault Indian Tribe and 45% with the State of Washington — 90% in total, with theremaining 10% to cover agency timber sale costs (P.L. 100-638, 102 Stat. 3327).  Alsoin 1988, Congress directed the FS to sell quartz from the Ouachita NF as common varietymineral materials (rather than being available under the 1872 General Mining Law), with50% of the receipts to the State of Arkansas for roads and schools in the counties withOuachita NF lands (§423, Interior Appropriations Act for FY1989; P.L. 100-446, 102Stat. 1774).In 1993, President Clinton proposed a 10-year program to address regional economicproblems resulting from efforts to protect northern spotted owls and other values thatreduced federal timber harvests in the Pacific Northwest.4  Congress enacted this programin §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-exemptstatus 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.  PILTpayments are to be reduced by receipt-sharing payments to counties, although there is aminimum payment per acre.  However, some states pass their FS payment through to someother (non-county) local governmental entity (e.g., a road maintenance district), and thusCRS-35PILT is a very complicated program.  For a discussion of PILT operations and issues, see CRSReport 98-574 ENR, PILT (Payments in Lieu of Taxes): Somewhat Simplified.6Advisory Commission on Intergovernmental Relations.  The Adequacy of Federal Compensationto 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.)7Anne E. Huebner, Clifford A. Hickman, and H. Fred Kaiser.  A Tax Equivalency Study onNational Forest System Lands in the United States.  FS-396.  Washington, DC: USDA ForestService, Dec. 1985.  50 pp.avoid the PILT reduction for payments to counties.  One other difference is that PILTrequires annual appropriations from Congress (all the FS payments are permanentlyappropriated), and the appropriations for PILT have increased much more slowly than theauthorized payments.5BLM Payment ProgramThe BLM has numerous programs enacted to share receipts from various types ofresource uses and from various classes of land.  One program accounts for the majorityof BLM receipt-sharing payments — counties in western Oregon containing the revestedO&C lands (Oregon & California Railroad grant lands returned to federal ownership forfailure to fulfill the terms of the grant) receive 50% of receipts from using the lands andresources.  Concerns about FS receipt-sharing payments also generally apply to the O&Cpayments, because both are substantial payments derived from timber sale revenues.Proposals to alter FS payments also often include the O&C payments; for example, theO&C payments were temporarily set at a declining percentage of their average historiclevel in the Omnibus Budget Reconciliation Act of 1993, as was done with the FS “spottedowl” payments.Payment IssuesSeveral concerns have been expressed about FS and O&C compensation.  Threeparticular concerns have become manifest:  the equity of the payments; the stability of thepayments; and the incentives resulting from the current system.Payment Equity.  Various groups have expressed concerns about the fairness oradequacy of the revenue-sharing payments to local governments.  In 1978, the AdvisoryCommission on Intergovernmental Relations examined the issue, particularly whetherfederal lands reduced the local tax base or imposed additional costs, and concluded thatthe pre-PILT "compensation, based on receipt sharing, was generally adequate to offsetany adverse effect of federal land ownership ..."6While average compensation may be adequate, other studies have suggested that FSpayments differ from taxes on privately owned timberlands.  A 1985 FS study compared25% payments plus PILT with state and local tax rates for 40 counties in 8 states scatteredacross the country.7  The report showed that a private landowner in Michigan would havepaid much more than the federal government did, while in California, Louisiana, Oregon,and Washington the federal payments were higher than a private landowner would havepaid.  The payments in Colorado differed little, while Georgia and Idaho had some higherCRS-48Adequacy of Compensation, p. 10.9See:  U.S. Congress, Office of Technology Assessment.  Forest Service Planning: Accommo-dating 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.)10V. Alaric Sample.  The Impact of the Federal Budget Process on National Forest Planning.New York, NY: Greenwood Press, 1990.  pp. 220-221.private landowner payments and some higher federal payments.  This report also notedthat state yield taxes on timber (ranging from 21/4% to 61/2%) were also being paid on FStimber harvests in California, Louisiana, and Washington.Payment Stability.  More recently, the counties have expressed concerns aboutdeclining FS payments.  The national forest receipts subject to sharing declined to $557million in 1998 from the peak of $1.44 billion in 1989; O&C receipts declined to $51million in 1998 from the peak of $235 million in 1989.  These drops are due largely to thedecline in timber sales volume and value.  The decline in timber sales from the O&C landsand national forests in the Pacific Northwest prompted the special “owl” paymentprogram, 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 beenthe principal source of receipts.  The FS determines the volume of timber offered for salein any given year, but not all offered sales are bought (reflecting economic conditions), andpurchasers 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.  Forexample, in FY1982, FS receipts fell substantially (by $384 million, or 42%) from FY1981, because of a recession.  This decline led to a 42% decline in FY1983 FS receipt-sharing payments (because of the lag between receipts and payments) — a significantburden on counties that were already under stress from the general decline in markets forwood and other products.In 1978, the Advisory Commission on Intergovernmental Relations concluded thatthe significant annual fluctuations in receipt-sharing payments “inhibits orderly budgetplanning” for the counties, and recommended that Congress alter the payment formula touse a “several-year moving average of the several factors in the National Forest receiptsharing formula.”8  A bill to effect such a change was introduced in the 103rd Congress, butwas not enacted.Perverse Incentives?  Several authors have described the county incentives thatresult from FS receipt-sharing.9  Because the timber programs account for the majority ofFS receipts, critics argue that counties are rewarded for advocating timber sales andopposing management that reduces or prevents timber sales (e.g., protecting sport andcommercial fish harvests or designating wilderness areas).10  Thus, counties have oftenallied themselves with the timber industry, and have opposed environmental groups, indebates over FS management and budget.CRS-511U.S. Congress, House, Committee on Appropriations.  Department of the Interior and RelatedAgencies Appropriations for FY1985.  Hearings: Part 2, Justification of Budget Estimates.Washington, DC: U.S. Govt. Print. Off., 1984.  p. 1453.12U.S. Congress, House, Committee on Appropriations.  Department of the Interior and RelatedAgencies Appropriations for FY1986.  Hearings: Part 2, Justification of Budget Estimates.Washington, DC: U.S. Govt. Print. Off., 1985.  p. 1379.13OTA, FS Planning, p. 26.14National 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 forcertain counties in Oregon that currently receive 50% of BLM receipts.Legislation to Change the SystemNumerous proposals to alter the system for compensating the counties for the taxexempt status of the national forests have been suggested over the years.  AgricultureAssistant Secretary John Crowell suggested tax equivalency (with a floor to “guarantee”payments) to replace receipt-sharing in 1984.  The counties argued that the proposal wasintended to reduce the payments, and the budget request included $40.5 million in savingsfrom the change.11  The FY1986 budget proposed to change the 25% sharing to netreceipts (after deducting agency administrative costs), thereby saving $207.4 million.12  Abill in the 103rd Congress would have allowed the counties to receive the higher of a 5-yearmoving average of payments or the current year’s 25% for their payments.  In 1992, theOffice of Technology Assessment recognized the problems with the current system, andstated that: “Congress could replace the current program of returning 25 percent of grossForest Service receipts with a system to compensate counties fairly for the tax exemptstatus of Federal lands and activities.”13The Administration, in its FY1999 budget request, announced that it would proposea bill “to stabilize the payments.”  The proposed bill would have directed annual paymentseither 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 wasnot introduced.  The FY2000 budget request also announced a legislative proposal tostabilize receipt-sharing payments.The National Association of Counties (NACo) also has a proposal that wouldcompensate 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 FY1986-FY1995, indexed for inflation.14  In addition, the proposal would provide "a long termsolution ... to allow for the appropriate, sustainable, and environmentally sensitive removalof 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 receivea special payment of 76% of the average of the three highest payments between FY1986and FY1995, indexed for inflation.  For FY2005 and all subsequent years, each state orO&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 fundsis identified for the special payments.CRS-6H.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. 106-392), and passed by the House on November 3.  Under the bill as passed, for FY2000-FY2006, full payment would be 100% of the average of the three highest paymentsbetween FY1984 and FY1999, indexed for inflation; states with FS lands and countieswith 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 wouldrequire annual appropriations by Congress.  The FS payments to the states would beallocated 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 bespent on projects on the federal lands; the projects would be nominated by the eligiblecounties, recommended by local advisory committees, in compliance with all applicableenvironmental laws and resource management plans, and approved by the appropriateSecretary.  Finally, the bill would also create an advisory Forest Counties PaymentsCommittee, composed of three Administration officials, two local elected officials, andtwo school officials, to make long-term recommendations to maximize payments fromreceipts and to ensure sustainable forest management.H.R. 2868 (DeFazio, et al.).  Beginning in FY2000, counties with O&C lands andstates with FS lands would receive a guaranteed payment of 100% of either the averageof the three highest payments between FY1986 and FY1999 or the FY1998 payment, witheither indexed for inflation.  No source of funds is identified for the guaranteed payments.S. 1608 (Wyden, et al.).  Secure Rural Schools and Community Self-DeterminationAct of 1999.  The Senate Committee on Energy and Natural Resources reported the billon 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 permanentlyappropriated, and would come first from agency receipts (excluding deposits to trust fundsand special accounts) and then from “any funds in the Treasury not otherwiseappropriated,” as determined by the Treasury Secretary (i.e., from the General Fund of theTreasury).  Except for counties receiving less than $100,000 annually, 15–20% must bespent on special projects on federal lands; the projects would be proposed by localresource advisory committees and approved by the appropriate Secretary if the proposalmet the specified criteria (including compliance with all applicable laws and regulations andwith resource management and other plans).  The local advisory committees would becomposed of 15 members representing three categories of local interests — users anddevelopment proponents; environmental and other protection advocates; and localgovernmental interests — with project approval requiring a majority from each of the threegroups.  Funding for the projects would come from the 15–20% of county paymentsreserved by each county or from a special account for each federal agency, funded from15% of the county payments for counties choosing not to reserve funds themselves andfrom any revenues generated by the projects, and spent based on priorities established bythe Secretaries.

Forest Service Receipt-Sharing Payments: Proposals for Change

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Forest Service Receipt-Sharing Payments: Proposals for Change

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