Forest Service Receipt-Sharing Payments: Proposals for Change

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-
1Department 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/ of 1% of the appraised value of the land, without restrictions on how to use the
4
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
2These 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 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
5PILT 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.
6Advisory 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.)
7Anne 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/ % to 61/ %) were also being paid on FS
4
2
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 receipt-
sharing 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.
8Adequacy 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.

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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 FY1986-
FY1995, 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.
11U.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.
12U.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.
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 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. 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 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.