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A new ‘Grand Bargain’ would privatize public lands, and transfer some public lands from the federal government to the states. These public land policies would have a significant impact on federal and state finances.

Privatization of federal land could generate the revenue required to begin reducing federal debt below the debt tolerance level. Earmarking revenue from federal land sales for a debt amortization fund would assure that the money is not used to finance federal spending.

The ‘Grand Bargain’ would transfer the land in National Parks, National Monuments, and Wilderness areas from the federal government to the states. All of the federal agencies that now administer federal lands would be eliminated. These federal agencies administer public lands at a loss each year (Office of the Governor 2014). The revenue received from royalties and fees is not sufficient to cover the costs of administration. Thus, transfer of these public lands to the states would eliminate these losses and reduce the federal deficit.

The privatization of public lands and transfer of public lands to the states would also eliminate a new and costly entitlement program. Over the past century, as larger parts of the public lands were designated for National Forests, National Parks, and National Monuments, the tax base for local governments was reduced. Recognizing the negative impact of this expansion of public lands on local finances, the federal government created a fund to reimburse local jurisdictions for the loss of revenue. In 1976, after years of complaints that federal land holdings reduced their property tax revenues, the federal government passed a law transferring funds to counties to offset the loss of revenue (Carlton 2017). These federal transfers are especially important in Western counties where the federal government may control more than 90% of the land.

The expansion and creation of National Monuments by the Obama administration brought a new round of complaints from local officials. Interior Secretary Zinke responded to these complaints by boosting annual federal transfers to counties to $465 million (Carlton 2017). Transferring these lands to the states would eliminate such transfers, and reduce the federal deficit.

A fundamental condition for solving the debt crisis, is fiscal autonomy for state and local governments. OECD countries that have successfully addressed their debt crisis have done so with fiscal rules that provide the states with tax and expenditure powers independent from the federal government. No-bailout rules preclude their federal government from bailing out state and local governments in periods of fiscal stress (Merrifield and Poulson 2017).

For most of our history state and local governments maintained fiscal autonomy from the federal government. But in recent years state and local governments have become increasingly dependent on intergovernmental transfers from the federal government (Merrifield and Poulson 2017).. The share of federal transfers in total funding for state and local governments has increased significantly. This fiscal dependency increased sharply during the recent financial crisis, as President Obama’s fiscal stimulus provided a silent bailout for many state and local governments.

A priori, one might expect that proposed land policies in the ‘Grand Bargain’would have a negative fiscal impact on state and local governments. In fact these policies could allow state and local governments to restore the fiscal autonomy they enjoyed over most of our history.
Current contracts for leasing oil and gas on public lands provide for a 50/50 split of the revenue between the federal government and the states (Office of the Governor 2014).. Privatization of federal lands would reduce the royalty and fee revenues the states now receive. But if those lands are privatized, this will increase the tax base and tax revenues received by both state and local governments. Higher rates of economic growth that would result from development of these resources would also increase tax revenues for state and local governments.

On public lands transferred from the federal government to the states, the fiscal impact on the states is likely to be a wash. Royalties and fees on those lands would flow to the state government rather than the current 50/50 split with the federal government. The states may also choose to privatize some of these lands, which would generate additional revenue for the states.
The transfer of National Parks, National Monuments, and Wildlife areas from the federal government to the states would shift the costs of managing public lands from the federal government to the states. A recent study for the state of Utah suggests that the fiscal impact of transferring federal lands to that state would generate a modest profit (Office of the Governor 2014). If oil and gas prices are toward the high end of forecasts, the study suggests that the state would receive revenues in excess of the cost to manage the public lands.

The Utah study finds that there are no significant improvements in efficiency with state management of the lands compared to federal management of public lands (Office of the Governor 2014). However, with state management there are likely to be opportunities for more rapid development and more efficient management of public lands. The precedent for improved management of public lands by the states are the land management trusts created to finance education and other state institutions. The track record for the states in managing these trust lands efficiently is good (Office of the Governor 2014).

With state management of public lands there are also likely to be more opportunities for public/private trusts. For example. A private/public trust managing Rocky Mountain National Park could charge fees reflecting the market value of Park access. Concessions in the Park could be leased to private companies at market rates. A private/public trust would have the incentive to maintain and improve the Park to maximize revenues in the long run. The private/public trust could also be designed to improve the environment of the Park in the long term. For years, deer and elk overgrazed the Park, destroying trees and vegetation that beaver depended on. The disappearance of beaver ponds changing the ecology of the land, eliminating habitat for birds and other wildlife,. Part of the private/public trust fees could be dedicated to preserving habitat, protecting endangered species, and protecting the biodiversity of the Park.

DOWNLOAD: Fiscal Autonomy for state governments and Public Land Policy

Fiscal Autonomy for state governments and Public Land Policy

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