Over the first century of our history the privatization of public lands was designed to promote western settlement. Public land policies also generated much need revenue to pay down the national debt, as well as finance current expenditures. Because the federal government relied on a narrow tax base, revenue from the sale of public lands was a major source of finance (Poulson 1981).
Abraham Lincoln’s Homestead Act of 1862 was the culmination of a policy to transfer land to citizens in the private sector. In the 19th century federal policies were designed to transfer land and other resources to citizens and businesses on easier terms. Under the Preemption, Homestead and Timber and Stone Acts land was transferred in 160 acre parcels, provided the recipient was a bona fide settler. From 1781 to 1940 the federal government privatized 792 million acres of land. The federal government also transferred 471 million acres to state governments (Vincent et. al. 2014). The transfer of land from the public domain to the private sector allowed these resources to flow to the highest valued user, and the more efficient allocation of resources was the basis for high and sustained rates of economic growth throughout the 19th century.
In the late 19th and early 20th centuries, under the influence of the Progressive Movement, land policies shifted toward greater ownership and control by the federal government. The National Park Service, the U.S. Forest Service, and the Bureau of Land Management were created to manage land in the public domain. The federal government now owns 640 million acres, almost one third of the land mass of the United States. Most of these lands are in the west; in some states, such as Idaho, Nevada, Oregon, and Utah, more than half of the total land area is owned and managed by the federal government (Vincent et al 2014).
The federal government today faces the same budgetary constraints as that encountered in the 19th century. The revenue generated from taxes and fees is not sufficient to finance current expenditures, and service the growing debt burden. U.S. citizens today resist the increased taxes that would be required to meet these financial obligations, just as they did in the 19th century. Privatization of public lands could generate the savings required to meet at least part of these financial obligations, with revenue from land sales earmarked for debt reduction.
A variety of methods have been proposed for privatizing assets in the public domain. Anderson et al (1999) proposed an innovative auction system for privatizing public lands. Public land share certificates, analogous to no par value stock certificates, would be issued to each citizen. The certificate would be freely exchanged or assigned during the period of divestiture of public lands. This auction plan would assure that resources in the public domain flow to the highest value uses, and that all citizens share in the wealth created through privatization of public lands.
The Anderson et al (1999) proposal for privatization of public lands presupposes a 19th century institutional environment in which large portions of public lands remain unclaimed. Today virtually all of these western lands have been withdrawn and retained to be managed by the federal agencies. Private firms and state governments have contractual agreements with the federal government that govern the use of these federal lands. Simply privatizing the public lands, as Anderson et al propose, would be challenged by the different stakeholder who now benefit from these agreements.
Western states are now demanding the transfer of these lands from the federal government. In 2012, Utah passed H.B. 148 which called for transfer to the state of lands currently managed by the Bureau of Land Management, U.S. Forest Service, U.S. Fish and Wildlife Service, and the National Park Service (H.B. 148 2012). The total amount of land that would be transferred, 31.2 million acres, is almost 90% pf the federal lands in Utah. Exempt from this land transfer are national parks, national monuments, and Indian lands. The proposed land transfer would modify the current contracts with the federal government for royalty revenues, but makes no provision for privatizing the land.
Unfortunately, in the current debt crisis, the federal government cannot afford to simply transfer land in the public domain to either private citizens or the states. The federal government must use the revenue generated from land sales to fund a debt amortization fund and pay down the public debt.
The Grand Bargain that we propose is a hybrid of these competing proposals for the disposition of public lands. A New Homestead Act would return public land policy to the original objective of generating revenue for the federal government to pay down the public debt. The public lands now managed by the National Park Service and National Monuments would be transferred to the states. This downsizing of the federal government and expanded role for private citizens and businesses, and state governments would require new contractual arrangements and institutions.
In the ‘Grand Bargain’ we propose, a new Homestead Law would return land policy to the same objectives as early land policies. While the proposed new Homestead Act could achieve multiple objectives, the primary objective would be debt reduction. To determine the potential for federal asset sales to reduce the national debt requires an inventory of federal assets, and several studies provide such estimates. For example, the Federal Real Property Council (2006) estimated the value of all federal land, buildings, and infrastructure at $1.3 trillion.
One class of property not included in that estimate is the value of oil, natural gas, and coal on federal property. One study estimates the value of these mineral deposits at $55.6 trillion (Shugart and Close 2017). Federal asset sales to pay down the national debt was not part of Trump’s budget proposal, but during his presidential campaign, candidate Trump promised to sell mineral rights and use the proceeds to pay down the debt. He argued this ‘deal’ could make America energy independent (Market Watch 2017).
The new Homestead Act could improve the nation’s finances in several ways. Revenue from land sales would be earmarked for debt reduction. As assets are transferred into the private sector, profit-maximizing owners and entrepreneurs would bid for the resources, ensuring they will be allocated toward their most productive uses. Indeed, we should expect that the privatization of fifty five trillion dollars of in energy resources would be accompanied by a revolution of innovation and technological change in the energy industries. The more efficient allocation of these resources would generate higher levels of income and tax revenues. Higher rates of economic growth will be essential in bringing the debt-to-GDP ratio down to tolerable levels.
Clearly, federal asset sales could play an important role in reducing debt. However, selling federal assets in a discontinuous way could disrupt resource markets. Our proposed new Homestead Law would link such asset sales to debt reduction in the long term. Because federal assets could be sold over many decades, they could be sold at a rate that would not significantly distort resource markets.
Critics will argue that the proposed Homestead Law does not meet a fundamental criterion in privatizing assets in the public domain. This criterion was spelled out by Anderson et al (1999), ‘broad participation in divestiture proceedings’. Since resources in the public domain belong to all citizens, all citizens have a legitimate claim to share in the wealth created by privatization.
This criterion was met in the original Homestead Law as land was sold or granted to individual settlers. Early preemption laws also provided for the revenue from land sales to be distributed to eastern states based on population. Both preemption laws and distribution laws were repealed after the Homestead Act of 1962 was enacted.
The new Homestead Act we propose would actually benefit a broader group of citizens than early land laws. All citizens will share in the current $20 trillion debt and future debts incurred by the federal government. Taxes to finance this public debt will be imposed on future as well as current citizens. Because the revenue generated by auctioning land in the public domain is earmarked for a debt amortization fund, the benefits from reducing this public debt, and reducing the tax burden required to finance the debt, will accrue to all citizens. The most important benefit to all citizens in using this revenue to pay down the public debt is avoiding a financial crisis in which the federal government cannot meet its obligations.