oversight

Forest Service: Barriers to and Opportunities for Generating Revenue

Published by the Government Accountability Office on 1999-02-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                    United States General Accounting Office

GAO                 Testimony
                    Before the Subcommittee on Interior and Related
                    Agencies, Committee on Appropriations, House of
                    Representatives


For Release
on Delivery
Expected at
                    FOREST SERVICE
10 a.m. EST
Wednesday
February 10, 1999
                    Barriers to and
                    Opportunities for
                    Generating Revenue
                    Statement of Barry T. Hill, Associate Director,
                    Energy, Resources, and Science Issues,
                    Resources, Community, and Economic
                    Development Division




GAO/T-RCED-99-81
    Mr. Chairman and Members of the Subcommittee:

    We are here today to discuss barriers to and opportunities for generating
    revenue on lands managed by the Department of Agriculture’s Forest
    Service. Our comments are based primarily on two reports that we issued
    within the last year that address this issue.1 In summary, we have found
    the following:

•   Generating revenue is not a mission priority for the Forest Service.
    Increasingly, legislative and administrative decisions and judicial
    interpretations of statutory requirements have required the agency to shift
    its emphasis from uses that generate revenue, such as producing timber, to
    those that do not, such as protecting species and their habitats.
    Furthermore, the Forest Service is required by law to continue providing
    certain goods and services at less than fair market value. Among these are
    most recreation sites that the agency manages directly, hardrock minerals,
    and livestock grazing. Certain legislative provisions also serve as
    disincentives to either increasing revenue or decreasing costs. For
    example, the agency is sometimes allowed to retain and spend a portion of
    the revenue it generates without deducting its costs. Because the costs are
    funded from annual appropriations rather than from the revenue
    generated, the agency does not have an incentive to control costs.
    Moreover, when the Congress has provided the Forest Service with the
    authority to obtain fair market value for certain uses, such as timber,
    resort lodges, private recreational cabins, and oil and gas pipelines, or to
    recover costs for services, such as reviewing and processing special-use
    permit applications, the agency often has not done so. As a result, the
    Forest Service forgoes at least $50 million in revenue annually.
•   Given a financial incentive and the flexibility to explore innovative
    entrepreneurial ideas and more businesslike practices, the Forest Service
    can and will increase revenue. For example, the recreational fee
    demonstration program, first authorized by the Congress in fiscal year
    1996, allows the agency to (1) test new or increased fees at up to 100 sites
    and (2) retain the revenue to help address unmet needs for visitor services,
    repairs and maintenance, and resource management. By allowing the
    agency to retain the fees collected, the Congress created an incentive for
    forest managers to emphasize fee collections. Gross revenue from
    recreational fees on the national forests increased from $10.0 million in
    fiscal year 1996—the last year before the demonstration program was


    1
     Forest Service: Barriers to Generating Revenue or Reducing Costs (GAO/RCED-98-58, Feb. 13,
    1998) and Recreation Fees: Demonstration Fee Program Successful in Raising Revenues but Could Be
    Improved (GAO/RCED-99-7, Nov. 20, 1998).



    Page 1                                                                      GAO/T-RCED-99-81
                         implemented—to $26.3 million in fiscal year 1998, an increase of
                         163 percent.
                     •   The administration plans to forward legislative proposals to the Congress,
                         and the Forest Service is considering other legislative changes, that would
                         allow the agency to collect, retain, and spend more fee revenue. However,
                         allowing forest managers to retain and spend all or a portion of the
                         revenue they collect would involve risks and difficult trade-offs. In
                         particular, the Forest Service is still far from achieving financial and
                         performance accountability and thus cannot accurately account for how it
                         spends money and what it accomplishes with it. Allowing the agency to
                         collect, retain, and spend more of the revenue generated by goods and
                         services on the national forests would also require difficult trade-offs or
                         policy choices between increasing revenue and other values and concerns,
                         such as providing free access to public lands, promoting the economic
                         stability of historic commodity uses, and setting aside additional lands for
                         resource protection and conservation.


                         The low priority assigned to increasing revenue results, in part, from the
The Forest Service       importance or emphasis given to other values and concerns, especially
Lacks Clear              protecting resources and providing goods and services. Language in
Revenue-Generating       federal statutes implies that maximizing revenue should not be the
                         overriding criterion in managing national forests. Moreover, increasingly,
Priorities and           legislative and administrative decisions and judicial interpretations have
Flexibility              required the Forest Service to give priority to non-revenue-generating uses
                         over uses that can and have produced revenue. For example, the
                         Endangered Species Act and other environmental and planning laws and
                         their judicial interpretations limit the agency’s ability to generate revenue,
                         requiring instead that priority be given to protecting species’ diversity and
                         other natural resources, including clean water and clean air. In addition,
                         both the Congress and the administration have increasingly set aside
                         National Forest System lands for conservation—as wilderness, wild and
                         scenic rivers, national monuments, and recreational areas. Only limited
                         revenue-generating uses, such as timber sales and oil and gas leasing, are
                         allowed in some of these areas.

                         When the Forest Service can generate revenue, it is sometimes required to
                         provide goods and services at less than their fair market value. For
                         instance, the fee system for ski areas on national forests, developed by the
                         ski industry and enacted into law in 1996, does not ensure that fees
                         collected from ski areas reflect fair market value. Other legislative
                         decisions not to charge fees for the use of most recreational sites and



                         Page 2                                                        GAO/T-RCED-99-81
areas managed directly by the agency reflect a long-standing philosophy of
free access to public lands. In addition, federal statutes and regulations
have narrowly defined the instances in which the Forest Service can
charge fees for noncommercial recreational activities, such as hunting and
fishing by individuals on national forests, and the agency generally defers
to state laws regulating these activities. As a result, forest managers do not
charge individuals for hunting and fishing on their lands.

Other legislative requirements that limit the generation of revenue from
activities such as hardrock mining and livestock grazing reflect a desire to
promote the economic stability of certain historic commodity uses. For
example, the Mining Law of 1872 was enacted to promote the exploration
and development of domestic mineral resources as well as the settlement
of the western United States. Under the act’s provisions, the federal
government receives no financial compensation for hardrock minerals,
such as gold and silver, extracted from Forest Service and other federal
lands. In contrast, the 11 western states that lease state-owned lands for
mining purposes impose a royalty on minerals extracted from those lands.
Similarly, the formula that the Forest Service uses to charge for grazing
livestock on its lands keeps fees low to promote the economic stability of
western livestock grazing operators with federal permits.

In addition, revenue-retention and revenue-sharing provisions discourage
efforts to control costs. For example, legislation allows the Forest Service
to retain a portion of the revenue it generates from timber sales and
requires the agency to share a portion of that revenue with states and
counties, without deducting its costs. The costs to prepare and administer
the sales are funded primarily from annual appropriations rather than
from the revenue generated by the sales. As a result, neither the agency
nor the states and counties have an incentive to control costs, and the
Forest Service may be encouraged to sell timber at prices that would not
always allow it to recover its costs. From fiscal year 1992 through fiscal
year 1997, the Forest Service spent about $2.5 billion in appropriated funds
and other moneys to prepare and administer timber sales but returned less
than $600 million in timber sale revenue to the General Fund of the U.S.
Treasury.2

When the Congress has given the Forest Service the authority to obtain
fair market value for goods or to recover costs for services, the agency
often has not done so. As a result, forgone revenue has cost taxpayers

2
  Forest Service: Distribution of Timber Sales Receipts, Fiscal Years 1992-94 (GAO/RCED-95-237FS,
Sept. 8, 1995) and Forest Service: Distribution of Timber Sales Receipts, Fiscal Years 1995 Through
1997 (GAO/RCED-99-24, Nov. 12, 1998).



Page 3                                                                           GAO/T-RCED-99-81
                            hundreds of millions of dollars, as the following examples from our prior
                            work show.

                        •   In June 1997, we reported that the sealed bid auction method is
                            significantly and positively related to higher bid premiums on timber sales.
                            However, the Forest Service used oral bids at single-bidder sales rather
                            than sealed bids, resulting in an estimated decrease in timber sale receipts
                            of $56 million from fiscal year 1992 through fiscal year 1996.
                        •   In December 1996, we reported that, in many instances, the Forest Service
                            has not obtained fair market fees for commercial activities on the national
                            forests, including resort lodges, marinas, and guide services, or for special
                            noncommercial uses, such as private recreational cabins and special group
                            events. Fees for such activities are the second largest generator of revenue
                            for the agency, after timber sales. The Forest Service’s fee system, which
                            sets fees for most commercial uses other than ski operations, has not been
                            updated for nearly 30 years and generally limits fees to less than 3 percent
                            of a permittee’s gross revenue. In comparison, fees for similar commercial
                            uses of nearby state-held lands averaged 5 to 15 percent of a permittee’s
                            total revenue.
                        •   In December 1996, we also reported that although the Forest Service has
                            been authorized to recover the costs incurred in reviewing and processing
                            all types of special-use permit applications since as far back as 1952,3 it
                            has not done so. On the basis of information provided by the agency, we
                            estimated that in 1994 the costs to review and process special-use permits
                            were about $13 million.
                        •   In April 1996, we reported that the Forest Service’s fees for rights-of-way
                            for oil and gas pipelines, power lines, and communication lines frequently
                            did not reflect fair market value. Agency officials estimated that in many
                            cases—particularly in high-value areas near major cities—the Forest
                            Service may have been charging as little as 10 percent of the fair market
                            value.


                            The Forest Service’s failure to obtain fair market value for goods or
Given a Financial           recover costs for services when authorized by the Congress results, in
Incentive, the Forest       part, because the agency lacks a financial incentive to do so. One incentive
Service Can and Will        would be to allow the agency to retain and spend the revenue generated to
                            address its unmet needs.
Increase Revenue
                            For example, from the end of World War II through the late 1980s, the
                            Forest Service emphasized timber production on national forests, in part,

                            3
                             Title V of the Independent Offices Appropriation Act of 1952, as amended (31 U.S.C. 9701).



                            Page 4                                                                           GAO/T-RCED-99-81
because a substantial portion of the receipts from timber sales are
distributed into a number of funds and accounts that the agency uses to
finance various activities on a sale area. Even now, many forest managers
have the opportunity to increase their budgets by increasing timber sales.

Conversely, before fiscal year 1996, the Land and Water Conservation Act
of 1965, as amended, required that revenue raised through collections of
recreational fees be deposited in a special U.S. Treasury account. The
funds in this account could become available only through congressional
appropriations and were generally treated as a part of, rather than a
supplement to, the Forest Service’s regular appropriations.

However, in fiscal year 1996, the Congress authorized the fee
demonstration program to test recreational fees as a source of additional
financial resources for the Forest Service and three other federal land
management agencies. The demonstration program legislation allows
these agencies to experiment with new or increased fees at up to 100 sites
per agency. The Congress directed that at least 80 percent of the revenue
collected under the program be spent at the unit collecting the fees. The
remaining 20 percent can be spent at the discretion of each agency. In
essence, the more revenue that a national forest can generate through new
or increased fees, the more it will have to spend on improving conditions
on the forest.

By allowing the agency to retain the fees collected, the Congress created a
powerful incentive for forest managers to emphasize fee collections. Gross
revenue from recreational fees on the national forests increased from
$10.0 million in fiscal year 1996 to $18.3 million in fiscal year 1997, or by 83
percent, and to $26.3 million in fiscal year 1998, or by 163 percent
compared with fiscal year 1996. Five sites each generated over $1 million
in fiscal year 1998 compared with only two sites in fiscal year 1997. Two
sites—the Mount St. Helens National Volcanic Monument on the Gifford
Pinchot National Forest in Washington State and the Enterprise Forest
Project in Southern California—each generated over $2.3 million in fiscal
year 1998.

The legislation also provided an opportunity for the four federal land
management agencies to be creative and innovative in developing and
testing fees by giving them the flexibility to develop a wide range of fee
proposals. As a result, the Forest Service has, among other things,
developed new methods for collecting fees and has experimented with
more businesslike practices, such as peak-period pricing. These practices



Page 5                                                         GAO/T-RCED-99-81
                       can help address visitors’ and resource management needs and can lower
                       operating costs.


                       According to Forest Service officials, the agency is evaluating whether to
Observations on the    issue regulations that would allow forest managers to charge fees to
Need for Legislative   recover their costs to review and process special-use permit applications.
and Other Changes      The administration also plans to forward legislative proposals to the
                       Congress in the near future that would allow the agency to retain and
                       spend all of the revenue generated by fees for commercial filming and
                       photography on the national forests. Other legislative changes being
                       considered by the agency would allow it to retain and spend all or a
                       portion of the (1) revenue generated by fees charged to recover the costs
                       to review and process special-use permit applications and (2) fees
                       collected for resort lodges, marinas, guide services, private recreational
                       cabins, special group events, and other commercial and noncommercial
                       activities on the national forests.

                       On the basis of our work, we offer the following observations on the
                       Forest Service’s ongoing efforts to secure alternative sources of revenue.
                       First, sustained oversight by the Congress will be needed to ensure that
                       the agency maximizes revenue under existing legislative authorities. For
                       instance, according to Forest Service officials, the agency is evaluating
                       whether to issue regulations to allow forest managers to charge fees to
                       recover their costs to review and process special-use permit applications.
                       However, the agency has been authorized by the Congress to recover these
                       costs since 1952 and has twice in the past 12 years developed, but not
                       finalized, draft regulations to implement the authority. According to Forest
                       Service headquarters officials, both times, staff assigned to develop and
                       publish the regulations were reassigned to other higher-priority tasks. As a
                       result, the agency estimates that it forgoes $5 million to $7 million
                       annually.

                       Second, new legislation that would allow the Forest Service to retain and
                       spend more of the revenue generated by fees would provide forest
                       managers with additional incentive to emphasize fee collections. However,
                       providing the agency with this authority at this time would involve risks
                       and difficult trade-offs. In particular, the Forest Service would not be able
                       to accurately account for how it spent the money and what it
                       accomplished with it. While the agency has made progress in recent years,
                       it is still far from achieving financial accountability and possibly a decade




                       Page 6                                                      GAO/T-RCED-99-81
or more away from being fully accountable for its performance.4 Because
of its serious long-standing financial management deficiencies and the
problems it has encountered in implementing its new accounting system,
we recently designated the Forest Service’s financial management as a
high-risk area vulnerable to waste, fraud, abuse, and mismanagement.5

In addition, allowing the Forest Service to retain and spend revenue that is
generally treated as a part of, rather than an addition to, its regular
appropriations would be included under the limits on discretionary
spending imposed by the Budget Enforcement Act, as amended. Allowing
the agency to retain fee revenue—rather than depositing the money in the
General Fund of the Treasury—would also reduce the Congress’s ability to
use these funds for other priorities. Furthermore, while this fee revenue
may be initially earmarked for the Forest Service, nothing would prevent
the Congress from using the revenue to offset, rather than supplement, the
agency’s regular appropriations.

Finally, new legislation being proposed or considered by the Forest
Service is limited to special-use fees and, as such, does not address other
potential sources of revenue. For instance, in a July 1998 report, a team of
Forest Service employees identified steps that the agency should take to
improve the way it conducts its business.6 In addition to recreational and
special-use fees, the team identified the minerals and geology program and
the relicensing of hydroelectric sites on the national forests as the greatest
opportunities for securing alternative sources of revenue. In addition, we
have reported that enacting legislation to impose a royalty on hardrock
minerals extracted from Forest Service and other federal lands could
generate hundreds of millions of dollars in increased revenue.

However, allowing the Forest Service to collect, retain, and spend more of
the revenue generated by goods and services on the national forests would
require difficult policy choices and trade-offs. For example, collecting
recreational fees conflicts with the long-standing philosophy of free access
to public lands. Imposing a royalty on hardrock minerals extracted from
national forests conflicts with the desire to promote the economic stability
of this historic commodity use. And allowing forest managers to retain and
spend revenue from oil and gas leasing and production would give them a

4
 Major Management Challenges and Program Risks: Department of Agriculture (GAO/OCG-99-2,
Jan. 1999) and Forest Service: Lack of Financial and Performance Accountability Has Resulted in
Inefficiency and Waste (GAO/T-RCED-98-135, Mar. 26, 1998).
5
 High-Risk Series: An Update (GAO/HR-99-1, Jan. 1999) and Major Management Challenges and
Program Risks: Department of Agriculture (GAO/OCG-99-2, Jan. 1999).
6
 Project Ponderosa: Report of the Business Action Team, Forest Service (July 29, 1998).


Page 7                                                                          GAO/T-RCED-99-81
           strong financial incentive to lease lands that they might otherwise set
           aside for resource protection or conservation. Therefore, if the Congress
           believes that increasing revenue from the sale or use of natural resources
           should be a mission priority for the Forest Service, it will need to work
           with the agency to identify legislative and other changes that are needed to
           clarify and modify the Congress’s intent and expectations for revenue
           generation relative to ecological, social, and other values and concerns.


           Mr. Chairman, this concludes our prepared statement. We will be pleased
           to respond to any questions that you or Members of the Subcommittee
           may have.




(141274)   Page 8                                                      GAO/T-RCED-99-81
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