MANAGING PUBLIC LANDS: Rekindling the Privatization Fires

Would private ownership of land use rights--either by commercial companies or nonprofit environmental groups--do a better job than the Federal government currently does?

AMERICANS have entrusted the National Park Service, U.S. Forest Service, and Bureau of Land Management (BLM) with some of the most treasured and highest-valued land in the U.S. Approximately 628,000,000 acres, or more than one-third of the nation's land area, is owned by the Federal government. Since 1960, over 30,000,000 acres, an area the size of Florida, have been added to the Federal estate.

Public land management, however, does not always deliver what the citizens expect, either for the treasury or the environment. In Fiscal Year 1996, the three main land management agencies lost more than $2,000,000,000. Interestingly, losses from recreational activities on the Federal estate often exceed those from commodity production, especially if the National Park Service is included. Moreover, these losses came from lands valued at $150,000,000,000 in 1995.

Perhaps the pain of such large losses would be lessened if public lands were in a state of ecological health, but perverse economic incentives also lead to perverse ecological incentives. A General Accounting Office inquiry into U.S. Forest Service and BLM planning found the agencies are not meeting objectives for sustaining wildlife. It also revealed that 60% of the BLM's grazing allotments were in less than satisfactory condition due to overgrazing and that the agency was doing nothing to correct the situation. Nearly 40,000,000 acres of forest land are at risk of catastrophic wildfire.

In his book, The National Parks Compromised, former director of the National Park Services James Ridenour maintains that "The government has just not taken care of these beautiful treasures." Writing in National Geographic, John G. Mitchell said, "Parks were created `for the enjoyment of future generations.' For many, that ... promise is eroding."

Given the economic and environmental costs of operating the Federal estate, the time has come to consider seriously proposals for improving management, including privatization. Private ownership offers an alternative to business as usual in Washington by getting the incentives right for both the treasury and the environment. Privately owned forests and grazing lands cannot and do not operate year to year in the red. Privately owned (and even state-owned) parks raise revenues sufficient to maintain them and produce a profit. There is growing evidence that "enviro-capitalists" can produce environmental amenities, especially if they do not have to compete with below-cost public substitutes.

If divestiture is ever to move forward, a first step would be to develop criteria for evaluating alternative plans. Of the many criteria that might be used, let us examine four:

Allocation to the highest-valued use. Each tract of land or combination of rights to the tract should be allocated to those uses that command the highest value. Thus, land whose value is greatest in timber production alone should not be used for grazing. Similarly, remote wilderness areas for which logging or mining are too costly should be preserved from such uses. These criteria are achieved by a well-defined system of alienable, separable. private property rights, which permit all potential gains from exchange in markets to provide incentives for the allocation and reallocation of land use rights to those functions that are perceived to command the highest value.

Low transaction costs. Given a choice between two divestiture plans, both of which are capable of satisfying the first criterion, the preferred alternative would be the one for which the transaction costs to the participants are lowest.

Broad participation. Since the concern is with resources currently held in the public domain, which in principle belong to all citizens, it is desirable to permit the broadest possible participation in any divestiture proceedings. If public lands belong to all citizens, then all citizens have a legitimate claim to share directly in the realized wealth created by divestiture.

Recognizing existing rights. Variously misguided or now-obsolete public policies may have created de facto partial rights in public lands. For example, grazing permits have been issued by the BLM and the U.S. Forest Service, and many have been renewed or sold, sometimes along with adjoining private land. Consequently, the value of these permits has been capitalized into the price of home-base ranches. These rights must be recognized before privatization can proceed.

The following proposal consists of eight provisions for defining the extent, procedures, and process of divestiture of the public lands. These provisions stem from the objective of satisfying the evaluation criteria outlined above. Although somewhat detailed, they are offered not as a final set of divestiture provisions, but as an effort to encourage discussion on how to deal with public land policy issues that have plagued the republic since its inception.

1. All public lands would be divested over some reasonable, but definite and limited, horizon--say 20, 30, or 40 years. Divestiture would include all BLM, Forest Service, National Park, National Monument, National Recreational Area, continental shelf, deep sea bed, and nonessential military lands over which the Federal or state governments have jurisdictional claim.

2. All such lands would be partitioned into tracts or primary units (e.g., quarter sections) as seems appropriate to the topography and certain classifications of land. Thus, land near urban areas can be divided into relatively small tracts, while very large tracts might be appropriate for the deep sea bed. Similarly, a tract might be defined by certain historical boundaries that would remain intact (e.g., the Grand Canyon or Canyon Lands National Parks).

3. Corresponding to each tract would be a set of distinct, separable deed rights appropriate for it. These, in-turn, could distinguish mineral, oil and gas water, grazing, timber, recreational use, wilderness use, and surface or other rights that are not otherwise specified (e.g., agriculture). Within limits, too much detail is better than not enough. In special cases, certain land-use restrictive covenants could be written permanently into a deed. Thus, the surface rights to the Grand Canyon might be permanently restricted to recreational and wilderness purposes. Alternatively, restrictions could be determined by contractual agreements between surface and subsurface owners. In such cases, for example, the owner of coal rights could not extract coal without a contractual agreement with the owner of surface rights. If the Audubon Society owns the surface rights to a tract, then it can negotiate whatever restrictions it pleases on the development of oil and gas resources, including prohibition of development.

4. Once divested, these tract deed rights would be freely transferable, individually for in any combination, by bequest, sale, assignment, lease, etc. as alienable private property. The purpose of subdividing rights by different land usage is to allow markets to line-tune allocations to tastes and use values. The bidding procedure outlined in provision 8 below will allow deed rights within and across tracts to be packaged in accordance with the willingness to pay expressed by the bids. Alienability of deed rights allows secondary market exchange to repackage tract deed rights in response to changes in information and economic or social conditions.

5. Any individual with a documented historical claim to rights defined by one or more of these deeds would be assigned the appropriate deed(s). Thus, an established holder of BLM or Forest Service grazing rights would be permanently deeded these rights. This prevents rights that have been legitimately acquired and subsequently acted on in the past from being arbitrarily expropriated, and it converts an uncertain and perhaps poorly defined right into a well-defined, certain right. Consequently, it has the effect of changing the users' incentives for husbanding or otherwise maintaining the capital value of the right.

6. All tracts and the deed rights associated with them would be assembled into blocks that would be put up for sale in a sealed-bid auction at regular intervals--say once a year or every six months. The auction should be preceded, well in advance, by an official description of each tract and the corresponding conveyance instruments so that all interested parties can prepare their bids.

7. Bids would not be denominated in money, but in public land share certificates, analogous to no-par-value stock certificates, and each citizen would be granted 10 certificates. They would not be denominated in acres or dollars. These certificates would be issued all at once by the government well in advance of the first land auction and would solely be redeemable for land. These certificates could be freely exchanged, assigned, or bequeathed at any time over the divestiture period. To facilitate a continuous market in these certificates, they could be listed for trading on stock and commodity exchanges, which would then be free to create futures or options markets in public land shares.

8. In the auction, participants would be free to bid on any right or combination of rights for one or more tracts. They might bid for all the deed rights for a given tract, only the surface rights, just the oil and gas rights, or for some combination of these. The winning bidders would be the ones that maximize the value of the block of land. For example, if a particular combination of rights--say for logging and/or grazing--were more valuable in combination than separated, the highest combination bid would win over the sum of the highest separate bids.

The above proposal would recognize each citizen's right to share in the wealth created by privatizing the public lands. Individuals without competence or interest in the productive use of any of the auctioned rights would be free to sell their initial assignment of share certificates in the open market. Oil, forest product, and outdoor recreation companies, as well as home builders, ranchers, farmers, private individuals, environmentalists, and environmental organizations, would be free to purchase share certificates or receive them through a donation or bequest.

Ecological groups --such as the Sierra Club, Friends of the Earth, and the Audubon Society--instead of dissipating their resources in political action and lobbying for conservationist policies on public lands, could purchase certificates in the open market and accept certificate donations from members and others. The certificates could be pooled and used to bid for the surface or other rights to any tracts they want to manage. Similarly, oil or timber companies could bid for these resource rights only or in combination with surface rights. By awarding rights singly or in combinations to those uses that command the highest willingness to pay, the auction market would determine the most efficient way, initially, to separate or combine land-use rights. As new information or conditions affecting land-use potential became available, secondary exchange could recombine or further subdivide combinations of land-use rights.

Potential models for the ownership and management of amenity resources are provided by private organizations such as The Nature Conservancy and the direct preservation programs of the National Audubon Society. What special provisions, if any, should the divestiture plan make for Grand Canyon and similar national parks, monuments, forests, and wilderness areas? One possibility would be to specify no restrictions at all, except perhaps to define tract size for surface rights as consisting of the current boundaries for some parcels. A more palatable alternative, however, would be just to allow "qualified" environmental organizations to bid on the surface rights to the national parks and wilderness areas. In addition, restrictive covenants could be employed to limit the uses of national park or wilderness lands. Thus, surface rights could be restricted to scenic or wilderness uses, suitably defined, as is now done in private deeds.

Principal features

This divestiture proposal is characterized by the following principal features:

* It is "fair" in the sense that all citizens would share equally in the value of the 628,000,000 acres of public land that would be capitalized into the market price of land share certificates, and all would benefit from the productive opportunities created by divestiture.

* Property rights would be defined by deeds to the various functional uses of unit tracts of land. The size of ownership parcels and the manner in which use rights to the land are combined into packages of ownership rights would be determined by the market in the primary sealed-bid auction and subsequently by exchanges that could separate or repackage tracts and rights in response to changing information and economic conditions.

* The expropriation of rights already recognized by the government would be avoided by deed assignment to those individuals. The bidding mechanism provides an incentive for combination bids to express the maximum subjective value of individuals. The effect is to maximize allocative efficiency.

* The proposal provides opportunities and incentives for environmentalists and their organizations to participate directly in the ownership and management of amenity resources by bidding for the surface rights to park and wilderness lands.

Many individuals and groups may oppose the divestiture of public lands because they believe that only the government can be trusted to preserve and beautify them. Other individuals and groups may oppose divestiture, even though they strongly disapprove of public land management policies, because they hope to change those policies. Both views are naive in their perception of the reality of public land management and the efficacy of resource allocation and management by political processes. It is time to get beyond superficial market failure theorems that ignore the role of property rights and institutions in a market economy. For environmentalists, it is time to stop equating the government with the proper land stewardship resource protection. It is also important to realize that the public management of lands, which is subjected to a spectrum of conflicting political interests, creates common property-like incentives to overgraze grassland, overcut some forests (but undercut others), overcrowd many parks, etc. This proposal should depoliticize land use decisions and force owners to consider carefully the trade-offs involved with alternative uses. As a result, there should be less acrimony over land uses and more cooperation between those who value the lands differently.

Terry L. Anderson is executive director, Political Economy Research Center, Bozeman, Mont., and a senior fellow of the Hoover Institution, Stanford (Calif.) University.

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