Rural counties to lose the most from defunded lands programs

What happens to local budgets when Congress stops these federal payments.

 

For the past several years, funding for the two largest programs that compensate county governments for their federal lands has been in limbo. Payments have shrunk, and one program has been defunded completely. That’s hurting rural communities—especially in the West where the vast majority of public lands exist. In the coming years, lapsed federal funding may also change resource management practices as communities look for new revenue streams.  

Graph by Sarah Tory. Data compiled by Headwaters Economics.

In 1908, the government began giving counties with national forest land a portion of the logging receipts from that land. Those payments evolved into today's Secure Rural Schools and Community Self Determination Act (SRS). The second federal program, Payments in Lieu of Taxes (PILT), helps compensate counties with a high percentage of non-taxable federal land for lost property taxes. The two programs often make up a significant portion of county and school budgets, particularly in rural counties.

PILT, which first passed in 1976, is calculated based on a per-acre fee that’s adjusted annually for inflation. This year it’s $2.58 per acre. The formula also takes into account timber sales, grazing and recreation activity, as well as population, so more populous counties receive more money, up to a point. SRS was established in 2000 to compensate counties for falling timber harvests. The program later changed to include acreage and per capita income. That way, counties would have steady federal payments, regardless of the timber boom and bust, and counties without high-value timber would also receive compensation for federal lands within their borders. 

But the formulas act more like guidelines than requirements, since Congress ultimately decides each year how much to pay counties. As part of Republicans’ longstanding effort to cut funding for federal programs, Congress doesn’t want to continue making those payments. Although PILT is permanently authorized, since 2012 Congress has  funded it only for one year at a time. SRS is even worse off: It’s not permanently authorized, which means it’s more vulnerable to political whims and will expire in October, with no guarantee Congress will re-institute funding.

The uncertainty means that rural counties are stuck in an ongoing funding battle that makes it increasingly difficult to make long-term budget plans. Last year PILT and SRS provided $782 million in federal land payments. Without reauthorization of SRS, that number will fall to $505 million.

Graph by Sarah Tory. Data compiled by Headwaters Economics.

Part of the challenge is that counties with a long history of receiving high federal land payments tend to have created lower local tax rates as a result. And many states have restrictions on how quickly counties can raise taxes to make up for the lost land payments. In Custer County, Idaho, that amounts to a nearly 60 percent decline in the local budget. In Idaho County, Idaho, it’s over 40 percent and in Catron County, New Mexico, it’s over 30.

Some rural counties are already pressuring Forest Service managers toward bigger timber harvests to make up for the lost income. This new reliance on natural resource production will likely make revenue more volatile and less predictable as timber sales ebb and flow with market conditions. And it affects the kinds of economic opportunities available in these places.

For instance, if local governments receive the majority of their land payments from supporting extractive industries, it forecloses a lot of other economic opportunities that these rural areas could develop, says Mark Haggerty, a policy analyst at Headwaters Economics, a Bozeman-based progressive think tank. He thinks the key to successful federal lands payments will be a program that rewards counties for a range of activities on public land that contribute to the economy—from creating new wildernesses to attract tourists, to restoring fisheries and building recreational trails. 

Revamping the payment system could help close the economic gap between places like Gallatin and Beaverton Counties in Montana. Gallatin gets only 2.6 percent of its budget from federal land payments, while in Beaverhead, it’s over 16 percent. As the payment programs currently stand, if SRS isn't authorized for next year, PILT payments will get a boost of $271,000 to offset most of the SRS loss. Beaverhead County, however, will have a tougher time. Because of the population limit in the PILT formula, the county will not be able to recoup the $1.2 million loss in SRS dollars.

Here’s a look at which places will be hit hardest by the expiry of SRS, and PILT, if Congress doesn’t move to fund it again after this year:

Total current federal land payments to counties:

Counties with a lot of public land within their borders typically have high SRS and PILT payments. Traditionally high-value timber areas, like southwest Oregon and central Idaho, receive the most.

Percent of current county budget made up by federal land payments:

Sparsely populated counties that have historically received high payments, for instance southern Oregon, central Idaho and western Montana, rely most heavily on SRS and PILT. For urban counties, the federal land dollars are far less important, since those governments have a larger tax base to draw on.

Projected change in payments to counties if SRS not reauthorized:

Overall, rural counties would lose a disproportionate share of federal land payments, and would feel the effects more acutely.

Sarah Tory is an editorial fellow at HCN. 

Maps courtesy of Headwaters Economics.