Forest Service: Barriers to Generating Revenue or Reducing Costs (Chapter
Report, 02/13/98, GAO/RCED-98-58).

Pursuant to a congressional request, GAO reviewed: (1) the efforts by
nonfederal land managers to generate revenue or become financially
self-sufficient from the sale or use of natural resources on their
lands; and (2) legal and other barriers that may preclude the Forest
Service from implementing similar efforts on its lands.

GAO noted that: (1) the nonfederal land managers whose efforts GAO
reviewed--while not always attaining financial self-sufficiency--are
using a variety of sometimes innovative approaches and techniques to
generate revenue or reduce costs from the sale or use of natural
resources on their lands; (2) none of the approaches or techniques are
legislatively mandated or otherwise required; (3) rather, the land
managers have: (a) usually tailored their efforts to meet either a clear
mission to make a profit over time or an incentive to generate revenue
for other mission-related goals and objectives; and (b) often been
delegated the discretion and flexibility to explore innovative
entrepreneurial ideas or conduct research to increase profits and to
choose where and when to apply the results while being held accountable
for their expenditures and performance; (4) generating revenue and
reducing costs are not mission priorities for the Forest Service; (5) in
keeping with its existing legislative framework, the agency is moving
away from, rather than toward, financial self-sufficiency; (6)
increasingly, legislative and administrative decisions--such as setting
aside an increasing percentage of Forest Service lands for conservation
as wilderness, wild and scenic rivers, and national monuments--and
judicial interpretations of statutory requirements have required the
Forest Service to shift its emphasis from uses that generate revenue to
those that do not; and (7) furthermore: (a) the agency is required to
continue providing certain goods and services--such as recreational
sites, hardrock minerals, and livestock grazing--at less than their fair
market value; and (b) certain congressional expectations and legislative
provisions--including those that require sharing revenue before
deducting the costs of providing the goods or services--serve as
disincentives to either increasing revenue or decreasing costs.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-98-58
     TITLE:  Forest Service: Barriers to Generating Revenue or Reducing 
             Costs
      DATE:  02/13/98
   SUBJECT:  National forests
             Land management
             Natural resources
             Forest management
             Cost control
             Fair market value
             Forest conservation
             Profits
             Public lands
             Agency missions

             
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Cover
================================================================ COVER


Report to the Chairman, Committee on the Budget, House of
Representatives

February 1998

FOREST SERVICE - BARRIERS TO
GENERATING REVENUE OR REDUCING
COSTS

GAO/RCED-98-58

Forest Service

(141003)


Abbreviations
=============================================================== ABBREV

  BIA - Bureau of Indian Affairs
  DLL - Deseret Land and Livestock
  DNR - Washington State Department of Natural Resources
  EBS - Entrepreneurial Budgeting System
  EIS - environmental impact statement
  FWS - Fish and Wildlife Service
  GAO - General Accounting Office
  NEPA - National Environmental Policy Act of 1969
  NFMA - National Forest Management Act of 1976
  OMB - Office of Management and Budget
  RPA - Forest and Rangeland Renewable Resources Planning Act of 1974

Letter
=============================================================== LETTER

RCED

B-278954

February 13, 1998

The Honorable John R.  Kasich
Chairman, Committee on the Budget
House of Representatives

Dear Mr.  Chairman: 

In response to your request, this report discusses (1) the lessons
that can be learned from efforts by nonfederal land managers to
generate revenue and/or become financially self-sufficient from the
sale or use of natural resources on their lands and (2) legal and
other barriers that may preclude the Forest Service from implementing
similar efforts on its lands.  The report contains a matter for
congressional consideration and a recommendation to the Secretary of
Agriculture that would improve the Forest Service's accountability
for obtaining fair market value for goods, recovering costs for
services, and containing expenses. 

As requested, unless you publicly announce its contents earlier, we
plan no further distribution of this report until 10 days after the
date of this letter.  At that time, we will send copies to the
appropriate congressional committees, the Secretary of Agriculture,
and the Chief of the Forest Service.  We will also make copies
available to others upon request. 

Please call me at (202) 512-3841 if you or your staff have any
questions about this report.  Major contributors to this report are
listed in appendix X. 

Sincerely yours,

Victor S.  Rezendes
Director, Energy, Resources,
 and Science Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The Department of Agriculture's Forest Service manages about 192
million acres of land--nearly 9 percent of the nation's total surface
area and about 30 percent of all federal lands.  In fiscal year 1996,
revenue generated from the sale or use of resources and lands within
the National Forest System totaled about $0.9 billion.  Over $2.0
billion in appropriations and over $0.4 billion in trust funds were
available to manage the system's 155 national forests. 

The House Committee on the Budget has an ongoing interest in the
Forest Service's management of the national forests, including the
agency's efforts to be more cost-effective and businesslike in its
operations.  To assist the Committee in its deliberations and
oversight, the Chairman asked GAO to identify (1) the lessons that
can be learned from efforts by nonfederal land managers to generate
revenue and/or become financially self-sufficient from the sale or
use of natural resources on their lands and (2) legal and other
barriers that may preclude the Forest Service from implementing
similar efforts on its lands. 

As agreed with the Chairman's office, GAO limited its review to
efforts by seven judgmentally selected nonfederal land managers
located throughout the United States:  (1) the about 2.9 million
acres of trust lands managed by Washington State's Department of
Natural Resources; (2) the 1.6 million-acre Fort Apache Indian
Reservation in Arizona, home to the White Mountain Apache tribe; (3)
the 125 parks, sites, and natural areas, encompassing over 669,000
acres, managed by the Texas Parks Division of the Texas Parks and
Wildlife Department; (4) the 201,000-acre Deseret Land and Livestock
ranch located in Utah and owned and managed by the Church of Jesus
Christ of Latter-day Saints; (5) The Nature Conservancy's 55,000-acre
Niobrara Valley Preserve in Nebraska; (6) the National Audubon
Society's 27,000-acre Paul J.  Rainey Wildlife Sanctuary in
Louisiana; and (7) International Paper's 16,000-acre Southlands
Experiment Forest in Georgia.  These land managers were selected
primarily because they appeared to be (1) generating revenue or
making a profit from one or more of the resources that the Forest
Service is legislatively mandated to plan for or to consider in its
planning and (2) maintaining the long-term health of the land and
resources by emphasizing environmental management and protection. 
These land managers' revenue-generating programs and activities are
summarized in appendix I and are discussed in more detail in
appendixes II through VIII. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:2

The nonfederal land managers whose efforts GAO reviewed--while not
always attaining financial self-sufficiency--are using a variety of
sometimes innovative approaches and techniques to generate revenue or
reduce costs from the sale or use of natural resources on their
lands.  None of the approaches or techniques are legislatively
mandated or otherwise required.  Rather, the land managers have (1)
usually tailored their efforts to meet either a clear mission to make
a profit over time or an incentive to generate revenue for other
mission-related goals and objectives and (2) often been delegated the
discretion and flexibility to explore innovative entrepreneurial
ideas or conduct research to increase profits and to choose where and
when to apply the results while being held accountable for their
expenditures and performance. 

Generating revenue and reducing costs are not mission priorities for
the Forest Service, and, in keeping with its existing legislative
framework, the agency is moving away from, rather than toward,
financial self-sufficiency.  Increasingly, legislative and
administrative decisions--such as setting aside an increasing
percentage of Forest Service lands for conservation as wilderness,
wild and scenic rivers, and national monuments--and judicial
interpretations of statutory requirements have required the Forest
Service to shift its emphasis from uses that generate revenue to
those that do not.  Furthermore, (1) the agency is required to
continue providing certain goods and services--such as recreational
sites, hardrock minerals, and livestock grazing--at less than their
fair market value and (2) certain congressional expectations and
legislative provisions--including those that require sharing revenue
before deducting the costs of providing the goods or services--serve
as disincentives to either increasing revenue or decreasing costs. 
Moreover, when the Congress has provided the Forest Service with the
authority to obtain fair market value for goods or recover costs for
services, the agency often has not done so, nor has it always acted
to contain costs, even when requested to do so by the Congress. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:3


      CLEAR REVENUE-GENERATING
      PRIORITIES, FLEXIBILITY, AND
      ACCOUNTABILITY UNDERLIE
      NONFEDERAL MANAGERS' EFFORTS
-------------------------------------------------------- Chapter 0:3.1

The nonfederal land managers whose efforts GAO reviewed generated
revenue from the sale or use of natural resources on their lands by,
among other things, (1) emphasizing the production of goods and
services on some lands or within certain programs or functions while
setting aside other lands, programs, and functions for
non-revenue-generating activities, such as conservation and resource
protection; (2) actively managing game species for substantial
profit; (3) charging for activities, such as outdoor recreation, that
were once free and/or managing concessions previously operated by
private companies; (4) using new methods to manage timber sales and
livestock grazing; and (5) obtaining and actively pursuing water
rights critical to generating revenue from other uses.  These land
managers attempted to save money by, among other things, (1) entering
into agreements with federal agencies to reduce the costs of
regulatory compliance and to provide more certainty and
predictability for their revenue-generating timber and other programs
and (2) reducing the number of salaried employees by increasing the
use of volunteers and prison inmates. 

The nonfederal land managers are not legislatively mandated or
otherwise required to employ a particular approach or technique to
increase revenue or decrease costs.  Rather, their approaches and
techniques usually resulted from their having either a clear mission
to make a profit over time or an incentive to generate revenue for
other mission-related goals and objectives.  For instance, for the
two businesses in GAO's review--International Paper and the Deseret
Land and Livestock ranch--as well as for the trust lands and programs
managed by Washington State's Department of Natural Resources, the
managers' primary goal is to make a profit.  Additionally, although
The Nature Conservancy's Niobrara Valley Preserve is not profit
oriented, its manager has a financial incentive to generate revenue
from livestock grazing to support the nonprofit organization's
biological diversity goal. 

Virtually all of the nonfederal land managers GAO reviewed have the
discretion and flexibility to (1) explore innovative entrepreneurial
ideas or conduct research to increase profits and (2) choose where
and when to apply the results.  Consequently, they have tailored
their approaches and techniques for generating revenue or reducing
costs to their particular geographical areas or conditions.  However,
this freedom to make choices is often accompanied by oversight by a
parent organization, the beneficiaries of the revenue generated, or
others to ensure accountability for expenditures and results. 

For example, Washington State's Department of Natural Resources has
the discretion and flexibility to optimize short- and long-term
income within acceptable levels of risk by, among other things, (1)
transferring, selling, exchanging, and purchasing lands; (2) testing
new approaches and techniques to harvest and market timber; and (3)
shifting to the highest and best land uses in selected geographic
areas.  In exchange for this freedom to make choices, the department
is held accountable for its expenditures and results by the
beneficiaries of the revenue, including state school districts,
colleges, and universities, as well as other public agencies and
charitable institutions within the state. 


      THE FOREST SERVICE LACKS
      CLEAR REVENUE-GENERATING
      PRIORITIES, FLEXIBILITY, AND
      ACCOUNTABILITY
-------------------------------------------------------- Chapter 0:3.2

Language in federal statutes implies that maximizing revenue should
not be the overriding criterion in managing national forests. 
Moreover, increasingly, legislative and administrative decisions and
judicial interpretations have required the Forest Service to give
priority to non-revenue-generating uses over uses that can and have
produced revenue.  For example, both the Congress and the
administration have increasingly set aside Forest Service 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 or services at less than their fair market
value.  For example, legislative decisions not to charge fees for the
use of most recreational sites and areas managed directly by the
agency, as well as for noncommercial recreational activities such as
hunting and fishing by individuals on Forest Service lands, reflect
long-standing philosophies of free access to public lands and/or
deferral to state laws.  Other legislative requirements that limit
the generation of revenue from activities such as hardrock mining and
livestock grazing reflect the desire to promote the economic
stability of certain historic commodity uses. 

Congressional expectations and revenue-sharing provisions may also
serve as disincentives to either increasing revenue or decreasing
costs.  For example, establishing annual output targets for the
volume of timber to be offered for sale and allowing the agency to
retain a portion of the revenue it generates from timber sales
without deducting its costs may encourage the Forest Service to not
always recover its costs to prepare and administer the sales. 

When the Congress has given the Forest Service the authority to
obtain fair market value for goods or recover costs for services, the
agency often has not done so.  For example, prior GAO work has shown
that the agency has (1) 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--or recovered
the costs incurred in reviewing and processing applications for
special-use permits; (2) not charged fair market value for
rights-of-way for oil and gas pipelines, power lines, and
communications lines on its lands; and (3) not used sealed bids for
timber sales, relying instead on oral bids, which generate lower
revenue. 

The Forest Service has also not always acted to contain costs, even
when the Congress has asked it to do so.  In fiscal year 1991, for
example, the Congress asked the agency to develop a multiyear program
to reduce the escalating costs of its timber program by not less than
5 percent per year.  However, the Forest Service has not developed
such a program, and the costs of preparing and administering timber
sales remain high even though internal and external reviews of the
agency's processes and procedures have identified opportunities to
significantly improve operational efficiency at virtually every
organizational level. 

Key to improving the Forest Service's performance in obtaining fair
market value for goods, recovering costs for services, and operating
more efficiently is holding the agency accountable for its
performance.  However, the Forest Service has not been held
adequately accountable for increasing revenue or decreasing costs. 
Moreover, the agency's September 30, 1997, strategic plan, developed
to comply with the requirements of the Government Performance and
Results Act of 1993 (Results Act), contains no goals or measures for
holding the Forest Service accountable for its performance in
generating revenue or reducing costs. 


   MATTER FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 0:4

If the Congress believes that increasing revenue or decreasing costs
from the sale or use of natural resources should be mission
priorities for the Forest Service, it will need to work with the
agency to identify legislative and other changes that are needed to
clarify or modify the Congress's intent and expectations for revenue
generation relative to ecological, social, and other values and
concerns. 


   RECOMMENDATION TO THE SECRETARY
   OF AGRICULTURE
---------------------------------------------------------- Chapter 0:5

Because the Forest Service has not exercised its authority to obtain
fair market value for certain goods and recover costs for certain
services and has not always acted to contain costs, even when
requested to do so by the Congress, GAO recommends that the Secretary
of Agriculture direct the Chief of the Forest Service to revise the
strategic plan that the agency developed to comply with the
requirements of the Results Act to include goals and performance
measures for obtaining fair market value for goods, recovering costs
for services, and containing expenses as the necessary first step in
holding the Forest Service accountable for its performance. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

GAO provided copies of a draft of this report to the Forest Service
for its review and comment.  The agency (1) agreed with the report's
conclusions and recommendations, (2) stated that the report fairly
presents relevant factors that must be understood when comparing land
managers or land management within different time periods, and (3)
noted that it has made some progress in increasing revenue and
improving financial accountability.  The agency's comments appear in
appendix IX. 


INTRODUCTION
============================================================ Chapter 1

The Department of Agriculture's Forest Service manages about 192
million acres of land--nearly 9 percent of the nation's total surface
area (about the size of California, Oregon, and Washington State
combined) and about 30 percent of all federal lands.  In fiscal year
1996, revenue generated from the sale or use of resources and lands
within the National Forest System totaled about $0.9 billion.  Over
$2.0 billion in appropriations\1 and over $0.4 billion in trust funds
were available to manage the system's 155 national forests. 


--------------------
\1 Excludes appropriations for (1) forest and rangeland research, (2)
state and private forestry, (3) international forestry, and (4)
Southeast Alaska disaster assistance. 


   NATIONAL FORESTS ARE MANAGED
   UNDER THE PRINCIPLES OF
   MULTIPLE USE AND SUSTAINED
   YIELD
---------------------------------------------------------- Chapter 1:1

The Forest Service's motto is "caring for the land and serving
people." Laws guiding the management of the national forests require
the Forest Service to manage its lands under the principles of
multiple use and sustained yield to meet the diverse needs of the
American people. 

The Forest Service is required to plan for six renewable surface
uses--outdoor recreation, rangeland, timber, watersheds and water
flows, wilderness, and wildlife and fish.  In addition, the agency's
guidance and regulations require the Forest Service to consider the
production of nonrenewable subsurface resources--such as oil, gas,
and hardrock minerals\2 --in its planning. 

Under the Organic Administration Act of 1897, the national forests
are to be established to improve and protect the forests within their
boundaries or to secure favorable water flow conditions and provide a
continuous supply of timber to citizens.  The Multiple-Use
Sustained-Yield Act of 1960 added the uses of outdoor recreation,
range, watershed, and fish and wildlife.  The act also requires the
agency to manage its lands to provide high levels of all of these
uses to current users while sustaining undiminished the lands'
ability to produce these uses for future generations (the
sustained-yield principle).  Under the National Forest Management Act
of 1976 (NFMA) and its implementing regulations, the Forest Service
is to (1) recognize wilderness as a use of the forests and (2)
maintain the diversity of plant and animal communities (biological
diversity). 


--------------------
\2 Hardrock minerals include gold, silver, lead, iron, and copper. 


   THE FOREST SERVICE MUST COMPLY
   WITH ENVIRONMENTAL LAWS AND
   REGULATIONS
---------------------------------------------------------- Chapter 1:2

The Forest Service must comply with the requirements of the National
Environmental Policy Act of 1969 (NEPA).  NEPA and its implementing
regulations specify procedures for integrating environmental
considerations through environmental analyses and for incorporating
public input into the agency's decision-making process.  NEPA
requires that a federal agency prepare a detailed environmental
impact statement (EIS) for every major federal action that may
significantly affect the quality of the human environment.  The EIS
is designed to ensure that important effects on the environment will
not be overlooked or understated before the government makes a
commitment to a proposed action. 

In planning and reaching decisions, the Forest Service must also
comply with the requirements of other environmental statutes,
including the Endangered Species Act, the Clean Water Act, the Clean
Air Act, the Wilderness Act, and the Migratory Bird Treaty Act, as
well as other laws, such as the National Historic Preservation Act. 
The Forest Service is subject to more than 200 laws affecting its
activities and programs. 


   THE FOREST SERVICE IS TO
   CONSIDER ECONOMICS IN ITS
   PLANNING
---------------------------------------------------------- Chapter 1:3

Many laws governing national forest management and planning, dating
back to the Organic Administration Act of 1897, have implied or
stated that economics should be included in managing the national
forests.\3 The Forest and Rangeland Renewable Resources Planning Act
of 1974 (known as RPA) requires the Forest Service to (1)
periodically analyze trends in supply and demand and to report on
investment opportunities in comprehensive assessments of the nation's
renewable resources conducted every 10 years; (2) discuss investment
priorities and provide data for examining cost accountability in
programs prepared every 5 years to respond to the trends and
opportunities identified in the assessments; (3) use an
interdisciplinary approach, including economics, in land and resource
management planning; and (4) consider economics and financing in
building the transportation system for the National Forest System. 

NFMA added numerous subsections to RPA.  As noted by the
Congressional Research Service, under NFMA, the Forest Service is
required to include economic factors both in general and in the
following specific conditions:  (1) when considering various resource
management systems, (2) when determining where even-aged timber
management is allowed,\4 and (3) when identifying lands not suited
for timber production.  In addition, RPA requires that the Forest
Service prepare an annual report assessing its accomplishments and
progress in implementing the RPA program.  NFMA requires that the
annual report include a comparison of returns to the government with
estimated expenditures for a representative sample of timber sales. 


--------------------
\3 For a more complete discussion of economic considerations in
national forest planning, see The Timberlands Suitability Provision
of the National Forest Management Act of 1976, Congressional Research
Service (86-652 ENR, Apr.  11, 1986). 

\4 Even-aged timber management results in the creation of stands in
which trees of essentially the same age grow together. 
Clear-cutting, shelterwood, and other tree-cutting methods produce
even-aged stands. 


   THE FOREST SERVICE IS
   AUTHORIZED TO OBTAIN A FAIR
   RETURN FOR CERTAIN GOODS AND
   RECOVER COSTS FOR CERTAIN
   SERVICES
---------------------------------------------------------- Chapter 1:4

The Federal Land Policy and Management Act of 1976, as amended,
generally requires federal agencies to obtain fair market value for
the use of federal lands.  This act and the Mineral Leasing Act, as
amended, generally require federal agencies to obtain fair market
value for the use of federal lands for rights-of-way for oil and gas
pipelines, power lines, and communications lines.  Title V of the
Independent Offices Appropriation Act of 1952, as amended, authorizes
federal agencies to issue regulations to assess a fair fee for a
service or thing of value provided to an identifiable recipient
beyond that provided to the general public. 

The Office of Management and Budget's (OMB) Circular A-25 implements
the Independent Offices Appropriation Act's fee requirements.  The
circular classifies charges into two categories--special services and
leases or sales.  When providing special services, such as reviewing
and processing permits or leases, federal agencies are to recover the
costs of providing the services, resources, or goods.  When the
government sells or leases goods, resources, or real property,
agencies are to establish user fees to recover the fair market value
of the goods, resources, or services provided.  Under the provisions
of the Independent Offices Appropriation Act and OMB Circular A-25,
federal agencies are to obtain fair market value in the absence of
specific legislation to the contrary. 

The Forest Service is prohibited by law from obtaining a fair return
for certain goods or recovering costs for certain services.  For
example, the agency provides recreation through numerous recreation
facilities that it manages directly, including about 3,000
campgrounds, over 120,000 miles of hiking trails, and thousands of
picnic areas and boating sites.  However, according to the Land and
Water Conservation Fund Act of 1964 (P.L.  88-578), the Forest
Service can charge fees only for the use of (1) boat launching
facilities that offer services such as mechanical or hydraulic boat
lifts and (2) campgrounds that offer certain amenities such as toilet
facilities, drinking water, refuse containers, and tent or trailer
spaces.\5


--------------------
\5 The Omnibus Consolidated Rescissions and Appropriations Act of
1996 (P.  L.  104-134), as extended by the Interior and Related
Agencies Appropriations Act for Fiscal Year 1997 (P.  L.  104-208),
directs the Forest Service and three other federal land management
agencies to test the collection, retention, and reinvestment of new
entrance and user fees for recreation at a variety of sites. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:5

The House Committee on the Budget has an ongoing interest in the
Forest Service's management of the nation's 155 forests, including
efforts by the agency to be more cost-effective and businesslike in
its operations.  To assist the Committee in its deliberations and
oversight, the Chairman asked us to identify (1) the lessons that can
be learned from efforts by nonfederal land managers to generate
revenue and/or become financially self-sufficient from the sale or
use of natural resources on their lands and (2) legal and other
barriers that may preclude the Forest Service from implementing
similar efforts on its lands. 

As agreed with the Chairman's office, we limited our review to the
efforts of seven judgmentally selected nonfederal land managers
located throughout the United States (see fig.  1.1):  (1) the about
2.9 million acres of trust lands managed by Washington State's
Department of Natural Resources; (2) the 1.6 million-acre Fort Apache
Indian Reservation in Arizona, home to the White Mountain Apache
tribe; (3) the 125 parks, sites, and natural areas, encompassing over
669,000 acres, managed by the Texas Parks Division of the Texas Parks
and Wildlife Department; (4) the 201,000-acre Deseret Land and
Livestock ranch located in Utah and owned and managed by the Church
of Jesus Christ of Latter-day Saints; (5) The Nature Conservancy's
55,000-acre Niobrara Valley Preserve in Nebraska; (6) the National
Audubon Society's 27,000-acre Paul J.  Rainey Wildlife Sanctuary in
Louisiana; and (7) International Paper's 16,000-acre Southlands
Experiment Forest in Georgia.  These land managers were selected
primarily because they appeared to be (1) generating revenue or
making a profit from one or more of the six renewable surface uses
that the Forest Service is legislatively mandated to sustain on its
lands and/or from nonrenewable subsurface resources that the agency
is required to consider in its planning and (2) maintaining the
long-term health of the land and resources by emphasizing
environmental management and protection. 

   Figure 1.1:  Geographical
   Location of Seven Nonfederal
   Land Managers' Efforts

   (See figure in printed
   edition.)

To identify the lessons that can be learned from efforts by
nonfederal land managers to generate revenue and/or become
financially self-sufficient from the sale or use of natural resources
on their lands, we interviewed officials and obtained and reviewed
relevant documents and data on their (1) revenue-generating programs
and activities, (2) missions and goals, (3) degree of financial
self-sufficiency, (4) environmental protection and management, and
(5) accountability for expenditures and results.  The managers'
revenue-generating programs and activities are summarized in appendix
I and discussed in more detail in appendixes II through VIII. 

To identify legal and other barriers that may preclude the Forest
Service from implementing similar efforts on its lands, we relied
extensively on prior GAO reports and testimonies.  In addition, we
provided the agency and the Department of Agriculture's Office of
General Counsel with, and received comments on, the approaches and
techniques being used by the nonfederal land managers included in our
review to generate revenue and/or become financially self-sufficient
from the sale or use of natural resources on their lands.  We also
interviewed, and obtained and reviewed relevant documents and data
from, responsible officials in Forest Service headquarters
(Washington Office) as well as on selected forests, including the
Apache-Sitgreaves in Arizona and the Wasatch-Cache in Utah. 

We performed our work from October 1996 through January 1998 in
accordance with generally accepted government auditing standards.  In
conducting our work, we did not independently verify or test the
reliability of the data provided by the nonfederal land managers or
the Forest Service. 

We provided each of the nonfederal land managers with a draft of the
appendix discussing their particular effort and made changes in
response to their comments.  We then obtained comments on a draft of
the entire report from the Forest Service.  The agency's comments are
presented in appendix IX. 


CLEAR REVENUE-GENERATING
PRIORITIES, FLEXIBILITY, AND
ACCOUNTABILITY UNDERLIE NONFEDERAL
MANAGERS' EFFORTS
============================================================ Chapter 2

Of the seven uses that the Forest Service is legislatively mandated
to sustain or consider in its decision-making, the seven nonfederal
land managers whose efforts we reviewed are generating revenue from
one or more of five--timber, outdoor recreation, wildlife and fish,
rangeland, and subsurface resources.  While not always attaining
financial self-sufficiency, these nonfederal land managers are
employing a variety of sometimes innovative approaches and techniques
to generate revenue or reduce costs from the sale or use of natural
resources on their lands.  Rather than applying a one-size-fits-all
approach or technique, the managers have (1) usually tailored their
efforts to meet either a clear mission to make a profit over time or
an incentive to generate revenue for other mission-related goals and
objectives and (2) often been delegated the discretion and
flexibility to make choices while being held accountable for their
expenditures and results. 


   NONFEDERAL LAND MANAGERS ARE
   USING INNOVATIVE APPROACHES AND
   TECHNIQUES
---------------------------------------------------------- Chapter 2:1

Although most of the nonfederal land managers whose efforts we
reviewed are attempting to increase revenue and/or decrease costs
from the sale or use of natural resources on their lands, their
success in becoming financially self-sufficient has varied and their
revenue has not always covered the costs of providing the goods or
services.  Moreover, many of the managers are also generating revenue
from programs and activities not related to natural resources,
including a casino, commercial real estate, land sales,
contributions, and investments.  However, some of the more innovative
approaches and techniques being employed by these land managers
appeared to increase revenue or decrease costs from the sale or use
of natural resources on certain lands or under certain conditions. 

Timber and related activities generated the most revenue for
Washington State's Department of Natural Resources and for
International Paper on its Southlands Experiment Forest.  Timber also
generated most of the revenue that the White Mountain Apache tribe
derived from natural resources.  Natural gas production was the
dominant revenue-generating use on the Audubon Society's Paul J. 
Rainey Wildlife Refuge, livestock grazing generated the most revenue
on The Nature Conservancy's Niobrara Valley Preserve, livestock
grazing and recreational hunting for big-game wildlife species
provided virtually all of the revenue on the Church of Jesus Christ
of Latter-day Saints' Deseret Land and Livestock ranch, and
recreational entrance and user fees produced the most revenue for the
Texas Parks Division.  Some of the more innovative approaches and
techniques being employed to generate revenue or reduce costs from
the sale or use of natural resources are discussed below. 


      GENERATING REVENUE BY
      EMPHASIZING THE PRODUCTION
      OF GOODS AND SERVICES ON
      SOME LANDS OR WITHIN CERTAIN
      PROGRAMS OR FUNCTIONS
-------------------------------------------------------- Chapter 2:1.1

Managers from Washington State's Department of Natural Resources and
International Paper's Southlands Experiment Forest emphasize the
production of goods and services on some lands or within certain
programs or functions while setting aside other lands, programs, or
functions for non-revenue-generating activities, such as
conservation, resource protection, and research.  For example, the
department divides its lands and programs between those that are
managed primarily to generate long-term sustainable revenue for its
trust beneficiaries and those that are managed primarily to meet
regulatory objectives for the protection of resources on public and
private lands.  The department has also developed several programs to
(1) transfer, sell, or exchange trust lands that have a low
capability of generating revenue or are more suited for conservation
or non-revenue-generating recreation and (2) purchase or otherwise
acquire replacement lands capable of generating revenue.  As a
result, between 1981 and 1994, the department transferred, sold,
exchanged, purchased, or otherwise acquired 355,000 acres, or 11
percent of its land base, including transferring about 59,000 acres
from commodity production to conservation status since 1989.  The
state legislature provided funds to the department to compensate the
trust for the fair market value of the lands transferred to
conservation status. 

In addition, officials from Washington State's Department of Natural
Resources informed us that as opportunities become available, they
attempt to optimize short- and long-term income within acceptable
levels of risk by shifting to the highest and best land uses in
selected geographic areas.  For instance, during the past 25 years,
the agency has converted more than 34,000 acres of drylands to higher
revenue-producing lands by competitively leasing lands for commercial
uses and by replacing livestock with more profitable agricultural
uses, such as growing wheat and other dryland grains. 

While International Paper manages Southlands Experiment Forest to
generate revenue, the company's annual budget separates the forest's
research and policy functions from the forest's revenue-generating
timber operations.  This separation reflects the company's
recognition that the forest's research and policy functions sometimes
require operational decisions that do not seek to maximize revenue. 


      GENERATING REVENUE FROM
      RECREATIONAL HUNTING
-------------------------------------------------------- Chapter 2:1.2

Managers on the White Mountain Apache tribe's Fort Apache Indian
Reservation, the Church of Jesus Christ of Latter-day Saints' Deseret
Land and Livestock ranch, and the Southlands Experiment Forest were
managing game species as a profitable resource.  For example, a
hunter can pay over $24,000 on the Fort Apache Indian Reservation and
up to $8,500 on the Deseret ranch for a trophy bull elk, and the
hunts generate more than $850,000 in annual income for the tribe and
most of the $340,000 in annual net income from Deseret's wildlife
program.  About 25 percent of Southlands' revenue is generated by
recreational hunting, and, according to International Paper
officials, is indicative of the company's efforts to generate revenue
from growing timber stands. 


      GENERATING REVENUE FROM
      LIVESTOCK GRAZING
-------------------------------------------------------- Chapter 2:1.3

Although grazing revenue varies with such factors as weather
conditions and the price of beef cattle, the livestock grazing
programs on Deseret and The Nature Conservancy's Niobrara Valley
Preserve contributed significantly to the land units' financial
self-sufficiency.  For example, on average, livestock grazing
provides at least 80 percent of Niobrara's total revenue, and, over
about the last 10 years, revenue from all activities on the preserve
have been sufficient to cover both operating and capital costs, other
than the costs to acquire the land, which were paid by the
Conservancy. 

Deseret and Niobrara are two of a small but growing number of ranches
that practice what is often referred to as "time-control" or
"time-managed" grazing.  On Deseret, this management practice
involves developing an annual written plan to (1) set the time of
year and limit the length of time that cattle are allowed to graze in
an area by moving them among fenced pastures rather than allowing
them to graze on open rangeland and (2) rest pastures every year by
not allowing cattle to graze on them. 


      GENERATING REVENUE FROM
      TIMBER OPERATIONS
-------------------------------------------------------- Chapter 2:1.4

Trust lands managed by Washington State's Department of Natural
Resources are funded from total revenue and generate considerable net
income for the trust beneficiaries, primarily from timber sales and
related activities.  The department has initiated several efforts to
increase net income from its timber program.  For example, according
to department officials, they have increased timber revenue by
identifying and marketing high-value trees, such as those that can be
used as utility or transmission poles or as logs for the log home
industry ("merchandising" timber).  Since 1990, this practice has
generated about $41 million in additional revenue at a cost of about
$2 million in staff salaries.  The department is also performing both
precommercial and commercial thinning, and, to a lesser extent,
pruning and fertilizing timber stands to spur tree growth.  In fiscal
year 1996, tree sales resulting from commercial thinning generated
some $17 million in revenue. 

In addition, according to officials from Washington State's
Department of Natural Resources, they have (1) increased the
efficiency of their timber sale appraisal system by adopting an
approach that looks only at prior comparable sales; (2) stopped
reimbursing contractors for constructing logging roads, thus reducing
the costs to monitor the roads' construction as well as avoiding
reimbursing contractors for inefficient road construction practices;
(3) initiated lump-sum bidding procedures in which all timber within
a stand is sold, thus lowering the costs of monitoring the buyer's
removal of timber; (4) replaced oral bidding of timber sales with
sealed bids to avoid artificially suppressing the highest bid value;
and (5) pilot-tested contracting with a company to harvest timber and
then having the department, rather than the company, market the logs. 
According to department officials, this last effort--called contract
logging--has increased the department's return by eliminating the
middle man.  It also gives the department more control over the
timing and environmental impact of logging operations. 


      GENERATING REVENUE FROM
      ENTRANCE FEES AND SERVICES
-------------------------------------------------------- Chapter 2:1.5

Since fiscal year 1994, managers of Texas state parks (1) have
increased entrance and campground fees, sometimes by 100 percent; (2)
are managing retail stores previously contracted to concessionaires
and have opened new ones; (3) have installed park-leased soft drink
machines; and (4) have increased the number of fee-based
interpretative and tourist-oriented programs.  As a result,
park-generated net income--primarily from entrance and campground
fees--grew from $14.8 million in fiscal year 1993 to $18.5 million in
fiscal year 1995, an increase of 25 percent. 

Similarly, the White Mountain Apache tribe charges fees for
amenity-based recreation on the Fort Apache Indian Reservation,
including hiking, camping, boating, river rafting, and snow skiing. 
In addition, the tribe requires outdoor recreation permits to travel
on the reservation's unpaved roads.  As a result, recreational fees
provide a relatively stable source of revenue to the tribe. 


      GENERATING REVENUE BY
      OBTAINING WATER RIGHTS
-------------------------------------------------------- Chapter 2:1.6

A use that the Forest Service is legislatively mandated to
sustain--watersheds and water flows--played an important role in
generating revenue from other uses, such as irrigating rangelands;
sustaining recreational fishing; and providing boating, river
rafting, and other outdoor recreational activities.  For example,
according to the manager of the Deseret Land and Livestock ranch, the
ranch is financially self-sufficient, in part, because it has a
substantial water right that predates Utah's statehood, as well as
most other state water rights.  The water is used to irrigate
pastures that represent less than 4 percent of the ranch's acreage
but provide over 55 percent of the total cattle forage. 

Recognizing the importance of water to generating revenue from other
uses, Washington State's Department of Natural Resources has obtained
and is continuing to pursue water rights from the state's water and
irrigation districts as well as other surface water and groundwater
irrigation rights and contracted for water from the federal Columbia
Basin Irrigation Project.  The department has also developed
irrigation infrastructure (drilling wells and laying pipes).  The
water has been used to convert many acres of drylands to irrigated
farmlands, grape vineyards, and apple orchards and to significantly
increase the earning potential of the department's agricultural lands
within central Washington by replacing some livestock with more
profitable agricultural crops.  As a result of these and other
efforts, revenue from the department's agricultural program has grown
by nearly 200 percent in the last 15 years, according to department
officials. 


      REDUCING THE COSTS OF
      REGULATORY COMPLIANCE
-------------------------------------------------------- Chapter 2:1.7

Both Washington State's Department of Natural Resources and the White
Mountain Apache tribe have entered into agreements with federal
regulatory agencies to reduce costs and to provide more regulatory
certainty and predictability to revenue-generating timber and other
programs.  Specifically, in January 1997, the department signed a
habitat conservation plan with two federal regulatory agencies.  This
plan covers 1.6 million acres, or 76 percent of the department's 2.1
million acres of forestland.  The agreement includes a "no surprise
policy" under which the federal government will not ask for more land
or mitigation funding from the state even if a species protected by
the plan continues to decline.  Furthermore, the subsequent listing
of a species as endangered or threatened under the Endangered Species
Act will not result in additional mitigation requirements. 

Similarly, the White Mountain Apache tribe has assumed responsibility
from federal regulatory agencies for accommodating the objectives of
federal environmental laws, especially the Endangered Species Act, on
the Fort Apache Indian Reservation.  In December 1994, the Chairman
of the tribe and the Director of the Department of the Interior's
Fish and Wildlife Service signed an innovative statement of
relationship between the tribe and the agency that recognizes the
tribe as the primary manager of the reservation with the
institutional capability to ensure that economic activity does not
have an adverse impact on species listed under the Endangered Species
Act, as well as on sensitive wildlife and plants.  In addition, in
June 1997, the Secretary of the Interior signed an order that
clarifies the responsibilities of the Department when the
implementation of the Endangered Species Act affects federally
recognized Indian lands, tribal trust resources, or the exercise of
tribal rights.  The order contains a provision stating that the
United States defers to tribal conservation management plans.  Both
federal regulatory and tribal officials agree that these agreements
will greatly reduce the time and costs associated with accommodating
environmental objectives. 


      REDUCING THE COSTS OF
      SALARIES
-------------------------------------------------------- Chapter 2:1.8

Other efforts to increase net income through savings included
reducing the number of salaried employees by increasing the use of
volunteers and prison inmates.  For instance, in fiscal years 1994
and 1995, Texas state park managers reduced the number of salaried
employees and increased the number of campground volunteers and
hosts.  They also increased their use of prison inmates to perform
routine cleaning, renovation, and improvements at park facilities, as
well as other services.  Finally, they reduced the number of months
worked by seasonal employees.  In fiscal year 1995, volunteers
donated about 490,000 hours of work valued at $2.6 million, equal to
the work of about 238 full-time employees.  The estimated value of
the inmates' labor was about $2.4 million over 2 fiscal years,
according to Texas Parks Division officials. 


   LESSONS LEARNED CENTER ON
   MISSION PRIORITIES,
   FLEXIBILITY, AND ACCOUNTABILITY
---------------------------------------------------------- Chapter 2:2

None of the approaches or techniques for increasing revenue or
decreasing costs used by the nonfederal land managers in our review
were legislatively mandated or otherwise required.  Rather, these
approaches and techniques usually resulted because the managers had
either a clear mission to make a profit over time or an incentive to
generate revenue for other mission-related goals and objectives. 
Moreover, many of the approaches or techniques seemed to be
applicable in only certain geographical areas or under certain
conditions, thus requiring that the nonfederal managers be given the
discretion and flexibility to make choices while being held
accountable for their expenditures and results. 


      HAVING A CLEAR MISSION OR AN
      INCENTIVE TO MAKE A PROFIT
-------------------------------------------------------- Chapter 2:2.1

The primary goal of private businesses, such as the Deseret Land and
Livestock ranch and International Paper, is to make a profit.  For
example, Deseret ranch is expected not only to be financially
self-sufficient but also to earn a 5-percent return on investment on
its operations.  Armed with this clear mission priority, managers on
both the ranch and International Paper's Southlands Experiment Forest
have initiated efforts to increase revenue and decrease costs. 

Having a clear mission priority to generate long-term sustainable
revenue has produced similar results for public agencies.  For
example, trust lands and programs managed by Washington State's
Department of Natural Resources are funded from total revenue and
generate considerable net income for the designated trust
beneficiaries.  Conversely, lands managed by the department that have
been set aside for conservation and non-revenue-generating
recreation, as well as programs to protect public resources, are not
expected to generate revenue and are supported primarily by
legislatively appropriated funds. 

Businesses and agencies that emphasize making a profit often
establish incentives to increase revenue.  For example, Deseret
ranch's employees have two financial incentive plans--one based on
the ranch's net income and the other based on annual, individual
performance goals.  Lands and programs managed by Washington State's
Department of Natural Resources to generate long-term sustainable
revenue for the designated trust beneficiaries are funded solely from
a percentage of the total revenue they generate, thus providing
employees with an incentive to maximize revenue.  And, when the Texas
Parks and Wildlife Department established a financial incentive by
returning a portion of any increased revenue or decreased costs to
the park where the revenue or savings was generated, state park
managers responded by increasing revenue by 25 percent and reducing
expenditures for operations by almost 10 percent over 2 years,
according to Texas Parks Division officials. 

The need to generate revenue for other mission-related goals and
objectives can also provide an incentive.  For example, the Niobrara
Valley Preserve can spend money to fulfill The Nature Conservancy's
biological diversity goal only when it raises money.  In addition,
the Conservancy requires all of its preserves to strive for financial
self-sufficiency and allows them to retain most of the revenue that
they generate.  Since bison and cattle, on average, provide at least
80 percent of the preserve's total revenue, Niobrara has an incentive
to generate revenue from grazing. 


      ACCOMPANYING FLEXIBILITY
      WITH ACCOUNTABILITY FOR
      EXPENDITURES AND RESULTS
-------------------------------------------------------- Chapter 2:2.2

Virtually all of the nonfederal land managers whose efforts we
reviewed have the discretion and flexibility to (1) explore
innovative entrepreneurial ideas or conduct research to increase
profits and (2) choose where and when to apply the results.  One
result has been that they have tailored their approaches and
techniques for generating revenue or reducing costs to their
particular geographical areas or conditions.  However, this freedom
to make choices is often accompanied by oversight by the parent
organization, the beneficiaries of the revenue generated, or others
to ensure accountability for expenditures and results. 

For example, the managers of the Deseret Land and Livestock ranch and
the Southlands Experiment Forest have the freedom to try innovative
approaches and techniques to increase net income.  However, the ranch
manager is held accountable for his expenditures and results by the
church and the forest manager by the company and its stockholders. 

Washington State's Department of Natural Resources is held
accountable for the expenditures and results of its management of
state trust lands by the designated trust beneficiaries, including
state school districts, colleges, and universities, as well as other
public agencies and charitable institutions within the state.  Thus,
when the department makes a decision that may reduce current income
and return on investment over the short term, it must show these
beneficiaries that it has exercised skill and care in protecting
trust resources (the "prudent person" doctrine), ensured equal
treatment for all generations (the "intergenerational equity"
principle), and not foreclosed reasonably foreseeable future sources
of income by actions taken today.  Each of these principles may
reduce current income and return on investment over the short term
but may be viewed over the long term as having been the most prudent
course. 

Washington State's Department of Natural Resources also has two
initiatives under way that address accountability.  One is the Asset
Stewardship Program, which is to look at the current and possible
future mix of assets to determine which mix will best generate
long-term revenue for the trust beneficiaries.  As part of this
initiative, the department plans to (1) set standards for evaluating
the mix of assets on the basis of their profitability, biological
diversity, carrying capacity, and overall positioning and (2) develop
measurement tools to monitor the assets' ecological, social, and
economic performance.  The agency also hopes to develop a longer-term
management framework that will give its managers flexibility to
respond to future population and other changes that affect the
management of state lands and programs. 

The second effort is the department's March 1997 long-term Strategic
Plan--the "10-Year Direction"--which, among other things, sets out
major goals, objectives, and specific strategies to achieve them. 
According to department officials, the plan (1) will be consistent
with a statewide performance budgeting system now being developed and
(2) parallels the Asset Stewardship Plan by identifying specific
targets for managing various trust assets. 


THE FOREST SERVICE LACKS CLEAR
REVENUE-GENERATING PRIORITIES,
FLEXIBILITY, AND ACCOUNTABILITY
============================================================ Chapter 3

Some of the approaches and techniques being employed by the
nonfederal land managers whose efforts we reviewed appear to have the
potential to increase revenue or decrease costs from the sale or use
of natural resources on certain Forest Service lands, or within
certain programs and activities, under certain conditions.  The
Forest Service is, to a limited extent, employing a few of these
approaches and techniques, such as performing both precommercial and
commercial thinning on some lands suitable for commercial timber
harvesting, and is not prohibited by law from using other approaches
and techniques, including selling logs and other cut roundwood
products.  In addition, the agency had reduced staffing from about
46,000 permanent positions in fiscal year 1992 to about 39,400 in
fiscal year 1996, or by about 14 percent.  However, generating
revenue and reducing costs are not mission priorities for the agency,
and managers lack both flexibility to make choices and accountability
for results. 

The low priority assigned to increasing revenue and decreasing costs
results, in part, from the importance or emphasis given to
ecological, social, and other values and concerns.  Statutory
language implies that maximizing revenue should not be the overriding
criterion in managing the national forests.  Requirements in
environmental and planning laws and their judicial interpretations
have increasingly required the Forest Service to shift its emphasis
from uses that generate revenue to those that do not.  In recent
years, legislative and administrative decisions have set aside or
withdrawn an increasing percentage of Forest Service lands for
conservation and, in keeping with the existing legislative framework,
the Forest Service is moving away from, rather than toward, financial
self-sufficiency.  The agency is required to continue providing
certain goods and services at less than their fair market value. 
Finally, certain congressional expectations and revenue-sharing
provisions serve as disincentives to either increasing revenue or
decreasing costs. 

When the Congress has provided the Forest Service with the authority
to obtain fair market value for goods or recover costs for services,
the agency often has not done so.  The Forest Service also has not
always acted to contain costs, even when requested to do so by the
Congress.  Underlying these shortcomings is the failure to hold the
agency adequately accountable for its performance for increasing
revenue or decreasing costs.  The Forest Service's recent strategic
plan, which is intended to form the foundation for holding the Forest
Service accountable for its performance, contains no goals or
performance measures for obtaining fair market value or for reducing
or containing costs. 


   THE FOREST SERVICE IS NOT
   EXPECTED TO MAXIMIZE REVENUE
---------------------------------------------------------- Chapter 3:1

Language in federal statutes implies that maximizing revenue should
not be the overriding criterion in managing the national forests. 
Specifically, the Multiple-Use Sustained-Yield Act of 1960
which--together with the Organic Administration Act of 1897--guides
the management of the nation's forests, states the following: 

     "Multiple use means .  .  .  that some land will be used for
     less than all the resources; and harmonious and coordinated
     management of the various resources, each with the other,
     without impairment of the productivity of the land, with
     consideration being given to the relative values of the various
     resources, and not necessarily the combination of uses that will
     give the greatest dollar return or the greatest unit output."
     (Emphasis added by GAO.)

Thus, according to the Congressional Research Service, the Congress
expected economic values to affect the management of the national
forests but "specifically ruled out maximizing receipts or outputs as
the overriding economic criterion."\1

In addition, the National Forest Management Act of 1976, which
provides guidance for forest planning, requires the Secretary of
Agriculture to promulgate regulations that "insure that timber will
be harvested from National Forest System lands only where .  .  . 
the harvesting system to be used is not selected primarily because it
will give the greatest dollar return or the greatest unit output of
timber.  .  .  ." Thus, according to the Congressional Research
Service, the act provides that maximizing returns or volume cannot be
the only criterion for determining the harvesting system to be used. 


--------------------
\1 The Timberlands Suitability Provision of the National Forest
Management Act of 1976, Congressional Research Service (86-652 ENR,
Apr.  11, 1986). 


   LEGISLATIVE REQUIREMENTS LIMIT
   THE FOREST SERVICE'S ABILITY TO
   GENERATE REVENUE
---------------------------------------------------------- Chapter 3:2

Requirements in environmental and planning laws and their judicial
interpretations limit the Forest Service's ability to generate
revenue.  In particular, section 7 of the Endangered Species Act
represents a congressional design to give greater priority to the
protection of endangered species than to the primary missions of the
Forest Service and of other federal agencies.\2 When proposing a
project, such as a timber sale, the Forest Service bears the burden
of demonstrating that its actions will not be likely to jeopardize
listed species.  Other laws enacted primarily during the 1960s and
1970s--such as the Clean Water Act, the Clean Air Act, the Migratory
Bird Treaty Act, and the National Forest Management Act--and their
judicial interpretations and implementing regulations also establish
minimum requirements for these components of natural systems. 

In response to these requirements, the Forest Service has, during the
last 10 years, increasingly shifted the emphasis under its broad
multiple-use and sustained-yield mandate from revenue-generating uses
(primarily producing timber) to uses that do not generate revenue
(primarily sustaining wildlife and fish and their habitats).\3 For
example, in the states of Washington, Oregon, and California, federal
lands, managed primarily by the Forest Service, represent almost half
(47.8 percent) of the total lands suitable for commercial timber
harvesting.  In western Washington State, western Oregon, and
northern California, 24.5 million acres of federal land were
available for commercial timber harvesting.  However, about 7.6
million acres, or 31 percent of the available acreage, have been set
aside or withdrawn as habitat for species that live in old-growth
forests, including the threatened northern spotted owl, or as
riparian reserves to protect watersheds.  To protect the forests'
health, only limited timber harvesting and salvage timber sales are
allowed in some of these areas.  In addition, requirements for
maintaining biological diversity under the National Forest Management
Act--as well as for meeting standards for air and water quality under
the Clean Air and Clean Water acts, respectively--may limit the
timing, location, and amount of harvesting that can occur.  Moreover,
harvests from these lands could be further reduced by plans to
protect threatened and endangered salmon. 

Requirements in environmental and planning laws have also
necessitated the use of more costly and time-consuming
timber-harvesting methods.\4 For example, in June 1992, the Forest
Service announced plans to reduce the amount of timber harvested by
clear-cutting\5 by as much as 70 percent from fiscal year 1988 levels
in order to manage the national forests in a more environmentally
sensitive manner.  This policy change has increased the timber
program's costs, since clear-cutting is a relatively economical
method of harvesting.  However, according to the Forest Service,
these increased costs may be offset to some unknown degree by
reductions in the number of administrative and legal challenges to
individual timber sales. 

The Forest Service's ability to generate revenue is not static and
changes on the basis of new information and events, such as the
listing of a species as endangered or threatened; the results of
analyses, monitoring, and evaluation; and new judicial
interpretations.\6 For example, the Forest Service is required by the
National Environmental Policy Act to assess activities occurring
outside the national forests in deciding which uses to emphasize on
its lands.  A January 1997 habitat conservation plan between
Washington State's Department of Natural Resources and two federal
regulatory agencies and similar agreements--which now cover 18
million acres of state and private land--require that any additional
mitigation deemed necessary to protect listed species covered by the
plans first be accomplished on federal lands.  Therefore, while these
agreements are expected to reduce costs and to provide more
regulatory certainty and predictability on nonfederal lands, they may
increase costs and regulatory uncertainty on Forest Service lands. 
Some Forest Service officials believe that future assessments are
likely to show that the national forests are assuming a growing
proportion of the responsibility for protecting wildlife and fish and
that endangered and threatened species and their habitats are
increasingly being concentrated on federal lands. 


--------------------
\2 TVA v.  Hill, 437 U.S.  153, 185 (1978). 

\3 Forest Service Decision-Making:  A Framework for Improving
Performance (GAO/RCED-97-71, Apr.  29, 1997). 

\4 Forest Service:  Factors Affecting Timber Sales in Five National
Forests (GAO/RCED-95-12, Oct.  28, 1994). 

\5 Clear-cutting is a harvesting method that involves removing all of
the trees from a timber-harvesting site at one time. 

\6 Forest Service:  Issues Relating to Its Decisionmaking Process
(GAO/T-RCED-96-66, Jan.  25, 1996), Forest Service:  Issues Related
to Managing National Forests for Multiple Uses (GAO/T-RCED-96-111,
Mar.  26, 1996), and Forest Service Decision-Making:  Greater Clarity
Needed on Mission Priorities (GAO/T-RCED-97-81, Feb.  25, 1997). 


   LEGISLATIVE AND ADMINISTRATIVE
   DECISIONS HAVE WITHDRAWN LANDS
   FOR NON-REVENUE-GENERATING USES
---------------------------------------------------------- Chapter 3:3

In recent years, legislative and administrative decisions have set
aside or withdrawn an increasing percentage of Forest Service lands
for conservation.  In keeping with the existing legislative
framework, the Forest Service's management approach has increasingly
emphasized non-revenue-generating uses over other uses that can and
have generated revenue. 

For example, an increasing percentage of Forest Service lands has
been set aside by the Congress or administratively withdrawn for
conservation--as wilderness, wild and scenic rivers, national
monuments, and recreation.  Only limited timber sales and oil and gas
leasing--both of which are usually offered in competitive
auction--are allowed in some of these areas. 

In 1964, less than 9 percent (16 million acres) of the national
forests' acreage was managed as wilderness, wild and scenic rivers,
and national monuments and for recreation.  By 1994, this figure had
increased to 26 percent (almost 50 million acres).\7

(See fig.  3.1.)

   Figure 3.1:  Forest Service
   Lands Withdrawn for
   Conservation

   (See figure in printed
   edition.)

Source:  GAO's analysis of data from the Department of Agriculture. 

According to the Forest Service, of the 96 million acres within
national forests that contain timber suitable for commercial
harvesting, 49 million acres, or 51 percent, have been approved for
timber harvesting in the agency's forest plans.  Another 35 million
acres, or 36 percent, have been approved for other uses, such as
wildlife habitat and soil and watershed management, while the
remaining 12 million acres, or 13 percent, have been formally
withdrawn for other uses, such as wilderness areas.\8 (See fig. 
3.2.)

   Figure 3.2:  Forest Service
   Lands Suitable for Commercial
   Timber Harvesting

   (See figure in printed
   edition.)

Acres in millions

Source:  Forest Service. 

Most of the federal acreage that has been set aside for conservation
is located in 12 western states.\9 In western Washington, western
Oregon, and northern California, 11.4 million acres--or 47 percent of
the 24.5 million acres of federal land available for commercial
timber harvesting--have been set aside or withdrawn for conservation. 
Added to the about 7.6 million acres in these three states that have
been set aside or withdrawn as habitat for old-growth forest species
and as riparian reserves, 77 percent of the federal lands in the
three states that were available for commercial timber harvesting
have been set aside or withdrawn, primarily to meet environmental
requirements or achieve conservation purposes. 

Setting aside lands for environmental or conservation purposes has
reduced both the volume of timber sold from Forest Service lands and
receipts from timber sales.  Timber volume and receipts have also
been reduced by (1) an increasing knowledge of the importance of
naturally functioning systems--such as watersheds, airsheds, soils,
and vegetative and animal communities--to the long-term
sustainability of other forest uses, including timber production\10
and (2) an increasing recognition that past Forest Service management
decisions have led to degraded aquatic habitats, declining
populations of some wildlife species, and increased forest health
problems.\11

In addition, the thrust of the Forest Service's timber sales program
is changing from primarily supplying commercially valuable timber to
the wood-using industry in response to the nation's demand for wood
to using timber sales as a "tool" for achieving land stewardship
objectives that require manipulating the existing vegetation.  To
achieve a land stewardship objective--such as promoting the forests'
health, creating desired wildlife habitat, and reducing fuels and
abnormally dense undergrowth that have accumulated in many forests
and have increased the threat of unnaturally catastrophic
fires--often necessitates preparing sales that include a mixture of
both low- and high-value material, further reducing receipts from
timber sales. 

Historically, the volume of timber sold from Forest Service lands in
western Washington, western Oregon, and northern California
constituted from a third to a half of all Forest Service timber
sales.  However, the volume of timber sold from this region declined
from 4.3 billion board feet in 1989 to 0.9 billion board feet in
1994, a decrease of about 80 percent.  Nationwide, the volume of
timber sold from Forest Service lands decreased from over 11.3
billion board feet in 1988 to 3.4 billion board feet in 1996, a
decrease of about 70 percent.  (See fig.  3.3.) During this time,
timber sales receipts decreased from $1.4 billion to $0.6 billion, or
by 57 percent.  (See fig.  3.4.)

   Figure 3.3:  Volume of Timber
   Sold From Forest Service Lands,
   1950-96

   (See figure in printed
   edition.)

Note:  Volume is in billions of board feet.  A board foot is a
measure of wood volume equal to a board 1 foot long by 1 foot wide by
1 inch thick. 

Source:  Forest Service. 

   Figure 3.4:  Timber Sales
   Receipts, Fiscal Years 1988-96

   (See figure in printed
   edition.)

Dollars in billions

Source:  Forest Service. 

Like the acreage available for timber harvesting, the acreage
available for oil and gas leasing has declined.  According to a 1997
study by a consortium of oil and gas trade and professional
associations, the amount of federal land in eight western states open
to oil and gas leasing declined from 114 million acres in 1983 to
fewer than 33 million acres in 1997, a drop of more than 60
percent.\12 Of the 82 million acres of Forest Service land included
in the study, 71 million acres, or 86 percent, are subject to a
restriction that either forbids oil and gas development entirely or
imposes stringent requirements on surface occupancy and access,
according to the consortium. 


--------------------
\7 Land Ownership:  Information on the Acreage, Management, and Use
of Federal and Other Lands (GAO/RCED-96-40, Mar.  13, 1996) and
Federal Land Use (GAO/RCED-96-139R, May 7, 1996). 

\8 Federal Land Use (GAO/RCED-96-139R, May 7, 1996). 

\9 The 12 western states are Alaska, Arizona, California, Colorado,
Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and
Wyoming. 

\10 Ecosystem Management:  Additional Actions Needed to Adequately
Test a Promising Approach (GAO/RCED-94-111, Aug.  16, 1994). 

\11 See, for example, Federal Fire Management:  Limited Progress in
Restarting the Prescribed Fire Program (GAO/RCED-91-42, Dec.  5,
1990). 

\12 "Federal Land Access to Oil and Gas Minerals in Eight Western
States," Cooperating Associations Forum (1997).  The eight western
states are California, Colorado, Montana, Nevada, New Mexico, North
Dakota, Utah, and Wyoming. 


   THE FOREST SERVICE IS EXPECTED
   TO PROVIDE CERTAIN GOODS AND
   SERVICES AT LESS THAN FAIR
   MARKET VALUE
---------------------------------------------------------- Chapter 3:4

As the acreage available for commodity uses has decreased, the
American public has increased its recreational use of the national
forests substantially, according to the Forest Service.  This demand
is expected to increase steadily over the next 50 years, requiring
the agency to spend more time and resources on this use.  However,
the Forest Service is currently prohibited by law from charging fees
for the use of most recreational sites and areas and from obtaining
fair market value for the use of other areas that it manages
directly. 

The decision not to charge fees for the use of most recreational
sites and areas directly managed by the Forest Service reflects a
long-standing philosophy of free access to public lands.\13 Other
legislative requirements that limit the generation of revenue on
Forest Service lands also reflect this philosophy or a desire to
promote the economic stability of certain historic commodity uses. 
As a result, the Forest Service is required to continue to provide
certain goods and services at less than their fair market value. 


--------------------
\13 Forest Service:  Difficult Choices Face the Future of the
Recreation Program (GAO/RCED-91-115, Apr.  15, 1991). 


      THE FOREST SERVICE CANNOT
      CHARGE OR OBTAIN FAIR MARKET
      VALUE FOR MANY RECREATIONAL
      SERVICES
-------------------------------------------------------- Chapter 3:4.1

The number of visitor days in national forests has grown from about
25 million in 1950 to over 340 million in 1996.  (See fig.  3.5.)
Compared with timber and minerals, recreation generates substantially
less revenue.  According to the Forest Service, it collected only
about 7 cents per visit in receipts and special use fees in 1993.\14
Among the factors contributing to this low rate of return is that the
agency is prohibited by law from charging fees for the use of most
recreational sites and areas that it manages directly.\15

In addition, the Omnibus Parks and Public Lands Management Act of
1996 (P.L.  104-333) included a new fee system for ski areas that was
developed by the ski industry.  As noted in an April 1993 report,
this system does not ensure that fees collected from ski areas
reflect fair market value.\16

   Figure 3.5:  Visitor Days in
   National Forests, 1950-96

   (See figure in printed
   edition.)

Note:  Data through 1964 are in "visits." A visit equals one entry
into a national forest.  Data after 1964 are in "visitor days." A
visitor day equals a 12-hour visit.  For example, three people
visiting a national forest for 4 hours each would equal 1 visitor
day.  In 1965, a visit averaged 0.83 visitor days. 

Source:  Forest Service. 

The Forest Service's inability to obtain a fair return for the
recreational opportunities provided on national forests can distort
comparisons of revenue and operating costs.  For example, in a June
1997 report,\17 we compared the operations of a state forest (the
Bladen Lakes) and two national forests (the Nantahala and Pisgah) in
North Carolina.  The state forest generated enough revenue to make it
almost financially self-sufficient, while the two national forests
generated enough to cover only about 4 percent of their operating
costs.  Whereas the state forest emphasized the sale of timber and
other forest products, the national forests emphasized the provision
of non-revenue-generating visitor services. 

The Forest Service manages half of the nation's big-game and
coldwater fish habitat.  However, federal statutes and regulations
have narrowly defined the instances in which the Forest Service can
charge fees for noncommercial recreational activities,\18 such as
hunting and fishing, on its lands, and the agency generally defers to
state laws regulating these activities.  For example, while a hunter
can pay over $24,000 on the Fort Apache Indian Reservation and up to
$8,500 on the Deseret Land and Livestock ranch for a trophy bull elk,
Forest Service managers on the Apache-Sitgreaves and Wasatch-Cache
forests--which abut the reservation and the ranch,
respectively--cannot charge individuals for hunting on their lands. 
Thus, while receipts from trophy bull elk hunts on the 1.8 million
acres within the Fort Apache Indian Reservation and the Deseret ranch
totaled about $1.2 million a year (about 66 cents an acre),
outfitter-guide operations, including big-game hunting, on the 192
million acres of Forest Service lands generate only $2 million a year
(about 1 cent per acre). 


--------------------
\14 The Forest Service Program for Forest and Rangeland Resources:  A
Long-Term Strategic Plan, Draft 1995 RPA Program, U.S.  Department of
Agriculture, Forest Service, Washington Office (Oct.  16, 1995). 

\15 According to the Land and Water Conservation Fund Act of 1964 (P. 
L.  88-578), the Forest Service can charge fees only for the use of
(1) boat launching facilities that offer services such as mechanical
or hydraulic boat lifts and (2) campgrounds that offer certain
amenities such as toilet facilities, drinking water, refuse
containers, and tent or trailer spaces.  However, the Omnibus
Consolidated Rescissions and Appropriations Act of 1996 (P.  L. 
104-134), as extended by the Interior and Related Agencies
Appropriations Act for Fiscal Year 1997 (P.  L.  104-208), directs
the Forest Service and three other federal land management agencies
to test the collection, retention, and reinvestment of new entrance
and user fees for recreation at a variety of sites. 

\16 Forest Service:  Little Assurance That Fair Market Value Fees Are
Collected From Ski Areas (GAO/RCED-93-107, Apr.  16, 1993). 

\17 Land Ownership:  Similarities and Differences in the Management
of Selected State and Federal Land Units (GAO/RCED-97-158, June 27,
1997). 

\18 Noncommercial recreational activities are those for which (1) no
entry or participation fee is charged and (2) the primary purpose is
not the sale of a good or service. 


      LEGISLATIVE REQUIREMENTS
      LIMIT THE GENERATION OF
      REVENUE FOR OTHER GOODS AND
      SERVICES
-------------------------------------------------------- Chapter 3:4.2

Other legislative requirements--reflecting a philosophy of free
access to public lands or a desire to promote the economic stability
of certain historic commodity uses--also limit the generation of
revenue on Forest Service lands.  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.\19 In
1990, hardrock minerals worth at least $1.2 billion were extracted
from federal lands, while known, economically recoverable reserves of
hardrock minerals remaining on federal lands were valued at $64.9
billion.\20 In contrast, the 11 western states that lease state-owned
lands for mining purposes impose a royalty on minerals extracted from
those lands.\21 The 104th Congress considered, but did not enact,
several bills that would have imposed royalties on hardrock minerals
extracted from federal lands.  A bill to impose royalties on hardrock
minerals extracted from federal lands has also been introduced in the
105th Congress.  If the Congress were to adopt an 8-percent royalty
on gross profits, as proposed in two bills in the 104th Congress, the
Congressional Budget Office estimates that the government would
receive $184 million in fiscal years 1998-2002.\22

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.\23 In a June 1991 report, we compared the existing grazing
fee formula with alternatives that had been jointly developed by the
Forest Service and the Bureau of Land Management.\24 We noted that
evaluating the soundness of any formula depends on the primary
objective to be achieved and that deciding among objectives involves
policy trade-offs more than analytical solutions.  Nevertheless, the
fees were too low to cover the government's costs of managing the
grazing program. 


--------------------
\19 Federal Land Management:  The Mining Law of 1872 Needs Revision
(GAO/RCED-89-72, Mar.  10, 1989). 

\20 Mineral Resources:  Value of Hardrock Minerals Extracted From and
Remaining on Federal Lands (GAO/RCED-92-192, Aug.  24, 1992). 

\21 Mineral Royalties:  Royalties in the Western States and in Major
Mineral-Producing Countries (GAO/RCED-93-109, Mar.  29, 1993). 

\22 Addressing the Deficit:  Budgetary Implications of Selected GAO
Work for Fiscal Year 1998 (GAO/OCG-97-2, Mar.  14, 1997). 

\23 The fee was established under a formula in the Public Rangelands
Improvement Act of 1978 and was extended by an executive order. 

\24 Rangeland Management:  Current Formula Keeps Grazing Fees Low
(GAO/RCED-91-185BR, June 11, 1991). 


   CERTAIN CONGRESSIONAL
   EXPECTATIONS AND
   REVENUE-SHARING PROVISIONS
   SERVE AS DISINCENTIVES TO
   INCREASING REVENUE OR
   DECREASING COSTS
---------------------------------------------------------- Chapter 3:5

Congressional expectations and revenue-sharing provisions have
sometimes served as disincentives to either increasing revenue or
decreasing costs from the sale or use of natural resources on Forest
Service lands.  Establishing annual output targets and sharing
revenue that has been generated before deducting the costs of
providing goods or services furnish two examples. 

For instance, to prepare and administer timber sales, the Forest
Service relies primarily on annual appropriations based on such
criteria as the anticipated volume of timber to be offered for sale,
and the Forest Service's performance measures are based on the
volumes of timber offered for sale.\25 In addition, congressional
expectations for the agency's timber program are often expressed as
timber sale targets.  To meet these expectations and targets, the
Forest Service may not always recover its costs to prepare and
administer the sales.\26

When the Forest Service is allowed to retain a portion of the revenue
it generates, it does so without deducting its costs, which are
funded from annual appropriations.  By law, states and counties also
often share in revenue before deducting the full costs of providing
the goods or services.  Thus, neither the agency nor the states and
counties have an incentive to control costs. 

For example, from fiscal year 1992 through fiscal year 1994, the
Forest Service spent about $1.3 billion to prepare and administer
timber sales.  During that period, the agency collected nearly $3
billion in timber sales receipts.  Instead of being required to
return the money it spent to the Treasury, the Forest Service was
allowed to retain about $1.7 billion, or 57 percent, in various funds
and accounts for specific purposes, such as the reforestation of
harvested areas, preparation and administration of salvage timber
sales,\27

removal of brush, control of erosion, and building of roads that
provide access to the timber sales areas, as provided for by law. 
Another $887 million, or 30 percent, was distributed to the states in
which the forests are located.\28 The funds can be used by the states
to benefit roads and schools in the counties where the receipts were
earned.  The remaining $437 million was deposited in, or transferred
to, the General Fund of the Treasury.\29 (See fig.  3.6.)

   Figure 3.6:  Distribution of
   Timber Sales Receipts, Fiscal
   Years 1992-94

   (See figure in printed
   edition.)

Note:  The amounts deposited into the Roads and Trails Fund were
transferred to the General Fund of the Treasury to offset annual
appropriations for the construction and maintenance of roads and
trails. 

Source:  GAO's analysis of data from the Department of Agriculture. 

Similarly, 50 percent of the total revenue from livestock grazing on
national forests and grasslands is returned to the Forest Service to
fund various range improvements, such as fences and water
developments, and 25 percent is distributed to the states, even
though the revenue does not cover the agency's costs of managing its
grazing program.\30

Under the Mineral Leasing Act (30 U.S.C.  181 et seq., as amended),
50 percent of the revenue for federal onshore minerals is distributed
to the state in which the production occurred.  Another 10 percent is
distributed to the General Fund of the Treasury and the remaining 40
percent goes to a reclamation fund used for the construction of
irrigation projects.\31 However, in 1991, after the passage of
Interior's appropriations bill, states receiving revenue from federal
onshore minerals development began paying a portion of the costs to
administer the onshore leasing laws--a practice known as "net
receipts sharing." Net receipts sharing became permanent with the
passage of the Omnibus Budget Reconciliation Act of 1993, which
effectively requires that the federal government recover from the
states about 25 percent of the prior year's federal appropriations
allocated to mineral-leasing activities.  In fiscal year 1996, 41
states received about $481 million in revenue from the development of
federal onshore minerals.  The states paid the federal government
about $22 million as their portion of the costs to administer the
onshore leasing laws.\32 Sharing revenue after deducting these costs
may provide a strong incentive for the states to ensure that the
costs are contained or reduced. 


--------------------
\25 Public Timber:  Federal and State Programs Differ Significantly
in Pacific Northwest (GAO/RCED-96-108, May 23, 1996). 

\26 See, for example, Forest Service Needs to Improve Efforts to
Protect the Government's Financial Interest and Reduce Below-Cost
Timber Sales (GAO/T-RCED-91-42, Apr.  24, 1991). 

\27 "Salvage" timber refers to timber that is being made available
for harvest because it is insect-infested, dead, damaged, or downed
by wind or other natural means. 

\28 To correct inappropriate payments in fiscal year 1994,
distributions from the National Forest Fund to the states should be
reduced by about $145 million, and receipts from the fund deposited
in the General Fund of the Treasury should be increased by about $145
million.  See Forest Service:  Unauthorized Use of the National
Forest Fund (GAO/RCED-97-216, Aug.  29, 1997). 

\29 Forest Service:  Distribution of Timber Sales Receipts, Fiscal
Years 1992-94 (GAO/RCED-95-237FS, Sept.  8, 1995). 

\30 Rangeland Management:  Current Formula Keeps Grazing Fees Low
(GAO/RCED-91-185BR, June 11, 1991). 

\31 Under the act, Alaska receives 90 percent of the receipts and the
remaining 10 percent is deposited in the Treasury's General Fund. 

\32 Minerals Management:  Costs for Onshore Minerals Leasing Programs
in Three States (GAO/RCED-97-31, Feb.  27, 1997). 


   THE FOREST SERVICE HAS NOT
   ALWAYS OBTAINED A FAIR RETURN
   FOR GOODS OR RECOVERED COSTS
   FOR SERVICES AS AUTHORIZED BY
   LAW
---------------------------------------------------------- Chapter 3:6

The Congress has given the Forest Service the authority to obtain
fair market value for some goods or to recover costs for some
services.  However, the agency has not always taken advantage of this
authority, 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 sales receipts of $56 million from
     fiscal year 1992 through fiscal year 1996.\33

  -- 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, had not been updated for nearly 30
     years and generally limited 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.\34

  -- In December 1996, we also reported that although the Forest
     Service had been authorized to recover the costs incurred in
     reviewing and processing all types of special-use permit
     applications since as far back as 1952, it had 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
     communications 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.\35

The Forest Service has been aware for some time of the need to
improve its efforts to obtain fair market value for goods or recover
costs for services.  However, it has studied and restudied issues
without reaching closure.  For example, in 1987 and 1995, the agency
developed draft regulations that, if enacted, would have allowed
forest managers to recover the costs incurred in reviewing and
processing special-use permit applications.  However, the draft
regulations were never finalized or published because, according to
Forest Service headquarters officials, the staff resources assigned
to develop and publish the regulations were diverted to other
higher-priority tasks.\36


--------------------
\33 Forest Service:  Factors Affecting Bids on Timber Sales
(GAO/RCED-97-175R, June 17, 1997). 

\34 U.S.  Forest Service:  Fees for Recreation Special-Use Permits Do
Not Reflect Fair Market Value (GAO/RCED-97-16, Dec.  20, 1996). 

\35 U.S.  Forest Service:  Fee System for Rights-of-Way Program Needs
Revision (GAO/RCED-96-84, Apr.  22, 1996). 

\36 U.S.  Forest Service:  Fees for Recreation Special-Use Permits Do
Not Reflect Fair Market Value (GAO/RCED-97-16, Dec.  20, 1996). 


   THE FOREST SERVICE HAS NOT
   ACTED TO CONTAIN COSTS
---------------------------------------------------------- Chapter 3:7

The Forest Service has not always acted to contain costs, even when
requested to do so by the Congress.  Instead, consistent with its
tendency to study and restudy issues without reaching closure, the
agency has not established a clear sequence or schedule to improve
its performance. 

Studies comparing federal and state costs to manage programs such as
timber and leasable minerals\37 have been frustrated by significant
differences in legislative and regulatory requirements and guidance,
types of lands managed, and funding sources.\38

However, reviews of the Forest Service's internal processes and
procedures, as well as comparisons with the Bureau of Land
Management's operations, have identified opportunities to improve
operational efficiency at virtually every organizational level within
the Forest Service.  For example, in April 1997 we reported that,
according to an internal agency report, inefficiencies within the
Forest Service's decision-making process cost up to $100 million a
year at the individual project level alone\39 and that delays in
finalizing forest plans, coupled with delays in finalizing agencywide
regulations and in reaching decisions for individual projects, can
total a decade or longer.\40

The process used by the Forest Service to revise the land management
plan for the Tongass National Forest in southeastern Alaska
illustrates the results of the agency's not being held accountable
for making timely, orderly, and cost-effective decisions.  The Forest
Service originally planned to spend 3 years revising the plan.  At
the end of 3 years, the agency had spent about $4 million.  However,
the Forest Service spent another 7 years and $9 million revising the
plan.\41

Approved forest plans sometimes do not satisfy the requirements of
environmental and planning laws.  For example, from October 1992
through June 1996, the Forest Service paid almost $6.5 million in
claims for timber sales contracts that were suspended or canceled to
protect endangered or threatened species.  As of October 1996, the
agency had pending claims with potential damages of about $61
million, and it could incur at least an additional $198 million in
damages.  Some of the contracts were suspended or canceled because
the Forest Service had not developed plans that satisfied
environmental and planning requirements.\42

Moreover, although the Bureau of Land Management had repeatedly
revised its timber sales contract to minimize its liability when it
must suspend or cancel a timber sales contract to protect threatened
or endangered species, the Forest Service had not.  Since the late
1980s, the Forest Service had been developing new regulations and a
new timber sales contract that would limit the government's liability
on canceled timber sales contracts and redistribute the risk between
the agency and the purchaser.  However, the Forest Service had not
finalized either the regulations or the contract, and agency
officials believe that additional congressional appropriations may be
required to help pay for pending and future claims.\43

Similarly, the Forest Service could incur significant costs because
the Eldorado National Forest in northern California failed to comply
with the requirements of planning and environmental laws.  Forest
officials decided to proceed with a number of timber sales on the
basis of cursory, out-of-date environmental assessments that did not
adequately analyze the sales' potential effects on fish, wildlife,
plants, cultural resources, and water quality and did not consider
significant new information, as required under regulations
implementing the National Environmental Policy Act.  The contracts
that were awarded have since been suspended.  As a result, the Forest
Service could incur $30 million in potential damages. 

Concerned with the escalating costs of the Forest Service's timber
program, the Congress, in fiscal year 1991, asked the agency to
develop a multiyear program to reduce the costs of its timber program
by not less than 5 percent per year.\44 However, in April 1997, the
Forest Service was preparing to undertake the third major examination
of its timber program in the last 4 years.  Meanwhile, the costs
associated with preparing and administering timber sales remain
significantly higher than in fiscal year 1991.  (See fig.  3.7.)

   Figure 3.7:  Costs to Undertake
   Timber Sales, 1973-96

   (See figure in printed
   edition.)

Source:  Forest Service. 

Similarly, in mid-1996, the Forest Service began a study to
streamline its commercial and noncommercial recreation special-use
permit process.  However, similar attempts to improve the process had
been made in prior years but had met with little success.  For
example, a National Task Force on Special-Use Management, done in
1993 and 1994, addressed issues similar to the Forest Service's
streamlining effort.  The task force identified numerous problems
with the program and suggested ways to streamline the permit process
and make the program more consistent throughout the agency.  But none
of the task force's recommended actions were adopted by the
agency.\45

These and other findings led us to conclude in July 1997\46 that
inefficiency and waste within the Forest Service have cost taxpayers
hundreds of millions of dollars and that opportunities for economic
gains have been lost through indecision and delay.  We noted that
past efforts by the Forest Service to change its behavior have not
been successful and that decision-making within the agency is broken
and in need of repair. 


--------------------
\37 Leasable minerals include oil and gas, coal, geothermal steam,
sodium, trona, and potash. 

\38 See, for example, Minerals Management:  Costs for Onshore
Minerals Leasing Programs in Three States (GAO/RCED-97-31, Feb.  27,
1997) and Public Timber:  Federal and State Programs Differ
Significantly in Pacific Northwest (GAO/RCED-96-108, May 23, 1996). 

\39 Forest Service Decision-Making:  A Framework for Improving
Performance (GAO/RCED-97-71, Apr.  29, 1997). 

\40 Tongass National Forest:  Lack of Accountability for Time and
Costs Has Delayed Forest Plan Revision (GAO/T-RCED-97-153, Apr.  29,
1997). 

\41 Tongass National Forest:  Lack of Accountability for Time and
Costs Has Delayed Forest Plan Revision (GAO/T-RCED-97-153, Apr.  29,
1997). 

\42 Timber Management:  Opportunities to Limit Future Liability for
Suspended or Canceled Timber Sale Contracts (GAO/RCED-97-14, Oct. 
31, 1996). 

\43 Timber Management:  Opportunities to Limit Future Liability for
Suspended or Canceled Timber Sale Contracts (GAO/RCED-97-14, Oct. 
31, 1996). 

\44 Forest Service:  Status of Efforts to Achieve Cost Efficiency
(GAO/RCED-94-185FS, Apr.  26, 1994). 

\45 U.S.  Forest Service:  Fees for Recreation Special-Use Permits Do
Not Reflect Fair Market Value (GAO/RCED-97-16, Dec.  20, 1996). 

\46 The Results Act:  Observations on the Forest Service's May 1997
Draft Plan (GAO/T-RCED-97-223, July 31, 1997). 


   THE FOREST SERVICE IS NOT HELD
   ACCOUNTABLE FOR INCREASING
   REVENUE OR DECREASING COSTS
---------------------------------------------------------- Chapter 3:8

The Forest Service has not obtained fair market value for goods,
recovered costs for services, or improved operational efficiency
because it has not been held accountable for increasing revenue or
decreasing costs.  Holding it accountable would require measuring its
performance against revenue-generating and cost-reducing goals and
objectives.  However, the Forest Service's September 30, 1997,
strategic plan, developed to comply with the requirements of the
Government Performance and Results Act of 1993 (Results Act),
contains no goals or performance measures for obtaining fair market
value or for reducing or containing costs. 

In 1994, we suggested that obtaining a better return for the sale or
use of natural resources on federal lands and finding ways to reduce
costs should be considered in developing a strategy to reform the
Forest Service and that the agency would need to work closely with
the Congress to accomplish these objectives.\47 In our April 1997
report on the Forest Service's decision-making\48 and our July 1997
testimony on the Forest Service's implementation of the Results
Act,\49 we noted the act requires every executive department and
agency to develop a strategic plan that includes long-term general
goals and objectives--or strategic goals--that form the foundation
for holding it accountable for its performance. 

The Department of Agriculture submitted its first strategic
plan--which included a strategic plan for the Forest Service--to the
Office of Management and Budget and the Congress on September 30,
1997, as the act required.  The Forest Service's strategic plan
contains no goals or performance measures for generating revenue or
reducing costs.  For instance, the plan's objective for recreation
does not identify a performance measure for obtaining a fair return
for commercial and noncommercial recreation special-use permits.  In
addition, although the plan says that the agency intends to ensure
that "taxpayers receive a fair return for the use and sale of wood
fiber" from national forests, it does not identify any performance
measures that could be used to hold the agency accountable for
obtaining a fair return for timber and other forest products. 

Holding a public agency accountable for increasing revenue or
decreasing costs from the sale or use of natural resources is not
without precedent.  As noted in chapter 2, Washington State's
Department of Natural Resources is looking at its current and
possible future mix of assets to determine which mix will best
generate long-term revenue for its trust beneficiaries.  As part of
this effort, the department plans to (1) set standards for evaluating
the mix of assets on the basis of their profitability, biological
diversity, carrying capacity, and overall positioning and (2) develop
measurement tools to monitor the trust assets' ecological, social,
and economic performance. 


--------------------
\47 Forest Service Management:  Issues to Be Considered in Developing
a New Stewardship Strategy (GAO/T-RCED-94-116, Feb.  1, 1994). 

\48 Forest Service Decision-Making:  A Framework for Improving
Performance (GAO/RCED-97-71, Apr.  29, 1997). 

\49 The Results Act:  Observations on the Forest Service's May 1997
Draft Plan (GAO/T-RCED-97-223, July 31, 1997). 


   CONCLUSIONS
---------------------------------------------------------- Chapter 3:9

Among the Forest Service's mission priorities, generating revenue and
reducing costs rank below both protecting resources and providing
goods and services.  Efforts by the Forest Service to implement
approaches and techniques to increase revenue or decrease
costs--similar to many of the approaches and techniques being
employed by the nonfederal land managers whose efforts we
reviewed--would face a formidable array of statutory, regulatory, and
other barriers.  These barriers--which limit the Forest Service's
ability to move toward financial self-sufficiency and limit managers'
flexibility to make choices--include (1) language in federal statutes
implying that maximizing revenue should not be the overriding
criterion in managing the national forests, (2) requirements in
environmental and planning laws necessitating a shift in the Forest
Service's management emphasis to uses that do not generate revenue,
(3) legislative and administrative decisions setting aside an
increasing percentage of Forest Service lands for conservation, (4)
requirements that the agency continue to provide certain goods and
services at less than their fair market value, and (5) disincentives
embedded in laws and congressional expectations. 

Although the Forest Service's ability to generate revenue or recover
costs is limited, the Congress has provided the agency with the
authority to obtain fair market value for certain goods or recover
costs for certain services.  However, the Forest Service often has
not done so, nor has it always acted to contain costs, even when
requested to do so by the Congress.  Underlying these shortcomings is
the failure to hold the agency adequately accountable for its
performance for increasing revenue or decreasing costs.  Revising the
strategic plan that it developed to comply with the requirements of
the Results Act to include goals and performance measures for
obtaining fair market value and for reducing or containing costs
would provide the necessary first step for holding the Forest Service
accountable for its performance. 


   MATTER FOR CONGRESSIONAL
   CONSIDERATION
--------------------------------------------------------- Chapter 3:10

If the Congress believes that increasing revenue or decreasing costs
from the sale or use of natural resources should be mission
priorities for the Forest Service, it will need to work with the
agency to identify legislative and other changes that are needed to
clarify or modify the Congress's intent and expectations for revenue
generation relative to ecological, social, and other values and
concerns. 


   RECOMMENDATION TO THE SECRETARY
   OF AGRICULTURE
--------------------------------------------------------- Chapter 3:11

Because the Forest Service has not exercised its authority to obtain
fair market value for certain goods and to recover costs for certain
services and has not always acted to contain costs, even when
requested to do so by the Congress, we recommend that the Secretary
of Agriculture direct the Chief of the Forest Service to revise the
strategic plan that the agency developed to comply with the
requirements of the Results Act to include goals and performance
measures for obtaining fair market value for goods, recovering costs
for services, and containing expenses as the necessary first step in
holding the Forest Service accountable for its performance. 


   AGENCY COMMENTS
--------------------------------------------------------- Chapter 3:12

We provided copies of a draft of this report to the Forest Service
for its review and comment.  The agency's comments appear in appendix
IX.  The Forest Service (1) agreed with the report's conclusions and
recommendations, (2) stated that the report fairly presents relevant
factors that must be understood when comparing land managers or land
management within different time periods, and (3) noted that it has
made some progress in increasing revenue and improving financial
accountability.  We revised the report to recognize that the agency
is employing some of the approaches and techniques used by the
nonfederal land managers to increase revenue and has reduced
staffing. 


REVENUE-GENERATING PROGRAMS AND
ACTIVITIES, BY CASE STUDY
=========================================================== Appendix I

                               Revenue-generating programs and activities
               --------------------------------------------------------------------------
                           Outdoor     Wildlife and              Subsurface
Case study     Timber      recreation  fish          Rangeland   resources   Other
-------------  ----------  ----------  ------------  ----------  ----------  ------------
Washington     Timber                                Livestock   Mining      Agricultural
State          sales                                 grazing     leases      cropland,
Department of                                        leases                  orchards,
Natural        Sales of                                                      and
Resources'     special                                                       vineyards
trust lands    forest
and programs   products,                                                     Agricultural
               such as                                                       , aquatic,
               floral and                                                    and
               Christmas                                                     commercial
               greens                                                        permits and
                                                                             leases

White          Timber      Permits     Permits for   Cattle                  A casino and
Mountain       processing  for         hunting       sales                   other
Apache                     camping     trophy elk                            businesses
Tribe's Fort   Sales of    and         and other
Apache Indian  timber,     outdoor     big and
Reservation    lumber,     recreation  small game,
               and wood    , boating,  fishing, and
               products    and river   renting a
                           rafting     lake

                           A ski
                           resort

Texas Parks                Fees for                                          Retail
and Wildlife               camping,                                          stores
Department's               park
Parks                      entry, and                                        Park-leased
Division                   interpreta                                        soft drink
                           tive                                              machines
                           services

Church of                              Guided and    Cattle                  Lease for
Jesus Christ                           unguided      sales                   gas pipeline
of Latter-                             hunting for                           right-of-
day Saints'                            elk, deer,    Sheep                   way
Deseret Land                           moose, and    grazing
and Livestock                          antelope      leases
ranch
                                       Fly fishing

The Nature     Wood                    Hunting for   Cattle                  Donations
Conservancy's  product                 deer and      grazing
Niobrara       sales                   turkey        leases
Valley
Preserve                                             Bison
                                                     sales

National                                             Cattle      Natural     Donations
Audubon                                              grazing     gas
Society's                                            leases      production
Paul J.
Rainey
Wildlife
Sanctuary

International  Timber                  Five types                            Agricultural
Paper's        sales                   of hunting                            leases
Southlands                             and fishing
Experiment                             arrangements
Forest
-----------------------------------------------------------------------------------------

THE WASHINGTON STATE DEPARTMENT OF
NATURAL RESOURCES' TRUST LANDS AND
PROGRAMS HIGHLIGHTS
========================================================== Appendix II

  -- The mission of the Washington State Department of Natural
     Resources (DNR) is to (1) generate long-term sustainable revenue
     for designated public trust beneficiaries and (2) ensure healthy
     resources so future generations of beneficiaries and residents
     will enjoy the benefits that the state's residents enjoy today. 
     DNR must also comply with a state multiple-use law on state
     trust lands; however, these uses must be compatible with the
     agency's obligation to generate revenue for the trust
     beneficiaries.

  -- DNR's lands and programs are divided between a proprietary side
     and a regulatory side to accomplish the department's mission. 
     Proprietary programs are managed primarily to generate long-term
     sustainable revenue for the trust beneficiaries on lands granted
     to the state at statehood or acquired under forest board
     statutes of the 1920s and 1930s.\1 Regulatory programs are
     managed to meet regulatory objectives for the protection of
     public resources and include forest fire prevention and
     suppression, forest practices such as timber harvesting, and
     surface mining.

  -- Because state trust lands are expected to generate revenue, the
     department has developed several programs to (1) transfer, sell,
     or exchange some trust lands that have a limited potential for
     generating revenue or are more suited for conservation or
     non-revenue-generating recreation and (2) purchase or otherwise
     acquire replacement lands capable of generating revenue.  Under
     these programs, between 1981 and 1994, DNR repositioned 355,000
     acres, or 11 percent of its land base, including transferring
     about 59,000 acres from commodity production to conservation
     status.  The state legislature provided funds to DNR as
     compensation in accordance with the trust mandate requiring fair
     market value for products or lands that are sold.

  -- DNR's proprietary side is funded from gross revenue and
     generates considerable net income for the trust beneficiaries,
     primarily from timber sales.  DNR's regulatory side generates
     little revenue and is supported primarily by legislatively
     appropriated funds.

  -- Mandated to manage its trust lands for the long-term benefit of
     the trust beneficiaries, DNR has initiated efforts to increase
     revenue and reduce costs.  The department has (1) entered into
     an agreement with two federal regulatory agencies to provide
     regulatory certainty and predictability to its
     revenue-generating timber program for the trust beneficiaries
     while meeting the requirements of the federal Endangered Species
     Act; (2) modified its timber program to increase net income,
     introducing the direct marketing of forest products to better
     control the timing and environmental impact of logging
     operations; and (3) shifted the emphasis within its agriculture
     program from livestock grazing, which generates relatively
     little revenue, to more profitable agricultural production.

  -- Conversely, social, economic, ecological, and other values and
     concerns, such as federal legislation to limit the export of raw
     timber harvested on state lands and to protect species
     threatened with extinction, reduce net income from DNR's lands
     and programs.

  -- On its proprietary side, DNR is accountable primarily to its
     trust beneficiaries; however, trust lands also benefit the
     state's residents.  On its regulatory side, DNR is accountable
     primarily to the state's residents and the state legislature. 


--------------------
\1 During this period, various state statutes authorized the agency
to acquire tax delinquent logged-off lands for reforestation. 


   BACKGROUND AND GOALS
-------------------------------------------------------- Appendix II:1

Created in 1957 to consolidate several land-management functions and
resources, DNR manages more than 5 million acres of state lands. 
These lands include about 2.1 million acres of forestland, another
2.1 million acres of aquatic lands, 861,000 acres of rangeland
(331,000 acres of which are forestland that is also used for
grazing), and over 70,000 acres managed for resource conservation and
preservation, as well as 141 recreation sites and 400 miles of
maintained trails.  (See fig.  II.1.) DNR's overall mission is to
"generate long-term sustainable revenue for designated public trust
beneficiaries and assure healthy resources so future generations of
beneficiaries and residents will enjoy the benefits that [the state's
residents] enjoy today."

   Figure II.1:  Location of DNR's
   Lands Within the State of
   Washington

   (See figure in printed
   edition.)

DNR's lands and programs are divided between a proprietary side and a
regulatory side.  The proprietary side includes about 2.9 million
acres of land that DNR manages in trust, primarily for the long-term
benefit of the trust beneficiaries.\2

Revenue-generating programs include the sale of valuable materials,
such as timber, and the leasing of lands to others for agriculture,
aquaculture, mining, and commercial uses.  Regulatory programs carry
out state regulations governing surface mining, forest management,
and forest fire prevention and suppression.  These statewide
regulations apply to state and private lands and directly affect 12
million acres of forested nonfederal lands in the state.  The
department can penalize state and private landowners for violating
the regulations as well as charge them for the costs of repairing the
damages. 

As required by the 1889 Enabling Act, which granted federal lands to
the new state; the state of Washington's Constitution; and subsequent
legal decisions, DNR (acting as the trustee) must fulfill the
fiduciary responsibility of the state to its residents by (1)
managing trust lands for the primary benefit of the trust
beneficiaries, including state schools, state colleges and
universities, local services in many counties, prisons, public
buildings at the state capitol, and other public agencies and
charitable institutions within the state; (2) holding all trust lands
for all of the state's residents and not selling, transferring, or
using the lands for less than their fair market value; and (3) acting
with undivided loyalty and prudence toward the trust beneficiaries to
the exclusion of all others, including timber purchasers.  DNR must
also comply with a state multiple-use law.  However, multiple uses
will be provided only to the extent that they are compatible with the
agency's obligations to generate revenue for the trust beneficiaries. 
DNR officials said that the agency expends a great deal of energy to
create compatibility between multiple-use and revenue-generating
activities. 

Although DNR's lands and programs are divided between a proprietary
side and a regulatory side, the department's field staff work on both
regulatory and proprietary programs.  For example, a district
forester may prepare a timber sale one day (a proprietary program
activity) and enforce a surface mining regulation on private land the
next day (a regulatory program activity).  DNR also has specialists
in areas such as surface mining, farm forestry (providing technical
assistance to private forest landowners), geology, and fish and
wildlife management.  In addition, DNR field staff are often trained
in several areas.  For instance, most field staff are trained to
fight fires. 


--------------------
\2 Our analysis was limited primarily to DNR's trust lands and to
three programs--timber, special forest products, and agriculture.  We
did not review mining leases or agricultural, aquatic, and commercial
permits and leases. 


   REVENUE GENERATION AND
   FINANCIAL SELF-SUFFICIENCY
-------------------------------------------------------- Appendix II:2

DNR's proprietary and regulatory sides consume about 65 percent and
35 percent, respectively, of the department's resources.  DNR's
proprietary side is funded from gross revenue and also generates
considerable net income for the trust beneficiaries.  For example, in
fiscal year 1996, proprietary programs generated $311 million, or 92
percent, of the department's $337 million in gross revenue. 
Therefore, 65 percent of DNR's staff and resources generated 92
percent of DNR's revenue. 

In contrast, DNR's regulatory side generates little revenue (8
percent of the department's gross revenue in fiscal year 1996) and is
supported primarily by legislatively appropriated funds.  In
addition, regulatory programs receive about 1.5 percent of their
funding from a share of the state's gasoline sales taxes.  Other
sources of revenue include forest fire protection assessments paid by
state and private landowners, sales from the state forest nursery,
and nominal revenue from federal grants.  (See table II.1.)



                               Table II.1
                
                  DNR's Revenue, Expenditures, and Net
                      Income, Fiscal Years 1992-96

                         (Dollars in millions)

                                        Fiscal year
                      ------------------------------------------------
DNR's programs\a          1992      1993      1994      1995      1996
--------------------  --------  --------  --------  --------  --------
Total revenue             $235      $269      $194      $277      $337
Total expenditures      ($115)    ($114)    ($101)    ($184)    ($115)
Net income                $120      $155       $93       $93      $222
----------------------------------------------------------------------
\a Includes all of DNR's regulatory and proprietary programs. 

By state law, 75 percent of the revenue generated on lands originally
granted to the state by the federal government is distributed to the
state trust beneficiaries.  The remaining 25 percent may be
appropriated by the state legislature to DNR to administer
revenue-generating programs on these trust lands. 

Of the $311 million generated by proprietary programs in fiscal year
1996, $281 million (90 percent) was from timber sales and related
activities.  Agriculture and special forest products--the other
programs included in our review--generated $7.4 million and $332,000,
respectively, in fiscal year 1996.  DNR's agricultural program
includes not only a variety of crops, such as apples, grapes, and
wheat, but also livestock grazing.  The special forest products
program includes floral and Christmas greens, mushrooms, medicinals,
firewood, and at least 200 other specialty forest products.  Revenue
from both programs has been increasing yearly and is expected to
continue to do so.  (See table II.2.)



                               Table II.2
                
                DNR's Revenue From Timber, Agriculture,
                      and Special Forest Products

                         (Dollars in thousands)

                                        Fiscal year
                      ------------------------------------------------
Program                   1992      1993      1994      1995      1996
--------------------  --------  --------  --------  --------  --------
Timber sales and      $165,542  $165,938  $120,470  $186,232  $280,537
 timber-related
 activities
Agriculture             $4,840    $5,424    $6,907    $5,725    $7,400
Special forest              \a        \a      $149      $213      $332
 products
----------------------------------------------------------------------
\a Not available. 


      EFFORTS TO INCREASE REVENUE
      OR REDUCE COSTS
------------------------------------------------------ Appendix II:2.1

Mandated to manage its proprietary lands for the long-term benefit of
the public trust beneficiaries, DNR has initiated efforts to increase
revenue and reduce costs. 


         OPTIMIZING THE HIGHEST
         AND BEST LAND USES
---------------------------------------------------- Appendix II:2.1.1

At statehood, the state became entitled to certain federal lands
within its borders.  When it took title to these lands, more
productive federal lands had already been granted to private owners. 
As a result, in parts of the east side of the state, the state lands
form a checkerboard of drylands suitable only for livestock grazing. 
Because lands on DNR's proprietary side are expected to generate
revenue and livestock grazing generates little revenue, the
department has developed several programs to (1) transfer, sell, or
exchange some of these and other trust lands that generate little
revenue or are more suited to conservation or recreation and (2)
purchase or otherwise acquire replacement lands capable of generating
more revenue.  As a result, between 1981 and 1994, DNR repositioned
355,000 acres, or 11 percent of its land base.  Agency officials told
us that livestock grazing lands are an important part of the diverse
trust land base, but the conversion of some of these lands to higher
and better uses helps to diversify trust land assets. 

Moreover, agency officials told us that as opportunities become
available, they attempt to optimize short- and long-term income
within acceptable levels of risk by shifting to the highest and best
land uses in selected geographic areas.  For instance, during the
past 25 years, DNR has converted more than 34,000 acres of shrub
steppe drylands to higher-revenue-producing lands.  Some of these
lands have been leased competitively for commercial uses, raising
revenue significantly.  In addition, DNR has significantly changed
the makeup of its agricultural lands portfolio within central
Washington by converting many acres from less profitable livestock
grazing to more profitable agricultural uses, such as growing dryland
grains, especially wheat.  It has also converted many acres of shrub
steppe drylands to irrigated farm lands, grape vineyards, and apple
orchards by (1) developing irrigation infrastructures (drilling wells
and laying pipes), (2) obtaining and continuing to pursue water
rights in the state's water and irrigation districts as well as other
surface water and groundwater irrigation rights, and (3) contracting
for water from the federal Columbia Basin Irrigation Project. 

Through these efforts, the revenue from DNR's agricultural program
has increased by nearly 200 percent in the last 15 years.  DNR is
developing an Asset Stewardship Plan--a long-term land management
strategy--that will include a detailed inventory of its lands, their
current status, and their future potential.  This inventory will help
determine the future mix of lands in DNR's portfolio. 


         PROVIDING MORE REGULATORY
         CERTAINTY AND
         PREDICTABILITY
---------------------------------------------------- Appendix II:2.1.2

DNR has also entered into an agreement with two federal regulatory
agencies--the Department of the Interior's Fish and Wildlife Service
and the Department of Commerce's National Marine Fisheries
Service--to provide regulatory certainty and predictability to its
revenue-generating timber program.  A habitat conservation plan,
signed in January 1997, covers 1.6 million acres, or 76 percent of
DNR's 2.1 million acres of forestland, and includes a "no surprise
policy" under which the federal government (1) will not ask for more
land or mitigation funding from the state even if a species protected
by the plan continues to decline and (2) the subsequent listing of a
species as endangered or threatened under the Endangered Species Act
will not result in additional mitigation requirements. 


         INCREASING REVENUE FROM
         TIMBER OPERATIONS
---------------------------------------------------- Appendix II:2.1.3

In addition, DNR has initiated several efforts intended to increase
net income from its timber program.  For example, it has increased
timber revenue by identifying and marketing high-value trees, such as
those that can be used as utility or transmission poles or as logs
for the log home industry ("merchandising" timber).  Since fiscal
year 1990, this practice has generated about $41 million in
additional revenue at a cost of about $2 million in staff salaries. 
In addition, DNR is performing both precommercial and commercial
thinning, and, to a lesser extent, pruning and fertilizing timber
stands to spur tree growth.  In fiscal year 1996, tree sales
resulting from commercial thinning generated some $17 million in
revenue. 

DNR officials said they have also (1) increased the efficiency of the
department's timber sale appraisal system by adopting an approach
that looks only at prior comparable sales; (2) stopped reimbursing
contractors for constructing timber roads, thus reducing the costs to
monitor the roads' construction as well as avoiding the need to
reimburse contractors for inefficient road construction practices;
(3) initiated lump-sum bidding procedures under which all timber
within a stand is sold, thereby lowering DNR's costs to monitor a
bidder's removal of timber; (4) replaced oral bidding of timber sales
with sealed bids to avoid artificially suppressing the highest bid
value; and (5) pilot-tested a project to contract with a company to
harvest timber and then directly market the logs.  This last
effort--called contract logging--has increased DNR's return by
eliminating the "middle man" and allows DNR to better control the
timing and environmental impact of logging operations. 


         REDUCING OVERHEAD COSTS
---------------------------------------------------- Appendix II:2.1.4

Administratively, DNR has reduced its costs by allowing most field
staff to work out of their vehicles and to travel only occasionally
to small local work centers or trailers to complete needed paperwork
or to access databases or other reference materials.  Administrative
support, records, and other activities are primarily available in
DNR's seven regional offices located throughout the state, as are
heavy equipment and other supplies that may be needed by field
personnel. 


      VALUES AND CONCERNS THAT
      REDUCE NET INCOME FROM DNR'S
      LANDS
------------------------------------------------------ Appendix II:2.2

DNR is mandated to manage its proprietary lands and programs for the
long-term benefit of its trust beneficiaries.  However, social,
economic, environmental, and legal concerns often serve to reduce the
net income from DNR's lands and programs. 


         SOCIAL VALUES
---------------------------------------------------- Appendix II:2.2.1

State statutes require that all leases be reevaluated and adjusted
every 5 years and be advertised for competitive bids when they
expire.  Formerly, according to DNR officials, it was not uncommon
for grazing leases to be bid and held by the same lessee for many
years.  However, DNR's livestock grazing program and rangelands often
operate at a financial loss, in part because, for the previously
discussed historical reasons, the lands are not adjacent to one
another.  Additional environmental requirements have also increased
costs.  The depressed selling price of beef cattle has further shrunk
the profit margins of many small family ranchers, who have expressed
concern about losing their way of life.  While DNR might generate
more revenue by converting more acres from livestock grazing to
agricultural uses, preserving small family ranches has become a
political, as well as a financial, issue. 


         ECONOMIC CONCERNS
---------------------------------------------------- Appendix II:2.2.2

In response to regional economic concerns, a 1990 federal law
prohibited the export of 75 percent of the raw timber harvested on
state lands, beginning in January 1991.  In 1993, the Congress
extended this restriction to 100 percent of the raw logs harvested on
state lands.  These restrictions have reduced the revenue to DNR's
trust beneficiaries by $90 million annually, according to DNR's
estimates--or by a total of $350 million since the log export ban
began. 


         ENVIRONMENTAL CONCERNS
---------------------------------------------------- Appendix II:2.2.3

Environmental concerns, reflected in the requirements of federal and
state environmental laws and their judicial interpretations, have
also reduced net income from DNR's lands and programs.  Federal and
state laws and regulations protecting resources--such as endangered
and threatened species, water and air quality, and biological
diversity--dictate where and how often timber and other resources can
be harvested.  Such requirements also affect the amount of revenue
that can be generated from forestland.  For example, the 1990 listing
of the northern spotted owl and the 1993 listing of the marbled
murrelet under the federal Endangered Species Act caused DNR to
postpone or halt planned timber sales and to repurchase timber
previously sold.  DNR responded in 1997 by signing the habitat
conservation plan to improve regulatory certainty. 

Similarly, state environmental mandates, such as a 1993 law (H.B. 
1309) requiring DNR to incorporate environmental standards into all
state agricultural leases, have reduced the net income from DNR's
lands and programs.  DNR officials told us that these mandates are
often costly to implement, requiring additional staff with expertise
in rangeland management and long-term monitoring.  They said that the
costs of implementation often exceed the revenue produced on
marginally productive rangelands, yet the environmental mandates
serve to maintain the long-term health of these lands, including
their ability to continue generating revenue. 


         LIABILITY CONCERNS
---------------------------------------------------- Appendix II:2.2.4

Finally, DNR manages recreation as a non-revenue-generating program
and maintains fairly primitive and undeveloped sites on most of its
lands because of concerns about liability under a state law that
makes the department liable for injuries and accidents that occur on
lands where fees are charged for recreational access or uses. 
However, according to an internal DNR study, without funding for
increased infrastructure investment and land management, the
contribution of DNR-managed conservation areas to the state's
ecotourist economy will diminish.  The study suggests initiating fees
and charges for recreational uses on DNR's lands and using the
revenue to protect and enhance the quality of the resource as well as
to support necessary infrastructure investments. 


   ENVIRONMENTAL MANAGEMENT AND
   PROTECTION
-------------------------------------------------------- Appendix II:3

In addition to generating long-term sustainable revenue for
designated beneficiaries of the public trust, DNR is also charged
with ensuring healthy resources so that future generations of
beneficiaries and residents will enjoy the benefits that the state's
residents enjoy today.  DNR emphasizes conserving natural resources
while generating long-term sustainable revenue not only to meet
today's federal and state environmental laws and regulations but also
to help ensure the availability of future opportunities and revenue. 

DNR's attention to environmental management and protection is
reflected in the department's strategic planning process for managing
state trust forestlands.  This process integrates the needs of up to
10 different natural resources with resource commodity uses, such as
timber harvesting.  Under the process, DNR first identifies a desired
future condition for the different natural resources, then describes
the planning concepts needed, and finally identifies the general
guidelines to be followed to achieve the desired condition over a
10-year period. 

According to DNR's policy plan for managing forest resources, the
forests that the department manages for income also exist as complex
natural ecosystems--a perspective that guides DNR's efforts to
protect forest health, wildlife habitat, and aquatic systems.  The
policy also states that the department will manage its diverse
forestlands at different levels of intensity, depending on their
biological productivity and economic potential, and that it will
reduce the impact of timber clear-cutting by limiting harvest areas
to fewer than 100 acres and by providing green buffers along streams
in sensitive watersheds.  Similarly, DNR's policy plan for managing
agricultural and grazing lands includes as one of its key policies to
provide environmental protection through the site-specific
application of current technology and compliance with environmental
laws. 

DNR also points to the January 1997 habitat conservation plan as an
attempt to generate income from trust lands over the long-term while
protecting the environment and wildlife habitat.  The plan provides
at least 70 years of protection for existing and future endangered
species, such as the northern spotted owl, while also protecting
streams and habitat critical to the survival of other at-risk fish
and wildlife species.  Moreover, since 1989, DNR has transferred
about 59,000 acres from commodity production to conservation status. 

Some environmental groups have expressed concern that DNR's habitat
conservation plan emphasizes commodity production over habitat
protection.  Conversely, some beneficiaries of DNR's trust lands have
expressed concern that the plan goes too far in conserving habitat
and in limiting revenue-generating activities, especially timber
harvesting. 


   ACCOUNTABILITY FOR RESULTS
-------------------------------------------------------- Appendix II:4

DNR is accountable primarily to the state's residents and the state
legislature.  On its proprietary side, DNR is primarily accountable
to the beneficiaries of its public trust.  The Board of Natural
Resources, the final decision-making authority for the agency,
approves departmental policies and plans for state trust lands and
reviews all timber sales.  The board is composed of representatives
of the trust beneficiaries.  Given this composition, a DNR official
said, the board provides a check-and-balance to departmental policies
and initiatives.  In addition, the Commissioner of Public Lands, who
heads DNR, is an elected official, so accountability is inherent in
the position. 

According to DNR officials, accountability for performance and
results begs the questions of to whom, for what, and for how long. 
DNR's overall mission--to "generate long-term sustainable revenue for
designated public trust beneficiaries and assure healthy resources so
future generations of beneficiaries and residents will enjoy the
benefits that [the state's residents] enjoy today"--includes two
potential conflicts--first, between generating revenue and ensuring
environmental quality, and second, between current and future
generations of beneficiaries and residents.  Moreover, as previously
discussed, social, economic, environmental, and legal concerns reduce
the net income from DNR's lands and programs.  Other actions and
events, such as Initiative 601 (which limits state tax increases to
no more than the rate of inflation), have caused colleges and school
districts to seek additional revenue from other sources, including
the resources that DNR manages. 

To assist in decision-making, DNR applies certain principles, such as
the "prudent person doctrine," which requires the department to
exercise skill and care in protecting trust resources;
"intergenerational equity," which requires DNR to strive to manage
trust lands and programs to ensure equal treatment for all
generations; and "not foreclosing future options," which requires DNR
to manage trust assets so that reasonably foreseeable future sources
of income are not forgone by actions taken today.  Each of these
principles may reduce current income and return on investment over
the short term but may be viewed as the most prudent course over the
long term. 

DNR also has two efforts under way that address accountability.  The
first is its Asset Stewardship Program, which is to look at the
department's current and possible future mix of assets to determine
which mix will best generate long-term revenue for the trust
beneficiaries.  As part of this effort, the department plans to (1)
set standards for evaluating the asset mix on the basis of its
profitability, biological diversity, carrying capacity, and overall
positioning of assets and (2) develop measurement tools to monitor
the trust assets' ecological, social, and economic performance.  DNR
hopes to develop a longer-term management framework that will give
its managers flexibility to respond to future population and other
changes that affect the management of state lands and programs. 

The second effort is DNR's March 1997 long-term strategic plan--the
"10-Year Direction"--which, among other things, sets out major goals,
objectives, and specific strategies to achieve them.  According to
DNR officials, the plan (1) will be consistent with a statewide
performance budgeting system now being developed and (2) parallels
the Asset Stewardship Plan by identifying specific targets for
managing various trust assets. 


THE WHITE MOUNTAIN APACHE TRIBE'S
FORT APACHE INDIAN RESERVATION
========================================================= Appendix III


   HIGHLIGHTS
------------------------------------------------------- Appendix III:1

  -- The White Mountain Apache Tribe manages its lands and resources
     to generate tribal revenue and increase tribal employment while
     protecting the environment, including wildlife and their
     habitat, and maintaining cultural and aesthetic values.

  -- Although the tribe has been fairly successful in developing,
     managing, and operating some of its business enterprises, it is
     still financially dependent on the federal government, which has
     a trust responsibility to help manage and protect Indian
     forestland.  In some years, costs have exceeded the revenue
     generated from the tribe's natural resources, especially when
     the federal appropriated funds that were used to supplement
     tribal funds are considered.

  -- The tribe has imposed social and ecological values on the
     management of its forests and ecosystems.  These values have
     reduced the revenue from the tribe's timber and recreational
     hunting enterprises.  For example, unemployment on the
     reservation approaches 40 percent; therefore, the tribe places a
     high priority on tribal employment and has been willing to use
     labor-intensive technologies, rather than more efficient
     capital-intensive technologies, in its timber operations in
     return for lower unemployment.

  -- Environmental concerns have also reduced revenue from the
     tribe's commercial timberlands.  To help ensure sustained yield
     and to preserve its forests and ecosystems for future
     generations, the tribe reduced its annual timber harvest level
     over the past several years by about 40 percent.  The tribe
     expects to reduce the annual harvest level even further to make
     it more compatible with annual tree growth.  Revenue from other
     tribal enterprises and activities, particularly casino gaming,
     has helped to mitigate the impact of the reduction in timber
     revenue.

  -- Amenity-based recreation--such as hunting, fishing, hiking,
     camping, boating, river rafting, and snow skiing--is increasing
     and provides a relatively stable source of revenue by attracting
     a steady flow of tourists.

  -- The tribe manages a vertically integrated forest products
     enterprise that operates two sawmills; a remanufacturing plant
     to more effectively use the sawmills' low-grade lumber; and a
     retail center that sells lumber, wood, and hardware products.

  -- To provide more regulatory certainty and predictability to its
     revenue-generating timber program as well as to reduce its
     costs, the tribe has assumed responsibility for accommodating
     the objectives of federal environmental laws, especially the
     Endangered Species Act, from federal regulatory agencies.  The
     tribe focuses on maintaining healthy ecosystems rather than
     designating critical habitat for threatened and endangered
     species. 


   BACKGROUND AND GOALS
------------------------------------------------------- Appendix III:2

The Fort Apache Indian Reservation, home of the White Mountain Apache
Tribe, was established in June 1897.  The reservation is located in
east central Arizona.  It is about 75 miles long and 45 miles wide
and encompasses more than 1.6 million acres.  About 1.1 million acres
are forests, high alpine areas, and woodlands.  The remaining acres
include rangelands, grasslands, agricultural lands, and community
areas.  About 12,000 of the 14,500 people who live on the reservation
are tribal members.  (See fig.  III.1.)

   Figure III.1:  Location of the
   Fort Apache Indian Reservation

   (See figure in printed
   edition.)

The tribe manages its lands and resources to generate tribal revenue
and increase tribal employment while protecting the environment,
including wildlife and their habitat, and maintaining cultural and
aesthetic values. 


   REVENUE GENERATION AND
   FINANCIAL SELF-SUFFICIENCY
------------------------------------------------------- Appendix III:3

According to tribal officials, the tribe is recognized as a national
leader among Indian tribes in exercising its sovereignty for economic
development, with its economy closely tied to its natural resource
base.  The tribe is working toward becoming more financially
self-sufficient while maintaining its culture and traditions. 
According to the tribal planning staff, the tribe has been fairly
successful in developing, managing, and operating some of its
business enterprises.  However, the tribe is still financially
dependent on the federal government, and in some years costs have
exceeded the revenue generated from the tribe's natural resources,
especially when the federal appropriated funds that were used to
supplement tribal funds are considered. 

Tribal revenue and expenses have increased in recent years, primarily
because of new or expanding tribal enterprises that attract increased
tourism, such as a casino, a ski resort that includes 65 ski runs on
three mountains, and a trailer park with over 120 sites for
recreational vehicles.  According to reports provided by the tribal
treasurer, tribal revenue totaled about $85.8 million for fiscal year
1996 and about $96.5 million for fiscal year 1997, and tribal
expenses totaled about $89.7 million and $87.9 million, respectively,
for these 2 years.  The tribe incurred a net loss of about $3.9
million in fiscal year 1996 and achieved a net income of about $8.6
million in fiscal year 1997.  Federal appropriated funds that were
used to supplement tribal funds for timber management and protection
and fisheries management averaged about $6.3 million each year.  (See
table III.1.)



                              Table III.1
                
                  The Fort Apache Indian Reservation's
                    Revenue and Expenses and Federal
                 Appropriated Funds, Fiscal Years 1996-
                                   97

                         (Dollars in millions)

                                  Fiscal year 1996    Fiscal year 1997
------------------------------  ------------------  ------------------
Tribal revenue                               $85.8               $96.5
Tribal expenses                            ($89.7)             ($87.9)
Net tribal income/(loss)                    ($3.9)                $8.6
Federal appropriated funds                    $6.3                $6.3
----------------------------------------------------------------------
According to the reservation's current 10-year forest management
plan, net tribal income averaged about $6.9 million annually from
fiscal year 1980 through fiscal year 1992, of which about $6.1
million, or 88 percent, was realized from the sale of tribal timber
and profits from forestry-related enterprises.  However, only about
44 percent of the total revenue for fiscal year 1996 and about 54
percent of the total revenue for fiscal year 1997 were generated from
timber sales and enterprises based on natural resources.\1 The
remaining 46 to 56 percent of the revenue was generated from other
tribal enterprises and activities, such as the casino, a restaurant
and motel, convenience markets that sell gasoline and groceries, and
a shopping complex. 


--------------------
\1 The tribe's fiscal year runs from May 1 to April 30. 


      TIMBER OPERATIONS
----------------------------------------------------- Appendix III:3.1

The tribe has a thriving, vertically integrated forest products
industry that continues to generate one-third or more of the tribe's
gross annual revenue.  The major source of income is the Fort Apache
Timber Company, which is owned and managed by the tribe.  Besides
harvesting timber on the reservation's 800,000 acres of commercial
timberlands (land that is producing or capable of producing crops of
industrial wood), this enterprise operates two sawmills; a
remanufacturing plant to more effectively use the sawmills' low-grade
lumber; and a retail center that sells lumber, wood, and hardware. 
According to the tribal treasurer, net income from the tribe's timber
operations totaled about $1.5 million in fiscal year 1996 and $8.5
million in fiscal year 1997.  In addition, 13 percent of the proceeds
that the company pays to the tribe from lumber sales is withheld to
pay for constructing and maintaining the reservation's forest road
system, and the balance is further reduced by a legislatively
mandated 10-percent administrative fee deduction to help cover the
federal costs related to timber sale preparation and administration,
fire protection, forest development, and forest management
inventories and planning on the tribe's forestlands.\2

Since the early 1980s, the Department of the Interior's Bureau of
Indian Affairs (BIA) has provided an average of about $5.6 million a
year to manage and protect the tribe's timber resource.  According to
BIA's current 10-year forest management plan, about $1.8 million a
year is spent on timber management activities, such as forest
inventories, timber sales, reforestation, and timber stand
improvement, and the remaining $3.8 million is spent on resource
protection, including fire and pest management.  Tribal revenue from
timber operations does not reflect these federal costs. 


--------------------
\2 The National Indian Forest Resources Management Act (P.L. 
101-630, Nov.  1990) clarified the authority of the Secretary of the
Interior to make deductions from the proceeds of the sale of Indian
forest products and to ensure that such deductions are used for
forestland management activities on the reservation from which the
proceeds are derived. 


      OUTDOOR RECREATION
----------------------------------------------------- Appendix III:3.2

The reservation is rich in other natural resources, with 25
constructed fishing lakes and more than 420 miles of rivers and
streams, as well as a variety of wildlife, including elk, mule deer,
white tailed deer, turkey, mountain lion, black bear, and other big
and small game animals.  Hunting, fishing, hiking, camping, boating,
and river rafting provide a relatively stable source of revenue by
attracting a steady flow of tourists.  Overall, these amenity-based
recreation activities generated annual revenue ranging from $1.9
million to $2.2 million in fiscal years 1995-97.  Related tribal
expenses, including the cost of 11 armed game wardens to enforce the
tribe's hunting and fishing regulations, ranged from $1.4 million to
$1.8 million, resulting in net annual income of $361,000 to $434,000. 
According to a tribal report covering the 12-year period from fiscal
year 1984 through fiscal year 1995, the tribe achieved a net income
from these activities during 8 years and incurred a net loss during 4
years.  The annual net income ranged from $115,000 to $434,000, and
the annual net loss ranged from $29,000 to $135,000.  The last net
loss was in fiscal year 1994.  Tribal officials said that the last 3
fiscal years have been profitable because of changes in management
and policy. 


      RECREATIONAL HUNTING
----------------------------------------------------- Appendix III:3.3

The tribe manages its trophy elk and other wildlife on a sustainable
basis and makes a substantial profit.  The tribe hosts an annual
internationally renowned trophy bull elk hunt, which by 1995 was
generating more than $850,000 in annual revenue.  The tribe does not
receive any direct federal funds to supplement its management of the
elk, but it benefits indirectly from federal funds spent on forest
management. 

Before 1977, the state issued about 700 licenses a year, priced at
$150 each, for nontribal hunting on the reservation.  Nontribal
hunters were also required to obtain a tribal permit, but the tribe
did not receive any of the revenue collected by the state.  The
license and permit entitled a hunter to shoot a bull elk of any size. 

In 1977, the tribe informed the state that it would allow elk hunting
without a state license and would control all hunting and fishing on
the reservation.  The state opposed this change, but a federal court
ruled in favor of the tribe.  The tribe reduced the hunting pressure
on immature bulls by ending the general elk hunt and replacing it
with the trophy bull elk hunt.  The number of elk-hunting permits was
reduced substantially, from 700 to 30, while the price per permit was
increased from $150 to $1,500. 

During 1995, the tribe issued 70 permits to hunt trophy elk--66 to
nontribal hunters for $12,000 each to participate in a 7-day hunt,
and 4 to nontribal hunters who paid an average of $24,000 each
through a special auction.  Even with the $12,000 fee, there is a
5-year waiting list of nontribal hunters.  The tribe also issued 70
permits to nontribal hunters to hunt trophy elk in 1996 and intended
to offer the same number in 1997.  The reservation now supports about
12,000 free-ranging adult elk. 

Other hunting opportunities are also offered to maintain the proper
bull-to-cow ratio in the elk herd and to manage other wildlife
species.  For example, in 1997 the tribe intended to offer about 500
permits to nontribal hunters to hunt antlerless elk at prices ranging
from $100 to $300.  In addition, the tribe intended to charge
nontribal hunters $50 to hunt small game, $1,500 to hunt spring
gobblers, $3,500 to hunt antelope, and $40,000 to hunt one mature
bighorn sheep.  The tribe expected to issue only two antelope permits
and one bighorn sheep permit to nontribal hunters in 1997.  Permits
for most big game species require that hunters be accompanied by a
registered guide. 


      RECREATIONAL FISHING
----------------------------------------------------- Appendix III:3.4

Tribal fishing permits and recreational fisheries have recently
generated about $750,000 a year in gross revenue to the tribe. 
However, the Department of the Interior's Fish and Wildlife Service
(FWS) spends about $650,000 a year to supplement tribal funds for
managing the reservation's recreational fisheries.  About two-thirds
of the fish from two FWS-operated hatcheries located on the
reservation are used to stock the tribe's lakes and streams.  The
annual costs of producing, raising, transporting, and stocking the
fish are paid with federal funds.  Other related costs--for
activities such as assessing stock, recommending where to stock the
fish and how many to stock, and monitoring the water quality before
and after stocking the fish--are also paid with federal funds. 
Therefore, the tribe's recreational fisheries would not be as
profitable without federal funds. 


      DEVELOPED RECREATION
----------------------------------------------------- Appendix III:3.5

The tribe's Sunrise Park Resort provides high-quality skiing to
thousands of visitors a year.  It includes trails established across
three of the reservation's highest mountains and a ski lodge with
dining and summertime recreational activities.  According to tribal
reports, ski operations and related services have generated from $2.1
million to $8.1 million in total annual revenue since 1984, but
related tribal expenses exceeded the revenue in half of these years. 


      OTHER OUTDOOR RECREATION
----------------------------------------------------- Appendix III:3.6

Tribal game and fish officials told us that camping permits generate
about $150,000 to $175,000 a year in revenue and river running/white
water rafting permits generate about $140,000 to $150,000 a year. 
The tribe also generates revenue from boating permits, outdoor
recreation permits to travel on the reservation's unpaved roads, and
fees for a rent-a-lake program under which the tribe will rent one of
two entire lakes for $300 a day to groups or individuals seeking an
exclusive and totally private lake setting, for example, for family
reunions, company picnics, or church meetings.  The tribe also
receives money from nontribal professional outfitters who pay to
guide rafting, hunting, and fishing trips and other activities on the
reservation. 

Tribal game and fish officials said that the tribe is looking into
additional ways of generating revenue from the use of its natural
resources.  The tribe would like to enhance the marketability of the
resources by building toilet facilities at campgrounds and generally
improving campsites, expanding rafting to other areas of the
reservation, and providing horseback riding. 


      LIVESTOCK GRAZING
----------------------------------------------------- Appendix III:3.7

In the past several decades, the reservation supported a large
livestock industry consisting of more than 15,000 cattle.  Tribal
members estimate that the herd is now down to about 6,000 cows.  An
estimated 4,000 horses also graze on the reservation.  Although
livestock grazing is culturally important to some tribal members, it
has become more of a hobby than a job, and active management of the
herd is limited.  Livestock grazing and cattle sales have not
generated any net income for the tribe for years.  The tribe also has
an irrigated farm that produces alfalfa for feed and agricultural
products for sale.  According to tribal reports, these enterprises
have incurred a net loss from their operations every year since 1984. 


      EFFORTS TO REDUCE COSTS
----------------------------------------------------- Appendix III:3.8

To provide more regulatory certainty and predictability for its
revenue-generating timber program and to reduce its costs, the tribe
has assumed responsibility for accommodating the objectives of
federal environmental laws, especially the Endangered Species Act,
from FWS and other federal regulatory agencies. 

In December 1994, the Chairman of the White Mountain Apache Tribe and
the Director, FWS, signed an innovative statement of relationship
between the tribe and FWS that recognizes the tribe as the primary
manager of the reservation with the institutional ability to ensure
that economic activity does not adversely affect listed and sensitive
wildlife and plants.  It recognizes the tribe's aboriginal rights,
sovereign authority, and demonstrated ability to manage and regulate
the lands and resources on the reservation as the self-sustaining
homeland of the White Mountain Apache people.  The document
recognizes FWS' technical expertise in fish, wildlife, and plants as
a significant resource for the tribe's management of the ecosystems
and associated listed and sensitive species on the reservation.  The
document also addresses the tribal management plans that are being
developed to protect the ecosystems and resources and discusses
communication and coordination between the tribe and FWS in resolving
environmental issues of mutual concern. 

In June 1997, the Secretary of the Interior signed an order that
clarifies the responsibilities of the Department of the Interior when
the implementation of the Endangered Species Act affects federally
recognized Indian land, tribal trust resources, or the exercise of
tribal rights.  According to the order, the United States defers to
tribal conservation management plans and agrees to (1) work directly
with Indian tribes on a government-to-government basis to promote
healthy ecosystems; (2) offer technical assistance to aid in tribal
conservation; (3) be sensitive to Indian culture, religion, and
spirituality; and (4) establish channels for tribes to resolve
disputes through negotiation. 


      VALUES AND CONCERNS THAT
      REDUCE NET INCOME
----------------------------------------------------- Appendix III:3.9

The tribe has imposed social and ecological values on the management
of its forests that have reduced revenue from its timber and
recreational hunting enterprises.  For example, the tribe has been
willing to use labor-intensive technologies and outdated equipment in
its timber operations to reduce unemployment, which approaches 40
percent on the reservation.  According to officials of the Fort
Apache Timber Company, their two sawmills are old and outdated;
however, the company employs about 300 tribal members at the mill
sites and another 150 tribal members in the timber logging
operations.  The company plans to modernize its sawmills while
pursuing the manufacture of other value-added products in order to
maintain the current employment level.  The company has also started
logging dead spruce trees and marketing them as house logs.  This
effort is expected to net about $700,000 annually in additional
income. 

Environmental concerns have also reduced revenue from the tribe's
commercial timberlands.  To help ensure sustained yield and preserve
its forests for future generations, the tribe reduced its annual
timber harvest level over the past several years from the maximum
allowable cut of 92 million board feet per year determined by BIA to
about 55 million board feet per year--a reduction of about 40
percent.  The tribe expects to reduce the annual harvest level even
further--possibly to as low as 40 million board feet per year--to
make the harvest level more compatible with tree growth.  According
to the tribal chairman, the decision to substantially reduce the
tribe's annual timber harvest level represented a tremendous
financial sacrifice but demonstrated the firm intention of the tribe
to preserve its forests for future generations.  Tribal officials
informed us, however, that revenue from the tribe's casino gaming,
elk hunting, and ski operations has helped to make up for the reduced
timber revenue. 

Although the tribe charges nontribal hunters an average of $24,000 to
hunt trophy elk on the reservation and there is a 5-year waiting
list, in 1997 the tribe intended to offer 25 permits to tribal
members for $100 each to hunt trophy elk in a designated unit of the
forest.  Furthermore, although nontribal hunters pay $100 to $300 to
hunt antlerless elk, the tribe intended to offer 90 permits to tribal
members for $50 each to hunt bull elk in three designated zones. 
Tribal members pay $2 for a general elk hunt permit, $10 for a
special season archery permit, and $5 for a late-season antlerless
elk permit.  Finally, in accordance with the tribe's culture, only
tribal members are permitted to hunt deer on the reservation. 


   ENVIRONMENTAL MANAGEMENT AND
   PROTECTION
------------------------------------------------------- Appendix III:4

Conservation has been deeply ingrained in the tribe's culture and
spiritual ways, and the Apache tradition of stewardship continues to
guide the tribe's natural resource management philosophy.  According
to tribal officials, the Apache way has always been to preserve
nature while, at the same time, sustaining the tribe's needs.  The
tribe takes great pride in being able to live harmoniously with
nature despite its increasing population and economic needs. 

Because the tribe has acted to protect the environment and preserve
the forests for future generations, it has occasionally disagreed,
for different reasons, with both BIA and FWS.  For example, BIA
initially opposed the tribe's decisions to (1) reduce the
reservation's annual timber harvest level by about 40 percent, (2)
reduce the amount of timber harvested by clear-cutting and on steep
canyons, and (3) remove several proposed old-growth timber sales. 
The tribe has also insisted on selectively harvesting trees of
different ages (uneven-age harvesting) that are susceptible to insect
infestation or disease to produce a more natural-looking forest. 

Conversely, the tribe and FWS formerly disagreed over whether federal
environmental laws and regulations apply to the tribe's lands.  The
tribe maintained that the Endangered Species Act does not apply to
its reservation, or to Indian lands in general, and that tribes have
the sovereign right to manage and regulate their own lands to protect
the environment and resources without being required to designate
critical habitat for threatened or endangered species.  FWS
disagreed.  The December 1994 statement of relationship between the
tribe and FWS resolved this controversy.  It reinforces the tribe's
sovereign right to manage and regulate its lands and resources and
limits FWS' role to providing technical expertise and assistance on
environmental issues and mitigation measures only when requested by
the tribe.  FWS officials said that they would like to have more
input into proposed timber sales on the reservation but are often not
consulted unless the tribe believes that a proposed sale may affect a
sensitive or listed species. 

The tribe has chosen to accommodate the objectives of the Endangered
Species Act and other federal environmental laws by implementing an
approach that incorporates the "coarse filter" concept of
conservation biology.  This concept holds that a strategy focused on
maintaining the function, composition, and structure of an ecosystem
as a whole will be adequate to meet the needs of most species.  For
example, in developing a management plan to protect the Mexican
spotted owl after the owl was listed as threatened under the
Endangered Species Act, the tribe based its plan on protecting the
ecosystem, rather than on protecting individual owls.  FWS reviewed
the tribe's plan and determined that it afforded more protection to
the owl than would result from designating thousands of acres of the
tribe's forest as critical habitat for the species.  As a result, the
tribe was allowed to continue harvesting timber while other areas in
Arizona and New Mexico, including national forests, were required to
shut down their timber operations until studies could be conducted to
determine the effects of timber harvesting on the owl. 


   ACCOUNTABILITY FOR RESULTS
------------------------------------------------------- Appendix III:5

The tribal council--the final decision-making authority for the tribe
on financial, economic development, and natural resources management
matters--is accountable solely to the tribe's approximately 12,000
members.  The council's chairman, vice-chairman, and nine district
representatives are elected officials, so accountability is built
into their positions. 

The tribe has begun to link decision-making to results.  It works
closely with BIA and holds itself and BIA accountable for these
decisions.  The tribal government maintains financial records of the
revenue and expenses associated with specific tribal enterprises and
obtains an independent audit of the reasonableness of the tribe's
annual financial statements. 

Tribal officials cited the council's decision to establish casino
gaming on the reservation as an example of accountability for
expenditures and results.  The goal was to broaden the economic
foundation of the tribe and to reduce the pressure on the forest
resources, on which the tribe's economy had depended.  According to
the tribe's planning staff, the casino's success has spurred
expansion of the casino complex, increased tribal jobs, increased
tourism-related revenue, and stimulated the tribe's overall economic
development.  The casino provides the tribe with revenue that it can
use for any purpose, including funding capital expenditures and
offsetting losses in other tribal operations. 


THE TEXAS PARKS AND WILDLIFE
DEPARTMENT'S PARKS DIVISION
========================================================== Appendix IV


   HIGHLIGHTS
-------------------------------------------------------- Appendix IV:1

  -- The Parks Division's primary goals are to (1) manage and
     conserve the state's natural and cultural resources and (2)
     provide for outdoor recreation, conservation education,
     outreach, and cultural/historical interpretation.  The
     philosophy of the agency, as stated in its 1997 strategic plan,
     is to seek a balance between conserving the state's natural and
     cultural resources and providing for outdoor recreation as the
     division strives to achieve greater financial self-sufficiency
     through more and better public services.

  -- Faced with a revenue shortfall that was expected to result in
     park closures and staff shortages, the Texas legislature in 1993
     authorized the division to initiate a new program--the
     Entrepreneurial Budgeting System (EBS)--to increase net income
     from park fees by returning a portion of any increased revenue
     and budget savings to the parks.  EBS was pilot-tested in fiscal
     year 1994 and implemented divisionwide in fiscal year 1995.

  -- Under EBS, park managers were given increased flexibility and
     were encouraged to explore innovative entrepreneurial ideas. 
     Park managers responded by, among other things, (1) increasing
     entrance and campground fees, sometimes by 100 percent; (2)
     managing retail stores previously contracted to concessionaires
     and opening new ones; (3) installing park-leased soft drink
     machines; (4) increasing the number of fee-based interpretative
     and tourist-oriented programs; (5) reducing the number of hourly
     employees; (6) increasing the number of campground volunteers
     and hosts; and (7) using prison inmates to perform routine
     cleaning, renovation, and improvements at park facilities as
     well as other services.

  -- EBS increased park-generated net income--primarily from entrance
     and campground fees--from $14.8 million in fiscal year 1993 to
     $18.5 million in fiscal year 1995, a gain of 25 percent.  In
     addition, expenditures for operations were reduced by almost 10
     percent over the 2 years.

  -- In developing EBS, the division assumed that the number of
     visits to state parks and the revenue generated from these
     visits would continue to rise each year.  Thus, the division
     never foresaw or planned for periods of decreasing revenue.  As
     a result, it had no contingency plan in place when a prolonged
     statewide drought, combined with higher entrance fees, resulted
     in fewer visits to the parks in fiscal year 1996 and a $2
     million budget shortfall.  The Texas Parks and Wildlife
     Department responded to this shortfall by suspending EBS and not
     returning $837,000 owed to the parks from fiscal year 1995. 
     Although EBS continues to generate revenue, none of the revenue
     is now being returned to the parks, and the program's incentive
     to reduce costs by accruing budget savings into subsequent
     fiscal years has been removed.

  -- According to some within the division, as well as
     representatives of some environmental groups with whom we spoke,
     implementing EBS disrupted the balance between the goals of
     conserving the state's natural and cultural resources and
     providing for outdoor recreation.  Achieving financial
     self-sufficiency, they said, became a primary mission priority
     rather than a means to accomplish the division's stated goals.

  -- Under EBS, managers were not held accountable for meeting or
     exceeding revenue and budget savings targets, according to
     division officials.  A new program, which is to replace EBS in
     fiscal year 1998, will hold managers accountable for either
     meeting revenue targets or reducing expenditures to make up for
     any shortfall. 


   BACKGROUND AND GOALS
-------------------------------------------------------- Appendix IV:2

The Texas Parks and Wildlife Department was formed in 1963 by merging
the former Parks Board and Game and Fish Commission.  It provides
outdoor recreational opportunities for the public by (1) acquiring
and managing parkland and historic areas and (2) managing and
protecting wildlife and their habitat.  The department's Parks
Division is currently composed of 93 units that manage 81 parks, 37
historical parks and sites, and 7 natural areas scattered throughout
the state.\1 (See fig.  IV.1.) Twenty-six of these parks, sites, and
natural areas were added to the system between 1986 and 1996. 
Together, the units encompass over 669,000 acres and range in size
from the 270,000-acre Big Bend Ranch Complex State Park in
southwestern Texas to some small historical sites of 1 acre or less. 

   Figure IV.1:  Location of Texas
   State Parks

   (See figure in printed
   edition.)

The Parks Division's primary goals are to (1) manage and conserve the
state's natural and cultural resources and (2) provide for outdoor
recreation, conservation education, outreach, and cultural/historical
interpretation.  The philosophy of the agency, as stated in its 1997
strategic plan, is to seek a balance between conserving Texas'
natural and cultural resources and providing for outdoor recreation
as the state strives to achieve greater financial self-sufficiency
through more and better public services. 

The Parks Division is a hierarchical organization whose management is
highly decentralized among (1) the agency's headquarters, located in
Austin; (2) 8 regional offices spread throughout the state; and (3)
125 field offices located on the parks, historic sites, and natural
areas.  During fiscal year 1997, the Parks Division employed 850
full-time and 300 hourly or seasonal employees, about 94 percent of
whom were located in the 125 field offices, according to a Parks
Division official. 


--------------------
\1 Our analysis was limited primarily to the Parks Division and
excluded lands and programs managed by the department's Wildlife
Division. 


   REVENUE GENERATION AND
   FINANCIAL SELF-SUFFICIENCY
-------------------------------------------------------- Appendix IV:3

The Parks Division's yearly budget is divided between operations and
capital costs and renovations.  The operations budget funds
employees' salaries as well as the costs of routine maintenance, such
as painting and roof repairs.  The division's capital and renovation
budget funds new land acquisitions and construction, as well as major
repairs and renovations to existing facilities. 

In fiscal years 1992 and 1993, the Parks Division's operations were
funded from (1) park entrance and campground fees, (2) a state sales
tax on cigarettes, (3) unclaimed motorboat fuels tax refunds, (4)
appropriations from general tax revenue, and (5) other park revenue\2
and appropriations from various funds.  However, faced with a revenue
shortfall that was expected to result in park closures and staff
shortages, the Texas legislature decided in 1993 to fund the
division's operations budget primarily from direct and indirect user
fees.  As a result, it (1) created a new sales tax on sporting goods
so that revenue from the state sales tax on cigarettes and general
revenue could be used elsewhere and (2) authorized the division to
initiate EBS to increase net income from park fees.  (See table
IV.1.)



                                        Table IV.1
                         
                          Texas Parks and Wildlife Department's
                             Revenue Available for State Park
                             Operations, Fiscal Years 1992-97

                                  (Dollars in millions)

           Appropriat
            ions from   Unclaimed                              Park    Other park
              general   motorboat  Cigare    Sporting      entrance   revenue and
Fiscal            tax   fuels tax     tte       goods   and camping  appropriatio
year          revenue     refunds     tax   sales tax         feesa           nsb   Total
---------  ----------  ----------  ------  ----------  ------------  ------------  ------
1992            $6.25       $9.55  $13.58                    $16.25         $1.44  $47.07
1993            $6.25       $9.75  $13.37                    $17.17         $2.45  $48.99
1994                       $12.50              $13.14        $21.63         $1.39  $48.66
1995                       $12.50              $13.08        $20.31         $1.64  $47.53
1996                       $12.50              $15.50        $20.93         $2.09  $51.02
1997                       $12.50              $15.50        $22.30         $1.79  $52.09
 (est.)
-----------------------------------------------------------------------------------------
Note:  This table includes revenue data for the entire Texas Parks
and Wildlife Department because a Parks Division finance official was
unable to separate the sources of revenue available to the Parks
Division from those available to the Wildlife Division and other
programs and functions. 

\a Includes revenue from the sale of conservation passports, which
allow entrance to all units within the system.  These passports are
sold primarily by the Parks Division's headquarters, and the revenue
from their sale is retained by the division. 

\b Includes revenue from mineral leases, public hunts, donations, and
sales of capital goods and equipment. 


--------------------
\2 Includes revenue from mineral leases, public hunts, donations, and
sales of capital goods and equipment. 


      THE ENTREPRENEURIAL
      BUDGETING SYSTEM (EBS)
------------------------------------------------------ Appendix IV:3.1

EBS was pilot-tested in fiscal year 1994, implemented divisionwide in
fiscal year 1995, and suspended in fiscal year 1996.  The program
increased revenue and reduced costs in both fiscal years 1994 and
1995.  Although the program continues to generate revenue primarily
from increased entrance and campground fees, none of this increased
revenue is now being returned to the individual state parks,
according to a Parks Division official.  In addition, the program's
incentive to reduce costs by accruing budget savings into subsequent
fiscal years has been removed. 

EBS had two components--one intended to increase revenue, the other
intended to reduce costs--within existing laws and regulations. 
Under the revenue-generating component, 35 percent of the earned
revenue above certain targets was to be returned to the individual
state park where the revenue was generated; 40 percent was to be
returned to the Parks Division to support general operational
expenses; and the remaining 25 percent was to be placed in a special
account to provide start-up funding as additional parks adopted EBS. 
Returning 35 percent of the earned revenue above certain targets to
the individual state park that generated the revenue was expected to
provide an incentive to the parks to increase revenue. 

EBS' budget savings component gave individual state parks an
incentive to reduce costs.  Individual park budgets were to be
reduced by 5 percent a year with no inflation factor built in. 
Budget savings above this target amount could be accrued into
subsequent fiscal years. 

EBS departed from earlier management approaches under which the Parks
Division penalized, rather than rewarded, park managers for reducing
their dependence on general revenue.  According to a departmental
assessment of EBS, "although parks had provided innovative programs
in the past, they were essentially penalized for saving budgeted
dollars.  Many times the following fiscal year budgets were reduced
by the amount saved.  Attempts at increasing revenue were rarely
acknowledged much less rewarded."

The parks appeared to respond enthusiastically to EBS, and the
program seemed to spark a "new entrepreneurial culture" within the
division, according to Parks Division officials.  Seventy-two units
applied to participate in the pilot test in fiscal year 1994.  Of the
42 units selected to participate, 38 met or exceeded their revenue
targets by a total of over $1.1 million, of which $323,000 was
returned to these parks in fiscal year 1995.  Similarly, 71 of the
division's 93 units met or exceeded their fiscal year 1995 revenue
targets by a total of over $1.4 million, of which $504,000 was to be
returned to the parks in fiscal year 1996.  (See table IV.2.)



                               Table IV.2
                
                 EBS Revenue for Fiscal Years 1994 and
                                  1995

                         (Dollars in thousands)

                                                      Number
                                            Actual  of parks    Amount
                                           revenue   meeting     to be
                                  Actual      less        or  returned
                        Target  revenue\    target  exceedin    to the
Fiscal year            revenue         a   revenue  g target     parks
--------------------  --------  --------  --------  --------  --------
1994                    $7,429    $8,590    $1,161  38 of 42      $323
1995                   $16,591   $18,008    $1,417  71 of 93      $504
----------------------------------------------------------------------
\a Excludes revenue collected from the sale of Texas conservation
passports (annual park passes), leases and permits, and other
miscellaneous sources. 

In addition, 39 of the 42 units that participated in the fiscal year
1994 pilot test met or exceeded the goal of reducing expenditures by
5 percent, making $407,000 available for subsequent fiscal years. 
Similarly, 54 of the division's 93 units met or exceeded their fiscal
year 1995 budget savings targets, making an additional $333,000 in
budget savings available for subsequent fiscal years.  (See table
IV.3.) In total, expenditures for operations were reduced by almost
10 percent over the 2 years. 



                                        Table IV.3
                         
                          EBS Expenditures for Fiscal Years 1994
                                         and 1995

                                  (Dollars in thousands)

                                                                 Number of
                                                                     parks
                                                 Target less    meeting or  Amount to be
                          Target        Actual        actual     exceeding   returned to
Fiscal year         expenditures  expenditures  expenditures        target     the parks
------------------  ------------  ------------  ------------  ------------  ------------
1994                     $10,582       $10,110          $473      39 of 42          $407
1995                   $10,211\a       $10,219          $(8)      54 of 93          $333
----------------------------------------------------------------------------------------
\a Excludes approximately $4 million in salaries that was not
considered in calculating either the 5-percent budget reductions or
the amounts to be accrued into subsequent fiscal years. 

Under EBS, park managers were given increased flexibility and were
encouraged to explore innovative entrepreneurial ideas to increase
revenue.  Park managers responded by increasing entrance and
campground fees, sometimes by 100 percent.\3 As a result, revenue
from these activities rose from $14.8 million in fiscal year 1993 to
$18.5 million in fiscal year 1995, a gain of 25 percent.  (See table
IV.4.) Park managers also increased revenue by managing retail stores
previously contracted to concessionaires, as well as by opening new
ones, installing park-leased soft drink machines, and increasing the
number of fee-based interpretative and tourist-oriented programs. 



                               Table IV.4
                
                Texas State Parks Entrance, Concessions,
                 and Campground Fee Collections, Fiscal
                             Years 1993-96

                         (Dollars in thousands)

                                         Fiscal year
                        ----------------------------------------------
Fee source                    1993        1994        1995        1996
----------------------  ----------  ----------  ----------  ----------
Park entrance fees          $5,970      $6,521      $6,604
                                                                $6,176
Concessions and             $3,338      $3,704      $5,189
 recreation fees                                                $5,864
Park campground fees        $8,355      $9,402     $10,299
                                                                $9,146
Other receipts\a              $122        $147        $196        $223
Gross receipts             $17,785     $19,774     $22,288     $21,409
Deductions\b                $2,929      $3,122      $3,788      $4,095
======================================================================
Net revenue                $14,856     $16,652     $18,500     $17,314
----------------------------------------------------------------------
\a Includes collections of state sales and hotel taxes. 

\b Includes deductions for facility and hotel tax refunds, among
other deductions. 

Under the pilot test, park managers were also allowed to count as
budget savings any unspent salary funds resulting from not filling
vacant full-time staff positions.  Park managers responded by
reducing the number of hourly employees and increasing the number of
campground volunteers and hosts and using prison inmates to perform
routine cleaning, renovation, and improvements at park facilities as
well as other services.  They also reduced the number of months
worked by seasonal employees.  In fiscal year 1995, volunteers were
donating about 495,000 hours worth about $2.6 million, or work equal
in value to that of about 238 full-time employees, while the value of
inmates' labor was estimated at about $2.4 million over the last 2
fiscal years. 

In fiscal year 1995, the department made several changes to EBS. 
Participation, which had been voluntary in fiscal year 1994, was made
mandatory.  In addition, although all units were expected to increase
revenue by at least 0.5 percent, the revenue target above which 35
percent of the earned revenue would be returned to a park was
increased from 1.4 to 3.0 percent, making it more difficult for parks
to meet or exceed the targets.  Furthermore, net income from park
entrance, camping, and other fees decreased by $1.2 million from
fiscal year 1995 to fiscal year 1996 (see table IV.4), creating a
budget shortfall that (1) offset budget savings from unspent salary
funds resulting from unfilled vacancies, thus reducing the managers'
ability to meet the budget savings target and (2) curtailed funding
for the special account established to provide start-up funding for
EBS, according to a Parks Division official. 

In developing EBS, the department assumed that the number of visits
to state parks and the revenue generated from these visits would
continue to rise each year.  However, in fiscal year 1996, it had a
$2 million budget shortfall because a prolonged statewide drought in
the spring and summer of 1996, combined with higher park entrance
fees, resulted in fewer visits to the parks.\4 For example, the
number of state park visitor days declined by 4.5 percent, from 24.4
million in calendar year 1995 to 23.3 million in calendar year 1996. 
As a result, the department suspended the program in September 1996
and did not return the $837,000 ($504,000 in earned revenue and
$333,000 in budget savings) owed to the parks from fiscal year 1995. 
According to the department's chief financial officer, about
$375,000, or 45 percent, of the $837,000 was returned to the parks in
December 1997, and the remainder is expected to be returned in the
future, once park revenue improves.  The department intends to
replace EBS with a similar program--the Portfolio Initiative--which
is to begin in fiscal year 1998 and be fully implemented in fiscal
year 1999, according to a Parks Division official. 


--------------------
\3 In May 1996, the department replaced the daily per-vehicle
entrance fees with daily per-person entrance fees ranging from $1 to
$5 per adult. 

\4 According to Texas Parks and Wildlife finance officials, the
estimated $2 million budget shortfall in fiscal year 1996 resulted
from (1) declining sales of Texas conservation passports and (2) the
$1.2 million decrease in net income from park entrance, camping, and
other fees from fiscal year 1995 to fiscal year 1996. 


      FUNDING FOR THE PARKS
      DIVISION'S CAPITAL AND
      RENOVATION EXPENSES
------------------------------------------------------ Appendix IV:3.2

In fiscal years 1992 and 1993, revenue from park fees and the state
sales tax on cigarettes was used to service the debt on $75 million
in general obligation bonds authorized in the 1960s to finance the
Parks Division's capital and renovation budget.  In fiscal years
1994-97, revenue from park fees and a tax on sporting goods was used
to service the debt.  However, faced with a backlog of deferred park
maintenance and reconstruction costs that had risen to $231
million,\5 the Texas legislature decided in August 1997 to issue $60
million in general obligation bonds for the department's capital
needs and to service the debt from general tax revenue rather than
from park fees and the sporting goods tax.  Between half and
two-thirds of the $60 million authorized for Texas Parks and Wildlife
capital projects will be spent on Parks Division projects, according
to a Parks Division finance official.  As a result, while the Parks
Division's operations budget is now funded almost entirely from
direct and indirect user fees--including a new sales tax on sporting
goods--the percentage of the division's capital and renovation budget
funded from these fees will decrease, and general tax revenue will be
used to finance the Parks Division's capital budget. 


--------------------
\5 Of this total, an estimated $76 million is needed for critical
repairs--i.e., for those needed to avoid a facility's closure or
required for health and safety reasons--including upgrading parks'
electrical, water, and wastewater treatment systems and renovating
aged park facilities and buildings, according to a Parks Division
official. 


   ENVIRONMENTAL MANAGEMENT AND
   PROTECTION
-------------------------------------------------------- Appendix IV:4

According to its 1997 strategic plan, the Parks Division seeks to
balance the goals of conserving the state's natural and cultural
resources and providing for outdoor recreation as the division
strives to achieve greater financial self-sufficiency through more
and better public services.  However, according to some within the
division, as well as representatives of some environmental groups
with whom we spoke, implementing EBS disrupted this balance, and
achieving financial self-sufficiency became a primary mission
priority, rather than a means to accomplish the division's stated
goals. 

Two of the four nonprofit organizations we contacted maintained that
the division's emphasis on generating revenue under EBS led to
recreational development on environmentally sensitive lands or on
lands that should have been designated as natural areas.  For
example, officials of the Lone Star Chapter of the Sierra Club and
the Texas Committee on Natural Resources said that the expansion of a
golf course at Bastrop State Park, located southeast of Austin, may
have destroyed habitat critical to the survival of the endangered
Houston toad.  In addition, an official with the Texas Committee on
Natural Resources said that lands formerly set aside as natural areas
are now being developed into state parks.  As a case in point, the
official cited plans for Devils River State Park, where habitat
critical to endangered birds will be used by recreational vehicles. 

These officials are concerned that the division is emphasizing
recreational uses, such as park-run retail stores, on lands that can
generate revenue over conservation of the state's natural and
cultural resources.  For example, the officials said that since 1993,
the Parks Division (1) has not designated any lands as natural areas
and (2) has discontinued its natural heritage program.  In contrast,
officials with the Texas Association of Campground Owners and the
Texas Recreation and Parks Society supported EBS and said that the
division was doing a good job of balancing revenue generation and
conservation. 

According to the Director of the Parks Division and other agency
officials, efforts to increase revenue and/or decrease costs under
EBS complied with all applicable requirements of federal and state
environmental laws and regulations.  Moreover, in the case of the
golf course expansion at Bastrop State Park, a concessionaire is now
making a contribution annually to mitigate the habitat of the
endangered toad, according to a Parks Division official.  However,
the director acknowledged that EBS placed too much emphasis on
generating revenue and that some park managers may have gone too far
in emphasizing revenue generation at the expense of conservation and
the protection of natural resources.  A 1996 survey of park employees
by an outside consultant found that employees lacked a clear sense of
the agency's mission and welcomed more emphasis on conservation and
resource management within the division. 

According to the director, the Parks Division must emphasize to its
employees that programs like EBS are not ends in themselves, but
rather a means to help the agency achieve its primary goals of
managing and conserving the state's natural and cultural resources
and providing for outdoor recreation.  Toward this end, the division
plans to complete an inventory of all naturally significant lands and
historic areas held by the department and to designate areas of
statewide natural significance as natural areas within existing state
parks.  This, together with other initiatives, will help bring a
sense of natural resources management back into the division, the
director said. 


   ACCOUNTABILITY FOR RESULTS
-------------------------------------------------------- Appendix IV:5

In general, individual park managers are not held accountable for
their performance, largely because neither the division's performance
measurement system nor individual managers' annual performance
appraisals are tied to the agency's goals and objectives.  However,
the new Portfolio Initiative will hold managers accountable. 

Under EBS, the responsibility for operational and financial
decision-making was shifted from headquarters to the division's 125
field offices.  Park managers signed annual EBS contracts
(performance agreements) that held them accountable for meeting or
exceeding revenue and budget savings targets.  However, neither the
agency's performance measurement system nor individual managers'
performance appraisals were linked to the agency's objective of
achieving greater financial self-sufficiency through more and better
public services, according to a Parks Division official. 

Under EBS, managers who did not meet or exceed revenue and budget
savings targets were not held accountable and, with the suspension of
the program, managers again will not be rewarded when they exceed the
targets.  According to division officials, the Portfolio Initiative,
which is to replace EBS in fiscal year 1998, will hold managers
accountable for either meeting revenue targets or reducing
expenditures to make up the shortfall.  In the future, meeting
revenue and budget savings targets will be tied to individual
performance agreements, as well as to pay and promotion standards. 


THE CHURCH OF JESUS CHRIST OF
LATTER-DAY SAINTS' DESERET LAND
AND LIVESTOCK RANCH
=========================================================== Appendix V


   HIGHLIGHTS
--------------------------------------------------------- Appendix V:1

  -- The mission of the 201,000-acre Deseret Land and Livestock (DLL)
     ranch, located in north central Utah, is to maximize profit
     while improving the lands' resources, be a part of the
     neighboring community, and be an ensign of the Church of Jesus
     Christ of Latter-day Saints.  DLL is purported to be the largest
     land-owning ranch in the state.

  -- According to the ranch manager, DLL is a financially
     self-sufficient, tax- paying business.  The ranch generates
     revenue primarily from cattle sales and from fees for hunting
     big-game wildlife.  While revenue from cattle sales varies from
     year to year with the selling price of beef cattle, total
     revenue from DLL's wildlife program, which includes hunting, has
     increased nearly every year and in 1997 generated net revenue of
     about $342,000.

  -- The ranch has not always been financially self-sufficient. 
     However, establishing a clear expectation that the ranch would
     be financially self-sufficient and providing incentives to
     increase net income--such as refusing to further subsidize the
     ranch's operations and rewarding managers and other employees
     for their performance--have resulted in innovative approaches
     and techniques to increase revenue and decrease costs.  Such
     innovative approaches and techniques include (1) introducing
     unconventional livestock grazing practices and (2) managing big
     game as a profitable resource.  Both approaches require active
     management.

  -- Although DLL manages its lands primarily to improve forage for
     cattle and habitat for big game, in doing so, it also protects,
     restores, and maintains other resources, including riparian
     areas, other wildlife, and water quality.  For example, by
     limiting the length of time and designating the time of year
     that cattle are allowed to graze an area and by resting several
     pastures every year, DLL has been able to increase plant density
     and forage diversity and production, as well as reduce runoff
     and soil erosion.

  -- DLL is accountable to the church's Farm Management Company.  The
     ranch prepares a 5-year plan, sets annual goals, and prepares an
     annual operations budget each October.  Ranch employees help set
     yearly goals for their programs, and performance appraisals are
     based on how well the employees achieve those goals.


   BACKGROUND AND GOALS
--------------------------------------------------------- Appendix V:2

Deseret Land and Livestock is a 201,000-acre ranch located in
Woodruff, Utah, about 110 miles northeast of Salt Lake City, Utah. 
(See fig.  V.1.) Within the ranch's boundaries are about 14,000 acres
leased from the Department of the Interior's Bureau of Land
Management and about 640 acres leased from the state. 

   Figure V.1:  Location of the
   Deseret Land and Livestock
   Ranch

   (See figure in printed
   edition.)

The ranch, which borders the Wasatch-Cache National Forests, is
purported to be the largest land-owning ranch in Utah and has been
owned since 1983 by the Church of Jesus Christ of Latter-day Saints. 
DLL is one of a number of the church's agricultural properties in the
United States and other countries.  The Farm Management Company, a
tax-paying entity of the church, provides oversight management of
DLL. 

The rolling eastern half of the ranch is managed primarily for cattle
grazing, while the higher-elevation, more rugged western half is
managed primarily for hunting and fishing.  DLL is located in an arid
area of the state known for its extremely cold temperatures and short
growing season of about 52 days. 

DLL's written mission is to "maximize profit while improving the
resources" and to "be a part of the community and an ensign of the
church." The ranch manager informed us that while he considers social
and environmental values and concerns in reaching decisions, his
number one mission priority is to maximize profit.  He noted,
however, that managing for the long-term health of the land is the
key to sustainable production. 


   REVENUE GENERATION AND
   FINANCIAL SELF-SUFFICIENCY
--------------------------------------------------------- Appendix V:3

According to the ranch manager, DLL is a financially self-sufficient,
tax-paying business.  Like the church, DLL generally does not accept
federal or state subsidies.  The ranch's annual revenue covers both
operating and capital costs, including $280,000 a year paid to the
church to repay land acquisition costs.  Any annual net income
generated by DLL goes to the church through the Farm Management
Company. 

The ranch generates revenue primarily from two activities--cattle
sales and hunting (included within DLL's wildlife program) four
species of free-ranging big game--mature rocky mountain bull elk,
shiras moose, buck mule deer, and pronghorn antelope.  The wildlife
program's other revenue sources include fees charged for high-quality
fly fishing on the ranch's ponds and streams and for bird watching. 
Recently, the wildlife program had begun to generate more revenue
than the ranch's historically significant cattle sales, but in 1997,
cattle sales accounted for over 50 percent of net income.  While
total revenue from the wildlife program has increased nearly every
year, revenue from cattle sales varies annually, primarily with
changes in the selling price of beef cattle.  For example, according
to the ranch manager, when closing data for 1997 are compiled, DLL's
wildlife program will generate net income of about $342,000 for the
year and is projected to generate $400,000 in the year 2001.  In
contrast, the cattle program's net income, which averaged about
$158,000 between 1991 and 1995, should increase to between $400,000
and $550,000 in 1997.  Revenue projections for the cattle program in
2001 range from as low as $49,000 to $746,000, depending on cattle
prices.  Other revenue-generating uses and activities on the ranch
include leasing land annually for sheep grazing and leasing land for
a 7-mile, 100-foot-wide gas pipeline right-of-way, for which DLL
receives $20,000 per year. 


      EFFORTS TO INCREASE REVENUE
      OR REDUCE COSTS
------------------------------------------------------- Appendix V:3.1

The ranch has not always been financially self-sufficient.  The
former manager, who was hired by the ranch's previous owner and
managed the ranch for about 17 years, told us that when he was hired
in 1978, the ranch was losing about $500,000 a year.  The former
owner created incentives for financial self-sufficiency by (1) giving
him greater discretion in managing the ranch, (2) refusing to
continue subsidizing the ranch's operations, and (3) allowing any
profits to be kept on the ranch to enhance its value.  The former
manager found that the increased flexibility and clear expectation
that the ranch would be financially self-sufficient resulted in
innovative approaches and techniques to increase revenue and decrease
costs.  The former manager claims to have added $100,000 a year in
revenue to the ranch, increased the size of both the cow herd and the
elk population, and improved the quality of the deer population. 

The church acquired the ranch in 1983 and expects DLL to remain
financially self-sufficient.  The Farm Management Company desires
that DLL earn a 5-percent return on investment on its operation and
expects a potential 6-percent return on any contemplated purchases of
new property. 

Any annual net income generated by DLL now goes to the church through
the Farm Management Company rather than staying on the ranch. 
However, the ranch's employees have two incentive plans--one based on
the ranch's net income and the other based on annual, individual
goals.  Under the ranchwide plan, management and nonmanagement
personnel can earn up to 10 percent and up to 5 percent of their
salaries, respectively, on the basis of exceeding DLL's profit
target.  According to the ranch manager, this incentive is hard to
achieve because exceeding the profit goal requires covering the
$280,000 annual payment to the church for the ranch's land
acquisition costs.  However, management and nonmanagement personnel
can also earn up to 5 percent and up to 10 percent of their salaries,
respectively, if they achieve their individual goals.  According to
the ranch manager, this incentive is often achieved and its costs are
included in the ranch's annual budget. 


         LIVESTOCK GRAZING
----------------------------------------------------- Appendix V:3.1.1

DLL is one of a small, but growing, number of ranches that practice
what is often referred to as "time-control" or "time-managed"
grazing.  On DLL, this management practice involves developing an
annual written plan that (1) sets the time of year and limits the
length of time that cattle are allowed to graze an area and moves
them among fenced pastures rather than allowing them to graze on open
rangeland and (2) rests pastures every year by not allowing cattle to
graze on them.  During the ranch's brief growing season, pastures are
generally grazed for short periods of time by a relatively large
number of cattle.  This approach allows long periods of rest and
recovery for the plants.  For example, on a typical June day, cattle
will be grazing on 10 percent of the ranch, while 90 percent is
recovering from grazing or growing forage for future use. 

From 1983 to 1997, the number of mother cows on the ranch increased
by 85 percent and the number of weaned calves by 103 percent.  In
addition, DLL expects the numbers of mother cows and weaned calves to
increase by about 10 percent and 14 percent, respectively, by the
year 2001.  However, the ranch manager observed that time-control
grazing on DLL has been successful because of an abundance of water,
the use of fencing, and active management.  For example, the ranch
manager informed us that DLL has an "incredible" water right that
predates statehood, as well as most other state water rights.  These
water rights entitle the ranch to a flow rate of 134 cubic feet of
water per second.  Irrigated pastures represent less than 4 percent
of the ranch's acreage but provide over 55 percent of the total
cattle forage.  In addition, segmenting pastures by fencing is
necessary but can be expensive; maintaining fences on the ranch costs
about $37,000 a year. 

Although DLL does not now own any sheep, it leases land annually to
sheep owners who graze about 3,300 head on the ranch.  According to
the ranch manager, this grazing is also time-controlled by moving the
sheep to new areas every few days.  Control is achieved by herding
rather than by fencing.  He stated that sheep seem well suited to the
ranch's summer range. 


         RECREATIONAL HUNTING
----------------------------------------------------- Appendix V:3.1.2

DLL also manages big game and other wildlife as a profitable resource
rather than as a cost of doing business.  Game species in Utah are
managed by the state, which charges hunters $35 a year for a license
and sets hunting seasons and bag limits.  However, under Utah state
law, private property being managed for the benefit of livestock and
wildlife can be designated as a "cooperative wildlife management
unit." The landowner can then charge a fee for access to recreational
hunting on the property.  In 1996, DLL charged hunters up to $8,500
for guided trophy bull elk hunting.  (See table V.1.) Fees for elk
hunting generated the highest total revenue from recreational hunting
on the ranch, followed by fees for deer, antelope, and moose hunting. 
DLL also sponsors a "Dedicated Sportsman" program, under which mule
deer hunters are allowed to take only two trophy bucks every 5 years. 
Hunters in this program generally hunt all 5 years, paying their
annual $1,300 fee but harvesting only two trophy bucks.  These
hunters also give 8 hours of service annually to DLL's wildlife
programs.  DLL offers unguided hunts for mule deer and pronghorn
antelope most years.  Hunts for antlerless deer and elk are also
usually available annually; 90 percent of the permits for these hunts
are free through a public draw. 



                               Table V.1
                
                Fees Charged for Recreational Hunting on
                the Deseret Land and Livestock Ranch in
                                  1996

Species                                     Hunting days        Amount
----------------------------------------  --------------  ------------
Trophy bull elk (guided)                               5        $8,500
Management bull elk (guided)                           5        $5,500
Shiras moose (guided)                                  6        $5,000
Buck mule deer (guided)                                5        $5,000
Buck mule deer (unguided)                             10        $1,300
Pronghorn antelope (guided)                            4        $1,300
----------------------------------------------------------------------
DLL's wildlife program, which generates most of the ranch's revenue
through recreational hunting , has returned a profit every year since
1982.  Furthermore, DLL expects the net income per acre from its
wildlife program to increase by over 50 percent between 1995 and
2001.  However, like time-control grazing, managing wildlife as a
profitable resource entails costs and effort.  For example, according
to DLL officials, DLL spends about $25,000 a year for security.  In
addition, the ranch employs two full-time wildlife staff to (1) feed
wildlife in the winter, (2) monitor and maintain data on the
composition of its wildlife herds over time, (3) prepare a yearly
management plan for the state, (4) perform research to improve
wildlife heath and habitat, and (5) monitor environmental indicators,
such as the number of birds, as part of the U.S.  Fish and Wildlife
Service's national breeding bird survey. 

The ranch manager said that DLL has encountered some opposition to
the fees it charges for hunting.  The manager said that the
complaints have generally gone away over time as people have learned
to accept DLL's operation and have seen the evolution of DLL's
wildlife program.  He maintained that people will accept change if
they feel good about what is being accomplished. 


      COST-REDUCTION EFFORTS
------------------------------------------------------- Appendix V:3.2

According to DLL officials, as part of its effort to maximize profit,
DLL lowered its costs per cow per year from $244 in 1983 to $171 in
1989, a reduction of 30 percent.  To achieve this, DLL officials
said, DLL now grazes cattle of a size and type suited to the
environment and has aligned the cattle's breeding and calving seasons
with the growing season of the forage.  Moreover, cows that do not
produce "reasonable" calves or are not healthy are culled out,
thereby reserving forage for productive cows and their calves. 

Staffing changes have also lowered costs.  DLL has reduced the number
of full-time employees on the ranch from 24 to 11 and has hired
contractors to provide security, construct fences, and operate heavy
equipment.  In addition, DLL benefits from volunteer work on the
ranch.  For instance, some church service missionaries have donated
many hours of service in their professional fields to promote the
lands' health, preserve water rights, and improve the ranch in other
ways, and youth groups have volunteered to do service projects on the
ranch. 


      VALUES AND CONCERNS THAT
      REDUCE NET INCOME
------------------------------------------------------- Appendix V:3.3

Although DLL's first mission priority is to maximize profit, the
ranch is also a part of the community and a representative of the
church.  As such, it sometimes makes management decisions that
emphasize social values and concerns rather than net income.  For
example, half of the revenue from the sale of big game antlers, shed
annually by animals on the ranch and collected by youth groups for
fund raising, is donated to charity.  The other half of the revenue
is retained by the participating youth groups. 

In addition, under an agreement with the state, 15 percent of the
permits available to hunt bull elk and buck mule deer on the ranch
are offered free to the public through a drawing.  Thus, for the
normal $35 state license fee, the selected hunters can be part of a
guided 5-day hunt that includes food and all of the other amenities
afforded to hunters paying up to $8,500. 

Bison were once raised on DLL; however, the ranch ended its bison
program because the high fences, necessary to contain the bison under
a time-control grazing regime, although financially feasible, were
not built because they would have blocked the migration of wildlife,
such as elk, deer, and antelope. 

Social considerations reduced DLL's profits when, during the severe
winter of 1993, the ranch fed game animals 1,200 tons of hay, in part
to keep hungry elk from moving onto its neighbors' lands where they
might have knocked down fences and raided hay stacks.  According to
DLL officials, DLL provides for the wildlife on its property not only
because it profits from its participation in the state's cooperative
wildlife management unit program but also because DLL believes that
it has a responsibility to care for its neighbors' rights. 


   ENVIRONMENTAL MANAGEMENT AND
   PROTECTION
--------------------------------------------------------- Appendix V:4

DLL manages its lands primarily to improve two resources--forage for
cattle and habitat for big-game wildlife.  However, in doing so,
according to DLL officials, DLL also protects, restores, and
maintains other resources, including riparian areas, nongame
wildlife, and water quality. 

For example, according to DLL officials, time-control grazing has
been found to be compatible with the local environment and may
improve wildlife habitat as well as increase net income, restoring
the lands' health while generating cash flows.  Time-control grazing
achieves a balance between the use of forage and the time needed for
plants to recover and regrow.  Through this approach, plants have
increased in density and variety, and bare areas have filled in. 
Denser plant cover increases water infiltration into the ground,
increasing forage diversity and production and reducing water runoff
and soil erosion.  Consequently, the watershed is better able to
store, purify, and slowly deliver water into the natural system. 
DLL's experience further suggests that grazing sheep with guard dogs
discourages elk from grazing in riparian and other fragile areas
because elk do not seem to like being around the sheep and dogs. 

By providing habitat for big game, nongame species that rely on this
habitat are also protected, and wildlife are very abundant and
diverse on the ranch.  Nongame wildlife observed on the ranch to date
include 187 species of birds and 30 species of small mammals. 

The current ranch manager observed that the business is operated to
maximize profit.  He said that even though money is important, DLL
will not take environmental risks that will jeopardize future
earnings.  While protecting the environment entails short-term costs,
it also enhances future opportunities for generating revenue. 

The ranch manager told us that DLL and the church understand the
financial and political reasons for being environmentally
accountable, but they also believe that landowners--particularly
large landowners--have an ethical responsibility to the public to
protect the environment.  He explained that the Farm Management
Company asked all of the church's farms and ranches to do something
good for the environment in 1997, beyond what they are already doing. 
The company is asking each farm and ranch to develop a plan of action
that includes collecting ideas to share with others, establishing a
baseline of where they are and a vision of where they want to go, and
a plan for achieving their objectives. 


   ACCOUNTABILITY FOR RESULTS
--------------------------------------------------------- Appendix V:5

DLL is accountable to the church's Farm Management Company for its
annual performance.  DLL prepares a 5-year plan that includes (1) its
mission statement; (2) specific 5-year goals addressing the company's
guiding principles, such as being a land- based, profit-motivated
organization; (3) its financial statement for the previous year; (4)
trend data on gross or net income for prior years; and (5) a report
highlighting recent achievements and trends in indicators, such as
the number of cattle and big game.  Additionally, DLL develops annual
plans for each of its programs focused on its 5-year goals.  The
plans are very specific and provide the basis for the yearly budget
that DLL presents to the Farm Management Company for approval each
October.  The ranch manager said that DLL has met its budget goals
most years. 

The ranch manager noted that although it is relatively easy to
evaluate DLL's financial accountability, it is difficult to develop
outcome measures for, and measure progress toward improving, the
ranch's natural resources.  Without such measures, DLL uses
indicators or proxies, such as wildlife population counts showing
increases or decreases in the number and kinds of wildlife. 

DLL's management sets annual goals for employees through discussions
with them and bases performance appraisals on how well the employees
achieve these goals.  The ranch's management believes that specific,
measurable goals will give employees incentives to try different
approaches and techniques to meet their goals. 


THE NATURE CONSERVANCY'S NIOBRARA
VALLEY PRESERVE
========================================================== Appendix VI


   HIGHLIGHTS
-------------------------------------------------------- Appendix VI:1

  -- The 55,000-acre Niobrara Valley Preserve in Nebraska is unusual
     among The Nature Conservancy's land units in that most of its
     revenue is generated by a commercial activity--grazing--rather
     than by fund-raising efforts and/or income from an endowment. 
     While grazing revenue varies with factors such as weather
     conditions and the price of beef cattle--and in some years
     grazing revenue has not covered Niobrara's costs--grazing, on
     average, provides at least 80 percent of the preserve's total
     revenue.

  -- Over about the last 10 years, revenue from all activities on the
     preserve have covered both operating and capital costs, apart
     from the costs to acquire the land, which were paid by the
     Conservancy.

  -- While the preserve is expected to strive to be self-sufficient
     and is heavily reliant on grazing for revenue, the Conservancy
     manages Niobrara to replicate the historic use--grazing by bison
     and cattle--that resulted in diverse plants, animals, and
     natural communities.  Thus, bison and cattle grazing, as well as
     other activities such as the sale of wood products, is used
     primarily as a tool to achieve a desired ecological condition.

  -- Although grazing on the preserve demonstrates that a historical
     commercial activity can, in certain geographical areas and under
     certain conditions, play a positive role in accomplishing both
     ecological and economic objectives, the Conservancy has
     indicated that when a choice must be made, preserving ecological
     diversity has priority over generating revenue. 


   BACKGROUND AND GOALS
-------------------------------------------------------- Appendix VI:2

The Nature Conservancy is a nonprofit organization with over half a
million members.  It has offices and activities throughout the United
States, as well as partnerships with organizations in other nations. 
Under the Conservancy's decentralized management, state offices and
land units have considerable autonomy and discretion to interpret and
apply the organization's overall mission, policies, and procedures. 
The Conservancy's land ownership fluctuates because some acquired
lands are resold to other organizations, including government
agencies.\1 Recent data indicate that the Conservancy owns about 1
million acres of land in about 1,500 preserves and has management
agreements, easements, and other arrangements on several million more
acres.  Some, but not all, of the Conservancy's preserves are open to
the public. 

The Nature Conservancy's mission is to preserve the plants, animals,
and natural communities that represent the diversity of life on earth
(biological diversity or biodiversity) by protecting their
habitat--that is, the lands and waters they need to survive.  In
making decisions, according to Conservancy officials, the Conservancy
uses the best available science, keeping in mind the organization's
mission of preserving biodiversity. 

The Conservancy believes that humans are a component of biological
diversity and, as such, their activities and uses must be considered
in reaching management decisions.  Therefore, the Conservancy
believes that environmental protection must be compatible with the
local economy, and the Conservancy tries to integrate its preserves
with their communities, seeking to develop community support and
involvement.  Toward this end, the Conservancy recently established a
Center for Compatible Economic Development to work with communities
to develop businesses, products, and land uses that conserve
ecosystems,\2

enhance local economies, and achieve community goals.  In addition,
according to Conservancy officials, the Conservancy sometimes
voluntarily pays property taxes as a good-will gesture, even though,
as a nonprofit organization, it is not required to do so in some
states. 

In 1997, the Conservancy announced a long-term, mission-related
conservation goal of ensuring the long-term survival of all viable
native species and community types through the design and
conservation of portfolios of sites within ecoregions.\3 To help
fulfill this goal, the Conservancy is developing scientific
information and tools, including a Natural Heritage Network--a
database on species and habitats based on input by federal and
nonfederal scientists. 

The Conservancy purchased the Niobrara Valley Preserve in the early
1980s.  Comprising about 55,000 acres--mostly prairie grasslands,
with some riparian woodlands--the preserve is bordered by the
Niobrara River near Johnstown, Nebraska.  (See fig.  VI.1.) A small
part of the preserve is owned by the state of Nebraska. 

   Figure VI.1:  Location of the
   Niobrara Valley Preserve

   (See figure in printed
   edition.)

Niobrara was one of the first preserves acquired by the Conservancy
to maintain and/or enhance biodiversity at the landscape scale rather
than to protect an individual species.  Niobrara also has a research
program. 


--------------------
\1 See, for example, Federal Lands:  Land Acquisitions Involving
Nonprofit Conservation Organizations (GAO/RCED-94-149, June 15,
1994). 

\2 One definition of an ecosystem is a distinct ecological unit that
is formed when interdependent communities of plants and animals,
which can include humans, interact with their physical environment
(soil, water, and air). 

\3 Ecoregions are delineated on the basis of combinations of similar
climate, landforms, and vegetation. 


   REVENUE GENERATION AND
   FINANCIAL SELF-SUFFICIENCY
-------------------------------------------------------- Appendix VI:3

As a nonprofit organization, The Nature Conservancy does not have a
goal of making a profit.  However, its ability to spend money to
fulfill its mission depends on its ability to raise money.  Nearly
all of the Conservancy's revenue comes from dues, contributions,
grants, gifts, investment income, and land sales.  In fiscal year
1996 (ending June 30, 1996), these sources accounted for 97 percent
of the Conservancy's $326.2 million in total revenue.  The remaining
3 percent came from other sources, including activities such as
grazing on the organization's lands.  Conservancy officials told us
that because of the organization's preservation mission, some members
generally do not favor revenue-generating activities on its lands. 

The Conservancy requires all of its preserves and other land units to
strive to be self-sufficient, generating revenue to cover both their
operating and capital costs.  In the past, the Conservancy acquired
lands for retention without endowments to cover their operating
costs.  While the Conservancy now tries to have endowments, generally
funded by contributions and gifts, for all of its lands, few land
units have large enough endowments to generate the revenue required
to cover their operating costs.  As a result, they supplement their
endowments with revenue generated by fund-raising efforts.  Moreover,
while the preserves and other land units are also expected to cover
their capital costs, land acquisition costs are paid by the
Conservancy's state offices and are not included in the preserves'
annual budgets. 

Because all of the Conservancy's land units are expected to strive to
be self-sufficient, the preserves generally retain the revenue they
generate.  Revenue generated by the Conservancy's home office,
usually through donations, after covering the home office's costs, is
allocated as much as possible to the preserves in the geographical
areas where the funds were raised.  However, because not all
preserves are able to generate enough revenue to cover their costs,
the Conservancy funds their shortages.  The Conservancy does not
require its preserves to fund the home office's or other preserves'
costs, but state offices have the authority to propose transferring
funds among preserves and other land units. 

In the organization's view, although the Conservancy thinks of itself
as entrepreneurial, striving for environmental and economic
compatibility, and although each preserve must strive to be
self-sufficient, everyone in the organization must support its
overall mission.  A Conservancy official told us that employees do
not have difficulty accepting transfers of funds from their preserve
to another preserve that cannot cover its costs because they believe
in and are dedicated to the organization's overall mission.  A
preserve may also borrow funds from a reserve in the home office, but
borrowed funds must be repaid. 

The Niobrara Valley Preserve is unusual among the Conservancy's land
units in that most of its revenue is generated by a commercial
activity--grazing--rather than by an endowment and/or fund-raising
efforts.  While grazing revenue varies with factors such as weather
conditions and the price of beef cattle--and in some years grazing
revenue has not covered Niobrara's costs--grazing, on average,
provides at least 80 percent of the preserve's total revenue.  Over
about the last 10 years, revenue from all activities on the preserve
has been sufficient to cover both operating and capital costs, other
than the costs to acquire the land, which were paid by the
Conservancy.\4


--------------------
\4 The Conservancy's home office pays a small part of the salary of
Niobrara's manager because he performs some duties for the entire
organization. 


      GRAZING
------------------------------------------------------ Appendix VI:3.1

To achieve its goal of maintaining and/or enhancing biodiversity, the
Conservancy manages Niobrara to replicate the historic use--grazing
by bison and cattle--that resulted in diverse plants, animals, and
natural communities.  Thus, bison and cattle grazing is used
primarily as a tool to accomplish a desired ecological condition.  In
addition, grazing on the preserve demonstrates that a historical
commercial activity can, in certain geographical areas and under
certain conditions, play a positive role in accomplishing both
ecological and economic objectives by restoring or maintaining the
health of the land while generating cash flows and maintaining a way
of life. 

Niobrara obtains grazing revenue from two sources--leases for use by
privately owned cattle and sales of Niobrara-owned bison.  The
preserve uses information on grazing lease values in the area to
negotiate fair-market-value lease rates annually.  Bison grazing was
added to diversify the revenue sources while maintaining the historic
use of the land. 


      OTHER ACTIVITIES AND USES
------------------------------------------------------ Appendix VI:3.2

In addition, the Conservancy allows, but does not encourage, public
access for other activities and uses, including deer and turkey
hunting, which is limited to certain areas of the preserve.  The
Conservancy also gives canoeists access to the preserve, which is
bordered by the Niobrara River.  Fees are charged for hunting on
Niobrara.  In the past, these fees were set to recover only the costs
of administering the activity rather than to make a profit.  However,
beginning in 1997, Niobrara increased hunting fees for season permits
to $100 for deer and $50 for turkey.  The Niobrara manager considers
these rates fair market value because they are based on rates charged
for access to private lands in other states.  However, Niobrara's
rates are somewhat lower than those rates because hunting fees
generally do not exist in the vicinity of Niobrara. 

Some wood products are also sold.  However, harvesting wood products,
like bison and cattle grazing, is used as a tool to accomplish a
desired ecological condition.  Thus, unwanted trees are removed to
maintain the desired diversity of plants, animals, and natural
communities.  In addition, some hay is sold.  Niobrara occasionally
receives funds from the Conservancy's Nebraska state office for
specific projects--for example, the state office is currently
providing funds to build a corral; this funding is reflected in
Niobrara's operating budget as a contribution, offsetting normal
operating expenses. 

The Conservancy is considering trying to generate revenue from other
activities on Niobrara.  For example, it planned to try to lease a
part of the preserve to a hunting outfitter for $1 an acre, which is
believed to be fair market value for similar leases in other states,
although such leases are not normal in the vicinity of Niobrara.  The
outfitter would have exclusive access to that part of the preserve
and would be free to establish a rate for individual access.  In
addition to generating revenue for the preserve, this approach would
demonstrate to other ranchers in the area that they could lease their
lands for similar activities, generating revenue while maintaining
biodiversity.  The Conservancy is also considering charging canoeists
for using Niobrara, thus better controlling public access to the
preserve.  Finally, Niobrara has been approached by ranchers to sell
its expertise on prescribed burning, which it has been using on the
preserve to allow fire to play its natural role in accomplishing
desired ecological conditions. 

Niobrara did not have an endowment when it was purchased.  However,
as the Conservancy has moved to require that all of its lands be
endowed, Niobrara has developed an endowment from surplus revenue,
fund-raising, and sales of some of its land.  Funds generated by the
endowment are annually budgeted as part of the preserve's revenue. 
However, in years when revenue from other sources is adequate to
cover operating costs, endowment funds are not used. 

Because it is expected to strive to be self-sufficient, the preserve
has also taken actions to reduce its costs.  For example, it has
consolidated facilities and replaced inefficient equipment. 

As is consistent with the Conservancy's policy of transferring funds
from a profitable preserve to another preserve that cannot cover its
costs, revenue generated on Niobrara has occasionally been
transferred to other land units.  For example, in recent years
revenue generated on Niobrara has been transferred to another
preserve in Nebraska. 


   ENVIRONMENTAL MANAGEMENT AND
   PROTECTION
-------------------------------------------------------- Appendix VI:4

The Conservancy's mission is to preserve biodiversity by protecting
species' habitats.  Niobrara is managed to achieve historical
ecological conditions, including diverse grassland plants, animals,
and natural communities.  While the preserve is expected to strive to
be self-sufficient and relies heavily on grazing for revenue, grazing
is viewed primarily as a tool to accomplish the desired ecological
conditions, according to Niobrara's manager. 

The Conservancy monitors and evaluates the condition of Niobrara's
grazing pastures annually and matches their condition with lessees'
needs.  It then uses this information to plan where, when, and by how
many animals grazing will be allowed.  According to the terms and
conditions of the leases, the Conservancy reserves the right to move
or rotate the lessees' cattle among the preserve's pastures during
the grazing season in accordance with range conditions. 

Although grazing on the preserve demonstrates that a historical
commercial activity can, in certain geographical areas and under
certain conditions, play a positive role in accomplishing both
ecological and economic objectives, the Conservancy has made clear
that when a choice must be made, preserving biodiversity has priority
over generating revenue.  For example, while prescribed burning on
the preserve allows fire to play its natural role in accomplishing
desired ecological conditions by controlling tree growth and
returning valuable nutrients to the soil, it may reduce the revenue
from grazing that might otherwise have been generated in certain
years.  In addition, the Conservancy controls hunting, visitation,
and other activities that give the public access to the preserve and
may thus impede the maintenance of historical ecological conditions. 


   ACCOUNTABILITY FOR RESULTS
-------------------------------------------------------- Appendix VI:5

Under the Conservancy's decentralized management, state offices and
land units have considerable autonomy and discretion to interpret and
apply the organization's overall mission, policies, and procedures. 
Accordingly, the Conservancy holds its managers at every
organizational level accountable for meeting their fiscal and
performance goals.  Each state office and land unit prepares both an
annual budget, which must include justifications, and an annual
operating plan, which must include performance goals.  The budgets
and plans are reviewed and approved by officials in the Conservancy's
state, regional, and home offices.  Unit managers then report
quarterly on their progress in meeting the agreed-upon goals. 

According to Conservancy officials, Niobrara's performance is
measured by comparing the extent to which desired ecological
conditions are restored and maintained on the preserve and on
surrounding lands.  Progress toward achieving the desired conditions
is measured, in part, by monitoring species' populations and
habitats. 


THE NATIONAL AUDUBON SOCIETY'S
PAUL J.  RAINEY WILDLIFE SANCTUARY
========================================================= Appendix VII


   HIGHLIGHTS
------------------------------------------------------- Appendix VII:1

  -- The 26,000-acre Paul J.  Rainey Wildlife Sanctuary in Louisiana
     is unusual among the National Audubon's about 100 wildlife
     sanctuaries in that it is 1 of only 2 that generate significant
     revenue from a commercial activity--a natural gas well.  Revenue
     from the well is forwarded to Audubon's home office and then
     distributed with other revenue to the sanctuaries by way of
     annual operations and capital budgets.

  -- Cattle grazing on Rainey also generates revenue for Audubon.  To
     achieve the sanctuary's sole objective of conserving bird
     habitat, Audubon uses grazing as a tool to accomplish the
     desired diversity of plants, animals, and natural communities. 
     Audubon does not own any cattle.  Rather, it leases its land for
     grazing by privately owned cattle.

  -- Rainey's managers are not held accountable for generating a
     certain level of revenue.  Rather, they are held accountable for
     accomplishing the society's mission of conserving and restoring
     natural ecosystems and the sanctuary's sole objective of
     conserving bird habitat.

  -- Audubon officials believe that the gas well and livestock
     grazing on the sanctuary demonstrate that commercial activities
     can, in certain geographical areas and under certain conditions,
     be compatible with conserving and restoring natural ecosystems. 
     However, they stress that the society's mission, Rainey's
     objective, and the terms and conditions of the lease agreements
     make absolutely clear that when a choice must be made,
     conserving Rainey's natural ecosystems and bird habitat has
     priority over generating revenue and that conflicts will be
     resolved in favor of protecting biological diversity.


   BACKGROUND AND GOALS
------------------------------------------------------- Appendix VII:2

The National Audubon Society is a nonprofit organization with over
half a million members in over 500 local chapters.  Its mission is to
conserve and restore natural ecosystems, focusing on birds and other
wildlife, for the benefit of humanity and the earth's biological
diversity (the diversity of plant and animal communities).  To help
accomplish its mission, Audubon owns and manages about 100,000 acres
of land in about 100 wildlife sanctuaries and other nature centers in
the United States.  In addition, some local chapters own and manage
additional lands in other sanctuaries.  Audubon also lobbies on
behalf of nature conservation and environmental protection and funds
environmental awareness education, scientific research, and data
gathering. 

The Paul J.  Rainey Wildlife Sanctuary near Abbeville, Louisiana,
fronts the Gulf of Mexico and is the largest of Audubon's wildlife
sanctuaries, comprising about 26,000 acres (most of which are
wetlands), or about 26 percent of the national society's
landholdings.  (See fig.  VII.1.) Land for the sanctuary was donated
in 1924 for the sole purpose of providing habitat for birds. 

   Figure VII.1:  Location of the
   Paul J.  Rainey Wildlife
   Sanctuary

   (See figure in printed
   edition.)


   REVENUE GENERATION AND
   FINANCIAL SELF-SUFFICIENCY
------------------------------------------------------- Appendix VII:3

As a nonprofit organization, the National Audubon Society does not
have a goal of making a profit.  However, its ability to spend money
to fulfill its mission depends on its ability to raise money.  The
majority of Audubon's revenue comes from contributions, bequests,
membership dues, and investment earnings.  In fiscal year 1996
(ending June 30, 1996), these sources accounted for 78 percent of the
society's $45.7 million in total revenue.  Another $732,000, or about
2 percent, was generated by a natural gas well on Rainey.  The
remaining 20 percent came from various other sources, including the
sale of merchandise, fees for admissions and activities, grants, and
advertising in the society's bimonthly magazine. 

In the past, Audubon accepted donations of land without endowments to
cover operating costs; however, it now requires all donated lands to
have such endowments.  The sanctuaries do not generally retain the
revenue that they generate, forwarding them instead to Audubon's home
office.  Audubon then distributes the revenue to the sanctuaries by
way of annual operations and capital budgets.  The home office funds
capital expenditures at its sanctuaries, and the sanctuaries then
depreciate these costs in their annual operating budgets. 

Rainey is unusual among Audubon's sanctuaries in that it is one of
only two that generate significant revenue from a commercial
activity--a natural gas well.\1 Oil and gas development on the
sanctuary began in the 1940s.  Audubon officials told us that there
is no historical documentation on the process that resulted in the
decision to develop the sanctuary's oil and gas resources; however,
they believe that the decision was based, at least in part, on the
wishes of the donor's heirs.  According to Audubon officials, it is
known that the document conveying the land to Audubon was amended at
that time to split the oil and gas revenue between Audubon and the
donor's heirs. 

Land at Rainey is leased to an oil and gas development company, which
pays Audubon a royalty based on the net value of production.  Net
value is based on the price obtained by the developer for the gas,
and the lease contains controls to ensure that the price is the
market price and is beneficial to Audubon.  For example, the
developer would not be allowed to dump the gas on the market at a low
price if a higher price were attainable.  Audubon believes that the
royalty rate is competitive with that of other gas leases in the
United States. 

Over the years, several wells were developed on the sanctuary, but
only one well continues to produce gas today, and its production
future is uncertain.  At their peak in 1985, the wells provided over
$900,000 in royalties to Audubon.  However, in fiscal year 1994,
Audubon received only $96,000, which did not cover all of Rainey's
costs that year.  Subsequently, production from the well increased
and generated about $732,000 in royalties to Audubon in fiscal year
1996.  However, Audubon believes that the well will be shut down
before long because the gas supply will run out. 

Cattle grazing on Rainey also generates revenue for Audubon.  To
accomplish the sanctuary's sole objective of conserving bird habitat,
Audubon uses grazing as a tool to achieve the desired diverse
ecological conditions.  Audubon does not own any cattle.  Rather, it
leases its land annually for use by privately owned cattle.  Grazing
generally generates revenue of less than $10,000 a year. 

Audubon allows public access to some of its sanctuaries--sometimes at
no charge and sometimes for an admission fee.  However, there is no
public access to Rainey, except by special arrangement with the
sanctuary. 


--------------------
\1 The other is Corkscrew Swamp Sanctuary, which generates
significant revenue from admission fees. 


   ENVIRONMENTAL MANAGEMENT AND
   PROTECTION
------------------------------------------------------- Appendix VII:4

As discussed, Audubon's mission is to conserve and restore natural
ecosystems, focusing on birds and other wildlife, for the benefit of
humanity and the earth's biological diversity, and Rainey's sole
objective is to conserve bird habitat.  While grazing is viewed
primarily as a tool to achieve the desired ecological conditions on
the sanctuary, disagreement exists within the organization over the
appropriateness of oil and gas development on a wildlife sanctuary,
according to Audubon officials.  On the one hand, revenue generated
by the well is used to support the society's mission.  On the other
hand, some members believe that such a commercial activity on an
Audubon wildlife sanctuary is, by its very existence, incompatible
with Audubon's mission. 

The lease for the well on Rainey contains stipulations that,
according to Audubon officials, are adequate to protect the
environment.  For example, the lease states that

     "The lands described in the lease .  .  .  [are] maintained by
     the National Audubon Society as a wildlife refuge.  Lessee
     herein takes cognizance of this and agrees to conduct its
     operations in conformity with these purposes.  [Audubon]
     declares its intention to require that the environment be
     protected.  Lessee agrees to exercise reasonable care and
     prudence."

The lease charges the lessee with, among other things, (1) avoiding
water pollution and well overflow; (2) complying with state wildlife
and conservation standards and limits on seismic activities; (3)
appropriately disposing of waste from operations and personal waste;
(4) obtaining approval from Audubon for the construction of all
installations; (5) minimizing marine traffic and limiting its speed;
and (6) prohibiting employees from hunting, trapping, and fishing on
the sanctuary.  According to the terms and conditions of the lease,
the lessee is responsible for damages and Audubon is entitled to
injunctive relief against the lessee for violations.  The lessee also
acknowledges Audubon's "absolute right to control surface operations
in the interest of wildlife" and states that "in no event will
[Audubon] be responsible to lessee in any manner whatever when
invoking such control, whether by injunction or other remedy."

The sanctuary manager told us that the sanctuary's employees
constantly monitor the well's operation.  In addition, because Rainey
is adjacent to a state fish and wildlife refuge, a state biologist
also monitors the management and operation of the sanctuary. 

Audubon officials believe that the gas well and livestock grazing on
the sanctuary demonstrate that commercial activities can, in certain
geographical areas and under certain conditions, be compatible with
conserving and restoring natural ecosystems.  However, they stress
that the society's mission, Rainey's sole objective of conserving
bird habitat, and the terms and conditions of the lease agreements
make absolutely clear that when a choice must be made, conserving
Rainey's natural ecosystems and bird habitat has priority over
generating revenue and that conflicts will be resolved in favor of
protecting biological diversity. 


   ACCOUNTABILITY FOR RESULTS
------------------------------------------------------- Appendix VII:5

Audubon holds its sanctuary managers accountable for meeting fiscal
and performance goals.  Each sanctuary prepares both an annual
operations and a capital budget, both of which include justifications
for planned expenditures, and an annual work plan for achieving
environmental objectives.  The budgets and plans are then reviewed
and approved by Audubon's home office.  The annual work plans are the
sole measure of performance.  Sanctuary managers report monthly on
their progress in achieving the objectives.  There are no personal
awards for achieving or exceeding agreed-to objectives and/or
reducing expenditures.  However, when sanctuaries have special
projects that need funding, Audubon usually allows them to retain any
funds they may raise in excess of their operating budgets, to be used
for their special projects. 

Clearly defined mission priorities to conserve and restore natural
ecosystems and bird habitat on Rainey allow Audubon to hold the
sanctuary's managers accountable for their performance.  Audubon uses
indicators or proxies of progress, such as bird counts, to measure
progress toward conserving and restoring ecosystems.  For example,
the sanctuary's songbird population has increased in recent years. 
However, Audubon has no measure of performance for generating
revenue, and therefore Rainey's managers are not held accountable for
generating a certain level of revenue. 


INTERNATIONAL PAPER'S SOUTHLANDS
EXPERIMENT FOREST
========================================================= Appendix VII


   HIGHLIGHTS
------------------------------------------------------- Appendix VII:1

ï¿½International Paper is a business, and its primary goal is to make a
profit.  The 16,000-acre Southlands Experiment Forest in Georgia is
unique within the company's holdings because, in addition to
supplying timber, as the company's other forests do, it is the only
designated research forest, and its staff participate in developing
International Paper's national policy on forestry issues. 

ï¿½The annual budget for Southlands separates its timber operations
from its research and policy functions.  Southlands succeeds in
managing its timber operations to generate net income. 

ï¿½Southlands derives about 70 percent of its revenue from timber
sales, 25 percent from recreational hunting, and the remaining 5
percent from agricultural leases.  This revenue, like that generated
at other International Paper forests, is not retained by the forest;
rather, it goes to the company.  Each forest prepares annual
operations and capital expenditure budgets, as well as a timber
revenue budget; the company reviews and approves these budgets and
funds the expenditure budgets. 

ï¿½Although its primary goal is to make a profit for its shareholders,
International Paper allows the public to conduct certain recreational
activities--such as horseback riding, Scout camping, and school
use--on the forest at no charge, as a service to the community. 

ï¿½Southlands is within the historic range of the endangered
red-cockaded woodpecker, and some of these birds inhabit Southlands. 
According to Southlands officials, Southlands manages forest stands
inhabited by the woodpecker to protect and enhance the species and
its habitat.  In addition, according to Southlands' manager,
International Paper has been an industry leader in developing and
practicing the industry's Sustainable Forestry Principles.  These
principles set standards for managing industry-owned forestlands that
are used for producing timber and address activities such as
protecting water quality and riparian areas, clear-cutting, and
maintaining biological diversity. 


   BACKGROUND AND GOALS
------------------------------------------------------- Appendix VII:2

International Paper is a major publicly owned U.S.  corporation that
manufactures a wide variety of paper and other products.  The company
is the majority shareholder in a separate publicly traded business,
IP Timberlands, Ltd., that owns or controls most (over 6 million
acres) of the U.S.  forestlands formerly owned or controlled by
International Paper.  Over two-thirds of the lands are in the
southeast, and the remainder are in the northeast.  Employees of
International Paper manage U.S.  forests in units as large as 250,000
acres.  International Paper also owns interests in forestlands in New
Zealand. 

International Paper is a business whose primary goal is to make a
profit.  However, the company also takes pride in being a forest
industry leader in trying to operate in an environmentally
responsible manner, as evidenced by its motto, "we answer to the
world." Essentially, International Paper depends on its lands to make
a profit over time, so it must ensure that the lands and their
forests remain healthy and productive.  Therefore, the company
strives to integrate economic and environmental objectives in its
decision-making. 

One forest still directly owned by International Paper is the
16,000-acre Southlands Experiment Forest near Bainbridge, Georgia. 
(See fig.  VIII.1.) Besides supplying timber, as International
Paper's other forests do, Southlands is the company's sole designated
research forest, and its staff participate in developing
International Paper's national policy on forestry issues.  Southlands
was designated as the company's research forest in 1957, in part
because its soils, vegetation, and topography are representative of
those on most of International Paper's southeast U.S.  forests. 

   Figure VIII.1:  Location of the
   Southlands Experiment Forest

   (See figure in printed
   edition.)

Southlands' goal is to demonstrate the long-term sustainability of a
forest industry forest.  Specifically, International Paper has
directed Southlands to conduct research into increasing the company's
profits by improving timber operations--that is, by growing
higher-quality trees faster.  Knowledge developed at Southlands is
then transferred to the managers of International Paper's other
forests. 


   REVENUE GENERATION AND
   FINANCIAL SELF-SUFFICIENCY
------------------------------------------------------- Appendix VII:3

In 1996, International Paper's net sales were over $20 billion.  The
company manages most of its forests to produce timber and realizes
most of its revenue from its timber and manufacturing operations. 
The company's timber forests also generate a small amount of revenue
from other activities, including public access fees for outdoor
recreation.  The company has also diversified its manufacturing
somewhat, moving away from producing mostly paper products, to help
smooth the effects of business cycles in the paper industry. 

Revenue generated on International Paper's forests is not retained by
the forests; rather, it goes to the company.  Each forest prepares
annual operations and capital expenditure budgets, as well as a
timber revenue budget, and the company reviews and approves these
budgets and funds the expenditure budgets.  The costs to reforest
tracts harvested for timber are capital costs. 


      TIMBER OPERATIONS
----------------------------------------------------- Appendix VII:3.1

About 70 percent of Southlands' revenue is from timber sales. 
Because Southlands is not located near one of International Paper's
mills, it sells its timber to other buyers.  Timber is sold by sealed
bids on a per-ton basis.  Clear-cutting\2 a tract is the norm, and
the buyer is expected to clear the tract within a certain time. 
Trees are also thinned to achieve specific objectives, such as
removing weak or diseased trees, improving the overall vigor of a
stand, creating a high-quality stand for hunting, or managing habitat
for nongame wildlife species, including the endangered red-cockaded
woodpecker. 


--------------------
\2 Clear-cutting is a timber-harvesting method that creates an
even-aged stand by removing virtually all of the merchantable trees
from an area at one time. 


      RECREATIONAL HUNTING
----------------------------------------------------- Appendix VII:3.2

About 25 percent of Southlands' revenue is from recreational hunting. 
Southlands did not charge the public to hunt or fish on its lands
until the 1970s.  Hunters are still required to obtain a state
hunting license, and state fish and game officers enforce state
hunting regulations on the forest.  According to Southlands' manager,
the decision to begin charging to hunt on the forest was made to
control public access and to generate revenue. 

Southlands currently has five types of hunting arrangements.  The
forest (1) leases one tract, considered a premium hunting and fishing
location, to a hunt club for its exclusive use; (2) periodically
leases other tracts to other hunt clubs; (3) conducts one 3-day
public hunt each year, for which it charges a fee and requires
hunters to receive training provided by Southlands on hunting ethics
and deer herd management; (4) charges an outfitter a per-person fee
to bring groups of hunters on the forest for 3 days four times a
year; and (5) sells season permits to its employees.  All leases and
fees--other than the employees' season permits--are at fair market
value, according to Southlands' manager. 

According to Southlands' manager, some members of the public resent
Southlands' decision to charge for hunting and some vandalism has
occurred, apparently in response to the decision. 


      AGRICULTURAL LEASES
----------------------------------------------------- Appendix VII:3.3

The remaining 5 percent of Southlands' revenue is from agricultural
leases.  The leases are part of a research project to determine how
well trees grow on land that has been used to produce agricultural
crops.  The project is being phased out and will no longer generate
revenue. 


      COST REDUCTION EFFORTS
----------------------------------------------------- Appendix VII:3.4

International Paper's biggest cost is personnel.  In the past 10
years, the company has reduced its workforce by employing new
technology, including information management systems, that allow the
company's foresters to better manage forest and soil inventory data
and mapping needs.  The Southlands manager told us that it was
impossible to quantify the personnel reductions due to cost-reduction
efforts at either International Paper or Southlands because other
factors, such as acquisitions and disposals of companies and/or
properties, cause changes in personnel numbers. 


      VALUES AND CONCERNS THAT
      REDUCE NET INCOME
----------------------------------------------------- Appendix VII:3.5

Although the primary goal for International Paper is to make a profit
for its shareholders, social and ecological values and concerns
sometimes reduce net income from its forests.  For example, although
the company now charges the public to hunt or fish on Southlands, it
makes other recreation on the forest available free of charge, as a
service to the community.  Activities include horseback riding, Scout
camping, school use, picnicking, history-related activities, and
hiking.  Southlands controls public access to prevent people from
being harmed by, or from conflicting with, timber operations. 

Complying with the requirements of federal environmental laws reduces
revenue.  For example, section 9 of the Endangered Species Act and
its implementing regulations generally prohibit the taking of
threatened and endangered fish and wildlife species.\3 To comply with
this requirement, International Paper has dedicated certain lands to
the protection of listed species and, on other lands, has found ways
to minimize and/or mitigate the impact of timber operations on the
species and its habitat.  Southlands is within the historic range of
the endangered red-cockaded woodpecker, and some of these birds
inhabit Southlands.  Southlands manages forest stands inhabited by
the woodpecker to protect the species and its habitat.  Nevertheless,
according to a Southlands official, the revenue lost through these
protective measures is at least partially offset by revenue gained
through sales to customers who choose to buy products from
International Paper in large part because they perceive the company
as being protective of the environment. 


--------------------
\3 "Taking" is defined broadly and includes killing, harming, or
harassing a protected animal species and, in certain instances,
modifying the species' habitat. 


   ENVIRONMENTAL MANAGEMENT AND
   PROTECTION
------------------------------------------------------- Appendix VII:4

To provide the raw material required for the wide variety of products
that it manufactures, International Paper manages its forests
primarily as tree farms.  That is, it grows and harvests trees using
agricultural production techniques such as clear-cutting, planting
replacement stands at optimum densities, periodically thinning the
stands, and controlling insect infestations and disease to produce
higher levels of timber than would be produced by natural succession. 
However, the company recognizes that to ensure the long-term
sustainability of its timber resource and to continue to generate a
profit for its shareholders, it must manage its forests in an
environmentally responsible manner and sustain the health of its
lands. 

International Paper has been an industry leader in developing and
practicing the American Forest and Paper Association's Sustainable
Forestry Principles.  These principles set standards for managing
industry-owned forestlands that are used for timber production.  The
principles address activities such as conducting research on forests
and wildlife, reforestation, protecting water quality and riparian
areas, clear-cutting, maintaining biological diversity, managing
waste, and using chemicals. 

International Paper has also entered into various partnerships and
agreements with environmental organizations.  For example, the
company has entered into a partnership with the National Audubon
Society to manage 30,000 acres in South Carolina for both timber
production and environmental protection.  Because it is a research
forest, Southlands has a greater number of partnerships and
agreements with environmental organizations, government agencies, and
universities than other International Paper forests.  For example,
the forest has entered into a partnership with a local nonprofit
ecological center to conduct research on the longleaf pine. 

An indicator of an organization's compliance with the requirements of
federal environmental laws and regulations is the number of legal
challenges to its land management decisions and timber sales. 
According to Southlands' manager, there have been no legal challenges
to the forest's management practices.  In addition, according to
Southlands' manager, local employment levels are good, helping to
temper potential opposition to Southlands' environmental protection
efforts. 


   ACCOUNTABILITY FOR RESULTS
------------------------------------------------------- Appendix VII:5

International Paper's forests are expected to generate net income for
the company and its shareholders.  Therefore, the company sets annual
revenue goals for each forest except Southlands. 

The annual budget for Southlands separates its timber operations from
its research and policy functions.  Southlands manages its timber
operations to generate net income; however, the company recognizes
that Southlands' research and policy functions sometimes require
operational decisions that do not seek to maximize timber revenue. 
Consequently, the company does not officially require the forest to
make a profit from its timber operations and does not set annual
revenue goals for it.  Nevertheless, because Southlands' goal is to
demonstrate the long-term sustainability of a forest industry forest
and the company could eliminate Southlands' research and policy
functions if the forest did not generate some revenue, Southlands
annually proposes revenue targets for approval by the company. 
According to Southlands' manager, the company expects Southlands to
justify its revenue targets and to measure performance, in part, by
the extent to which it meets the targets.  The company also
occasionally requires Southlands to increase timber revenue to help
International Paper's overall performance. 




(See figure in printed edition.)Appendix IX
COMMENTS FROM THE DEPARTMENT OF
AGRICULTURE
========================================================= Appendix VII


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix X

Marcus R.  Clark
Rodney R.  Conti
Charles S.  Cotton
Elizabeth R.  Eisenstadt
Leonard W.  Ellis
Brian A.  Estes


*** End of document. ***