Trust Alternatives for Range Resource Allocation

Published: 
Friday, January 8, 2016

Originally appeared in Ranching Realities in the 21st Century, November 2015.

There are multiple organizational forms that shape range management. While private ownership encourages cooperative trades to allocate resource use, public rights may restrict such transfer. The different land ownership tenures and different agency structures produce different economic and ecological outcomes. In the United States, state trust land agencies were created to perpetually maximize revenues for trust beneficiaries. The perpetual nature of the trust is meant to provide a continuous flow of revenues, which encourages stewardship for future productivity. While resource use that is allocated through market competition moves resources to high-valued use, this is not the allocation method practiced on most state trust rangelands. Though state trust grazing restrictions are more flexible than those of their federal counterparts, lease terms constrain transfer and may discourage investment in stewardship and future productivity. Through a comparison of state, private, and federal lands in the US, this essay helps explain why trust land agencies are not more market-oriented stewards of the land and resources. Understanding the complexities of the various rules for public land agencies provides ideas for reforming public grazing policy.

The consequences of different management arrangements
In the late 1970s, Gregg Simonds was hired as ranch manager to turn around the private Deseret Ranch in Utah. At the time the ranch’s riparian and range lands were in poor condition and the ranch was losing money. Simonds transformed the ranch from a money loser to a money maker. He did so by changing the way livestock grazed the land, moving them according to landscape and climatic variations. Under time-controlled cell management—also called holistic grazing—livestock are densely grouped to graze a small parcel for a short period. Simonds paid close attention to the correlation between grazing and forage growth, he tracked production changes, and he measured the financials of each of the ranch’s enterprises, including cattle, haying, sheep, and wildlife. According to Simonds, the land and its productive ability are the foundation for all ranching enterprises.

The Deseret Ranch is adjacent to the 3 Creeks grazing allotments that consist of US Forest Service (USFS), Bureau of Land Management (BLM), and state trust lands. Measurements from the adjacent landscapes show the private rangeland has half as much bare land, earns four times more per acre, sustains twice as much livestock, can be grazed twice as long, and has two times the number of sage grouse per acre of habitat, a species at current risk of collapse.

The lessee of the 3 Creeks allotments understands the divergence in forage quality between where his cattle graze and the Deseret. He too would like to generate greater revenues, produce better forage, and enhance wildlife habitat. He has requested to do time controlled grazing comparable to what is done on the Deseret. To do so requires changing the lease terms on the federal and state grazing allotments. While the state trust agency1 is ready to make the lease adjustments, the bulk of the allotment is federal and federal lease terms are difficult to change. Federal grazing leases are relatively consistent across the western states. They have a ten-year lease period that stipulates the maximum number of livestock that can graze at specified times. The federal agency personnel have proposed the requested lease change and have been working through the necessary federal channels to allow flexible timing for livestock grazing on the allotments since the fall of 2011.

Changing the federal lease arrangements requires environmental analysis under the National Environmental Policy Act (NEPA).2 Environmental analysis is costly and time consuming. A big part of the hold up, according to Troy Forrest, grazing manager with the state agency, is the continual turnover of federal agency staff.3 During the four-year process, they have worked with three different BLM district managers and four acting district rangers at the USFS. Each staffing turnover requires additional time to demonstrate again the benefits and potential environmental impacts of the proposed policy change.

The importance of incentives and the flexibility to manage
The management differences between the public allotments and the Deseret Ranch result from the incentives, the feedback mechanisms, and the manager’s ability to respond to dynamic nature. While the management on the Deseret is not typical of all private range, it demonstrates the possible outcomes given proper knowledge and incentives. The story of the Deseret should capture every range manager’s attention, yet it garners the attention of few.

Across most of the public range in the western United States, outcomes are comparable to the 3 Creeks allotments. They are a direct result of the incentives provided to the managers. The federal lands are stuck in a holding pattern fraught by multiple laws that make change costly. They have little flexibility to respond to changing conditions and demands on the resources. Alternatively, management of the state trust lands provides more flexibility. The underlying goal of the trust agencies is to maximize revenues for the trust beneficiaries, encouraging managers to respond to market signals. Yet state personnel are caught in a quagmire between traditional grazing uses of the range, competing resource demands, and agency protocols. It is generally expected that private rangelands, given secure property rights, full flexibility, and profit motive, would more often look like the Deseret. Though comparable ecological differences by tenure are scant, the evidence does not present a clear differentiation by ownership type. Private land managers that rely on federal grazing leases have reduced management flexibility to move cattle between private and public parcels. Furthermore, returns on investment to enhance range stewardship are not well understood.

This essay examines the incentives and outcomes from state land trust management and compares its efficacy to private and federally managed multiple use lands in the United States. The varying management arrangements and associated outcomes provide insight for designing better policies to enhance range management for livestock and conservation purposes.

The first section of the paper will provide a brief overview of the federal and state agency structures that manage the US public range. The model of trust management as applied to state trust lands will then be presented and compared to the management structure of US federal multiple use land agencies. Theory predicts that the different goals will provide different outcomes both financially and environmentally. While the financial outcomes diverge, trust use of market competition is not as great as predicted. In addition, the ecological differences between ownership types are not as stark as expected. The middle sections of the essay explain the state trust outcomes through example, highlighting the causes of divergence from expectation. Comparing the results on the public range to those on the adjacent Deseret Ranch demonstrates the value of feedback mechanisms, which are built into tracking profit and land productivity. While state trust agencies do pay attention to profit and long-term productivity, it is far more difficult to interpret ecological feedback mechanisms. The paper’s final section will summarize the lessons learned from grazing policy on the various state trust lands and will present ideas for reforming public grazing policy.

US public rangelands
Rangeland and federal ownership are expansive across the western United States. The federal government owns about half of the contiguous western United States and the states own an additional six percent. Over half of the public lands are managed for multiple uses by the Bureau of Land Management (BLM) and the US Forest Service (USFS). These federal lands make up a large part of the western range. Though state agencies own considerably less acreage (table 1), livestock grazing makes up about 80 percent of the states’ surface land use (Souder and Fairfax, 1996: 101; GAO, 2005: 93).

The goal of the multiple use federal lands is to “sustain the health, diversity, and productivity” of the lands (USFS, 2015; BLM, 2015b). Yet the financial returns on resource use from the federal estate are dismal and the stewardship record is not much better. In comparison, state trust lands do a far better job earning a positive financial return with a reasonable stewardship record.

Revenues from both the federal and state agencies are earned from grazing leases, timber harvest, recreation fees, and royalties from mining, oil, and gas. Some state agencies also sell land or develop it for commercial use. Though they manage for similar activities, the contrasting missions bring about very different results.

A recent report by Fretwell and Regan shows the fiscal divergence. The federal multiple use lands in the United States lose nearly $2 billion dollars annually. That turns out to be an average loss of $0.27 for every dollar spent to manage the BLM and USFS lands. In comparison, the average revenue generated by the state trust lands in Arizona, Idaho, Montana, and New Mexico was $14.51 for every dollar spent (Fretwell and Regan, 2015: 9).4 

The financial differences are no surprise. The state trust management mandate is to maximize long-term revenues. In contrast, the allocation of federal resource use is specifically not to be determined by the highest market value. According to the Multiple Use and Sustained Yield Act of 1960, consideration should be “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.”5

Resource allocation decisions on federal lands are typically made in the political arena with a goal to engage the public in decisions and to provide public benefits. Public opposition to agency actions often moves decisions into the courts making judicial outcomes an influential factor. Public benefits include commodity uses, such as timber and grazing, but also conservation, including the provision of ecosystem services, habitat protection, and forest management to increase fire resiliency. In fact, over 40 percent of USFS expenditures are for wildfire management. State trust land resource use is more focused on commercial outputs that generate revenue. The allocation of state trust resources relies more on market price with consideration of local resource conditions. Regardless, both the federal and state agencies must respond to legislative intent, judicial outcomes, and public input.

Lands in trust
The state trust lands were granted to each western state upon joining the union. Land was granted to help finance public institutions, hence the goal to maximize revenues. Each western state was granted from one to four sections of each township creating a dispersed checkerboard pattern of state land ownership.6 States could choose additional acreage to substitute for sections that had already been deeded to others. The purpose of the trust lands is to generate revenues for the trust beneficiaries.7 The state land trust agency is the trustee that is responsible for ensuring the rules of the trust are met. State public schools are the primary beneficiaries, but others include state hospitals, universities, and other state institutions. The beneficiaries, who are also the overseers of the trust, include those interested in the public institutions, such as teachers, administrators and students, and state residents. In most cases, the beneficiaries have legal standing to enforce the trust mission.8

The legal standing provides oversight to ensure agency actions are aligned with the perpetual revenue mandate. As public lands, the state trust lands are often misunderstood and expected to provide general public benefits over maximizing return for the beneficiaries. The trust agreements, however, are clear and have been reaffirmed and clarified by court decisions over time.9 The state trust goal to generate revenues is both clear and easily measured. The goal of US federal land managers is not. The federal multiple use lands are legislated to protect the lands and best meet the needs of the people. Measuring land health is tedious because it depends on the desired health outcomes. Meeting the needs of citizens is even more opaque as desires are as disparate as the lands and resources themselves. Federal land legislation does not provide a clear method for mangers to prioritize the allocation of competing resource uses. Alternatively, the revenue maximization goal for state managers does provide measurable outcomes for achievement and accountability. The great deviation in financial outcomes then, between the state and federal agencies, is as expected. While the state trust lands generate net revenues and steward the lands at least as well, the federal lands lose billions annually.

Economic return to the range
Different land use outcomes are driven by different incentives as defined by the laws and cultural norms. According to the BLM, revenues from federal grazing leases are not intended to cover costs but instead are to ensure “longterm health and productivity” that creates “multiple environmental benefits.” Measuring general environmental benefits is tedious and subjective, as discussed in a following section. In contrast, the states are required to generate revenues for each management activity, and they do.

Between 2009 and 2013, the USFS lost an average $0.90 for every dollar spent on grazing management and the BLM lost $0.86 for every dollar spent. In the four-state study by Fretwell and Regan (2015), the average annual revenue generated from grazing in Arizona, Idaho, Montana, and New Mexico was $4.89 per dollar spent. 10 The results are not surprising.

Federal grazing fees are consistent throughout the entire West and have been less than $2 per animal unit month (AUM) since 1982.11 In most cases, state grazing fees are considerably higher than the federal fee, but because few grazing leases receive competitive bids, most lessees pay the state-determined flat rate (table 2).12 The average per-AUM fee set by each state trust is nearly five times the federal rate but about half of the private grazing lease rate on non-irrigated land (USDA-NASS). The private market rate is dependent upon forage quality and productivity, water source availability, fencing, and other improvements on the range (IDL, 2015: 27). The values of federal, state, and private grazing are not equal. Lease rates can vary significantly depending upon who pays for improvements and other management costs. Studies indicate that between 30 and 40 percent of the private lease rates account for lessor-provided services (Resource Dimensions, 2012: 70).13

The states also tend to have better cost efficiencies than the federal land management agencies. The USFS and BLM spend an average $9 per AUM provided on the federal lands, while Montana spends less than $2 and Idaho less than $5 per AUM (Fretwell and Regan, 2015: 18).14 Here too, the incentives drive the outcome. The federal agencies are appropriated budgets by Congress with no revenue requirement. The states have a strict bottom line to generate revenues greater than costs.15

Resolving competing demands: conflict or cooperation?
Historically, grazing was considered the highest, perhaps the only, valued use of much of the western range (IDL, 2015: 32). Today, there are multiple competing demands for resource use. The markets for oil, gas, minerals, and alternative energy development are promising. The demand for conservation, ecosystem services, and outdoor recreation continues to expand. Yet the incorporation of alternative resource use on historic grazing lands is slow. While the number of AUMs authorized on the federal range has declined, the process for allocation has changed little (BLM, 2015a). Most federal permits remain tied to adjacent private land and there is little room for negotiation among competing resource uses. Alternatively, the trust mandate implies market allocation of resources where price signals the highest valued use and greatest financial return. Some state trust agencies are taking advantage of the changing resource values using the market to meet their revenue-maximizing goal, but that is not the norm on state rangelands. Several legal cases demonstrate that the courts are supportive of market allocation through competitive bids, but there remain multiple barriers to entry.

Competitive lease bids
In the 1990s, several conservation groups outbid existing lessees for grazing rights with the intention of restoring the landscape and managing for conservation purposes. The state trust mandate to generate revenues should encourage the shift to higher valued resource uses. Other considerations, however, confuse the issue. The following cases help demonstrate the hurdles that have impeded the market process for trust land management.

The Idaho Watersheds Project (now the Western Watersheds Project) was the first environmental group to successfully bid on and win a grazing lease on state trust lands. The group, headed by Jon Marvel, applied to compete for a grazing lease in 1994. Marvel bid a $30 lump-sum bonus payment to win the lease. The existing leaseholder refused to compete and instead appealed. The appealing rancher eventually regained the lease rights when the state land board overturned the auction citing eligibility requirements (Fairfax and Issod, 2003: 363). Livestock grazing was required for a rangeland lease.

This dominant use requirement parallels federal rules and reduces the ability of the trust to maximize revenues. That is exactly what the courts found five years later. In the meantime, the Idaho legislature passed what became known as the “anti-Marvel” bill to discourage non-grazing competition.16 The bill reinforced the practice of favoring the livestock industry over others for trust rangeland leases (Fairfax and Issod, 2003: 365). Rather than aligning trust management with the market that was signaling higher valued uses, the bill made Marvel, and others interested in non-livestock land use, ineligible to bid on trust land grazing leases.

Continual bids and denials led to a court suit and an eventual judicial decision. The anti-Marvel bill was found unconstitutional by the Idaho Supreme Court because it prohibited potential bidders that could enhance the trust revenues (Fairfax and Issod, 2003: 367). The outcome opened grazing leases to competing uses. Marvel’s group, now the Western Watersheds Project, won their first lease in January 2000, and now holds more than 4,000 acres of state trust land leases that are being managed for wildlife habitat and conservation.

Similar fights have been fought by the Forest Guardians (now WildEarth Guardians) in Arizona and New Mexico. After being denied the right to bid on a grazing lease in 1997 for non-grazing use, the group appealed and pursued a court battle that they eventually won in 2003. The Forest Guardians’ bid was nearly double the amount of the prior lessee’s bid. The Forest Guardians’ lease marked the first time an Arizona rancher was outbid by a group planning to remove the cattle and restore the land.17

The legal outcomes have reinforced the trust requirement to maximize revenues from multiple resource uses and to consider both the economic and natural outcomes. The courts have determined that the state land trustees must consider the return to the beneficiaries over others.18 The outcomes of these cases have helped clarify that the trust must receive at least fair market value and accept the highest bid that will provide long-term benefits. The land agencies do, however, retain the right to balance the high bid and beneficiary interest.19

In 2013, the WildEarth Guardians lost a case competing for an allocation in Arizona even though they bid substantially more than the competitor. The Guardians submitted an application to compete for the lease in 2006. The Knight family had held the lease in question for 28 years. The State Land Board evaluated the competing lease proposals and the land in question, and awarded a lease renewal to the Knight family, stating that the evidence demonstrated they had “superior equities.” Though the enabling act of Arizona requires the lease or sale of trust lands to be awarded to the “highest and best bidder at a public auction,” the land department has the opportunity to weigh in on what is best for the land and the trust beneficiaries. In this case the department determined the original lessee, with a strong record of stewardship, had better ability to monitor and protect the long-term value of the land. The lease continued at the state-set minimum rate.

The potential agency costs of monitoring a new lessee for different outcomes are not insignificant. When cattle are removed from the land, active management is still required to maintain infrastructure and weed control. There can also be long-term effects on the ranch community from removing vital parcels from grazing. Removing a parcel that provides water, for example, can hamper the viability of the whole ranch. There is legitimate concern about stewardship of the parcel itself and also the surrounding landscape, public or private.

State grazing leases are largely uncontested. Competing bids for range use on Idaho’s trust lands have made up less than five percent of all lease renewals in the last five years, though they are becoming more prevalent (IDL, 2015: 11).20 Competing bids that do occur are still typically between ranchers. Only a few conservation groups have played a hand. Competing bids in Idaho may be more contentious because the highest bidder wins the lease right, while other states provide preferential lease rights giving the current lessee the right to match the high bid and retain the lease (IDL, 2015). Allowing the competitive bidding process and enforcing payment for the high bid moves the lease rate toward the market value and forces lessees to realize the value of alternative uses.

Barriers to competition
The bottom line is that multiple barriers prevent market competition for state trust resource use. The WildEarth Guardians and Western Watershed Project helped open the door for competing uses and they continue to bid on leases they believe critical for restoration. Few other groups have followed suit. According to John Horning of WildEarth Guardians, the cost to compete is cheap. Grazing lease costs typically range between $0.05 and $10 per acre per year, which is a small price to pay to gain management access.21 Contesting a bid, however, especially for non-grazing purposes, is still rare. This is surprising given the rising values for range resources, but can be explained through an evaluation of potential barriers that include the trust lease terms, the political economy, and the nature of non-market values.

Many states require special lease options for non-grazing use. Lease reclassification can increase the costs for both the lessee and the agency. Furthermore, when leases change hands there is a cost to the agency to ensure the new lessee has the ability to pay and a proven capacity to manage the landscape. Livestock managers that have held leases for decades have demonstrated their ability to do both, keeping costs low for trust land managers. It is costly to regularly monitor the widely dispersed parcels. Most state land agencies have few employees that they can send into the field to monitor the dispersed parcels. This creates a natural agency bias to renew with proven lessees as exemplified by the Knight case.

Trust lease rules and their clarity vary by state. Informal rules leave room for increased political pressure and allow agency personnel to give advantage to one party over another. The current political outlook on state trust lands favors the rancher. Personal communication with various state agency personnel reiterated that there remains a strong culture to “keep grazing as grazing.” The anti-Marvel law that focused on the benefit of the livestock producers over the trust beneficiaries was a demonstration of this.22 As shown by the cases fought by WildEarth Guardians and Western Watershed Project, the courts generally rule out such discrimination on state trust lands, but in some states the administrative procedures continue to draw out disputes that end up in the courts.

Balancing long-term stewardship and revenue maximization can be tricky. Long lease terms and lease security provide longevity for ranch management and encourage investment in stewardship and productivity. At the same time, long lease terms reduce market transferability and potential for increased lease payments. State trust grazing leases are typically set for 10 or 20 years and are rarely terminated early, preventing competition for the term of the lease. Most states have sublet rights enabling the lessee to move the resource to a higher valued user without losing future lease options, but these are typically restricted to livestock grazing. So while longer lease terms may enhance future productivity and stewardship through increased investment, they also reduce competition.

The most unyielding matter that restricts competition and reduces flexibility on state rangelands is the scattered parcel surrounded by federal land. These leases are managed in accordance with the federal lease guidelines and there is little lease competition. The 3 Creeks allotment demonstrates the troubling nature. The restrictive federal lease guidelines prevent the private rancher from altering management to enhance stewardship. The state earns the set grazing fee but has low administrative costs that are supported mostly by the federal agency

Similarly, many state parcels are surrounded by a large private ranch. In such cases, the lease is generally managed in alignment with the overall ranch plan. There is no competition for these leases because they are inaccessible to all but the private landowner. The state has flexibility in this situation to work with the lessee to alter lease terms.

Land improvements can also raise the cost of entry. The lessee often pays for land improvements or shares the cost with the managing agency. Some states require the lessee to remove the improvements when their lease expires, potentially increasing the cost of investment. Other states require the new entrant to compensate the former lessee for the improvements. This raises the cost for new lessees and requires them to purchase improvements for which they may have no use.

If the costs to compete are low, a lack of interest in the market may be an indication that resources are already being put to their highest valued use. Alternatively, because there is not a strong market for conservation and ecosystem service provision, competitive bids for these interests may be understated. This is likely exacerbated by the all-or-nothing nature of current leases. This is being addressed, at least in part, by the structure of some conservation leases.

Conservation leases
Transforming grazing leases to incorporate alternative use has proven costly and tedious, but states are realizing the increasing demand for conservation and ecosystem services. Most states now provide for non-traditional lease uses in some capacity. Some of these have come from competing bids, others through negotiation among various agencies. Colorado took a unique approach brought on by citizen initiative.

Colorado initiative
In 1996, the citizens of Colorado passed an initiative requiring trust lands to be managed for their long-term preservation considering the economic and natural outcomes.23 The amendment created the Stewardship Trust, wherein the agency classifies up to 300,000 acres of its 2.8 million acres of surface state trust land to be managed under a resource specific stewardship plan. The lands in the Stewardship Trust are nominated for inclusion and they must be managed to enhance and protect rare plants and plant communities, wildlife habitat, beauty, open space, or areas of cultural significance. In addition to its protection, the lands are still required to generate revenues.

A stewardship plan considering best management practices per the specified criteria is created for Stewardship Trust lands. The plan need not limit alternate uses. About 95 percent of the lands in the Stewardship Trust are also leased for grazing, timber harvest, or oil and gas development. The Stewardship Trust lands generate revenues comparable to the other trust lands. The lands in the Stewardship Trust are monitored every three years and can be swapped for different trust acres.24

In addition to the Stewardship Trust, the Colorado Division of Parks and Wildlife leases over 500,000 acres of the state trust lands for recreation access. These are called “stacked” leases because the recreational access lease is stacked with other traditional leases, such as grazing. Hunting is the most popular recreation activity on the lands, but they also provide for wildlife viewing and hiking. The average recreation lease fee is $2.60 per acre. There are a dozen or so additional private hunting parcels leased across the state for exclusive hunting use.

To further enhance the revenue potential on the state trust lands, the Colorado State Land Board is testing management for ecosystem services. One 16-acre lease protecting prairie dog habitat is bringing annual revenues of $2,200 to the trust. Other conservation leases include several held by The Nature Conservancy (TNC), which is managing the land and subletting to ranchers for holistic grazing management. Intensively managing cattle on the land with careful consideration of timing regarding plant growth and climate can enhance overall forage productivity and wildlife habitat.

Colorado’s initiative moved the agency from the traditional approach of rangeland grazing to providing for alternative resource uses. While the state still has traditional grazing leases, the agency has been able to meet its revenue and stewardship mandate using market forces for some leases by realizing the increasing demands for alternative resource uses and conservation. The incentives of Colorado trust land managers are aligned to meet both financial and conservation outcomes.

The Colorado initiative forced the state trust land department to reevaluate how it managed the lands. Other states have begun to recognize alternative use values and are similarly providing methods to increase conservation outcomes. Many state agencies now have a conservation or non-use lease classification, though they make up a small portion of trust lands. As demonstrated by Colorado’s stacked leases, conservation and commodity use need not be mutually exclusive.

A move toward alternative resource use
State trusts are not typical conservation agencies, but they can lease rights for conservation uses to other agencies and private interests. In addition to the obvious few that have carried the dispute to the courts, a number of other conservation entities have acquired trust leases.

Today, state fish, wildlife, and park agencies hold multiple state trust leases to protect wildlife habitat and enhance public access. These leases may be a portion of a larger lease that has been allocated through negotiations with lessees and the sister agencies. Less than one percent of Idaho’s trust lands are leased for conservation, but about half of those are managed by Idaho Department of Fish and Game as sportsman access sites, to protect threatened and endangered species or to enhance wildlife habitat. Federal agencies are also beginning to consider options on state lands. The National Park Service, for example, manages and pays for a 23,000 acre lease that expands the boundaries of the Petrified Forest National Park in Arizona. Similarly, in Montana, grazing leases are bought up by federal and other state agencies to enhance habitat and hunting access.

The open door to acquire rights for conservation values on trust lands has been realized by at least a few private interests. The lease acquisitions by WildEarth Guardians and the Western Watersheds project have already been noted. On one lease, the WildEarth Guardians has invested in restoring a stretch of the Babocamari River that flows through the Sonoran Desert in southern Arizona. The Western Watersheds project also continues to steward multiple trust leases for watershed restoration and critical habitat protection. Neither of these groups allow livestock on the land they lease. 

The Nature Conservancy (TNC) also manages multiple leases across the western states and protects the areas they deem critical. They typically sublet areas that can benefit from grazing and realize the financial return enabling them to protect more lands elsewhere. The Nature Conservancy recognizes a mutually beneficial relationship. TNC leases demonstrate the benefits that can be realized by the lessee and other interested parties when transferability is allowed.

The desire for increased conservation is clear but it does not always present itself in the market. Few people outside the agencies understand the trust mandate and instead see trust lands as public, hence areas that should be open for public benefit and access. That perspective misrepresents the purpose of the state trust and increases the political pressure to provide public conservation over revenues for beneficiaries. Some states embrace the opportunity to provide for conservation under the trust mandate and are able to generate revenues doing so. They typically charge higher fees for conservation leases or receive an AUM rate that is greater than the flat state rate due to competitive bidding.

To meet the revenue mandate and avoid increased contention, some trust agencies are looking to get out of the conservation business. Revenues from Idaho conservation leases, for example, are small, particularly when compared to commercial development. To meet their revenue maximization goal, the Idaho Department of Lands would like to exchange out of sensitive lands into lands with greater development and revenue potential.25 Similarly, in 1996 Arizona enacted the Arizona Preserve Initiative (API) providing a method for trust managers to reclassify urban land suitable for conservation. The reclassification allowed the state to sell the land to the city of Scottsdale to be added to the Scottsdale McDowell Sonoran Preserve (Myers and Heitel, 2014). It may be in the trust beneficiaries’ interest to sell ecologically valued lands or exchange them for those that have more development potential.

It is precisely because the state land trustees have an obligation to maximize revenues that trust resources are expected to be traded in the open market. Opening the permit process brings competition, helps decision makers understand the alternative resource values, and has the potential to increase agency revenues. Revenue generation provides feedback that demonstrates the efficacy of trust management.

Markets provide solutions to the conflicting demands for resource use because they allow the interested parties to negotiate over use, which demonstrates the different values. Imagine a fully transferable grazing lease. A rancher, as lessee, would have the right to sublet a portion of the land for alternate uses or to sell the lease to another party for livestock grazing or other purposes. The rancher recognizes the value of the forage to the ranching operation. Alternative interests in the land and resources can bid for use, demonstrating their use value. Only if a greater payment is offered will the rancher transfer the use rights. It is in the best interest of the owner to increase value. Enhanced stewardship fosters forage growth and productivity in addition to providing for other ecosystem services.

Such leasing arrangements have been proposed before. B. Delworth Gardner explored the superior efficiencies of creating secure rights for public land grazing in the 1960s (Gardner, 1962, 1963). Gardner and others agree that the key is for grazing rights to be transferable and to have unrestricted eligibility.26

In the case of grazing allotments, this might consist of permanent rights issued to current permittees who could then sell them without restriction to the highest bidder (Gardner, 1963). It is probable that environmental and recreation groups would be interested in only a fraction of these rangeland rights (Nelson, 1995). It is also conceivable that an environmental or recreational group might purchase these forage rights and then sublease them to a livestock operator willing to abide by certain conditions. (Gardner, 1997)

Given secure rights there is self-interested motivation to be a good steward and enhance productivity. Though deeded ownership is the strongest driver to motivate the efficient outcome, even secure rights in leases with transferability would enhance economic outcomes (Gardner, 1997).

Note that Gardner and others are suggesting secure tenure with transferable leases that change hands from the existing lessee to a new lessee. If the rancher, as lessee, can transfer the lease rights and receive the additional lease payment, motivation for negotiation increases. Furthermore, the more secure the right and return on investment, the more likely the lessee will be to invest in stewardship and future productivity. Trust revenues would, however, suffer under this lease structure. On state trust lands, transferability is presently between lessee, such as the rancher, and lessor, the agency. While the agency wins through higher lease return and efficiency is enhanced by moving the resources to a higher valued use, the original lessee loses the lease right without remuneration. The income distribution is different between the two scenarios, which also changes the incentives.

It was clear to Gardner over 50 years ago that the allocation of public rangeland use was inefficient and precluded alternative resource uses. Half a century later, the method to allocate grazing leases in the American West has changed little. The lessons state trust lands provide for moving beyond traditional grazing uses and realizing the contemporary land use values are important, but the agencies lack the flexibility and incentives that secure tenure provides. Policy reform options that better secure rights and allow open transfer can at the very least enhance economic outcomes and move resources toward higher valued uses. If metrics for good stewardship are apparent, tradability will also enhance environmental quality, which is necessary to maximize long-term profit on the range.

Ecological return to the range
Unfortunately, good ecological stewardship is difficult to define and measure. There is little analysis comparing rangeland ownership and range health. BLM analysis indicates that at least 21 percent of their grazing allotments are not making progress toward meeting their own land health standards (BLM, 2012). The standard operating procedure on federal rangelands in response to environmental discrepancies is to decrease livestock numbers or rest the range (Godfrey, 2003). Resting the range or excluding livestock may increase biodiversity on an overgrazed range, but eliminating the grazing disturbance, which is vital for much plant growth, may instead threaten biodiversity and range health (see Davies et al., 2014; Brown and McDonald, 1995: 1645). As demonstrated on the Deseret Ranch, timing of livestock grazing in relation to forage growth can produce good environmental and economic outcomes. The problem on the federal range, and even on many state trust parcels, is the lack of flexibility to respond to changing climatic and cultural conditions.

On the Deseret Ranch, Gregg Simonds helped create planning and assessment tools to measure landscape functionality. Decreasing bare ground was the fundamental metric. Reduced bare ground increases the rate of infiltration of precipitation. As the plant productivity and diversity increases, so does animal productivity and diversity, which also decreases the costs to feed cows. Increased productivity means more and taller grasses year round. Forage that remains above the snowline allows cattle to graze during the winter versus being fed costly hay. Increasing production and diversity with less need for equipment, fossil fuels, and manpower increased profits on the ranch. It also increased the watershed’s ability to capture and retain moisture. Simonds concludes: “The enhanced metrics enabled increased profitability and provided practical and viable landscape knowledge. The combination of germane metrics, flexibility and a profit motive drove the results. They are what separate our results from almost all other landscapes.”27

The rising demand for conservation and ecosystem services on the range is motivating new methods to measure outcomes. New GIS remote sensing technology using satellite imagery measures bare ground and how well the land is taking in water. Water absorption is a key for forage productivity. Increased plant production provides good ground cover that allows better stream flow and recharge of aquifers. The new metrics can help demonstrate the return on investment to ranchers and create markets for ecosystem services in addition to the desired range outcomes. While most range scientists would agree there is unmeasured value in ecosystem services, not all agree that we are close to being able to measure that value (Torell et al., 2014: 9).

Where information is clear and the incentives are aligned to make a profit and protect the landscape, good conservation will take place. To motivate private investment in stewardship requires some amount of certainty of return. Investment in private assets is realized by increased value to the owner. Public land leases, however, can be dissolved with little or no return to the lessee, reducing the willingness to invest. Unfortunately, the terms and conditions of most public leases have an uncertain future and are incompatible with managing in accordance to dynamic nature. The flexibility to respond to changing desires and changing conditions is largely missing from the public range. Where federal agencies are often caught with no ability to respond, state agencies have some leeway. What remain missing, however, across all ownerships, are good ecological metrics that demonstrate the varying productivity from alternate forms of range management.

Missing feedback = missing action
Both federal and state managers seek to achieve long-term range health and productivity. Political decision making reliant on public input makes federal land management vulnerable to influence by individuals interested in the management outcomes but with little comprehension about managing the range. State trust lands, though allowing greater management flexibility, have done little better. Measurements of productive outputs that result from management changes and how they impact rangeland function are not common knowledge in the public or private sector.

The bottom line is that feedback mechanisms are necessary to drive efficient resource use. Feedback comes in the way of increased profits and increased productivity.28 Neither of those are important metrics under federal management. There are no profit or loss signals for federal land managers. Nor do they have the metrics to know land and watershed functionality. Furthermore, public lease allotments have fixed terms and conditions preventing most ranch managers from adapting to the continually changing conditions on the range. This is demonstrated by the 3 Creeks allotment. Though earnings do get the attention of the rancher, he or she has little ability to influence change on the public range.

It is the private land manager that has incentives aligned for enhancing value through increased productivity and land and water functionality. Nonetheless, the willingness to invest is driven by an expected return that is hard to predict on the range. The many variables that impact range profits, such as continually fluctuating cattle prices, input prices, and climate conditions make investment outcomes less obvious. The metrics of increased output value must be clear enough to motivate investment in environmental quality. Given better metrics and flexibility, public and private managers can do better on the range and a market for ecosystem services can develop.

Lessons from the trusts
In the 1990s, when a few conservation groups began pushing on state trust protocol to allow for alternative range use, the future of new and competitive lease arrangements looked bright. The expected result from the rising conservation demand and competitive bid process for leases was a move toward incorporating additional rangeland uses and increased resource value. It was predicted that more conservation-minded groups would bid on resource use rights to protect habitat, enhance riparian areas, and increase recreation access, limiting livestock where alternative uses were more highly valued. Some of that has occurred on some trust lands but the progression is slow. Changing the terms of lease agreements is costly and there are barriers to entry that have reduced competition. Nonetheless, there are some exceptions and noteworthy lessons to consider.

The 1996 Colorado initiative could have reduced the trust’s legitimacy by requiring conservation over the revenue maximization mandate. Instead, the state has used the requirement to demonstrate the ability to manage for both revenue and long-term conservation, meeting the conservation demands of the citizens and the beneficiaries. Rather than a legal battle between the state agency and environmental groups, the state has provided its assets on the market and worked with other agencies and private parties to negotiate win-win outcomes that enhance land stewardship and revenues for the public schools. Colorado has demonstrated the mutual benefits of alternative uses on trust lands.

Most states have begun to explore different avenues to provide for conservation on trust lands. While some of that conservation comes from groups that bid for use rights, such as the Nature Conservancy, Western Watershed Project, and WildEarth Guardians, much of it is a transfer of use to other public agencies with a more conservation oriented mandate. Many trust agencies are also looking to sell lands that are likely to provide conservation amenities and replace them with lands that have greater development and revenue potential.

The costs to incorporate non-grazing uses of state trust rangeland remain high for three primary reasons. First, a significant portion of the western range is tied to federal allotments that restrict management flexibility. The 3 Creeks allotment is a case in point. Second, the costs to compete for use can be high and are typically all-or-nothing outcomes. As a result, few lease transfers take place. Third, the costs to dispel ecological myths and replace them with better ecological information are high. It is a common but often flawed understanding that less livestock means better environmental quality. Managing the range for long-term productivity requires specific knowledge and adaptation.

Enhancing rangeland stewardship and increasing the provision of ecosystem services requires feedback from both profit and productivity. Management of the private range typically has a profit motive, but without the ecological metrics the incentives may not be well aligned to invest in increased productivity of forage and other ecosystem services. When considering the public range, the profit motive is complicated by the rules of state trust agencies and is non-existent for federal managers.

Conclusion
The state trust lands in the western United States provide an ongoing experiment in rangeland management. Different from their federal brethren, the agencies are required to maximize the financial return while conserving the future productivity of the land and resources. Theoretical analysis of the trust mission leads to expectations of resources moving to their highest valued uses in a competitive market. Where use rights are secure and transferable without restricted eligibility requirements, the state is fairly effective. This setting is still rare.

The reality is that legal limitations, politics, and cultural norms reduce cooperative outcomes on state lands. Few present day leases have openly competitive markets that determine use rights. Though the courts have affirmed the requirement to earn at least a fair market value and to maximize the revenue returned, few grazing leases do that. Restricted terms of use and barriers for competition reduce alternative use bids. The grazing rates set by each state trust agency do not recognize alternative use values or resource quality differences.

On a more positive note, where lessees are making use of sublet options to recognize alternative land uses, mutually beneficial outcomes are being realized. The Nature Conservancy leases that protect critical habitat and sublet for grazing demonstrate the potential win-win outcomes resulting from transferable use rights. The ability to transfer use rights will be key for efficient allocation as the demand and marketability of ecosystem services and other alternative range resource interests increase. The rising demand for ecosystem services and conservation, together with better metrics, can provide vital information to help move these amenity values into the marketplace. But managers of the public range must have the flexibility to take advantage of it.

If putting resources to their highest valued use is the goal, secure rights to the assets, or at least to rights of use, are necessary. The rights must be tradable among interested parties to realize the alternative resource use values. In addition, to motivate long term stewardship at the landscape level, measurements that clearly connect the investment in stewardship with increased output value are needed. None of the US public land agencies provide a perfect model for reform, but they do provide comparative lessons to help get the incentives right.

Notes
1. Utah’s School and Institutional Trust Lands Administration.

2. 42 U.S.C. §§4321-4370h.

3. Personal communication with Troy Forrest, May 18, 2015.

4. All data in the report are annual averages adjusted to 2013 US dollars.

5. MUSYA § 4(a), 16 U.S.C. § 531

6. A township is a six by six miles square. Each township is made up of 36 one by one mile sections, each containing 640 acres.

7. In Lassen v. Arizona, 385 U.S. 466-470 (1967), the court recognized the requirement for the state trust lands to be managed to generate full market value from the resources.

8. Some state trusts are considered charitable trusts while others are private trusts, which impacts who has standing depending upon the type of suit filed.

9. The Arizona-New Mexico enabling Act, 36 Stat. 557 (1910), is the strictest in the trust states and has been upheld through judicial determination across the state trust agencies.

10. The State trust land average from the Fretwell and Regan study includes Arizona, Idaho, Montana, and New Mexico. All figures are adjusted to 2013 dollars. The expense data for Montana and Arizona includes agriculture as well as grazing.

11. Grazing fees are typically set per AUM, which is the equivalent of one cow and calf, one horse, or five sheep or goats for one month. It is the amount of forage a 1000 pound animal consumes in 30 days, or about 800 pounds of dry forage per month. The federal grazing fee is determined by a formula with a base value of $1.23 per AUM and a minimum of $1.35 with a 25 percent cap on increases.

12. Utah and Washington use a two-tiered rate structure.

13. Based on studies in New Mexico and Idaho.

14. Neither Arizona nor New Mexico report AUMs. All figures are 2009–2013 averages adjusted to 2013 dollars.

15. It is also true that trust lands surrounded by a single private owner or federal lands have low management costs because the bulk of the administrative expenditures are paid by the surrounding land manager, as discussed below.

16. IDAHO CODE § 58-3lOB(2)(a).

17. Forest Guardians v. Wells, 34 P.3d 364 (2001): The Arizona Supreme Court held that the state must consider all bids on state trust land leases even if the applicants have no intention of using the land in accordance with the its identified use.

18. Forest Guardians, 34 P.3d 371-72 (Ariz. 2001). See also the Havasu Heights Ranch & Dev. Corp. v. Desert Valley Wood Prod., Inc., 807 P.2d 1119 (Ariz. 1990) case, which determined the state has discretion when considering best use and can accept a lower bid given that it is in the best interest of public benefits.

19. WildEarth Guardians v. Baier/Knight.

20. Personal communication with Diane French, Idaho Department of Lands Program Manager, April 20, 2015.

21. Personal communication with John Horning, WildEarth Guardians Executive Director, April 20, 2015.

22. See Fairfax and Issod (2003) for thorough analysis of the administrative, legislative, and judicial barriers.

23. Colorado Amendment 16, now section 10, Article IX, of the Colorado Constitution.

24. Personal communication with Mindy Gottsegen, Colorado State Land Board, April 14, 2015

25. Personal communication with Diane French, April 20, 2015.

26. See also Hess and Holechek (1995), Nelson (2011), and O’Toole (1995), among others.

27. Written communication from Gregg Simonds, April 27, 2015. On file with author.

28. Several studies demonstrate that profit is not the overriding goal for all western ranchers. See Torell et al. (2014: 6).

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Holly Fretwell is a Research Fellow at PERC and an adjunct instructor at Montana State University where she has taught  introductory economics, macroeconomics, natural resources and environmental economics. She works with the Foundation for Teaching Economics, giving workshops for  high school teachers to improve their skills in teaching and using...
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