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Power, Thomas Michael. 2004. The Fiscal Impacts of Closing Certain Federal Grazing Allotments in the Grand Staircase-Escalante National Monument. Report prepared for the Grand Canyon Trust. University of Montana. Missoula, MT. September 9.

RELEVANT TO	LIVESTOCK GRAZING
	SOCIOECONOMIC ANALYSIS OF ALL FOREST MANAGEMENT

DESCRIPTION

Recently, T he Grand Canyon Trust has purchased federal grazing permits in the Grand Staircase-Escalante National Monument in Garfield and Kane Counties, Utah. The transfer of these permits to graze livestock on federal land from private ranchers to the grazing subsidiary of a nonprofit organization committed to protecting public lands from the negative impacts associated with inappropriate public land grazing has raised concerns that the agricultural economic base of Garfield and Kane Counties will be undermined. A report by a Southern Utah University economist (Groesbeck 2004, p. 1, citation) commissioned by opponents of the transfer asserts a reduction of grazing will leave a void in the region's economy and lead to meaningful financial losses from local tax collections. This study analyzes the likely economic impact of this shift in the control of federal grazing permits from one private party to another in order to evaluate these claims of significant negative impact.

Power's analysis is based on the following premise:

Economics exists as a social science because scarcity and competition among uses force us to make choices as to how to allocate the scarce resources at our disposal among alternative uses. The debate over the appropriate level of grazing intensity on public lands is a typical example of such an economic allocation decision. Both high levels of grazing and protection of the environmental services flowing from the natural landscape provide us with economic value. As the economy changes, it should not be surprising to find that we have to modify the allocation decisions made many decades ago when we faced a very different set of relative economic values. (p. 19)

MAJOR FINDINGS

Power notes that the Groesbeck report calculated the maximum fiscal impact, which turned out to be a reduction of only $24,000 per year on revenues of $52 million for the two counties, "These impacts as calculated by Groesbeck are tiny by any measure. They are so small that it is an outright error to label them 'meaningful financial losses' that 'leave a void in the regional economy.' Given the size of even his estimated maximum impact, such a characterization is seriously misleading."

Power's analysis finds that county revenues will be reduced by $4,100 at most, barely a sixth of Groesbeck's finding, and about eight-thousandths of one percent of the two counties' 2003 budgets. "The actual expected impact is likely to be even smaller than this and when the adjustments one can expect to take place in an entrepreneurial economy are taken into account, the actual impact on local government revenues may well be positive, not negative." (p.2)

Impacts of Transferring Grazing Permits on Local Government Finance

• Any change in economic activity can potentially impact local finances. Local governments are not allowed to manage economic activity, so they have to adjust to what might happen if grazing is reduced, such as:

• Taxable sales volume could fall as cattle sales and ranch income decline.
• If value of the base ranch property falls, property taxes might decline.
• As the rancher who sold a grazing permit redeploys capital, improves ranch facilities, or changes the mix of commodities produced, or takes a job, sales taxes might increase.
• Management of allotments for landscape values could stimulate new economic activities, raising the value of the base ranch and the potential for recreational activities. " The improved natural landscape amenities may induce in-migration and tourism, boosting taxable expenditures and property values." (p. 4)

• Power notes that the permits' animal unit month (AUM) selling price clearly indicates the potential impact on the value of the ranch selling grazing permits. " That price represents the estimated capitalized value of the net income that continued use of those permits would have generated over the years. The actual selling price averaged $80 for each active AUM and $5 for each suspended AUM. This is the equivalent of $960 and $60 per animal unit for the active and suspended grazing privileges, respectively. There were 403 active animal units and 218 suspended animal units sold. The total sales value of these permits was about $400,000. If the value of the selling ranchers was reduced by this amount in Garfield and Kane Counties and current property tax rates of about 1 percent are applied, the lost property tax value due to the reduced production capacity of the base ranch would be about $4,000." (p. 4) However, it is an error to assume that there are operating base ranches in the two counties.
• Some of the base ranches are in other states, some consist only of water rights or state land leases. The loss of property tax revenues will be much less than $4,000.
• Similarly the impacts on other taxable properties are double counted by the IMPLAN model because it assumes a certain amount of base property. Because half or less of the base property exists in the two counties, the model's estimates of tax loss are double counted. By cutting the model's prediction of property tax loss in half and adding property taxes associated with active animal units, Power concludes the actual property tax loss for the two counties would be only $3,200 (p. 5).
• IMPLAN also assumes that the full 403 animal units transferred were actually used. Local sales and use taxes associated with cattle production are $2.27 per animal unit. On 403 AUs this means a loss of $915 in Nevertheless, adding $915 to the $3,200 of lost property tax puts $4,100 of local tax revenues at risk---about one dollar out of every $12,000 of county government revenues.
• The $4,100 is only about one sixth of Groesbeck's estimate in part because he assumed that both active and suspended grazing permits were worth $100 per AUM. But the ranches selling those permits accepted $80 for active and $5 for suspended permits. " In our estimate, we placed no production value on suspended AUMs because, as the name makes clear, they are not available to support cattle production. Groesbeck treated the suspended AUMs as if they are actively being grazed, a counter-factual assumption." (p. 6)
• Groesbeck also assumed negative effects on local governments from reduced income tax payments. But, in Utah, income taxes are collected by the state and distributed to school districts via an equalization formula. The only connection between point of collection and point of distribution is the population of school children. Worse, Groesbeck assumes that ranchers earn a profit of 55% of cattle sales dollars. "For 15 of the 21 years between 1982 and 2002 agricultural operators suffered losses rather than making a profit. This persistent pattern suggests that projections of a comfortable net income on which income taxes are paid is inappropriate." (p. 6)

SUMMARY of ASSUMPTIONS

Assumption	Groesbeck	This Analysis	Comment
Value of Suspended AUMs	$100/AUM	$5/AUM	Evidence from actual market sale
Value of Active AUMs	$100/AUM	$80/AUM	Evidence from actual market sale
Production from Suspended AUs	$500/yr	$0 / yr	Suspended AU produce no beef
Active AUs supported by actual operating base ranches in the Garfield and Kane Counties.	403	200	Some leaseholders do not have actual base ranches in the two counties.
Local Income Tax Payments to Local Government	$55/AU	$0/AU	Sharing of state income tax payments is not based on local income tax collection.
Reduced Production from the Active AUMs Transferred	$42/AUM	lower	Actual grazing levels have been well below permitted levels due to drought and economic conditions.

(p. 7)

Local Government Finance in Garfield and Kane Counties

The role of local taxes and other sources of local government funding is shown in the following table. (p. 8)

The Role of Local Taxes in Local Government Budgets: Garfield and Kane Counties
Government Unit	2003 Budgets
	Total Revenue (all Funds)	Local Tax Revenues	% from Local Taxes
Garfield County Garfield County School District Panguitch City Escalante City Kane County Kane County School District Kanab City	$7,938,092 $10,442,069 $1,289,064 $953,230 $9,291,685 $10,828,384 $9,515,537	$2,357,700 $2,226,094 $434,379 $234,000 $2,829,830 $2,178,873 $1,254,944	29.7% 21.3% 33.7% 24.5% 30.5% 20.1% 13.2%
Total of the Above	$50,258,061	$11,515,820	22.9%

Source: Utah State Auditor's Office, Budget Reports, Local Governments

Local Economic Impacts in the Context of a Changing Economy

• It is folly to ignore the positive impacts that may result as the economy adapts to private choices. In the last 20 years while ranchers have faced hard times the two counties have shown considerable economic vitality, providing " both opportunities for agricultural households as well as protection to the non-agricultural sectors as drought and poor market conditions have taken their toll on farms and ranches." (p. 10)

• Power attributes this local economic vitality to landscape amenities. He notes that the "staying power of local agricultural operations despite almost two decades of very low returns is impressive evidence of the commitment of these families to the natural landscapes they work and the way of life built around those farms and ranches. They, too, place a high value on those amenities." (p.11)

• Changes in grazing levels are not likely to dramatically impact local government finances because agriculture itself is does not dramatically impact the local economy.
• "While agriculture was the source of 20 percent of the jobs in Garfield and Kane Counties in 1969, by 2002, the most recent year for which data is available, the relative importance of agriculture as a source of employment had fallen to a third of this, about 7 percent, and most of those jobs were part-time jobs." (p. 11)
• In 2002, personal income derived from all of agriculture amounted to only 0.1% of personal income in Kane County, and only 0.8% in Garfield County.

• Retirement and Investment contributed 43.0% (Kane) and 37.6% (Garfeld).
• Visitor services: 12.5% (Kane) and 15.0% (Garfield).

• Farm and ranch earnings, including hired hands represent about one-half of one percent of total personal income in the two counties from 1982 to 2002.
• The income role of agriculture is actually smaller than the preceding indicates because in 2002 almost 60% of operators also worked off the farm or ranch. Out of about 3,500 households in the counties, fewer than 100 rely on ranching as their primary source of income.
• "The decline in farm and ranch incomes (as well as payrolls in other natural resource sectors) did not cripple the Garfield and Kane County economies. As farm income declined in real terms, non-farm sources of income expanded significantly, increasing by a factor of 2.5 between 1973 and 2002 after adjusting for inflation." (p. 13)
• "Economic development almost always involves shifting resources from uses familiar in the past to new, higher value uses." (p.17)

• Reallocation of resources does not undermine local economies; it facilitates ongoing economic development.

• "An economic analysis of livestock grazing and recreational uses of the landscape in the area just south of Kane County concluded that the recreation values were much larger than the grazing values. That study of the Kaibab Plateau of northern Arizona compared the public benefits received from grazing, hunting, and dispersed recreation and concluded that the wildlife and recreation values exceeded the grazing values by a ratio greater than 100 to 1." (p. 18, citation)
• A local area's ability to attract and hold new people and business is the key to its economic vitality.

• Natural landscape amenities can be a major part of the area's competitive advantage.
• Transportation and communications technologies mean many people can retire or take their business to such places.

• "These changes have also increased the economic importance of rational environmental protection efforts. It is no longer appropriate to see environmental protection as primarily having negative impacts on local economic development. Environmental protection now has to be an important part of any local economic development effort." (p. 18)
• "The Groesbeck report on the impact of the transfer of the federal grazing permits to the Grand Canyon Trust asserts that changes in land use that reduce grazing can only have a negative impact on the economy. Such shifts of resources from one economic activity to another, it insists, cannot facilitate the expansion of other, possibly higher valued, economic activities. It comes to that conclusion by simply asserting that all other possible uses of the landscape are perfectly compatible with the current permitted level of grazing. This is an assertion that there are no economic choices to be made about the use of a scarce resource: it can be used simultaneously by all potential other uses at no opportunity cost. In particular Groesbeck asserts that 'tourism and grazing cohabitate effectively on federal lands throughout the region with very little incident (sic).' That is an anti-economic fantasy built around a belief in multiple free lunches." (p. 19, citation)

QUESTIONS RAISED FOR THE THREE FORESTS

• Power's analysis shows that many of Groesbeck's assumptions were unfounded. How will you assure quality in terms of realistic assumptions and objective analysis?
• Do you find any part of Power's analysis to be questionable? Do you find any of the Groesbeck assumptions questioned by Power to in fact be defensible?
• How will the Forests consider rises in economic value of natural resources on sites where livestock are not grazed?

RELEVANCE TO FOREST MANAGEMENT

• The 2004 Tushar Mountain cattle grazing Draft Environmental Impact Statement (Fishlake NF, Beaver Ranger District) uncritically accepts the Groesbeck report as a stand-in for economic analysis of the DEIS' no-grazing alternative. Power's document shows this passive acceptance to be arbitrary and unreasonable.
• When evaluating local impacts of the sale of grazing permits, all reasonable outcomes of that decision must be considered, not just the familiar parts of them, e.g.,
• The reduced debt burden increases the ranches' disposable income, even in some case staving off bankruptcy.
• Proceeds may be invested in the base ranch operation aligning it with current and future market conditions. If taken as a sign of how well the ranch is doing, such investment disproportionately increases the market value of the ranch.
• Sale proceeds may fund new economic activities that diversify the ranch household economy, making it less vulnerable to fluctuations in cattle prices and weather.
• The seller might shift resources away from cattle to other, more viable sectors of the economy.
• These potential adaptations may stimulate the local economy offsetting the impacts of reduced grazing on public lands.
• "Whether the net impact will be positive or negative or neutral cannot be determined in the abstract, but there is no reason to assume that a private decision by a rancher to improve the ranch household's economic condition will have a negative impact on the economy." (p. 20)
• In a dynamic, adaptive, market economy some economic activities are always in decline while others are expanding.
• But, we are not passive, helpless victims simply surrendering to economic changes that impact us negatively.
• When one sector declines resources and labor are freed up for more productive uses.
• Using input-output models, such as IMPLAN, shows economic change impacts as if the resources once deployed in a particular activity have been rendered permanently unemployed.
• This grossly exaggerates the negative impacts (for example, see Tushar grazing DEIS).
• Such models ignore the genius of the market economy and the primary source of our nation's productivity.

Power refers to the IMPLAN model without explanation. It is what is known as an input-output model that relates changes in production to changes in resources used in the production process. While easy to use, because it is static it fails to account for uses those resources might alternatively be used for in a dynamic economy.