Protecting Public Land Revenue-Sharing Governments From the Fiscal Risks of Economic Transitions

Public lands are America’s greatest decision, preserving access to the nation’s wildlands, wildlife, and other special places for everyone, not only those with social or economic privilege.¹ Public lands were also preserved to conserve the nation’s resources, including timber, water, and energy, against exploitation and to help fuel the nation’s prosperity.²

But for many rural states where public lands make up a significant portion of land area, the nontaxable status of public lands strains state and county governments that need to pay for services and provide infrastructure with a limited tax base. Recognizing this fiscal burden, Congress began sharing revenue from commercial activities on federal lands with state and local governments in 1908. States and counties receive a percentage of dollars earned when federal lands are leased for timber harvests, grazing, oil and gas extraction, and other fee-based uses such as campgrounds.³

But revenue-sharing payments are not always predictable, stable, or fair. Revenue sharing places the risks of volatile resource markets and the swings in federal management policy on the communities where natural resources are extracted. A review of federal revenue-sharing programs in 1970 found they were inequitable among counties, too volatile to fund essential services, and incentivized local governments and federal land managers to prioritize extractive activities over conservation or restoration needs.⁴ In response, Congress began subsidizing revenue-sharing payments through several programs, beginning with Payments in Lieu of Taxes (PILT) in 1976.⁵

The PILT program is distinct from the revenue generated by the sale of natural resources. PILT is based on the number of federal acres in each county and is paid from the U.S. Treasury Department, not from money earned by leasing federal lands.

Another vulnerability for revenue-sharing governments is that high payments from natural resource extraction are used to replace a more diverse and broad-based tax structure. For example, declining revenue-sharing payments associated with curtailed timber harvests in the Pacific Northwest in the 1990s caused significant fiscal stress for revenue-sharing county governments.⁶ Congress again acted to subsidize payments through several programs, including the Secure Rural Schools and Community Self-Determination Act (SRS).⁷ Today, more than $8 of every $10 paid to revenue-sharing counties come from PILT and the SRS, but these subsidized payments still fail to deliver a permanent solution that meets counties’ needs and does not require large taxpayer subsidies. Counties that remain dependent on federal payments to pay for essential services and infrastructure still face perpetual fiscal risks from changes in federal land management, fluctuations in commodity prices, and Congress’ shaky commitment to continued appropriations.⁸

The COVID-19 pandemic brought these risks into sharp focus. Counties reliant on public lands and extractive resources for revenue and jobs tend to fall faster into recession and are slower to climb out of recession.⁹ As economies shut down, communities relied heavily on local government services, including public health, public safety, broadband, and water and wastewater infrastructure, among others.¹⁰ At the same time, revenue earned from commercial activities on public lands declined sharply¹¹ and appropriations for county payments programs had not yet been reauthorized.¹² Congress authorized the Local Assistance and Tribal Consistency Fund (LATCF) in the American Rescue Plan Act to ensure that revenue-sharing local and Tribal governments had predictable and flexible resources to mitigate budget impacts associated with the pandemic.¹³ The LATCF worked well for recipient governments but was limited by a two-year congressional appropriation. The PILT, the SRS, and the LATCF were ultimately reauthorized and funded; the SRS expired in fiscal year 2023, and the PILT and the LATCF expired in fiscal year 2024, underscoring the need for a permanent solution.¹⁴

The LATCF, or a similar fund, could be used to manage a permanent fund financed with commercial revenue from natural resource extraction from public lands. This approach would redress a history of failed revenue-sharing payments with lasting and predictable payments to support local services and infrastructure needs. Investing dollars from commercial activities on public lands into a sovereign wealth fund that would finance future payments that compensate for the nontaxable status of federal lands would make the system revenue neutral to taxpayers.

The history of revenue-sharing payments has been described as having three distinct “eras,”¹⁵ the first of which began more than 100 years ago. Most of these payments are still ongoing, but each one has specific and unique eligibility criteria.

Era I: Compensation linked to commodities, 1908–1976

1. The U.S. Forest Service 25 percent payments were established in 1908 as the first federal policy to compensate for the nontaxable status of the new public lands and to pay for infrastructure and services essential to a growing and civilized society. Local governments received 25 percent of the money the Forest Service made by leasing public lands for commercial uses, including recreation, grazing, commercial rights of way such as power lines and road easements, and timber harvests.¹⁶ Timber harvests historically made up most of the money sent to counties but have declined sharply since the 1990s,¹⁷ from a peak of more than $840 million in FY 1990 to about $23 million today, due to changing markets and land use management. (see Figure 1)
2. Bureau of Land Management (BLM) Oregon and California (O&C) 50 percent payments share with county governments in Oregon half of the revenue earned from leasing the BLM O&C lands. The O&C lands were originally granted to railroad companies in 1866 to establish the transcontinental railroad system. In 1916, land grants that were not used for railroads were revested to the federal government. Revenue from commercial production on O&C railroad lands was shared with counties in 1937. Managed for timber production, the O&C lands share 50 percent of revenue with county governments.¹⁸ BLM O&C payments declined from a high of $293 million in 1988 to a low of $24 million in 2016. (see Figure 1)
3. U.S. Fish and Wildlife Service Refuge Revenue Sharing payments (USFWS Refuge) have been paid to county governments using a number of criteria since 1935, including the value of commercial receipts from leasing on a refuge and the taxable value of the refuge lands for property tax purposes, among others. The payment to each local government is based on the criterion that offers the highest payment.¹⁹ In recent years, taxable value has consistently been the highest-valued criterion, but Congress has balked at paying for the program, having appropriated only 20 percent of authorized payments.²⁰ USFWS Refuge payments peaked at $36 million in FY 1991 but fell to $18 million in FY 2024. (see Figure 1)

Era II: PILT addresses equity, uncertainty, and incentives, 1976–1990

4. Payments in lieu of taxes were adopted in 1976 to fix the volatility, inequity, and incentives associated with revenue-sharing payments to local governments for the nontaxable value of public lands.²¹ The PILT formula is based on three primary criteria: the total number of federal acres within each eligible local government’s jurisdiction, a ceiling amount based on the county’s or city’s population, and that local governments must subtract revenue-sharing payments they received to avoid double payments being made to certain counties and as a way to stabilize compensation annually.²² PILT is permanently authorized but depends on annual appropriations, which require substantial advocacy and expenses from counties to secure from year to year.²³ The Consolidated Appropriations Act, 2024 (Public Law 118-42) appropriated one year of full funding for PILT for FY 2024.²⁴ PILT is adjusted for inflation each year but has increased in real terms due to declining prior-year payments from other programs. Payments have increased from $224 million in FY 1993 to $565 million in FY 2023. (see Figure 1)

Era III: Transition payments subsidize commodity receipts, 1990–present

5. “Spotted owl” transition payments were made to Pacific Northwest counties starting in 1990 as a temporary bailout for declining payments from the Forest Service 25 percent fund as well as from 50 percent BLM O&C payments, the result of diminishing timber harvests on public lands. The transition payments declined year over year and sunset with the expectation that rural, timber-dependent local governments would diversify their economies and grow local tax revenue.²⁵ Local governments were unable to fully replace the revenue for a variety of reasons, including strict local revenue limits imposed by state taxation and expenditure limits.²⁶
6. The Secure Rural Schools and Community Self-Determination Act was passed in 2000 to extend the temporary “spotted owl” payments and to broaden the geographic scope of the transition payments to all eligible local governments nationally.²⁷ The SRS is funded with appropriations determined by a formula that considers historic revenue-sharing payment levels and adjusts for per capita personal income to target payments to relatively low-income counties. The SRS has been reauthorized eight times since the initial bill passed,²⁸ but the last payments for FY 2023, have already been made unless the SRS is reauthorized yet again.²⁹ Short-term extensions have not provided the certainty that counties can rely on to budget for ongoing services and infrastructure investments. Payments declined from a peak of $757 million in FY 2008 to $261 million in FY 2023. (see Figure 1)³⁰

Multiple federal agencies manage 622 million acres of public lands, which make up 27 percent of the United States’ land area³¹ and 48 percent of the land area of the 11 Western states.³² Particularly in the Western states, public lands have shaped the economic and cultural relationships between natural resources and communities. This was especially true after World War II, when extraction of timber, minerals, and other resources helped fuel the postwar economic boom. Later, federal coal resources in Wyoming’s Powder River Basin were tapped as reliable domestic power amid the energy crisis in the 1970s.³³ And offshore leasing in the Gulf of Mexico helped the United States become the world’s largest producer of oil.³⁴ The federal government continues to lease public lands to private timber, mining, and oil and gas companies. The substantial earnings from these leases are then collected and distributed, through direct revenue sharing, to local mining, drilling, and timber towns.

Revenue that comes from natural resource extraction can be a financial windfall for rural economies, contributing a larger share to local government revenue than employment and income taxes in some regions.³⁵ However, this revenue often does not translate into sustained local prosperity. Half of rural economies that have high gross domestic product per capita—often associated with extractive economies—are losing population.³⁶ And rural communities dependent on natural resources face acute economic crisis when resource activity ends, which may happen suddenly.³⁷ The structure of direct revenue-sharing payments has increased risks for communities that rely on public lands to pay for local services and infrastructure. This has led to substantial economic and social harm in several extreme cases, such as in Josephine County, Oregon. There, a combination of declining federal and state timber revenue, strict limits on local property taxes, and anti-tax sentiment among voters resulted in such steep budget cuts that local governments could not provide adequate essential services—including public safety. Several high-profile crimes, including a case involving kidnapping and assault that occurred when no police officers were working due to budget cuts, received national attention.³⁸

Figure 1 highlights how total compensation for nontaxable federal lands has declined since 2001 and that payments appropriated by Congress make up the majority of compensation today. In 2023, total compensation from PILT, SRS, and USFWS Refuge revenue-sharing payments totaled $892 million. By comparison, the money from the USFS, BLM, and USFWS available for revenue sharing in 2023 was $76 million, $42 million, and $7 million respectively, totaling about $125 million.³⁹ Returning to a revenue-sharing model would result in steep declines in compensation.

State and local governments using natural resource revenue to pay for essential local services and infrastructure such as schools and hospitals are liable to become entrenched in a volatile cycle of dependency. Payments are almost always spent as they come in.⁴⁰ In practice, such “paycheck to paycheck” spending means that these localities are living on the fiscal edge and may be using federal payments to avoid having to raise other taxes to pay for these same services. For example, county governments in Oregon that receive the highest federal payments maintain the lowest property tax rates.⁴¹ And Western states including Montana, New Mexico, South Dakota, and Wyoming use federal payments, including payments from fossil fuel leasing on federal lands, to lower or eliminate sales and income taxes—creating dependence on federal payments to maintain state and local budgets.⁴²

Local governments’ dependence on federal payments, and the state tax structures that have become narrowly specialized around them, exacerbates risks and impedes governments’ ability to benefit from economic diversification. For example, Montana relies on natural resource revenue to avoid adopting a sales tax, leaving communities pursuing recreation-based economies with limited opportunities to pay for tourist infrastructure and services.⁴³ States with laws that limit diverse local revenue and taxation—making it more difficult to adapt to changes in local economic circumstances—run the greatest risk for dependence on natural resource extraction. Rural revenue-sharing communities face an acute fiscal crisis almost immediately when their resources become scarce and/or a developer pauses operations. To protect their budgets, governments that depend on revenue-sharing payments may oppose climate and conservation policies that threaten continued resource extraction.⁴⁴

In 2021, Congress passed the Local Assistance and Tribal Consistency Fund specifically to manage financial risks in revenue-sharing governments affected by the economic shock of the COVID-19 pandemic. The LATCF allocated $2 billion to the U.S. Treasury Department toward eligible revenue-sharing counties and Tribal governments between fiscal years 2022 and 2024 to help address the impact of the COVID-19 recession on extractive industries and subsequent revenue-sharing payments.⁴⁵ Importantly, governments could use payments to accommodate for uncertainty over which local services would be most affected by declining revenue or were most needed by communities to respond to pandemic-related impacts.

LATCF disbursements are allocated to eligible revenue-sharing counties—those that the secretary of the interior determines may suffer a negative revenue impact due to implementation of or changes to a federal program, including land management decisions or funding for PILT, SRS, and USFWS Refuge payments—according to a formula written by the Treasury Department with guidance from language in the American Rescue Plan Act.⁴⁶ The formula takes into consideration economic and demographic characteristics of local and Tribal governments as a way of targeting payments to where vulnerability is highest. Each eligible revenue-sharing county was guaranteed a minimum payment of $50,000.

Payments to revenue-sharing counties can be used for any governmental purpose, which is a specific response to unprecedented financial stress brought on by the pandemic. Counties are required to report to the Treasury Department how LATCF payments were used under four categories: government services; capital expenditures; transportation/water/sewer/technology infrastructure; and other governmental purposes.⁴⁷

The LATCF also established a new Tribal economic stabilization fund, which made payments to Tribal governments for any governmental purpose deemed necessary by the Tribe. This funding could be used to repair drinking water infrastructure or fund Tribal health care services, housing, natural resource management, or other critical Tribal needs. Tribal governments have limited authority to tax economic activity.⁴⁸ Natural resource extraction is one of the few revenue sources that Tribes can collect and use flexibly. Leasing Tribal lands requires approval from the federal government, which holds Tribal lands in trust.⁴⁹ The federal government then collects revenue from leases and makes payments back to the Tribes. The LATCF provided equitable and stable funding because of Tribal governments’ reliance on federal authorities to manage Tribal resources, risks associated with dependence on economies prone to booms and busts, and the uncertainty associated with the COVID-19 pandemic.

LATCF payments were not competitive. County and Tribal governments only needed to request their authorized payment from the Treasury Department.

The LATCF was authorized because of the risks associated with existing revenue-sharing payments and the uncertainty inherent to appropriations for PILT, SRS, and USFWS Refuge payments. At the outset of the pandemic, revenue-sharing local and Tribal governments were already facing economic strain as a result of sharply curtailed natural resource extraction due to workforce and supply chain disruptions;⁵⁰ declining federal appropriations; fiscal stressors from state revenue policy;⁵¹ and, for Tribes, limited autonomy to manage revenue and deliver essential services to vulnerable populations.⁵² Many local governments struggled to maintain operations while managing the pandemic.⁵³ Passing the LATCF was integral to meeting the emergency budgetary needs of local and Tribal governments where dependence on existing revenue-sharing programs and federal managers created substantial uncertainty and risk. Case studies illustrate the value of flexible LATCF payments to local governments during the COVID-19 pandemic.

Nearly 80 percent of Skamania County in Southwest Washington, home to the Gifford Pinchot National Forest, is managed by the federal government.⁵⁴ This rural county received approximately $4 million in LATCF funds,⁵⁵ which it used toward county insurance programs ($2.5 million); maintenance of county buildings and obtaining compliance with the Americans with Disabilities Act ($1.04 million); software replacements and upgrades on county-owned computer and information technology systems ($500,000); and as a supplement to Coronavirus State and Local Fiscal Recovery Funds.⁵⁶ The LATCF funding promises to improve the physical and digital infrastructures of Skamania’s county government and leaves a little room to save money for another unexpected lapse in natural resource extraction revenue.

Ziebach County received the minimum $50,000 annual LATCF payment. The county planned to use the funds to provide bonuses and to increase salaries for county employees and to buy a semitruck for the county Highway Department to conduct road maintenance. The county faced several other administrative concerns, but increasing staff pay and investing in road maintenance were such immediate priorities that Ziebach County was one of the first counties nationally to spend LATCF program funding.⁵⁷

LaSalle County also received the minimum allotment from the LATCF and plans to use the funding as grants for nonprofit and governmental community programs.⁵⁸ The pandemic led to declining revenue and increased needs for supporting local groups that provide critical social services such as child care, independent living resources, and business education.⁵⁹ County managers also developed stringent criteria for eligibility, proving that county governments are capable of making strategic money decisions that both meet local needs and align with the goals of the federal policy.

The LATCF was developed based on an understanding of the challenges, vulnerability, and uncertainty that rural, natural resource-dependent counties face. Commercial receipts generated from leasing federal public lands are not an equitable or stable way to compensate governments that need to pay for local services and infrastructure—some of which are required to service tourists visiting public lands. The uncertainty related to appropriated programs passed to address these shortcomings, including PILT, SRS, and USFWS Refuge payments, demonstrates a need for a permanent solution to provide resource-dependent communities with flexible and stable payments they can rely on to mitigate the fiscal risk associated with economic and energy transitions.

The LATCF’s design and implementation—equitably delivering stable payments to local and Tribal governments—mean it is poised to become the foundation of a permanent solution to compensate counties for nontaxable federal lands. A permanent solution could take the form of a permanent fund financed with commercial receipts from public lands. The permanent fund would function like a sovereign wealth fund by saving and investing the nation’s resource wealth to benefit current and future generations. Revenue-sharing counties would receive predictable and growing payments in perpetuity. And a system financed with future receipts would be revenue neutral.

The Center for American Progress has written previously about the need for a permanent fund to replace existing revenue-sharing and appropriated payments to state and local governments.⁶⁰ Congress could establish a permanent fund within the LATCF that is permanently authorized but not funded until it is needed.

A permanent fund would save and grow—not spend—revenue from nonrenewable resource extraction and would give communities ownership over how payments can be spent and how assets are invested. Capitalizing the LATCF with a loan to be paid back with public land receipts would make permanent and predictable payments to state and local governments at no net cost to taxpayers. Funding the LATCF through a sovereign wealth fund model could put resource revenue to work in transformative ways, avoiding the inequity, uncertainty, and harmful incentives inherent in existing annual payments.

Protecting local governments from the acute fiscal risks associated with economic downturns and transitions is essential to building resilient and equitable rural economies. The COVID-19 pandemic exposed the vulnerability of state, local, and Tribal governments’ dependence on annual revenue-sharing payments made to compensate them for nontaxable federal lands. Tribal governments face additional challenges due to having limited revenue authority and relying on federal managers to lease Tribal lands held in trust.

The Local Assistance and Tribal Consistency Fund was created to address the risks of dependence on revenue-sharing payments and to provide greater flexibility to local governments to use federal resources to address local needs amid market disruptions and changing service demands created by the COVID-19 pandemic. A permanent solution for public land payments is achievable—at no taxpayer cost—by managing the LATCF as a sovereign wealth fund financed through future revenue from public lands.