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| 1/19/2010 12:39:00 PM | Email this article • Print this article | DNR borrows money from the future to buy land
Controversial practice financed heavily criticized land deal
In 2005, with outraged lawmakers and local timber producers crying foul, the Wisconsin Department of Natural Resources hooked up with The Nature Conservancy to execute one of the largest land deals in state history, spending $33 million in public Stewardship funds to protect 64,000 acres of land in Florence, Forest and Marinette counties.
In doing so, the agency, under terms negotiated in secret, acquired fee title on 5,629 acres and a conservation easement on 44,401 acres sold by International Paper to two out-of state companies, Conservation Forestry and Forest Investment Associates.
The Nature Conservancy also acquired an easement on approximately 14,600 acres, easements it has since resold to the DNR. Under the deal's terms, the firms bought the land and timber rights, but the DNR reimbursed the companies $19 million for the conservation easements.
To the dismay of local officials and timber producers, the DNR refused to let potential in-state investors compete against the out-of-state firms or for the land the DNR bought. One of those potential investors, Gordon Connor, said his team had spent thousands of dollars on the project, only to see public money leveraged in secret against it.
"We have operated and paid taxes here since there have been taxes," he told The Lakeland Times in 2005. "Are we getting a $30 million subsidy for the lifetime of work we've done? It's an insult to go to outsiders."
Well, add injury to the insult. That $33 million taxpayer subsidy Connor said was used against him? Turns out, the DNR was leveraging money it didn't even have.
At least the agency didn't have enough money budgeted for that fiscal year. The Stewardship land acquisition program is authorized to spend a certain amount of money each year. This year and until 2020, for instance, the land acquisition program is authorized at $62 million per year.
That wasn't the case in 2005, however. Back then, DNR direct land acquisition authorizations under Stewardship totaled only $31.75 million, and the $33 million price tag did not include other Stewardship land acquisitions for the fiscal year.
The agency needed money - $16.5 million, to be exact - and it was able to get it by using one of two little known statutory provisions allowing the DNR to "borrow ahead" from funds authorized to be spent in future years.
Critics of "borrow ahead" practices say it is bad and perhaps unconstitutional fiscal policy, a practice that not only encourages overspending but secrecy. It is not transparent to allocate $31.75 million for land acquisition, these critics say, and then allow the agency to spend nearly $50 million and effectively steal a future year's allocation.
Supporters say the practice allows the agency to take advantage of rare opportunities and protect pristine lands by acting fast.
International Paper was selling the acreage in 2005, for example, and the company would not wait for the DNR to accumulate the necessary funds. What good would the money do next year, they argued, if one of the most historic land deals in history could no longer be made?
How it works
As the state Legislative Fiscal Bureau explained in a January 2009 informational paper, Wisconsin's stewardship program was created in 1989 to purchase land, primarily as a way to expand recreational opportunities and protect environmentally sensitive areas.
The DNR runs the program, either by buying land itself or providing grants to local units of government and to nonprofit organizations.
By any measurement, the program has been successful. As of June 30, 2008, the stewardship program has allowed the DNR to buy or acquire easements on approximately 449,300 acres. Also as of June 30, 2008, the LFB states, the DNR owned approximately 1.4 million acres, or about 4.1 percent of the state's land area.
To pay for all this, the state issues 20-year tax-exempt general obligation bonds, the principal and interest of which is paid through general fund tax revenues, with some dollars flowing from the segregated conservation fund.
The total funding obligation has been stretched over 10-year periods. For example, the 2007 bill reauthorizing the Stewardship Fund from 2010 to 2020 endowed the program with an annual total bonding authority of $86 million, or $860 million for the period.
For the years 2000-2010, the annual bonding authority was $60 million.
Within that overall amount, there are subprograms for such things as land acquisition, property development and local assistance; the Legislature establishes an annual funding level for each subprogram.
But, as the Legislative Fiscal Bureau points out, the statutes give the DNR flexibility. If the DNR doesn't spend all its authorized funding for a particular year, it can roll that money over into the program's next fiscal calendar.
What's more, if at the end of the decade, when the program sunsets, the land acquisition subprogram has not used all of its total authorized bonding authority, it can still spend that money in future fiscal years.
Talk about flexibility
While using past unexpended but budgeted funds in the future is a widely used mechanism to give programs flexibility, it is not the only versatility the Legislature has showered upon the agency.
Indeed, in two statutory provisions, lawmakers have allowed the DNR to stand the system on its head. In other words, in a process known as borrowing ahead, the DNR can use amounts authorized for future years if they don't have enough money in the current year.
The January 2009 Legislative Fiscal Bureau informational paper explains the process.
According to the LFB, within the land acquisition subprogram, the DNR can obligate "any amount not in excess of the total bonding authority for that subprogram for the acquisition of land, subject to the approval of the Governor and the Joint Committee on Finance."
What that means is, though the DNR is authorized to bond for $62 million a year through 2020 for land acquisitions, for a total bonding authority of $620 million, the agency could theoretically spend the entire $620 million this year, so long as it convinced the governor and the Legislature's Joint Finance Committee to go along.
There are some conditions. Using the total-bonding-authority provision means the DNR must sell a portion of the acquired land. The revenues from the sale of those lands go to pay the principal and interest, up to the amount obligated for the original purchase.
For those bonds retired within three years using the revenues from the land sales, the DNR can then renourish its bonding authority. However, the LFB states, for bonds not retired within the three years, the DNR must decrease the available bonding authority for the next fiscal year and for each subsequent year until the amount equals that borrowed, so the total allocation is not exceeded.
The DNR took advantage of the total-bonding-authority provision in 1999 to pay $25 million for the so-called Great Addition purchase of 32,000 acres in Iron, Lincoln, Oneida, and Vilas counties from Packaging Corporation of America.
In another provision, which might be dubbed the double-up provision, in any given year the DNR is permitted to double its authorized bonding authority for a project or activity, but then it must lower the annual bonding authority for the next fiscal year by the amount exceeding authorization.
Again there are conditions. There must be insufficient funds to make the purchase in the first place, the land must cover a large area or be a uniquely valuable natural resource, and the Natural Resources Board must determine that a delay is not reasonably possible.
It is this provision the DNR used in 2006-07 to borrow the $16.5 million from 2007-08 bonding authority for the land purchase in Florence, Forest, and Marinette counties, referred to as the Wild Rivers Forest Legacy purchase.
As the LFB states, the DNR also used the double-up statute in 2007-08 to borrow ahead from 2008-09 for three purchases: $6.1 million for an approximately 5,900 acre addition to the Brule River State Forest in Douglas County, $2.5 million for approximately 2,800 acres for the Mead Wildlife Area in Portage and Marathon Counties, and $2 million for approximately 1,500 acres for the Willow Flowage Scenic Waters Area along the Tomahawk River in Oneida County.
The practice was also employed in 2008-09 on a $10.8 million purchase for 970 acres in Waukesha and Walworth counties.
The DNR clearly thinks borrowing ahead poses few, if any, problems.
At a recent NRB meeting, in fact, DNR staff addressed the concept of opportunity costs in analyzing the practice of borrowing ahead. Simply put, the opportunity cost of a particular decision is the value of the next-best choice among two or more available choices.
To say it another way, the DNR's opportunity cost in borrowing ahead is the value of lost future funding and the risk of being unable to buy pristine lands in the future, in exchange for the decision to secure valuable lands today.
The decision is justified because valuable lands passed up today probably won't be available tomorrow - the reasoning the state used in the 2006-07 Wild Rivers Forest Legacy purchase.
"In addition to fee titles on pristine areas and public access for outdoor recreation, the forest legacy easement is specifically crafted to help maintain the exceptional ecological value of this hardwood/hemlock forest," DNR real estate director Richard Steffes and DNR staff member Paul DeLong wrote in a "green paper" memo for the April 2006 NRB meeting. "The easement further protects the economic value of this forest to the local area and to the state as a sustainable producer of forest products as well as a large scenic area for outdoor recreation."
Since IP was selling the land, the transaction met the strict criteria the Legislature had defined for the borrow-ahead provision, in other words, there wasn't enough money available, the land was pristine and wouldn't be available later, and so a delay could not be justified.
Gov. Jim Doyle explained the purchase in classic opportunity-cost terms.
"Had we not acted, it may have been sold off, piece by piece, and developed - its unspoiled beauty potentially lost to bulldozers and buildings," the governor said. "This purchase ensures that these lands will be forever protected and remain a working, sustainably-managed forest available for the enjoyment of generations to come."
The problems with
borrowing ahead
Others take a dim view of borrowing ahead, saying it is fraught with fiscal and perhaps even constitutional flaws.
For one thing, critics assert, the practice is not transparent, that is, the Stewardship program is sold to the public and indeed perceived as a specific annual allocation, available for 10 years, after which the annual authorization will sunset, when in fact statutory loopholes transform it into a broad 10-year budget allocation, spendable at any time.
In this view, the borrow-ahead provisions violate the state's trust with the people in terms of how Stewardship land is bought, how it is paid for and on what terms.
In addition, critics say, borrowing ahead encourages the state to make imprudent decisions. Because the DNR can tap dollars not budgeted in the present, it is not forced to pick carefully among available, affordable parcels, or to decide, based on limited funds, what land is truly necessary to preserve and what is not.
Instead, it can just keep buying what's available, critics says.
For example, when the department borrowed ahead to buy an approximately 1,500-acre parcel for the Willow Flowage Scenic Water Area along the Tomahawk River in Oneida County, about 700 of those acres sat outside the previously defined boundary of the Willow Flowage Scenic Water Area.
The question is, then, did the availability of borrow-ahead funds allow the purchase of lands not previously considered vital for state ownership?
Others says it leads to ever heavier debt loads. Then, too, while borrowing ahead gives the state more opportunities and more opportunity-cost choices, it also gives officials more chances to make the wrong decision.
When the state borrowed ahead for the Great Addition, for example, using the total-bonding-authority provision, officials allotted the $25 million price over three years beginning in fiscal year 2001-02.
The idea was to sell portions to other public entities to cover the cost and not devalue future bonding authority, and it indeed sold 190 acres to Vilas County for $148,200 and 1,390 acres to the Lac du Flambeau tribe for $1,080,400, according to the LFB.
In addition, the agency entered into a three-way agreement with the Board of Commissioners of Public Lands and the U.S. Forest Service to exchange and sell parcels of land totaling 2,134 acres for $997,000 and conservation easement rights.
All totaled, however, the department had hoped to sell 7,000 acres and in the end it could not do so.
"However, no sales have occurred since 2004 and it appears that further sales of land from the Great Addition to counties or local units of government are unlikely to occur," the LFB stated last January in its paper.
And so the DNR made a flawed cost-opportunity decision, based on factors it did not judge correctly.
"Department officials cite the appeal of the payment in lieu of property taxes that DNR makes to local governments with stewardship land within their boundaries and the cost of developing recreational property for public use as key reasons for a lack of interest by counties in purchasing additional property from DNR," the LFB reported.
Even more important, borrowing ahead could tie the hands of future legislatures, a constitutionally shaky concept.
The law reauthorizing the Stewardship program says the DNR may spend $86 million a year in bonding authority, but it does not require the agency to spend the money. In an economic downturn, then, a future Legislature might want to suspend the annual authorization, either for one year or indefinitely.
It could even end the program.
But what if the money for 2013 or some other year is already spent because of the borrow-ahead provisions? In that case, one Legislature would be making budget decisions for future years that future lawmakers could not rescind.
The legacy of the Forest Legacy
Of course, the poster child for borrowing ahead is the July 2006 Wild Rivers Forest Legacy deal.
At the time, Republican legislative leaders criticized Doyle because the DNR, in choosing its partners in secret, effectively shut out private companies, opting for a company that would automatically accept easements in return for public money.
And the DNR brokered the deal despite Steffes' pronouncement to the NRB that the bargain protected "the economic value of this forest to the local area and to the state as a sustainable producer of forest products."
"Was it a fair, democratic process?" Connor asked at the time. "No, it was not. The same objective could have been reached in a fairer way. They could have put the money up publicly and other entities could have decided whether to use it or not, given the development constraints that came with it. But they would have known what the constraints were and could have competed with other companies."
At the time Connor said the issue was not about land preservation or the goals of the Nature Conservancy but about the process.
"What is bothersome is the state putting up the money and not making it available to Wisconsin entities or businesses," he said. "They colluded with outsiders in a shroud of secrecy behind closed doors."
Without the borrow-ahead provision, the DNR would have had to publicly state to the Legislature its need for special money. The shroud of secrecy would have been lifted.
Connor also said taxpayers were "taking a hit" because the state was subsidizing a private land transaction.
Of course, 2006 taxpayers not only subsidized the transaction, but so did future taxpayers and a future Legislature, without any knowledge of it or power to stop it.
Richard Moore can be reached at rmmoore1@verizon.net.
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Reader Comments
Posted: Thursday, January 21, 2010
Article comment by:
Todd Miller
Hey, look. Another "I hate DNR" piece from Richard Moore, author of the "I hate DNR" book. No bias here, just a little "investigative reporting." No sirree.
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