(Archived document, may contain errors)

A Special Report to the Appropriations Committees

No. 2 2/10/95

A STRATEGY TO CUT INTERIOR AND RELATED AGENCY SPENDING Scott A. Hodge I Grover M. Hermann Fellow in Federal Budgetary Affairs As many in Washington are now discovering, there is no end to the lists being presented of ways to cut government spending. Indeed, for over twenty years now, The Heritage Foundation has contributed its share of studies and reports on ways of downsizing the federal government. Recommendations from Heritage scholars have focused on strategies for transferring federal functions down to the appropriate state or local level of government, transferring federal functions to the private sector, or eliminating out- moded, inefficient, obsolete, or duplicative programs.2 Other organizations, including the Congressional Budget Office, also have made many spending cut recommendations over the years. In fact, the task facing Congress and this committee would be far eas- ier today had Members implemented these ideas years ago. Unfortunately, many of the reforms devel- oped by CBO nearly fifteen years ago, when it was headed by current OMB Director Alice Rivlin, are as relevant today as they were then. Some of the programs under this committee's jurisdiction which were suggested for reform by CBO during the early 1980s include: */ Privatizing the Strategic Petroleum Reserves by selling shares to investors. orf Eliminating the states' share of the Land and Water Conservation Fund. V' Eliminating Urban Park Grants.

I This is his testimony before the Interior Subcommittee, House Committee on Appropriations, January 11, 1995. 2 See, for example, Scott A. Hodge,ed., A Prosperity Planfor America - Fiscal 1993 (Washington, D.C.: 'Me Heritage Foundation, 1992); Charles L. Heatherly and Burton Yale Pines, eds., Mwidarefor Leadership 111. Policy Strategiesfor the 1990s (Washington, D.C.: The Heritage Foundation, 1989); Stephen Moore, ed., Slashing the Deficit: Fiscal 1990 (Washington, D.C.: Ile Heritage Foundation, 1989); Stuart M. Butler and Stephen Moore, eds., Privatization: A Strategyfor Taming the Federal Budget (Washington, D.C.: The Heritage Foundation, 1987); Stuart M. Butler, Michael Sanera, and W. Bruce Weinrod, eds., Mandatefor Leadership H. Continuing the Conservative Revolution (Washington, D.C.: Ile Heritage Foundation, 1984); Charles L. Heatherly, ed., Mandate for Leadership: Policy Management in a Conservative Administration (Washington, D.C.: The Heritage Foundation, 1981).

Increasing fees for outdoor recreation and topographic maps. ,or Increasing entry fees for outdoor recreation areas. Reducing funding for energy technology research. Reducing subsidies for the Arts and Humanities. But implementing long lists of spending cuts will be difficult and will appear arbitrary. What is needed is a strategy or business plan that will give these cuts coherence and a purpose. You must face the challenge as any business would in the face of hard financial times. Indeed, the combined resources of the agencies within this committee's jurisdiction would certainly amount to those of a Fortune 500 corporation. So the task at hand is not all that different from the major corporate restructurings that have taken place over the past ten years or so. What is needed is a tough short-term strategy, followed by a thoughtful but aggressive long-term strategy.

SHORT-TERM STRATEGIES The first step companies take is to stop the bleeding. This means taking measures to cut your losses, putting a halt to all new projects or expansions, and placing yourself in a position to make the long- term reforms needed to make the organization solvent. The short-term strategy for this committee should contain at least seven steps: 0 Halt funding for all new land purchases approved for fiscal 1995 and impose a five-year moratorium on all future land acquisitions. The rationale for this measure is that if we do not have the resources to adequately manage the land the government now owns, why should we add to this burden? Halt funding for all new construction projects approved for fiscal 1995 and impose a moratorium on all future new projects. Vice President Al Gore's National Performance Review reports a backlog of maintenance funding in the National Park System that will cost $5 billion to clean up. The General Accounting Office reports that the Forest Service will need $644 million to meet its maintenance backlog. Until these priorities are met no new projects should be initiated. 4) Halt funding for the National Biological Survey. This program has not been authorized, so no funds should be appropriated. The Congressional Research Service reports the Biological Survey is still trying to define its mission. Until that is done, Congress should not fund the Survey. 0 Halt funding for the Bureau of Land Management until it is authorized and its mission modernized. 10 Halt funding for any project which was not authorized or which was earmarked in the House, the Senate, or conference committees. (D Halt funding for any new project of a purely local nature, with no national significance. 0 Repeal any committee instructions to agencies which force those agencies to spend money they would not otherwise have spent. According to the National Performance Review, "The Inte- rior Department found that language in its 1992 House, Senate, and conference committee reports included some 2,150 directives, earniarks, instructions, and prohibitions."3

3 The National Performance Review Creating a Government that Works Better and Costs Less (Washington, D.C.: U.S. Government Printing Office, September 7, 1993), p. 13. LONG-TERM STRATEGIES The key to a long-term strategy is asking the question: What is our core "business" and what activi- ties should we quit doing? After answering this question, a good CEO moves quickly to shed all enter- prises not related to the company's core business. Assets are sold to raise the cash needed for debt re- duction or to finance capital improvements. Unproductive or extraneous divisions are sold or spun off through employee stock ownership plans. Outmoded or unsalvageable functions are simply closed. Managers are given greater authority to implement cost-saving measures within their own departments and allowed to run their operation in an entrepreneurial manner. In government, there are three key questions that need to be asked in order to get back to basics: 0 Is this a function or activity that is more appropriately the domain of state and local governments? Is this activity more appropriately left to the private sector? Or, if it is determined that there is a pub- lic purpose for this activity, can private institutions carry out this program either directly or under contract to govemment? Does this program no longer work? Has it become outmoded or obsolete? Does it duplicate other programs? Using these questions as the guide, the committee's bolder, long-term strategy should build upon the proposals put forth in last year's Republican Budget Alternative, also known as the Kasich budget. The spending cuts recommended in the Republican budget relevant to this committee include the following: Impose a five-year moratorium on federal land purchases. SAVINGS: $1.066 billion over five years. Restructure the Department of the Interior by consolidating major land functions into a single land management agency. SAVINGS: $3.226 billion over five years. Make the Forest Service more efficient to bring management costs in line with the costs achieved by state programs. SAVINGS: $155 million over five years. Abolish the Bureau of Mines. SAVINGS: $872 million over five years. V Privatize the Helium Reserves. SAVINGS: $9 million over five years. Abolish the Geological Survey. SAVINGS: $3.261 billion over five years. V Abolish the National Biological Survey. SAVINGS: $139 million over five years. of Downsize the Minerals Management Service. SAVINGS: $465 million over five years. Expand authority to collect park entrance and recreation user fees commensurate with the costs of operations. NEW REVENUES: $600 million over five years. Reorganize the Bureau of Indian Affairs transferring greater management authority to the tribes, while block granting assistance. SAVINGS: $215 million over five years. Restructure the Naval Petroleum Reserves. SAVINGS: $143 million over five years. V Terminate the Clean Coal Program. SAVINGS: $19 million over five years. V Halt acquisition of new crude oil for the Strategic Petroleum Reserves. SAVINGS: $362 million over five years. V Eliminate federal funding for the John F. Kennedy Center for the Performing Arts. SAVINGS: $102 million over five years. V Reduce funding for the Arts and Humanities (including the Smithsonian). SAVINGS: $531 million over five years. While these recommendations may have seemed very bold when they were introduced last year, they are not bold enough for today's more radical climate and the savings needed to balance the budget. The spending cuts and fee increases for the Interior and related agencies in the Kasich budget last year to- taled more than $11 billion in deficit reduction over five years. This represents less than a 20 percent cu- mulative cut in the committee's funding over five years. This year, the committee should look to cut to- tal spending by at least half. For the sake of time I will not go over each of the Kasich recommendations individually. It would make good sense to abolish the Bureau of Mines, privatize the Helium Reserves, abolish the Geological Survey, abolish the National Biological Survey, and eliminate funding for the Kennedy Center. But I would like to address the areas in which I think the committee can be bolder and in keeping with the principles of shedding non-federal functions to state governments and the private sector, and eliminat- ing programs that we can no longer afford. Of course, some of my suggestions will require the coopera- tion of the appropriate authorizing committees.

LAND AND RESOURCE MANAGEMENT Last year the Republican budget recommended restructuring the Department of the Interior, mak- ing the Forest Service more efficient, and giving the Park Service greater authority to raise user fees. While these are solid recommendations, they do not go far enough. I think it is time that land and resource management move in the same direction this nation is moving on welfare reform. This means consolidating dozens of programs into a single block grant and giving broad responsibility for running and managing the programs to the states. What this strategy would mean for land and resource management programs is consolidating the four major agencies-the Bureau of Land Management, the U.S. Fish and Wildlife Service, the Na- tional Park Service, and the U.S. Forest Service- into a single natural resources agency. Congress should then begin a five- to seven-year effort to give most of the land controlled by this agency back to the states. The federal government would keep only those parks and wilderness areas deemed of national significance. These would of course include the "Crown Jewels" (Yellowstone, Yosemite, the Grand Canyon, etc.), and those that cross multiple state boundaries. The states would be given full title to the federal land along with full authority to manage the re- sources according to the values of the citizens of each state. In some cases, this land transfer would, of course, mean a loss of revenue for the federal government. But this loss would be more than off- set by the reduced costs of managing and maintaining these resources. After these resources have been transferred to the appropriate level of government, Congress and this committee can focus greater attention on bringing entrepreneurial management to the remaining national resources. The first step must be for Congress to remove the barriers that keep local manag- ers from using entrepreneurial techniques such as privatization. In the past, Congress has stood in the way of raising the entrance fees for National Parks and has prevented Park managers from con- tracting out basic functions such as garbage collection. Managers should be given reasonable freedom to set entrance fees that reflect users' demand on the resource in addition to the cost of maintaining and improving these facilities. The model for such reforms should be other national treasures such as Mount Vernon and Williamsburg. Both have been privately operated for decades. Both charge realistic entrance fees that cover the cost of maintaining these high-quality facilities. But the level of these fees seems not to deter millions of tourists from visiting each year. While the savings from this recommendation are hard to calculate, it is safe to say that they will be many times the $3.5 billion in savings the Kasich budget achieved from these same programs.

Department of Energy Research The Kasich budget last year recommended terminating the Clean Coal Technology program and reducing non-renewable energy research spending by 25 percent over five years. This year, the com- mittee should terminate federal funding for this research and take steps toward moving the research projects and facilities into the private sector.

Naval Petroleum Reserves The Republican budget recommended improving the management of the Elk Hills, California, oil field through the increased use of private management. The committee should go further. These fields, along with the Teapot Dome field and the Oil Shale reserves, should be sold to the private sector within the next three years. The Clinton Administration projects that the sale of the Elk Hills field alone will generate net proceeds of $1.6 billion.

Strategic Petroleum Reserves The Republican budget rightly suggests halting the acquisition of new crude for the Strategic Pe- troleum Reserves. Indeed, the committee appropriated no new money for this purpose. However, these facilities will now require millions of dollars to upgrade and repair. Perhaps a new approach is needed to meet the nation's strategic oil needs. One approach worth considering was suggested by the Congressional Budget Office in 198 1. This strategy would effectively privatize the SPR by selling shares or interest to investors who would then be free to trade these shares in the open market. This recommendation would turn the SPR into a "futures" market trading real reserves rather than future options. In 198 1, CBO estimated that this recommendation would save or generate some $20 billion over five years. This figure could be con- siderably higher today.

Smithsonian Institution and the National Gallery of Art Last year's Republican Budget recommended reduced funding for the Smithsonian and the Na- tional Gallery. As an alternative to this proposal, I would suggest that Congress lift the ban on the ability of these institutions to charge entrance fees that truly reflect the cost of providing this valu- able resource. Given the millions of visitors each year to these museums, the entrance fee would not have to be set very high to meet the costs. Thus, it would not be a barrier to low-income visitors.

National Foundation on the Arts and Humanities The Republican budget recommended modest reductions in arts and humanities funding. This year the committee should zero out spending for the National Foundation on the Arts and Humani- ties. After 25 years of existence, it is time for the National Endowments to become the "United Way" of the arts and humanities: that is, fully private institutions that must raise charitable contribu- tions in order to fund the projects valued by the donors. This will remove the politics from arts and humanities funding, and insure that funding is targeted to projects approved of by donors. All fed- eral funding for the Foundation should be terminated immediately. The Endowments should then be established as independent, non-profit organizations.

Commission of Fine Arts Congress already possesses the long-standing office of the Architect of the Capitol, whose skills, resources, and capabilities render him and his staff more than suitable to provide such advisory serv- ices directly, or through referral, in the event that Members of Congress, the President, or any of the Cabinet heads have a need for expert guidance and advice on the fine arts. The Commission should be abolished.

Advisory Council on Historic Preservation Historic preservation, including the development of appropriate policies, should be a local respon- sibility and activity, except in instances where the landmark is of national significance. These latter cases are handled quite satisfactorily by the U. S. National Park Service and its Division of Cultural Resources. The Council is redundant and should be abolished.

Franklin Delano Roosevelt Memorial Commission Before his death, President Roosevelt requested that any memorial for him be simple, no larger than his desk, and placed near the National Archives. Although this request was fulfilled many years ago, Congress has persisted in trying to erect something grander, and earth-movers are at work today. President Roosevelt should be honored by this Congress by honoring his request. Fed- eral funding for the Commission should end.

National Capital Planning Commission Washington, D.C., is unique among U.S. cities in having a federally funded planning commission to help guide its development. Despite whatever expertise this Commission brings to bear on its sub- ject city, the economic and social environment of Washington, D.C., continues to deteriorate. Crime is endemic, business and residents continue to flee, poverty remains unrelieved, and federal-local re- lationships remain strained. The Commission should be terminated to give the new Congress and the mayor the opportunity to establish a fresh approach to the relationship unhindered by the atti- tudes, prejudices, and ineffective institutions of the past.

Pennsylvania Avenue Development Corporation Since 1964 the Corporation has invested millions of taxpayer dollars on this one-mile stretch of road, best known to Americans as the route of the inaugural parade, turning the once-decrepit strip of deteriorated buildings into an attractive urban showpiece by the mid- 1980s. Although the task has been fulfilled, the Corporation continues to exist and draw substantial public funds-an esti- mated $184 million in FY 1995-to engage in commercial real estate development activities best left to the private sector. The Corporation has achieved its initial goal and should now be terminated. ..(.* .0. 4.

This committee has a tough task ahead of itself in finding its share of spending cuts to help balance the federal budget. But it can go a long way toward that goal while also achieving major reforms in the programs under its jurisdiction if it takes a bold, businesslike approach to cutting spending.