CONSERVATIVE FORCES, POTENTIAL ENERGY AND CONSERVATION OF ENERGY
Conservation & the Environment: Conservative Values, New Solutions
Transcript of Conservation & the Environment: Conservative Values, New Solutions
New solutions to sustain our nation’s
natural heritage and prosperity
Conservation & the Environment: Conservative Values, New Solutions
January 2013
©2013 Conservation Leadership Council
P. Lynn ScarlettVolume EditorConservation & the Environment: Conservative Values, New Solutions
The Conservation Leadership Council has commissioned policy papers from leading academics and policy
experts, offering an in-depth examination of conservative solutions to environmental issues ranging from energy
efficiency and habitat conservation to land stewardship and water quality.
These papers—which offer practical and workable policy solutions—explore market-oriented approaches, private-public
partnerships and other innovative solutions that advance the current conservation conversation and help solve our
nation’s environmental challenges.
www.leadingwithconservation.org
I.Community-BasedApproachtoConservationforthe21stCentury…I-1 Gary Burnett, Blackfoot Challenge
II.DevelopingaCreditsTradingSystemforSpeciesofConcern…II-1 Terry Fankhauser, Partners for Western Conservation
III.Parks2.0:OperatingStateParksthroughPublic-PrivatePartnerships…III-1 Leonard Gilroy, Harris Kenny, and Julian Morris, Reason Foundation
IV.UsingVenturePhilanthropyTools,ProgramRelatedInvestments,toFundBuildingRetrofits…IV-1 Stephanie Gripne, University of Colorado
V.TheTortoiseCanWintheRaceforCandidateSpeciesConservation…V-1 Laura Huggins, PERC
VI.ClosingtheCoralCommonstoSupportReefRestorationinFlorida…VI-1 Reed Watson and Brett Howell, PERC
Conservation & the Environment: Conservative Values, New Solutions
January 2013
I-1Community-Based Approach to Conservation for the 21st Century
Conservation & the Environment: Conservative Values, New Solutions
I. Community-Based Approach to Conservation for the 21st Century
Gary BurnettBlackfoot Challenge
The Blackfoot Watershed of western Montana is a
1.5 million-acre landscape of diverse habitats worked
by ranchers, loggers, and outfitters in partnership
with public land managers to provide a refuge for
wildlife, including grizzly bears, Canada lynx, fisher,
gray wolves, bull trout, and migratory birds such as
the trumpeter swan. Escaping the rapid land use
changes facing many other valleys in the West, the
Blackfoot remains working and wild, much like it was
when the early pioneers put down their roots. This is
no accident. Those who call the Blackfoot home or
occasionally visit, who love it and whose livelihoods
depend on it, have built partnerships to conserve the
rural and natural values of this special place.
The Blackfoot River inspired the late author and fly
fisherman Norman MacLean to write A River Runs
through It, and the popular movie brought that story to
millions of viewers. Many other people recognize that
the Blackfoot Watershed provides a critical southern
link to the Crown of the Continent and provides a home
to all of the wildlife Meriwether Lewis may have seen
during his travels through Montana in 1806. And still
others know us because of our reputation as a model
for 21st century conservation, with nearly 40 years of
community-based leadership leading to 75 percent
of the 1.5 million-acre watershed in perpetual
conservation status.
A History of Working Together
The Blackfoot Challenge grew out of the early
cooperative efforts of landowners and public land
managers to work together to protect and share this
valuable area and resource. These public and private
partnerships were formalized with its inception in 1993.
The mission then—as today—follows a consensus-
based approach to include all public and private
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stakeholders and coordinates efforts to conserve and
enhance the natural resources and rural way of life in
the Blackfoot Watershed.
The Blackfoot Challenge’s mission is to
coordinate efforts to conserve and enhance
the natural resources and rural way of life in
the Blackfoot Watershed of western Montana
for present and future generations.
The Model for Conservation in the 21st Century
The name “Blackfoot Challenge” comes from an
observation that the mix of public and private
landownership in the Blackfoot Watershed would
present a challenge in finding consensus for resource
management decisions. However, this became an
opportunity to leverage public and private resources
and cooperatively work together. Such social
underpinnings are at the core of community-based
conservation and address the need to shift from
“biologist-centric” to “partner-centric” conservation
planning and implementation. Conservation success
depends heavily on the art of working with people
where private and public interests are coordinated.
While our initial results were small in scale, over
time we realized we could make a big difference if
we worked throughout the entire watershed, “ridge
to ridge,” and emphasized a crucial shift away from
“biologist-centric” conservation towards “partner-
centric” conservation. Biologist-centric conservation
is defined by Neudecker, Duvall and Stutzman as
prioritization of conservation actions based on science,
with the biologist and the resource of concern at the
center of the decision-making process.1 Partner-
centric conservation is driven by an emphasis on
social processes and the formation of the right team
of people. This approach blurs the lines between
public and private interests, local knowledge and
technical expertise, and biological and socioeconomic
values. Community-based landscape conservation is
practiced when partners working in the right places on
the right projects follow what has come to be known
as the 80/20 rule—committing to work on the 80
percent in common, not the 20 percent that divides.
Once partners build trust and credibility by working on
the 80 percent, they are able to tackle the remaining
20 percent. In the end, success is borne not from the
efforts of one person but rather through a conservation
community.
Conservation outcomes rely on this approach of
leading with private landowners willing to work with
public agencies to conserve private land through
voluntary, incentive-based programs. By leveraging
resources through community-based efforts in the
Blackfoot Watershed, the coordination of private
landowner and public manager partnerships has
now protected 231,795 acres of working land since
Private and Public Leadership Building Trust Through Communication and Cooperation
• Private landowners from each community in the Blackfoot Watershed
• Business owners Conservation groups
• Plum Creek Timber Company (PCTC)
• State agencies
- Department Natural Resources and Conservation
- Fish, Wildlife and Parks
• Federal agencies
- Bureau of Land Management
- Forest Service
- Fish and Wildlife Service
- Natural Resources
Conservation Service
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1993. In addition, these protection efforts, along with
significant restoration and stewardship activities,
are now recognized by the Montana Department of
Natural Resources and Conservation as serving the
downstream public with a measured increase in water
quality of the Clark Fork of the Columbia River Basin at
the confluence with the Blackfoot River.2
The community-based approach to conservation
serves as a national model to spur efforts to conserve
vital wildlife habitat and working land through
collaborations of private landowners, conservation
groups, and state and federal agencies. A diverse
partnership and the commitment to work together
serve an area’s neighboring watersheds, national
conservation priority areas (as identified by the Obama
administration’s America’s Great Outdoors initiative),
as well as other regional and national landscapes with
high natural resource values and a community-wide
commitment to conservation.
Community-Based Approach to Conservation
Neudecker, Duvall and Stutzman summarized
numerous references in their effort to define
community-based conservation; a firm definition is
beset by numerous challenges because success
requires organic and innovative strategies for diverse
situations and participants. A defined theoretical
framework for community-based conservation
becomes a moving target based on place, purpose,
participants, goals, and activities. Still, efforts are
being made to understand and define this new style
of natural resource management. Key ingredients
of community-based conservation are place-based
characteristics in terms of scale and broad public/
private partnerships, inclusiveness and diversity
of participants (i.e., “coalitions of the unalike”), an
emphasis on collaborative and consensus-based
process with opportunities to learn from one another,
and innovative approaches to intractable conflicts.
The Blackfoot Challenge experience with community-
based conservation is grounded in the early
cooperative efforts of public managers and private
landowners to share access to natural resources.
Although these conversations have been occurring
since the mid-1970s, the Blackfoot Challenge began
to officially organize in the 1990s due to growing
concerns over the health of the Blackfoot River. By the
turn of the century, the organization had coordinated
an impressive list of conservation outcomes. We now
find ourselves being asked to explain this success to
an ever-growing group of new friends. And being a
neighborly group, we oblige.
Blackfoot Watersheds 1996 and 2011
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These requests have caused us to think rather hard
about our outreach approach as we shoulder the
responsibility of investing staff, board, and partners’
time wisely. As our outreach efforts grow, we are
blessed with opportunities to visit with community
members, neighboring watersheds and landowner
coalitions, and national and international partners
about the community-based approach to conservation.
We understand that community-based conservation
involves the four following elements, pillars of our
information-sharing dialogue:
Community-based conservation
• Is driven by community values
• Invites participation by all stakeholders
• Includes a coordinating framework
• Is supported by good science
Community Values
At the time that the Blackfoot Challenge formed,
people in the valley were hungry for information. Many
landowners had a desire to increase the sustainability
of their current land use practices but were unaware
where information advising how to do so could be
found. Without the assistance of a coordinating
framework, the majority of private landowners and
public land managers in the watershed felt that
beneficial natural resource decisions would be made,
but on a case-by-case basis. Many believe these
individualized efforts could not have matched the
collective success achieved through the diverse
input, advice, and understanding on the part of all the
stakeholders involved in the Blackfoot Challenge. Early
concerns centered on responsiveness to community
values, loss of rural character, uncoordinated efforts,
and agency duplication.
Concerns over the loss of rural character have
been summed up by Jim Stone, second-generation
Blackfoot Valley rancher and Blackfoot Challenge
Board Chair:
Although ranchers are the most impressive
environmentalists, they are also the most
passive. Without the Challenge we would just
be out there all by ourselves trying to make
a living. We would never have utilized the
resources available like agency expertise. We
would have also gotten into the regulatory
part of agriculture, which I believe is not a part
of agriculture.
Jim suggests that the future of ranching would be
at stake without the Challenge, and that agriculture
would have experienced considerably less opportunity
without the formation of the group. Indeed, while the
Challenge succeeds as a means for landowners to
exchange information, it often remains difficult for
people involved in the agricultural business to let down
Blackfoot Challenge 2012 Board of Directors
Jim Stone—Rolling Stone Ranch, Ovando
Greg Neudecker—US FWS
Denny Iverson—Iverson Ranch, Potomac
Amber Kamps—USFS, Lincoln
David Mannix—Mannix Bros. Ranch, Helmville
Brent Anderson—Lincoln Landowner
Patrick Bannister—Potomac Landowner
Caroline Byrd—The Nature Conservancy
Andy Erickson—E Bar L Guest Ranch, Greenough
Racene Friede—Ovando Landowner
Todd Johnson—Pyramid Mtn. Lumber, Seeley Lake
Tony Liane—MT DNRC
Mack Long—MT FWP
Tim Love—USFS, Seeley Lake
Jeff McNally—Ovando Landowner
Joel Nelson—Plum Creek Timber Co., Seeley Lake
Harry Poett—Ovando Landowner
Rich Torquemada—US BLM
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their guard and ask for help. Without the continued
coordination assistance from the community-based
group, Jim Stone feels that many of the ranches in the
Blackfoot, including his own, would cease to exist.
Identifying and recruiting community leaders like
Jim Stone, David Mannix, and Denny Iverson (multi-
generational ranchers and business owners in the
Blackfoot Watershed) is the key to responding
correctly to local resource concerns and conflicts.
These three individuals are long-standing Executive
Board members of the Blackfoot Challenge; they are
considered leaders in their communities because their
neighbors trust that they fairly represent a variety of
community values. The Blackfoot Challenge Board of
Directors is specifically structured through its bylaws
to have private landowner representation from all
the communities in the Blackfoot Watershed, as well
as from all public resource management agencies.
Federal partners enjoy a range of types of Board
membership. For example, the USFWS is currently
a full member. BLM, NRCS, and USFS are currently
Board partners limited by certain authorities.
Participation at Board meetings is critical to building
trust. The Board holds standing monthly meetings
on the third Wednesday of each month. Meetings
start with an Executive Committee session to direct
administration and finances, and after lunch a
roundtable discussion and information exchange occurs
among all Board members, participants, and guests.
Participation from Board members, regular guests, and
invited presenters or participants is critical to ensure
that relationships are developed, work is accomplished
together, and trust is built. The challenge is to sustain
representation of a diverse set of values while
coordinating efforts so partnerships are maintained
and limited resources are not dissipated. Without the
forum for information exchange to allow the diverse
partners in the Blackfoot Watershed to stay in pace
with each other, the potential is high for agencies and
other participants to unnecessarily duplicate their
efforts. (See attachment A).
Our Story of Community Values
The Blackfoot Community Project, the result of a
partnership with The Nature Conservancy of Montana,
purchased 89,000 acres of private timber company
land owned by Plum Creek Timber Company (PCTC)
in the Blackfoot Watershed. The idea for the Project
began at community meetings in 2003 by discussing
the option to purchase and the potential benefit to
the Blackfoot Watershed resources and communities.
People shared concerns over the loss of working
land and recreational access due to development,
should these lands come into different ownership. The
community came out strongly in favor of the purchase
by The Nature Conservancy, which intended to resell
these lands into private and public ownership with
conservation easements intact. The Project is now
in its final phases of transferring acquired lands to
private individuals and public agencies according
to a community-driven disposition plan that meets
community objectives, including protection of natural
resources, traditional public recreational access,
and sustainable grazing and timber harvest. To date,
70,000 acres of land have been transferred to public
and private ownership with conservation restrictions
in place. The Blackfoot Community Project serves as
a model of landscape-level conservation by leveraging
$10 million of private funding with $80 million in Land
and Water Conservation Fund appropriations and
other federal and state conservation funds, all driven
by a community-based approach to conservation.3
The effort was a result of trust between diverse
private and public partners: a global conservation
organization, a local watershed-based group, a
corporate timber company, federal and state wildlife
and resource agencies, three counties, and five rural
communities. The Blackfoot Community Project
exemplifies landowner-driven conservation action and
accomplishment.
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Participants Representing All Values Are Invited to Take Part
The Blackfoot Challenge follows an inclusive
process. Fair representation and communication of
all stakeholder values are
critical to building trust
between partners in the
Watershed. The Board works
on a consensus basis to
make decisions and takes
its lead from the Board-led
committees on program
work plans. Consensus
is driven by the trust built
over many years among
members of the Board
and hinges on honoring all
values represented; if the
Board feels not enough
information is available to
represent community and
partner values, it will seek additional information and
discussion on the subject.
When the Blackfoot Challenge established itself as a
formal organization, participants made every effort to
include all stakeholders in the Blackfoot Watershed
who were potentially affected by the changes
occurring in the information-sharing and decision-
making process. These efforts also were educational in
purpose, aiming to inform residents of the implications
that changes had on the community’s resource base.
Challenges indeed exist to getting all parties to the
table and sustaining their participation. Therefore, an
important component of inclusivity entails ensuring
that the proceedings of all Blackfoot Challenge
meetings (Board and otherwise) are readily available to
any interested party who may care to view them. When
Board members, Blackfoot Challenge members, and
any interested party are unable to attend a meeting,
they are able to learn what was discussed and decided
and can make an informed decision about what they
do and do not support. This transparency, along with
inclusivity, allows people to embed their trust in the
community-based decision-making process.
Although inviting all values to participate provides for
more sustainable long-term outcomes—a process that
the Blackfoot Challenge swears by—it also tends to
slow the process of finding consensus. Participants
must have patience and avoid “getting ahead of their
partners” when truly and fully committing to ground-
up, all-inclusive problem solving.
Our Story of Inviting Representatives of All Values to Participate
As previously noted, the Blackfoot Community
Project relied on a strong partnership between The
Nature Conservancy and the Blackfoot Challenge, a
partnership directed entirely by community values.
This project established trust between these partners
as the delicate transfer was made to new public
and private conservation owners. The Blackfoot
Community Project paved the way for the Montana
Legacy Project, a partnership between the Trust for
Public Lands and The Nature Conservancy, which
resulted in the purchase of an additional 310,000 acres
of corporate timberland.
Leaders from this new partnership approached the
Blackfoot Challenge with an opportunity for the
Montana Department of Natural Resources and
Conservation to obtain 32,000 acres of these newly
acquired lands for the conservation of wildlife habitat
and working lands. We were asked if the Blackfoot
Challenge could provide guidance. Before assenting,
the Blackfoot Challenge needed to understand the
details of the purchase, specifically whether or not
it was a “done deal.” If it were, we would be unable
to provide assistance. However, if the partners were
interested in knowing the community’s interest in such
an opportunity, the Blackfoot Challenge could assist
with setting up such a forum to do so. Fortunately
the project partners were at a stage in which they
“Ultimately, the people who
are best able to take care
of the land are those who
live on the land, work on
the land, and love the land.
They have the knowledge,
skills and motivation to care
for the land. We need to
empower them.”
—Gale Norton, U.S. Secretary of Interior, on August 31, 2005
when announcing the Department of Interior’s participation in
the National Conference on Cooperative Conservation
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were looking for local input, and thus the Blackfoot
Challenge held a series of community meetings,
coordinated a working group representing a broad
set of values, and successfully helped the community
realize their desires for this conservation purchase.
This collaborative, inclusive process resulted in
a greater number of community members who
understood what was at stake, voiced their concerns,
knew who their partners were, and ultimately
supported the purchase.
The Challenge holds such public meetings a few times
each year, in which it invites groups or individuals to
present information of interest to the community. By
holding these public meetings and “riding the fence,”
we effectively bring together multiple views of any
particular issue and provide the public with an array
of information so all can make educated and informed
decisions. We hope that by doing this, all parties
already see and will continue to view the Challenge as
what it is—a neutral entity.
A Coordinating Framework
The core function in the Blackfoot Challenge’s mission
statement is to “coordinate efforts.” These efforts fall
under the themes of facilitating honest discussions,
showing respect for all values both private and public,
and reporting activities, and coordinating partnerships
to solve shared resource problems.
By respecting all values, we have become identified
in the area as a conduit for information sharing and
open dialogue rather than a group that exists as a
facilitator of conflicts. This effort has given landowners
a favorable impression of the group and has
enhanced relations between landowners and agency
representatives. Ranchers, for instance, have grown to
view the motives of agency representatives as benign
or helpful in intent, rather than selfish. Coordinating an
open forum encourages everyone in the Watershed to
attend meetings, to participate in field tours, and to be
involved in on-going projects.
The Blackfoot Challenge does not impose anything
on anyone. We do not take positions but we seek a
balanced approach where participants reflecting all
values have a seat at the table and outcomes reflect
that broad set of values. We facilitate a civil dialogue
where science informs and supports conservation
outcomes. We record the conversation and report the
consensus, and we coordinate the partnerships.
A Recent Story of Coordinating
A specific example of facilitating an open and balanced
discussion in the Blackfoot Watershed involves the
Alberta tar sands. Companies were interested in
trucking equipment from the Columbia River to Alberta
along Highway 200—which runs along the entire
132 miles of the Blackfoot River—and were seeking
permitted approval from the Montana Department of
Transportation. Early voices were strongly opposed
to this “big haul” and encouraged the Blackfoot
Challenge to get involved by hosting a public meeting.
We listened to these early voices while the Board
of Directors waited for balanced information about
the potential positive and negative impacts of the
proposed hauling to communities in the Blackfoot
Watershed. When this information was available from
all parties, the Board facilitated a public meeting and
respectful exchange of information to the public from
the Montana Department of Transportation and the
group against the hauling. Civil presentations from
both sides eliminated hearsay and ensured a more
informed picture of potential impacts to the Blackfoot.
Often such meetings end with a trip to a local
establishment. Socializing after hours has been a
way for participants to get to know each other as
people and neighbors, in addition to working together
on business interests. As common in rural areas,
the Watershed’s local bars and cafes are the social
hub of activity and conversation. Viewed as neutral
territory, such establishments are traditionally where
people are not looked upon as representing one point
of view or another.
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Supported by Good Science
Biological planning is critical to implementing
landscape conservation, but lasting success
depends on effective delivery through working with
the right team of people to design the right projects.
Conservation organizations excel at producing
strategic habitat plans. Files in federal and state
offices are filled with planning documents that have
yielded little success in on-
the-ground implementation.
Worse yet, shortcomings in
traditional agency planning
processes have resulted in a
train wreck of acrimony and
distrust among stakeholders.
Specific shortcomings
include the length of time to
make decisions, complicated
or inflexible financial assistance programs, inefficient
cross-ownership land conservation, and lack of
communication.
The politics of expertise, lack of transparency and
accountability, and inconsistent responsiveness to
public concerns and issues have made planning
by agencies a superficial and top-down exercise.
The problem is an inability to translate the plan
into conservation delivery, and it is most evident in
cumbersome procedural guidelines, complicated
technical policies, and onerous eligibility
requirements.4 This problem, combined with the failure
to recognize the importance of personal relationships,
practitioner social skills, and community support
in conservation delivery, derails implementation.
We believe, as described by Neudecker, Duvall and
Stutzman that these failures can be prevented by
working in the right place with the right people. A
voluntary, incentive-based approach to private land
conservation has led to success in the Blackfoot
Watershed. Partners work together to conserve private
and public resources where community values and
resources solutions are supported, but not driven,
by good science.
Our Stories of Science Supporting Communities
• In 2000, a team of public and private partners
formed the Conservation Strategies Committee to
share information, leverage technical and funding
resources, and determine which areas in the
Blackfoot Watershed were in need of protection
and cooperative conservation through geographic
information system mapping and integration of
data and plans by partnering agencies. This forum
consisted of private landowners; a corporate
timber company; federal agencies including the
U.S. Fish and Wildlife Service, the U.S. Forest
Service, the Bureau of Land Management, and
Natural Resources Conservation Service; state
agencies including Montana Fish, Wildlife and
Parks, and the Department of Natural Resources
and Conservation; nonprofit conservation partners
including The Nature Conservancy, Five Valleys
Land Trust, Montana Land Reliance, and the
Rocky Mountain Elk Foundation; and counties.
They agreed to focus their strategic efforts on the
mid-elevation PCTC lands whose amenity values
were becoming increasingly attractive to real
estate developers. These transitional lands formed
important biological, agricultural, and public access
and use connections between the higher-elevation
public lands and the lower privately owned valley
bottoms.
In contrast to purchase of the lands and a
disposition strategy developed by the agencies
and organization groups, project partners sought
community input and support in the project before
finalizing transfer of fee title. Public meetings
were held in each of the affected communities
to determine the community’s values related
to the PCTC lands in their backyard and future
management priorities, to seek recommendations
as to whether specific parcels should be resold to
public or private interests, and to ask public and
private landowners with adjacent PCTC parcels
to indicate whether they would be interested in
purchase of the lands.
“I do believe [the Blackfoot
Watershed] is the birthplace
of the conservation concept
for the 21st century, so I’m
very, very proud of you.”
—Ken Salazar, U.S. Secretary of Interior, on July 16, 2011 in the
Blackfoot Watershed
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• The Blackfoot Community Project embodies
the heart of community-based collaborative
conservation, with an integrated decision-making
process of local and scientific expertise with
landowner leaders, leveraging of multiple funding
sources, coordination and staff assistance
from the Blackfoot Challenge and The Nature
Conservancy, and support by other partners at the
table to acquire and hold perpetual conservation
easements. Shortly after the Project began, the
same process was utilized on a smaller scale,
resulting in the establishment of the Blackfoot
Community Conservation Area (BCCA). Formerly
PCTC lands, the BCCA now exists as a cooperative
ecosystem management area under community-
based ownership, covering a 41,000-acre
landscape of public and private lands in the heart of
the Blackfoot Watershed.
• In 2000, the Blackfoot Drought Committee was
formalized to coordinate the development and
implementation of a voluntary drought response
effort. The drought response is intended to
minimize the adverse impacts of drought on
fisheries resources and to aid in the equitable
distribution of water resources during low flow
summers. It is based on the premise of “shared
sacrifice,” with the goal that all Blackfoot water
users (agricultural, irrigators, outfitters, anglers,
recreational users, government agencies,
homeowners associations, businesses,
conservation groups, and others) voluntarily agree
to water-saving measures (e.g., limiting water use of
one or more irrigation pivots) and/or the reduction
of stress to fisheries resources (e.g., limiting fishing
to morning and early afternoon) during critical
low flow periods. This approach was selected
because drought and the management of low
flows are a watershed-wide concern. Beneficiaries
of the drought response effort include interests
throughout the Watershed, and the greater benefit
to maintaining river flows and sustaining the overall
health of the river will be achieved by a cooperative
effort with the larger community.5
This approach offers an alternative to angling
restrictions and traditional enforcement of the
Montana Fish, Wildlife and Parks’ in-stream flow
right, while engaging the stakeholders of the
Blackfoot in the protection and future conservation
of its fisheries. Under the “shared sacrifice”
concept, irrigators, outfitters, and recreationists
have a unique opportunity to positively impact
the future of the Blackfoot Watershed. The
Drought Response Program is recognized by the
Confederated Salish and Kootenai Tribes as a
model that serves their interests in the Blackfoot
Watershed and has merit to share water resources
in the Upper Clark Fork River Basin. The Blackfoot
Drought Response Plan provides the framework
for the shared sacrifice approach to drought
management in the Watershed. It details activities
of the Blackfoot Drought Committee as well as
actions taken by water users at biologically based
stream flow and temperature triggers. Although the
plan is dynamic, meaning it has and will continue
to evolve based on knowledge and experience, the
foundation of the plan lies in the following:
— Drought is a watershed-wide issue that requires
action by all water users.
— The Blackfoot Drought Committee monitors
snow pack, precipitation, weather, stream flows,
and water temperatures throughout the year and
provides water users with information to help
plan for and prepare for drought.
— When flows in the Blackfoot River fall below
700 cubic feet per second (cfs), consumptive
water users, primarily irrigators, are asked to
implement individual drought management
plans. Irrigators who meaningfully participate in
the Drought Response will not receive a call for
water from Montana Fish, Wildlife and Parks.
— Fishing is restricted after 2 p.m. if temperatures
in the Blackfoot River and/or core bull trout
tributaries rise above temperature triggers for
3 consecutive days.
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• Conflicts between people and grizzly bears came
to a head in the Blackfoot in 2001 when a big
game hunter was killed by a grizzly bear in a public
hunting area. This event led to the formation of
the Wildlife Committee and Landowner Advisory
Committee and a shared value to reduce conflict.
One area of conflict identified by the committees
was boneyards—places where ranchers dispose
of livestock carcasses resulting from natural spring
calf loss and the occasional loss of other livestock.
These boneyards attract grizzly bears from miles
around, even months after burial.
Initially funded by a Conservation Innovation Grant
from the Natural Resources Conservation Service,
this attractant removal program reduced costs
by nearly 75% and greatly enhanced landowner
participation. This successful partnership with
agricultural producers and Montana Fish, Wildlife
and Parks helped reduce conflicts between
people and grizzlies in the Blackfoot Watershed
by 90% from 2003 to 2011 and resulted in a
more “permeable” landscape for grizzly bears
that facilitates dispersal, survivorship, and
recolonization of former habitats.
The Blackfoot Challenge coordinates a program
to remove attractants like livestock carcasses. It
now also includes constructing electric fences
around attractants like beehives and calving areas
and securing household garbage. No grizzly bears
have been killed in the project area since 2005
for management-related conflicts, and only one
grizzly bear has been trapped and relocated due to
conflicts.
As conflicts decrease, wildlife authorities report that
grizzly bear populations are increasing at roughly
3% per year. Expanding and maintaining current
efforts are critical for population recovery and
improve prospects for connectivity to other grizzly
bear populations, outcomes that may lead to the
eventual de-listing of the grizzly bear under the
Endangered Species Act.
• The Blackfoot Irrigation Efficiency Project is a
partnership between private landowners, public
agencies, and our funding partners. This project
delivers knowledge of successful approaches to
partners in Western Montana and increases the
use of energy and water efficiency incentives by
agricultural producers. Project objectives include
completing energy efficiency evaluations on
25 sprinkler irrigation systems in the Blackfoot
Watershed, hosting two educational workshops on
maintaining irrigation equipment, and developing
and implementing irrigation water management
plans on 2,500 acres in the Blackfoot Watershed.
We expect to share knowledge gained and data
collected with partners and to increase the
application of irrigation efficiency activities in
the Blackfoot Watershed and surrounding areas
through innovative delivery of resource benefits
using technical and financial assistance programs
offered by NRCS and other agencies. The Blackfoot
Irrigation Efficiency Project does not utilize or
test new technologies, but offers an innovative
approach to working with agricultural producers
and is the only one of its kind in Western Montana.
The success of the project is due to the one-on-
one technical assistance provided to agricultural
producers. The project is conserving energy,
improving the efficient use of energy and water
resources, and monitoring outcomes to assess
effectiveness of conservation practices. The
project is working to integrate energy and water
conservation programs from various organizations
(NRCS, Bonneville Power Administration, and
NorthWestern Energy) to maximize resources and
the application of conservation practices.
• The Partners for Fish and Wildlife Program
is one of the U.S. Fish and Wildlife Service’s
critical conservation tools for voluntary citizen-
and community-based fish and wildlife habitat
restoration activities on privately owned land. The
Program provides a bridge between individual
I-11Community-Based Approach to Conservation for the 21st Century
Conservation & the Environment: Conservative Values, New Solutions
partnerships and habitat restoration projects
for the benefit of fish and wildlife species. Its
approach is simple: engage willing partners and
landowners, using direct financial and technical
assistance, to conserve and protect fish and wildlife
values on their property. Working with over 100
private landowners and a multitude of Blackfoot
Partners from 1993 to 2011, the Program has
successfully protected more than 160,000 acres
of private land; restored 45 miles of streams,
2,600 acres of wetlands and 2,300 acres of native
grasslands; reduced conflicts between people and
grizzly bears by 90 percent; and increased fish
numbers by more than 500 percent by leveraging
$1,500,000 in federal support and helping to deliver
a conservative estimate of $6 Million to on-the-
ground wildlife conservation.
Outcomes of Community-Based Conservation
The outcomes of 20 years of community-based
conservation in the Blackfoot Watershed are
on-the-ground projects that leverage private,
state, and federal partner resources. Since 1993,
about 231,000 acres of land have been conserved
in working status. Of the 1,500,000-acre Blackfoot
Watershed, 75 percent is now in conservation status.
Board-led committees have resulted in the following
conservation outcomes:
Keeping Landscapes Working• 120,000 acres under conservation easement,
available for agriculture and wildlife
• 89,000 acres of corporate timberland kept working
in conservation status
• 75% of watershed in conserved status
• 41,000 acres of public and private land managed
by community council
• 32,000 acres approved for a new State forest
in 2009
Reducing Conflicts• Keeping grizzly bear conflicts below 94% since
2003 and reducing wolf conflicts since 2008
• Conserving Water for Agriculture and Fish
• Conserving 50 cubic feet per second (cfs) of water
each year since 2002
• Conserving 10,000 kWh energy each year
since 2009
• 50% of the irrigation systems participating in the
Irrigation Efficiency Program
Connecting Classrooms and Communities with Place-Based Education• Educating 500 youth each year since 1993
• Reaching 1,500 adults each year since 2004
Making Communities Safe and Maintaining Forest Health• Treating an average of 500 acres each since 2009
Transferring Lessons Learned through Community-Based Conservation• Hosting the nation’s first America’s Great Outdoor
events under the Obama administration’s initiative
on June 1, 20106
• Earning approval for a private landowner advisory
group to Secretaries of Interior and Agriculture
• Forming Partners for Conservation to support
community-based conservation across America
• Creating a model for new National Fish and Wildlife
Foundation Landscape Conservation Stewardship
program
Managing Noxious Weeds Across Fence Lines• Managing an average of 1,000 acres each year
since 2000
I-12 Community-Based Approach to Conservation for the 21st Century
Conservation & the Environment: Conservative Values, New Solutions
Outcome from the Conservation Leadership Council
While our communities are quite different from one
another, what we share is extraordinary. We share
a common love for the land and a strong desire
to make a difference by caring for our families,
communities, and the landscapes we call home. We
live in working landscapes that drive the economy of
our communities. Maintaining the livelihoods of the
people who live here and steward these lands is the
key to protecting the conservation values that are so
important to our community and the American people.
We realize that we are a small place in a big country,
and so we have built bridges outside our watershed
to find the partnerships that will strengthen our
communities. Through a regional effort with the
Working Lands Council in the Southern Crown of
the Continent, and by participating with the national
private landowner network Partners for Conservation,
we can summarize a few recommendations for
America’s decision makers to keep land working for
our communities. These recommendations address
the need throughout our country to enable federal
agencies to empower others to share the responsibility
for solving public land and resource problems and to
be empowered to engage in more flexible, adaptive
means to achieve their mission and mandate.
• Retain baseline funding for federal assistance
that incentivizes voluntary, private landowner
conservation in strategic landscapes and
that maintains a strong agricultural economy.
For example, Conservation Title in the Farm Bill
is the primary conservation tool that incentivizes
private land conservation of natural resources.
• Support grassroots initiatives with opportunities
for federal agencies to partner in community-based
and large-landscape conservation and to directly
support community-based leadership. For example,
agreements between federal partners and
community-based groups leverage partnerships,
work more efficiently, support local economies,
and coordinate communication.
I-13Community-Based Approach to Conservation for the 21st Century
Conservation & the Environment: Conservative Values, New Solutions
Attachment A The Blackfoot Challenge: A Watershed Initiative
I-14 Community-Based Approach to Conservation for the 21st Century
Conservation & the Environment: Conservative Values, New Solutions
Notes 1 See G. Neudecker, A. Duvall, and J. Stutzman. 2011. Chapter 12 in D. Naugle (ed.), Energy Development and
Wildlife Conservation in Western North America.
2 Comment from Mark Bostrom, Montana Department of Environmental Quality. Discussion with Ann Schwend,
Montana Department of Natural Resource Conservation and Gary Burnett, Blackfoot Challenge. April 2012.
3 The Land and Water Conservation Fund (LWCF) was established by Congress in 1965 to provide funds and
matching grants to federal, state, and local governments for land and water conservation. Funding comes from
a portion of the receipts from offshore oil and gas drilling leases. LWCF is authorized at $900 million annually.
Examples of funded projects include national parks, forests, and wildlife refuges, as well as state and local parks
and recreation areas. http://www.tpl.org/what-we-do/policy-legislation/federal-funding-programs/land-and-
water-conservation.html.
4 Conservation Title in the Farm Bill provides the majority of the voluntary, incentives-based technical and
financial assistance to private landowners. Private landowners find voluntary, incentive-based program most
useful when they have an open sign period, are simple, recognize the partnership, and are driven by community
values as they support conservation outcomes.
5 Learn more about the Blackfoot Drought Response Plan at http://blackfootchallenge.org/Articles/?p=942.
6 President Obama launched the America’s Great Outdoors (AGO) Initiative to develop a 21st Century
conservation and recreation agenda. AGO takes as its premise that lasting conservation solutions should rise
from the American people—that the protection of our natural heritage is a non-partisan objective shared by
all Americans.
II-1Developing a Credits Trading System for Species of Concern
Conservation & the Environment: Conservative Values, New Solutions
II. Developing a Credits Trading System for Species of Concern
Terry FankhauserPartners for Western Conservation
A Balancing Act
How can the United States achieve energy
independence without sacrificing the environment?
Indeed, this is a monumental challenge. But energy
independence and a healthy environment don’t
have to be in conflict. What is needed is a balanced
conservation approach—call it a stewardship
economy—that provides the right incentives for
business to prosper while improving the environment.
Struggles to achieve this balance are real and will only
escalate in the future. Oil and gas development has
doubled in the West over the past 20 years. Over the
next 20 years, 100,000 oil and gas wells and 100,000
new wind turbines are expected, with a footprint of
2 million and 12 million acres respectively. Much of
this development will occur in areas important to
sagebrush-dependent wildlife like greater sage grouse
and mule deer.
The sage grouse, in particular, has the potential to
derail the energy and agriculture economies of the
western United States. In March 2010, listing of the
species under the Endangered Species Act (ESA) was
determined to be “warranted but precluded,” meaning
that the bird needs protection and recovery support
but that it won’t receive federal protection because the
U.S. Fish and Wildlife Service (USFWS) has to address
recovery for higher priority species first. Environmental
groups have sued and a final decision—to list or
not—will be announced in 2015. If the bird is listed,
millions of public and private acres of potential oil and
gas resources would be impacted, as would livestock
grazing operations.
The landscape is changing in other ways. In America,
over 938 million acres of cropland, pastureland, and
rangeland are owned and managed by over 2.1 million
farmers and ranchers. However, farm and ranch
II-2 Developing a Credits Trading System for Species of Concern
Conservation & the Environment: Conservative Values, New Solutions
owners are getting older, and our landscape is in
transition as a result. The next generation has limited
options: pay estate taxes on vast holdings or sell
to developers. Few are willing to take on the limited
profits of farming or ranching operations.
As a result, Colorado loses about 690 acres of
agricultural land and open space every day—roughly
a family ranch or farm disappearing from the state
daily. By 2022, the state is projected to lose another 3.1
million acres of agricultural land to development. That
agricultural land provides food security for the nation
and also “ecosystem services” that we all depend
on—biodiversity conservation, water quality protection,
carbon storage, and others. Individual landowners,
primarily ranchers and farmers, steward 75% of our
endangered species habitats and 70% of our nation’s
wetlands. Fewer than 10% of endangered species
occur exclusively on public land. Empowering private
landowners to conserve species and stay in business
go hand-in-hand.
A Stewardship Economy
Can we meet national energy priorities without
destroying Colorado’s landscapes? Can we protect
wildlife species and Colorado’s agricultural future
without sacrificing energy security? Partners for
Western Conservation believes that a market-based
approach is the answer.
Partners for Western Conservation is leading the
creation of a Colorado-based ecosystem services
market that, unlike regulatory approaches, works by
creating incentives for buyers (e.g., energy companies)
and sellers (e.g., ranchers) to invest in protecting
wildlife and their habitat before there is a need to list
under the ESA. Called the Colorado Habitat Exchange,
this program is one of the first of its kind in the country
to address the complexities of balancing national
energy needs, the environment, and food security.
The Colorado Habitat Exchange works by linking
investors or buyers with sellers—the ranchers and
farmers who manage, restore, and protect habitat.
Every transaction must result in a net benefit to
the species. Through an entity called the “program
administrator,” developers buy credits that are
calculated based on their ability to create a net
conservation gain. In exchange, buyers get permits
to drill and greater certainty of future oil and gas
development because wildlife habitats are being
protected before listing is required.
Protocols will outline the roles and activities of the
different participants and the rules they’ll follow to
interact with each other. Metrics will be created to
standardize the impacts of both development and
benefits of habitat improvements.
The end result will be assurances for both the oil and
gas industry and farmers and ranchers. Colorado
Habitat Exchange participants will be absolved of
further obligations under the ESA, provided they
meet agreed upon obligations. Furthermore, if this
program helps to avoid ESA listing, industry will have
lower costs and less complexity in doing business
into the future. At the same time, this system makes
it profitable for ranchers to improve wildlife habitat on
their land, even as they maintain or even increase their
productivity, giving them a badly needed new revenue
source.
The Colorado Habitat Exchange will initially focus on
greater sage grouse for several reasons:
Environmental Need: Greater sage grouse
populations have declined drastically; today there are
less than 10% of historic numbers. The expansion of
oil and gas facilities and other land use changes have
reduced the amount of viable habitat for the species.
Protecting sagebrush habitat for sage grouse will also
support other species and ecosystem services.
Stabilize the Business Environment: The greater
sage grouse has been petitioned for listing under the
ESA; by 2015, the USFWS must decide if such action
is warranted. No other species in the western United
II-3Developing a Credits Trading System for Species of Concern
Conservation & the Environment: Conservative Values, New Solutions
States would have greater economic impact if listed,
affecting land use decisions in many sectors of the
economy, especially energy and agriculture.
Opportunity: Several western states and the federal
government are currently developing strategies
to reduce sage grouse declines prior to the listing
decision. Now is the time to develop conservation
solutions that halt declines and push the species
toward recovery, preferably so there is never a need for
federal protection.
Economic Case: A market approach for conserving
sage grouse and their habitat ties economies to
species protection. If we assume that only 25% of
the impacted area in six states is mitigated, offsets
could potentially generate over $760 million for private
landowners willing to engage in conservation and
protect more than 1.4 million acres of habitat.*
The Colorado Habitat Exchange is being developed
by a consortium of leaders from conservation, energy
development, agriculture, and state and federal
agencies. The process for creating the framework for
trading credits will follow four stages:
1. Exploration—Situation Analysis and
Feasibility: Identify the type of habitat credits
needed, demand for credits, necessary tools,
related policies and programs, and the primary
participants needed to achieve goals.
2. Market Design: Develop specific tools and
protocols to estimate habitat improvement from
projects and relate the results across broad
geographies; verify, track, and report results
from implemented projects; and support multi-
entity collaboration on projects to fulfill multiple
regulatory and restoration program needs.
3. Pilot Test and Build Out: Potential market
players will experiment with and evaluate the
tools and protocols on a small scale. Tools will be
made easier to access and use by an expanded
set of investors and producers, and program
administration will be streamlined to minimize
costs. The program is on track to have the first set
of transactions take place in 2013.
4. Ongoing Market Operations: As the program
gains traction on its way to permanence, roles
are filled by stable institutions and the market
operates to achieve stated goals over time.
Linking the Economy and the Environment
Across the western United States, ranchers,
conservationists, and other stakeholders have banded
together to create innovative ecosystem services
markets to address wildlife, water quality, and other
issues. While each case takes a unique approach, they
all share common elements of collaboration, positive
environmental outcomes, and the creation of new
business opportunities for ranchers and other private
landowners.
Fort Hood, Texas: The Recovery Credits SystemThe Fort Hood Army base in Texas is home to
rumbling tanks and deafening explosions. It’s also
home to the world’s largest population of the golden-
cheeked warbler, a tiny bird dependent on cedar-oak
woodlands found in the central part of Texas. The bird
occupies nearly a quarter of the military base, and
since becoming federally endangered in 1992, the
Army has had to mitigate any negative impacts to the
golden-cheeked warbler population. In the mid-2000s,
as the Army was expanding training exercises on the
base, it teamed up with Environmental Defense Fund,
Texas A&M University, other government agencies,
and neighboring landowners to create the Fort Hood
Recovery Credit System, an innovative new approach
for addressing impacts. Through this program, the
Army compensates for harming warblers and their
* Kiesecker et al. 2011, Copeland et al. 2009, U.S. Energy Information Administration, and estimated average cost of offsets at $539/acre in CO, MT, ND, SD, WY, UT
II-4 Developing a Credits Trading System for Species of Concern
Conservation & the Environment: Conservative Values, New Solutions
habitat by purchasing “recovery credits” from nearby
private landowners who conserve and manage for
warbler habitat. A March 2010 independent evaluation
concluded that after the first three years, the program
had achieved habitat conservation, facilitated
efficient interactions between market participants,
and added flexibility to the ESA. It’s worked so well
that the program is expanding from 6 to 34 counties,
encompassing the entire Texas Hill Country, and
will soon allow for credit trading for the black-
capped vireo, another endangered species. Program
expansion is supported by a USFWS Biological
Opinion (March 16, 2005), which also recommends
this type of approach—off-site conservation—for other
threatened and endangered species.
Willamette Partnership: Ecosystem Services and Market-Based SolutionsThe Willamette Partnership, a diverse coalition of
conservation, business, agriculture, and science
leaders in the Willamette River basin in northwest
Oregon, began as a watershed restoration task
force and has since developed strategies focused
on ecosystem services and market-based solutions.
In 2009, the partnership created a credit accounting
system that allows buyers and sellers to trade in
multiple types of ecosystem credits. Pilot markets are
in water quality, salmon habitat, upland prairie, and
wetlands. Each market is driven by the need to comply
with a regulation. The Partnership continues to develop
protocols to standardize credit issuance, rules, and
guidelines for generating credits and debits.
Utah Prairie Dog: Habitat Credit TradingIn southern Utah, developers and ranchers have
come together over an unlikely critter: the Utah prairie
dog. The Utah prairie dog has been listed under
the ESA since 1973 and ranges primarily on private
land. Ranchers, who have had to learn to live with
the rodent, are now able to profit from it. In 2008,
How Credit Trading Works
Investors Program Administrator Producers$ $
Credits
Assurances Assurances
Credits
Regulatory Agencies
Offset Accounting
II-5Developing a Credits Trading System for Species of Concern
Conservation & the Environment: Conservative Values, New Solutions
conservation organizations, the Utah Farm Bureau,
Utah State University Extension, local landowners, and
state and federal government scientists came together
to build a market-based system for protecting habitat
on private land that allows for development that would
otherwise be caught up in a lengthy USFWS permitting
process, which had already caused a backlog in
building permits during the housing boom and stopped
some projects altogether. In 2011, three Utah ranchers
signed on to protect acres for the Utah prairie dog,
which were then converted into “habitat credits” that
can be sold to developers to mitigate building on
habitat elsewhere. To date, Garkane Energy and the
State Bank of Southern Utah have purchased credits,
facilitating a transmission line project and development
of a commercial lot, respectively. Additional
transactions will solidify the value of the program.
Looking Ahead
The Colorado Habitat Exchange is a model for the
future of conservation. While the Colorado Habitat
Exchange will initially focus on greater sage grouse, it
will be a useful model for a market-based conservation
approach that could be applied in the future to other
types of ecosystem services like clean air and clean
water. The key to expanding ecosystem services
markets will be to align economic interests of both
buyers (e.g., developers) and sellers (e.g., ranchers and
farmers) with environmental outcomes. To advance
markets for additional wildlife species, water, and
air, we need only develop objective measures of
environmental impacts and outcomes—the natural
accounting that allows us to reconnect the economy
and the environment.
The Colorado Habitat Exchange can provide an
example for a nation struggling to balance ever-
rising demands for home-grown energy with the
need to protect our air, water, and landscapes. This
transferable ecosystem services market model fills a
void left by traditional conservation and preservation
approaches because it provides tangible, measurable,
meaningful results to all involved—developers looking
for assurances and predictability, farmers and ranchers
looking for innovative ways to stay in business, and
society looking for the benefits of domestic energy
production without the environmental costs.
We must look ahead to the future we want for our
state, the West, and the nation. The time to act is
now. Do we want to lose opportunities for energy
independence? Do we want to see ranching and
farming families—good stewards of our lands—forced
to sell to the highest bidder? Do we want to harm the
clean air, clean water, abundant wildlife, and other
ecosystem services we depend on? If the answer is no,
then the Colorado Habitat Exchange and its promise
for a balanced, innovative, meaningful solution is
the answer.
Everyone Wins
Credits trading can provide significant benefits to
developers, farmers and ranchers, and conservation.
Benefits to Developers• A practical tool for managing social and
environmental risks and liabilities
• Reduced cost and simplified compliance with state
and federal regulations
• Operational certainty by preventing listing and
avoiding additional regulation
• Increased social and regulatory “goodwill”
Benefits to Farmers and Ranchers• Increased financial incentives for land stewardship
through new environmental markets
• Keeps working lands in working hands by improving
financial sustainability through diversification of
income sources
• Supports jobs for local communities, increases
incomes and fuels the economy
• Flexible and stackable, the program works from
generation to generation
II-6 Developing a Credits Trading System for Species of Concern
Conservation & the Environment: Conservative Values, New Solutions
References
Kiesecker JM, Evans JS, Fargione J, Doherty K, Foresman KR, et al. (2011) Win-Win for Wind and Wildlife:
A Vision to Facilitate Sustainable Development. PLoS ONE 6(4): e17566.
http://www.plosone.org/article/info:doi%2F10.1371%2Fjournal.pone.0017566
Copeland HE, Doherty KE, Naugle DE, Pocewicz A, Kiesecker JM (2009) Mapping Oil and Gas Development
Potential in the US Intermountain West and Estimating Impacts to Species.
PLoS ONE 4(10):e7400.doi:10.1371/journal.pone.0007400
http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0007400
U.S. EIA (re; 20,000 miles of pipeline btw 1998-2008): www.eia.gov/pub/oil_gas/.../ngpipeline/comparemapm.pps
Partners for Western Conservation (PWC) strives to implement market-based conservation and
ecosystems services to benefit wildlife, the environment, landowners, and the regulated community. The
use of sound science, assistance, resources, and educational efforts will create a community of partners
committed to the conservation and stewardship of land, water, air, and wildlife. For more information, visit:
www.thepwc.org or contact Terry R. Fankhauser at 8833 Ralston Rd., Arvada, CO 80002, 303-431-6422,
Benefits to conservation• Credit aggregation for larger projects, not just
piecemeal mitigation
• Conservation for performance
• Conservation integrated with development planning
• Encourages companies to make conservation
contributions without additional regulation
• Conservation of sage grouse provides an “umbrella”
of protection for many other wildlife species
Benefits to society• Concerns about species and habitat protection are
addressed proactively
• Reduces the need for civic/public investment in
conservation
• Avoids costs incurred by services such as
regulation and habitat restoration
• Energy and food security
III-1Parks 2.0: Operating State Parks Through Public-Private Partnerships
Conservation & the Environment: Conservative Values, New Solutions
III. Parks 2.0: Operating State Parks Through Public-Private Partnerships
Leonard Gilroy, Harris Kenny, and Julian MorrisReason Foundation
The ongoing fiscal challenges facing state
governments are creating an existential crisis for state
parks. With budgets stretched increasingly thin, state
parks must compete for limited funds with other—
often higher—policy priorities like education, health
care, public pensions and public safety. These budget
pressures have prompted policy makers in California,
New York, Florida, Arizona, Georgia, Massachusetts
and other states to close or significantly reduce
services in hundreds of state parks, or at minimum
reduce parks budgets, nationwide.1 In other states,
like Washington and South Carolina, governors and
legislatures have recently launched efforts to require
parks to become self-sufficient to wean them off state
appropriations, in seeming recognition that parks
funding will increasingly be crowded out by other
spending priorities.
As South Carolina Department of Recreation and
Tourism director Duane Parrish told the The Greenville
News in August 2012, “When the state park system
stands up before the General Assembly up there with
education, health care and public safety, guess who’s
fourth on that list?… The less we have to rely on money
from the General Assembly, the more we insulate
ourselves from future economic downfalls.”2
Beyond the threat of closures, the ongoing economic
malaise has exacerbated a widespread, pre-existing
problem of inadequate and deferred maintenance
in state parks, which only serves to accelerate
their decline. A 2010 report by the National Park
Service found that states had identified $18.5 billion
in unfunded needs for parks and recreation.3 The
National Trust for Historic Preservation noted in 2010
that over half the state parks systems are “at-risk,”
which means that state-owned and -managed parks
III-2 Parks 2.0: Operating State Parks Through Public-Private Partnerships
Conservation & the Environment: Conservative Values, New Solutions
and historic sites are facing major budget cuts.4
For example, the California State Parks System
accumulated over $1 billion in deferred repairs and
maintenance; and that’s not to mention the significant
hurdles covering operational costs across the system.5
The parks crisis is not confined to states; it is evident
at all levels of government. The most recent national
infrastructure report card prepared by the American
Society of Civil Engineers (ASCE) in 2009 gave the
“Public Parks and Infrastructure” category a grade
of “C-,” citing inconsistent funding sources and
widespread neglect in many parts of the country.
ASCE estimated a $48.2 billion funding shortfall for
parks and recreation nationally over the next five
years, representing the gap between $36.8 billion
in estimated spending over that time and $85 billion
in total funding needs. In other words, there is real
infrastructure deterioration in America’s parks.6
Deficient parks maintenance has a cumulatively
negative effect that can ultimately lead to park closures
and discontinuation of open public spaces. According
to a 2006 study by The National Parks Conservation
Association, the combination of underfunding and
insufficient maintenance leads to “park infrastructure
decays, natural ecosystems overrun with exotic
species, historical treasures inadequately preserved
and public safety jeopardized.”7
Yet state parks remain popular while their maintenance
needs continue to worsen; according to America’s
State Parks Foundation, state parks received 725
million visitors at over 6,000 sites around the country
in 2010 alone.8 Can this popularity be turned from a
cost into a benefit? One way to keep state parks open
without imposing additional burdens on the taxpayer
is to utilize public-private partnerships (PPPs). Many
states already successfully use private concessionaires
to provide piecemeal services within parks—including
food, retail, lodging, marinas, and other commercial
activities—so a shift to more extensive involvement can
build on that. Such a whole park operation PPP would
transfer the responsibility of maintaining the park to a
private operator, while enabling that operator to raise
revenue through entrance and other fees. This paper
seeks to describe such a model and explain how it can
best be applied.
The paper begins with an outline of the basic park
operation PPP model. It then explains how the model
was developed in the context of Forest Service
recreation areas. The next part offers insights into how
to set contract terms in a park operation PPP. We next
describe an application of the park operation PPP
model to California. We follow with an overview of the
status of park operation PPPs in various other states
and offer some concluding remarks regarding the
future application of the park operation PPP model.
Rethinking the Private Sector’s Role in State Parks
At the state level, the public sector is currently
responsible for the majority of the operations at state
parks. Non-governmental actors operate some food,
retail, and other services as private concessions. And
in some cases the states partner with nonprofits to
deliver interpretive (environmental education) programs
and other activities. But most state park operations
and management are run on a top-down, public sector
delivery model.
By contrast, in recent decades states have embraced
the use of PPPs in the fields of transportation,
education, and numerous other sectors. More than 30
states have passed explicit statutory authority to use
PPPs to deliver transportation infrastructure over the
last 25 years, and several others—including Virginia,
Texas and Puerto Rico—have expanded that authority
to include the use of PPPs to deliver social infrastructure
assets such as government buildings, schools, higher
education facilities, information technology systems,
and more. As a result, there are billions of dollars of
privately financed roads and bridges in operation or
under construction, thousands of charter schools
educating K-12 students, and many other creative
partnerships in which governments team with private
organizations in order to more cost-effectively and
efficiently deliver public services and infrastructure.
III-3Parks 2.0: Operating State Parks Through Public-Private Partnerships
Conservation & the Environment: Conservative Values, New Solutions
However, the top-down approach currently taken by
states is not the norm across the entire U.S. outdoor
recreation public lands system. The private sector has
long played a role in the operation of public recreation
areas and parks. For example:
• Private, for-profit recreation management
companies currently operate over half of the U.S.
Forest Service’s (USFS) thousands of developed
recreation areas (e.g., campgrounds, day use
areas) nationwide under “whole-park” concession
agreements. For example, Colorado, California,
Oregon, and Washington each have over 100 USFS
recreation areas and campgrounds operated by
private concessionaires, with most other western
states like Arizona, New Mexico, and Nevada each
having dozens under private operation as well.
This USFS program has been in place for over
25 years, prompted originally by fiscal pressures
on the agency in the 1980s during the Reagan
administration, which led it to embrace user fees
and PPPs to keep its numerous recreation areas
open and self-sustaining.
• For decades, Central Park and Bryant Park in
New York City have been operated by nonprofit
organizations that handle day-to-day operations,
invest in capital projects, and provide the majority
of operating funds, minimizing public subsidies.
Similarly, almost three-quarters of national
zoos accredited by the Association of Zoos and
Aquariums (AZA)—including most of the major
urban zoos nationwide—are currently operated
using a similar nonprofit PPP model.9
• Grand Canyon, Yosemite, Yellowstone, and many
other crown jewels of the National Park System
make extensive use of the private sector to operate
lodging, food, retail, and other commercial services
within their park boundaries.
• Many local governments contract out operations
and maintenance activities that include
landscaping, tree-trimming, waste removal,
and other activities.
The Proposed Model: PPPs for State Park OperationsWhat would a whole park operation PPP look like?
Let’s start with the basic PPP model. Put simply, a
PPP is an agreement formed between a public agency
and a private entity, which facilitates greater private-
sector participation in the provision of a public service.
The examples above demonstrate that there are a
wide variety of PPPs already in use in the parks and
outdoor recreation sector. These may take relatively
simple forms, such as contracting for landscaping or
waste removal. But the most powerful versions involve
“whole-park” concessions: long-term partnerships
used for holistic park operations and implemented
via performance-based contracts between the
government agencies responsible for overseeing parks
and recreation management companies—along the
lines of the USFS example cited above. For clarity, we
will use the term park operation PPPs to designate this
form of partnership.
Figure 1 outlines the key responsibilities associated
with public park management and illustrates those
areas most appropriate for an expanded private-sector
role via a park operation PPP and those functions most
appropriately retained by the state. Under a PPP, the
state would maintain public ownership of parks and
retain its traditional role overseeing strategy, planning,
character, and facilities for each park. Further, the
state would maintain its control over policy decisions
on environmental initiatives, user fee rates, and facility
and capital investment planning.
With the state’s policy setting and oversight in place,
the private-sector concessionaire would then assume
typical day-to-day park operations and maintenance
functions, such as visitor services, routine
maintenance (e.g., bathroom cleaning), landscaping,
waste services, routine repairs, and utility payments.
“While these operational tasks by no means constitute
all the work required to keep parks open, they account
for the vast majority of the money spent by the state
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Figure 1 Delegation of Responsibilities in Parks PPPs
parks organization in the field,” according to one
concessionaire.10 There may even be opportunities to
tap private-sector capital up front to deploy to capital
investment projects, depending on the scope of the
PPP contract (longer contracts generally facilitate more
private-capital investment).
To reiterate: ownership and oversight of state parks
would remain with the state, while operational
responsibilities would be delegated to concessionaires
through rigorous PPP contracts that ensure the park is
operated and maintained in a manner consistent with
the long-term vision for the park as defined by elected
officials and their agents. The specific operating
commitments and performance expectations can be
hundreds of pages long for a single park.
At the state level, a park operation PPP—or “whole-
park” concession, to distinguish this model from
more traditional food/retail-style concessions in
place in many parks today—would typically be
structured as a 5–10 year commercial lease in which
the concessionaire collects the gate fees to fund its
operations and maintenance costs, including labor.
If capital investment is required, contract length
typically increases to 15–20 years. However, public
subsidies to supplement gate fees are not required—
in fact, the concessionaire usually pays a competitively
bid percentage of the gate revenues to the public
agency as an annual lease payment.
This offers the opportunity to minimize or potentially
eliminate public subsidies that currently help cover
Note: In a park operation PPP the full scope of capital maintenance and investment responsibilities would depend on the length and structure of the contract negotiated with the park’s authority.
Source: Adapted from Warren Meyer, Recreation Resource Management, Presentation to Arizona State University Symposium on the Private Management of Public Parks in Arizona, November 9, 2010. Also available at: http://parkprivatization.com/2011/05/press-release-a-successful-model-for-keeping-arizona-state-parks-open-exists-right-here-in-arizona/.
State Parks Role Shared Role RRM Role
Land Ownership
Maintenance & Investment
Strategy, Planning, Park Character, Facilities
Environmental Protection
Science, Rules-Making Education Mitigation/Compliance
Planning Capital Investment Routine Maintenance
Oversight, Fee Approval Operations, Staffing, Customer ServiceRecreation
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the operating costs of the parks, while keeping the
parks open for public enjoyment. Concessionaires
can simultaneously increase the net revenue to the
government and realize their own profits, given that
they can tap a lower cost, more flexible labor force
and realize other operational efficiencies, as described
in the benefits section below.
Benefits of Park Operation PPPsThe U.S. Forest Service (USFS) realized more than
25 years ago that while ecology and land preservation
were core competencies running recreation and
commercial enterprises was not. So USFS began
rapidly expanding its use of whole-park concessions
and the agency estimates that over half of its
Sources of Parks Funding
In 2008, Resources for the Future conducted a
comprehensive survey of state park directors in
46 states (excluding Hawaii, Michigan, New Mexico,
and Washington). This survey found that, at the
time, the average percentage of state operating
budgets covered by user fees was 42%. Further,
almost every state parks system relies on support
from its state’s general fund, receiving an average
of 41% of its funding through the general fund.
Between 1975 and 1995, user fees increased from
36% to 43% of the 46 state operating budgets
surveyed, with nearly 20% (depending on the state)
of the operating budget coming from a combination
of different fees, grants, and other sources of
alternative revenue dedicated to parks and 41%
coming from the state’s general fund. States
have also experienced a gradual increase in park
operating expenditures—both on a total and per-
visit basis—as seen in Figure 2.
Figure 2 State Park Operating Expenditures (2007 Dollars)
Source: Margaret Walls. January 2009.Parks and Recreation in the United States: State Park Systems. Washington, DC: Resources for the Future. P. 6.
$2,500
$2,000
$1,500
$1,000
$500
$0
Mill
ions
, 200
7 $
Fiscal Year
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
2007 $/visit
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Total Expenditures (Millions, 2007 $)
Expenditures per visit (2007 $)
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recreation sites nationally are now run under park
operation PPPs. The USFS experience allows us to
make the following inferences about the benefits of
park operation PPPs.
Financial Self-Sufficiency
in Park Operations
Public subsidies are typically not required for park
operation PPPs—in fact, the concessionaire usually
pays a set percentage of the annual park revenues
back to the public agency as rent. State parks
operating under a concession would no longer bear the
appropriation risk facing many parks authorities across
the country, as amenities like parks are increasingly
forced to yield to education, Medicaid and other core
funding priorities in the state budget process.
In any discussion of park subsidies and park operation
PPPs, it is important to distinguish between public
subsidies for the operation of specific state parks and
legislative appropriations to the state parks agency.
It is the former that can be minimized or eliminated
in a park operations PPP, as the concessionaire will
absorb most or all of the direct, day-to-day operating
costs of parks (e.g., staff, maintenance, utilities, etc.)
and pay rent back to the state in a PPP. Absent a PPP,
it is common for many state parks to require additional
public subsidies (over and above user fees collected)
to cover the full costs of operation. By contrast, this
report does not intend to suggest that park operation
PPPs offer a means of eliminating all legislative
appropriations to parks agencies themselves. As
suggested in the breakdown of responsibilities in
Figure 1 above, state agencies will still face costs not
directly related to the actual operation of parks—for
example, the costs of owning land and maintaining
title, contract oversight and management, conservation
programs and activities, the operations of non-fee
assets (historical parks, preservation lands, etc.),
agency technology, and more—which may require
the continued appropriation of tax dollars. While park
operation PPPs can be used to remove the operating
costs of specific parks from the state’s books and thus
help reduce the number of tax dollars appropriated
to the parks agency, these are not the only costs
incurred in running a state parks agency. See the text
box “PPPs vs. Government Operation: A Tale of Two
Arizona Parks” for an example.
Some states are looking to “traditional” concessions—
for example, new or expanded standalone concessions
for food, retail, etc.—to try to generate more revenue
for the park authority. While this approach may have a
positive effect on revenues on the margin, it is unlikely
to generate major new revenues, as a fractional share
of new revenues from traditional concessions will only
represent a fraction of the operating deficits state park
agencies face.
By contrast, park operation PPPs don’t just add a few
more dollars in concession fees; they change the entire
cost structure of operating the park, taking the vast
majority of its operating costs off the state’s books and
making them the responsibility of a concessionaire. In
return, the concessionaire pays back to the state an
annual rent set as a percentage of total net revenues
for each park under management. For those parks in
which expenditures exceed revenue collection today
under in-house operation—a common situation for
many parks in states that utilize traditional concession
and user fees—the PPP model offers a means to
transform revenue-losing state parks into self-funding
assets.
As we discuss below, PPPs have undoubtedly enabled
the U.S. Forest Service to keep open recreation areas
that otherwise would have been closed in order to
cut costs. In part they have done this by bundling
in a single PPP contract recreation areas that were
losing money with those that were breaking even or
generating net revenue. One reason concessionaires
are willing to take on these parks is that their operating
costs are much lower than the public sector’s.
Optimizing Staffing and Operations
Financial self-sufficiency is a major draw made more
potent by the opportunity to optimize operations
through whole park operation PPPs. The key lies in
the ability for concessionaires to dramatically lower
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PPPs vs. Government Operation: A Tale of Two Arizona Parks
operating costs, primarily through a more efficient
staffing model. The traditional public operational model
relies on high cost, inflexible labor that is ill suited to
meet the needs of parks. State park agencies typically
hire full-time employees for year-round jobs, with
credentials that over-qualify them for the job at hand.
These employees also require costly public pensions
and other post-employment benefits. However, this
top-heavy staffing model is inconsistent with the
seasonal nature of parks visitation, which requires
seasonal labor to conduct straightforward tasks such
as cleaning bathrooms and maintaining campsites.
In 2011, parks concessionaire Recreation Resource
Management (RRM) prepared a case study of
two publicly owned parks near Sedona, Arizona
that illustrates the dramatic differences between
traditional agency park operation and the PPP
concession model. The case study compared
Red Rock State Park, operated by Arizona State
Parks (a public agency) and Crescent Moon/Red
Rock Crossing Recreation area, a USFS property
operated under a concession by RRM.
Aside from the fact that one park is run by a
public agency and the other run by a private
concessionaire, these two parks are very similar in
many respects. Both have public bathrooms, picnic
and group shelters, parking facilities and trails.
They are adjacent to each other, with similarly sized
visitor areas and staffed gatehouses to collect fees
and provide visitor information. Both charge similar
entry fees ($10 per vehicle at Red Rock, $9 per
vehicle at the privately operated Crescent Moon).
More important, the parks are also very similar in
revenue and number of visitors. In 2009, revenues
totaled $281,000 at Red Rock and $304,854 at
Crescent Moon.
The dramatic difference comes in the
parks’ financial picture, which illustrates the
transformative power of park operation PPPs. In
2009, Red Rock had direct costs of $370,943,
plus an estimated $24,062 share of regional
agency operations office costs and an additional
$120,000 in operations support costs at the state
park headquarters level (e.g., IT, human resources,
etc.). Hence, Red Rock cost the state $515,005 to
operate but generated only $281,000 in revenue, a
loss of $234,000 for Arizona taxpayers that year.
By contrast, the USFS generated revenue at
Crescent Moon that year under a park operation
PPP. The concessionaire paid all park operating
expenses from the fees they collected, taking
those off the USFS balance sheet. USFS received
$54,873 in revenue from the concessionaire
(18% of gate revenue) and only paid for contract
oversight (an estimated $10,000), yielding USFS a
$44,873 operating profit. The USFS often reapplies
net revenue generated under concessions back
to improvements and new park facilities, keeping
them properly maintained and preventing the
chronic deferred maintenance seen in struggling
public sector park systems.
While the two parks are otherwise very similar, the
park operated under PPP generated revenue, while
the publicly operated park lost taxpayer money.
This simple example illustrates how parks can be
financially sustainable under a PPP but financially
unsustainable under public operation. Highlighting
this point, Red Rock was ultimately included on the
list of proposed state park closures in 2010 amid
severe state budget pressures in Arizona.
Source: A Tale of Two Parks: Keeping Public Parks Open Using Private Operations Management. Recreation Resource Management. Accessed online August 8, 2012 at: http://goo.gl/HjqGT.
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By contrast, concessionaires in park operation PPPs
rely primarily on seasonal labor that can be hired at a
fraction of the cost at competitive market rates and in
exchange for things like a recreational vehicle hookup
for the summer. The Property & Environment Research
Center (PERC) published a case study comparing
the staffing models of a state parks agency (Arizona
State Parks) and a private concessionaire that starkly
demonstrates this difference between traditional
operations and optimized operations, in terms of
full-time versus part-time labor (see Figure 3).
The staffing model is not the only barrier to efficiency
in public park agencies. In a 2012 report, the
Washington State Parks and Recreation Commission
cited some additional factors—including collective
bargaining and state procurement rules—that tend to
drive up the costs of public park operation relative to
those seen in the private sector:
State Parks needs to follow all the
procurement rules, which meet a set
of appropriate social objectives, equity
concerns and ensure responsible use of
public funds. Such governmental procedures
come at a higher cost. [. . .] State Parks is
subject to merit system rules, collective
bargaining agreements, statutory restrictions
on replacement of state employees with
volunteers, wage and benefit standards,
and other employment practices which
meet statutory requirements and increase
staff costs relative to those of private sector
competitors.12
The situation is much different in the private sector,
where concessionaires tend to have much lower
overhead expenses and lean headquarters staff, and
they are not saddled with government procurement
and personnel rules, allowing them to be nimble and
use streamlined processes with a total focus on the
operations task at hand.
Quality Guarantees
The government can set quality and maintenance
standards at its own discretion and hold the private
company accountable to meet them through a
performance-based PPP contract. Well-written PPP
concession contracts enable the private sector to
provide unprecedented quality in park service delivery,
while maintaining (and often expanding) public sector
oversight. Later in this report we detail a range of ways
that performance-based contracts can protect the
public interest in park operation PPPs.
Beyond the contract itself, the PPP structure inherently
provides powerful business incentives for maintaining
quality. For example, concessionaires are incentivized
to keep bathrooms and other user facilities clean
for the same reason hotels and restaurants do: they
want to attract repeat customers by providing quality
Figure 3 Comparative Staffing Models: Arizona State Parks vs. Recreation Resource Management
Source: Holly L. Fretwell. 2011. Funding Parks: Political versus Private Choices. Bozeman: Property & Environment Research Center. P. 6. Available online at: http://www.perc.org/files/Funding%20Parks%20final.pdf.
500
450
400
350
300
250
200
150
100
50
0
Arizona State Parks(public agency)
Recreation Resource Management
(private concessionaire)
Field—Seasonal
HQ & Regional Offices
Field—Full Time
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facilities. Given the popularity of Yelp, Trip Advisor, and
other online customer review sites, underperformance
and poor quality are open secrets in the Internet age.
Accountability
PPPs improve accountability over the status quo. State
run parks typically suffer from a conflict of interest
because the state is responsible for both service
delivery and oversight. By separating these functions,
the private sector can specialize on innovating service
delivery improvements, while the public sector can
provide more effective regulation through structuring
and overseeing compliance with the PPP contract.
Enhanced Risk Management
One of the most powerful and least recognized
benefits of PPPs lies in the ability to use them to
transfer major (and often hidden) financial and
operational risks from the public sector—and thus,
taxpayers—to the private sector. With regard to state
park systems, PPPs would offer an opportunity to
better handle risks that include:
• Revenue risk/demand risk: Under a park
operation PPP, the concessionaire would bear
100% of the revenue risk, meaning that the
concessionaire—not taxpayers—takes on the risk
that enough user-fee-paying customers visit the
parks to cover the costs. This naturally incentivizes
the concessionaire to provide high-quality facilities
that attract users by improving service quality
and through better prioritization of resources. The
concessionaire would bear the risk of declining
attendance for the parks they operate, as they
would have to absorb revenue losses since there
would be no backstop by state tax dollars. There
is naturally some risk to the state in that the
concessionaire might go bankrupt at some point
during the contract term. But this is a risk borne in
almost any public-private contract and is one that is
typically mitigated by having the state conduct due
diligence during the procurement process to ensure
that bidding companies are financially healthy.
Conversely, the specter of bankruptcy does have
merit in that it motivates companies to consider
fiscal sustainability. (If the concessionaire knew that
the government would bail it out, it would have less
incentive to innovate in service delivery or to keep
costs down.)
• Operational risks: Operational risks
transferred to the concessionaire in a PPP
generally involve system and facility maintenance,
regulatory compliance, liabilities and more.
Since concessionaires are taking over the whole
operation, they—not the state—would bear
the costs for most, if not all, operations and
maintenance, depending on how the state chose to
craft the initiative. Procuring authorities would also
need to consider in advance important issues such
as how to handle deferred maintenance, meaning
the degree to which the concessionaire would be
asked to address a maintenance backlog that may
have accumulated under government operation
(since policy makers generally tend to skimp on
things like asset maintenance in favor of funding
other visitor-serving programs). States may choose
to try and address deferred maintenance through
a concession, or they may not—this is a policy
decision to make on a case-by-case basis.
• Legal risk/liability: Parks concessionaires are
required to have insurance to cover a range of
potential liabilities including lawsuits and various
other risks. Parks under state management tend to
self-insure but do not account for that cost in park
budgets, which means that it is effectively an off–
balance sheet liability that is imposed on taxpayers.
• Project delivery risk: To the extent that there
might be some capital expenditure involved in a
given concession—such as a new visitors center or
the construction of facilities in a new state park—the
concessionaire would effectively take on the project
delivery risks that the state would have otherwise
taken if it were doing the same project. Examples
of these include construction cost risk (i.e., cost
overruns, which are ubiquitous in the public sector)
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and schedule/delivery risk (e.g., schedule slips,
etc.) on any potential capital projects that policy
makers may desire. Transferring the risk of cost
overruns and delays from the public sector to a
concessionaire is a major benefit to governments.
And concessionaires tend to be much more nimble
in project delivery than governments, as they do not
have to navigate the complexities of public sector
procurement rules, wage mandates and the like.
Tapping Outside Capital
for Park Improvements
PPPs can also potentially offer a means for parks
authorities to tap private financing to upgrade
or modernize facilities at a time when public
funding continues to be constrained by state fiscal
challenges. As one example of this approach, in
recent years California State Parks partnered with the
concessionaire Recreation Resource Management
to finance, develop, and operate a new 24-cabin
camping loop and other improvements totaling over
$1 million at McArthur-Burney Falls Memorial State
Park, all at no cost to the state. The state lacked the
funds to complete this project—it ran out of funding
in the middle of a park redevelopment project—so
the parks agency modified an existing “traditional”
concession with the company to extend the term of
the contract (out to 20 years) and expand the scope
to include the project, allowing the company to get
financing to develop the new loop, purchase and install
the cabins, and deliver a project that otherwise would
not have been completed by the state on its own. The
benefits even extend past the initial project delivery;
over the life of the concession, Recreation Resource
Management will operate the cabins and share
revenues with the state.
An Overall “Win-Win”
One parks concessionaire, Recreation Resource
Management, estimates that of every dollar of
recreation revenue it receives, approximately 92 cents
directly benefits the public, either being returned to
government through concession fees and taxes
(29 cents) or is spent directly in the recreation area
itself on wages, maintenance, utilities, waste collection
and the like (63 cents).13 The remaining 8 cents covers
the concessionaire’s legal, accounting and other
overhead costs, as well as after-tax profit. Hence, the
vast majority of money paid to private concessionaires
in park operation PPPs is put to work toward the public
benefit, illustrating the “win-win” nature of the PPP
model for both partners.
In many ways, the situation for state parks today is
analogous to the early days of the U.S. market for
privately financed toll roads and other transportation
infrastructure in the late 1980s. The completion
of pioneering private road projects such as the
Dulles Greenway and the Pocahontas Parkway in
Richmond began to chip away at the antiquated
paradigm that only governments should finance
and operate highways. This cleared the way for over
30 states to enact laws advancing the expanded
use of transportation PPPs. By 2012, Texas, Florida,
and Virginia alone have highway PPP projects in
development representing over $10 billion of private
capital investment, and these and other states have
begun to use PPPs for the private operation of other
public assets in social infrastructure, higher education,
K-12 education, corrections, mental health, and
numerous other fields.
There is no inherent reason to treat state parks any
differently. Though these state land assets serve a
variety of purposes (ecological, preservation, etc.),
perhaps the most visible and fundamental—and the
one that generates the bulk of individual park revenues
in states that charge user/entry fees—is the recreation
enterprise. Users pay to enter parks and use camping
and other facilities.
After over 25 years of successful use in federally
owned recreation areas under the aegis of USFS,
states are realizing they could follow a similar path
on PPPs. For example, the California Legislative
Analyst’s Office issued a report in March 2012
proposing that the state adopt a range of reforms,
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including allowing private companies to operate some
state parks, increasing park user fees and shifting
towards entrance fees, and expanding the use of
concessionaire agreements.14 This innovative approach
was also endorsed by the American Society of Civil
Engineers, which recommended in a 2009 report that
public authorities “create partnerships between public
agencies and private recreation and conservation
groups to provide benefits to the public at a lower
cost” as a way to improve parks.15
Park Operation PPPs in the U.S. Forest Service
Whole-park concessions have been used extensively
by the U.S. Forest Service (USFS) for over 25 years.
In fact, major budget cuts prompted the agency to
pioneer this PPP concession model in the 1980s as
a means to keep its vast recreation areas open, and
according to the agency, “concession management will
continue to be a vital means of accommodating visitor
demands into the twenty-first century.”16 Although
the USFS does not maintain a comprehensive
database of all its concession operations, agency
officials estimate that, today, over half of the agency’s
hundreds of recreation units nationally are operated by
private recreation management companies operating
under park operation PPPs; one concessionaire has
estimated that the number of USFS park operation
PPPs totals over 1,000.17
The adoption of the parks operation PPP model has
meant that despite 20 years of falling recreation
budgets and routine sweeps of the recreation budget
into firefighting, the USFS has never had to consider
the wholesale park closures now on the table in
many states. In fact, during the federal government
shutdown in the late 1990s, the only federal recreation
areas that remained open were those under private
concession management. Furthermore, unlike state
parks, USFS concession-operated campgrounds and
recreation areas are not accumulating large amounts
of deferred maintenance. The private sector is held to
maintenance standards under PPPs to ensure proper
park upkeep—a significant contrast with in-house
governmental parks management, where maintenance
is routinely deferred amid budget pressures and
meaningful accountability mechanisms to ensure
proper maintenance are lacking.
USFS procurement has unique federal rules that
won’t apply to most other public authorities across
the country. However, the agency has found ways to
craft PPPs with the private sector through “special
use permits,” which are essentially commercial
lease contracts for the operation of recreation areas.
The owner (a public park agency) sets the rules,
regulations, and maintains strict oversight. The
leaseholder (a private park operator) operates within
those confines to optimize park operations, with
reward coming from increased use.
In January 2011 the Utah legislative auditor general
succinctly summarized the USFS model, writing:
Of all federal landowners in Utah, the best
example of full operational privatization is
the USFS. Officials from the USFS report it
is a common practice in federal forests to
allow private businesses to manage forest
campgrounds and marinas, as well as offer
additional concession services through the
issuance of permits. Yet officials also report
that the operations of private area managers
are highly regulated through agreement
terms and oversight by a reduced federal
staff. The USFS typically issues five-year
concession permits with a possible five-year
extension based on performance; however,
they also consider a longer-term permit if
concessioners will utilize their own capital
goods on forestry land. Typically, the USFS
retains responsibility for capital projects,
unless special terms are negotiated, and
retains the right to revoke a concession permit
at any time. The local county sheriff typically
provides law enforcement.18
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The operating structure of these agreements is
complex, especially when it comes to revenue
generation. This complexity stems from the flexibility
that public authorities need to conduct successful
procurement. For example, priced and non-priced
parks are commonly grouped together, which protects
revenue-losing parks that are not independently self-
sufficient, but which add value to the parks system.
Experience with the USFS and other agencies using
park operation PPPs has shown that there is a broadly
positive correlation between the amount of information
that public authorities share about park operations,
finances, and conditions during procurement and the
likelihood of a successful partnership with a given
concessionaire. Revenue expectations are most
accurately set by total gate revenue, while other use
figures, like visitation numbers, provide additional
insight into park operations. Further considerations
include historical cost expenses such as electricity,
water, sewer, solid waste collection, and more.
Generally speaking, the primary details about park
amenities, facilities and operations that form the basis
of a PPP procurement—and which should be clearly
communicated to potential private operators to ensure
an open and competitive process—include:
• Operating season and hours;
• Current user fee structure;
• Historic revenue/expenditure data by park;
• The number of bathrooms by type;
• The number of camping sites by type;
• The number of picnic tables;
• The number of host sites and their amenities;
• Stay limits, and other rules, limits and restrictions; and
• Any other amenities central to park operations.
The next step is to consider the assets and liabilities
of a given facility. The public sector can choose
whether it wants to continue to own all fixed assets,
heavy equipment, property, consumable supplies,
and specialty equipment, or if it wants to transfer a
mix of these assets to a concessionaire or reassign
them internally to other parts of the parks system.
Major assets like buildings will generally remain in
public hands, while most other assets are typically
transferred to the private sector.
Various maintenance and law enforcement issues
are also addressed during procurement. Regarding
the latter, law enforcement is typically the only
responsibility not taken on by concessionaires.
While concessionaires enforce park rules and try to
prevent dangerous behaviors, they will contact law
enforcement authorities for assistance if necessary,
just as would hotels and restaurants in similar
situations. In fact, concessionaires often report a
customer experience benefit to separating the facility
host and law enforcement functions, in that having
park rangers with guns patrolling a campground,
selling firewood, and cleaning bathrooms (common
in state-run parks) can be perceived as intimidating
to guests and less conducive to a friendly, customer-
oriented experience.
Maintenance duties are almost always shared between
both parties. Concessionaires often handle minor
maintenance, cleaning, and landscaping. Major
projects are often, but not exclusively, undertaken
by the public agency. Under the “Granger-Thye Fee
Offset,” the USFS may permit concessionaires to
complete major maintenance projects for the public
agency, receiving a credit against fees for the cost of
the work.
Overall, maintenance tasks can be divided in many
ways, and responsibility for major maintenance
is generally tied to the length of contract. In short
contracts with up to 5-year terms, like those typically
used in the USFS, the landlord agency retains major
maintenance, as described above. However, longer
contracts (over 10 years in length, for example) would
generally transfer major maintenance responsibilities
to the concessionaire, since the longer contract term
gives them the ability to finance larger projects and the
time to recoup these costs over the life of the contract.
Finally, details about utility and tax information must
be settled. Private companies operating on public
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lands usually collect sales and lodging taxes, even
though a public agency previously provided that good/
service. Additional considerations include excise taxes
or other fees in jurisdictions where they have been
substituted for property taxes if a tenant is not paying
property taxes.
USFS campgrounds require that all reservations be
made through the National Recreation Reservations
System, operated by Reserve America, and every
concessionaire is required to ensure interoperability
with this system. This system serves as the central
portal for facility reservations on federal public lands,
with 60,000 reservable facilities at over 2,500 locations
held by the USFS, Army Corps of Engineers, National
Park Service, Bureau of Land Management, and the
Bureau of Reclamation.
Similarly, discount programs (e.g., an annual parks
pass) must also be considered during procurement.
There are several ways to address this issue, ranging
from exempting concession-run facilities or allowing
visitors with passes a discount, to allowing the
concessionaire to create its own pass or having the
agency reimburse the concessionaire:
• Exempting concession-run facilities from
pass programs: The federal government
currently makes available an $80 dollar “America
the Beautiful” annual pass that grants pass
holders entry to 2,000 federal recreation sites that
include national parks, wildlife refuges, forests
and grasslands, and other lands managed by
the USFS, National Park Service, U.S. Fish and
Wildlife Service, Bureau of Land Management,
and Bureau of Reclamation. However, this pass
program specifically exempts facilities and activities
on federal recreation lands managed by private
concessionaires, as the U.S. Congress has not
created a legislative mechanism to facilitate the
flow of funds across the various land management
agencies involved (though agencies have been
trying to develop administrative formulas to allow
such transfers); nor is there currently statutory
authority that would allow agencies to compensate
concessionaires for the revenues lost to pass
program participation.
• Voluntary discounts: Even if exempted from
mandatory participation in park agency pass
programs, concessionaires often will voluntarily
provide some type of a discount to pass holders,
mostly for public relations, marketing and customer
service reasons. For example, the concessionaire
Recreation Resource Management currently
offers federal pass holders a discount on entry
fees for three popular day use areas in Sedona,
Arizona operated on behalf of USFS. As a matter
of business practice, concessionaires often
find that offering voluntary discounts to pass
holders engenders goodwill and can create
repeat customers in the future, as opposed to
alienating pass holders at park entry gates who
are unfamiliar with the nuances of park pass rules
and restrictions.
• Required concessionaire participation
(without compensation): In addition to the
“America the Beautiful” pass discussed above,
the federal government also offers a $10 annual
“Senior Pass” that waives entry fees on federal
lands and also provides a 50% discount on amenity
fees, like camping, swimming and interpretive
services. In contrast with the “America the
Beautiful” exemption described above, the USFS
often requires concessionaires to provide a 50%
camping discount to Senior Pass holders, and the
agency does not provide offsetting compensation
for it—again because there is no legal mechanism in
federal law—so each Senior Pass holder represents
lost concessionaire revenue (and less ultimately
paid back to the parks authority via annual rent
payments). While the added costs of Senior Pass
program participation are not so onerous that
they prevent concessionaires from bidding on
contracts, in effect, the industry has come to factor
these costs into their bids and, as a result, they will
lower the annual rent payments made to USFS.
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In some cases, the effects of mandatory Senior
Pass participation have prompted concessionaires
to seek increases in user fee levels, effectively
forcing everyone to pay higher fees at the gate to
subsidize senior citizens, a perverse outcome that
disproportionately benefits a politically powerful
interest group.
• Required concessionaire participation
(with compensation): Forcing concessionaires
to take on costs that significantly reduce their
overall revenue profile is ill-advised, unless there
are agency funds available to create some form
of concessionaire compensation mechanism,
or unless annual rent payments can be lowered to
account for the new costs. However, finding spare
funds to compensate concessionaires for park pass
program discounts is going to be challenging in a
difficult fiscal environment. Still, there is precedent;
in the Coconino National Forest in the Sedona area,
the USFS temporarily allowed concessionaires
to bill USFS (at a discounted rate) for the costs of
park entrants having a regional USFS Red Rock
Pass that allowed free access to Sedona-area day
use areas.
• Concessionaire-run pass program:
Concessionaires in park operation PPPs routinely
offer their own annual passes for day use areas,
mostly for locals who frequent the parks. These
programs are usually limited to a small set of
facilities, but they also tend to be cheaper than
federal or state park pass programs and offer a
good value to regular park visitors, who get an
annual pass for the price of a handful of days of
admission. In addition to creating community
goodwill, it also allows concessionaires to
customize pass programs that best meet the
needs of their customers. Recreation Resource
Management currently offers specialized passes
for local USFS facility users in the Sedona, Arizona
area, Flagstaff, Arizona area, and several additional
regions throughout Arizona and California.
In the end, park pass programs impose costs
on parks without providing offsetting revenue to
concessionaires, so public agencies and their
private partners should take care to craft sensible
arrangements that achieve agency goals while not
unduly harming a concessionaire’s revenue profile.
Revenue reporting is vital and often depends on
the operations aspect of the park. Since most
concessionaires pay rent as a percentage of revenue,
concessionaire reporting rules must be clear to both
parties. Some figures that USFS requires include:
• The total number of units occupied based on daily
counts;
• The total number of people based on daily counts;
• The percentage of occupancy by month;
• Total recreation fee revenue;
• Total taxes, gross and net revenue, and much more.
USFS allows flexibility in parks operations. For
example, when thorough agency rules aren’t defined,
the concessionaire is asked what rules it proposes to
enforce and how it proposes to enforce them. Certain
parks require special rules, capacity, and stay limits.
Overall, because it is built on a negotiated contract,
the PPP process is highly customizable and flexible,
allowing unique agreements with unique standards that
apply to unique parks.
After receiving concession bids, USFS assigns
a cross-functional team to evaluate them and
recommend a winner. USFS generally evaluates bids
according to the following criteria (in order of priority):
• Proposed operating plan (staffing, rules, services, etc.);
• Company experience and references;
• Company financial ability;
• Proposed user fees (with lower fees seen as most
advantageous); and
• Proposed annual rent paid back to USFS (usually
set as a percentage of total park revenue).
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Procurement generally yields concessions with rental
fees based on a percentage of revenues, which
generally pay public agencies 5–18%. Public agencies
also have the opportunity to select fixed price bids—
there are tradeoffs between these options, and neither
is inherently better or worse than the other.
This section has provided a distilled glimpse at USFS’s
robust procurement process, in which concessionaire
submissions are often hundreds of pages long. What is
important for states to understand is that the USFS has
set a thorough precedent for other public agencies.
This can be emulated to protect and conserve valuable
public spaces.
Setting the Contract Terms in Park Operation PPPs
Parks are highly valued by the public. They serve
several important roles, including the provision
of outdoor recreation space, the conservation of
habitat for species, and the creation of an enabling
environment for research. It is important, therefore,
to ensure that parks are able most effectively to
continue to perform these roles, regardless of who is
responsible for maintaining and operating them.
As noted above, a well-structured park operation PPP
is better able to ensure that a park remains open for
recreation purposes than state management. We also
noted that when the owner of a park contracts out
the management to a separate private company, it
suffers fewer conflicts of interest in the enforcement of
rules and regulations. Performance-based contracts
spell out the operating standards demanded by
the parks agency. These contracts should be—and
are, in practice—designed to hold concessionaires
accountable for meeting those standards through
positive and negative incentives, including, ultimately,
the threat of losing the concession.
Though PPP contracts may address a wide range
of operational issues, public agencies like USFS
commonly incorporate the following five elements into
park operation PPP contracts:
1. Fee/rate setting: The public authority often
determines the user fees (park entry fees, camping
fees, RV fees, etc.) that may be charged. If such a
condition is included, however, it is important that
there be provisions to enable revisions through a
clearly defined and simple process. For example, a
sound PPP contract should include language that
says the agency should not unreasonably deny
the concessionaire a fee change if it is supported
by well-documented operating cost increases and
local market analysis.
2. Specification of services and facilities:
The contract must specify the services to be
provided by the public authority and may specify
some or all of the services to be provided by the
concessionaire. The contract may also specify the
facilities to be operated by the concessionaire,
as well as any maintenance requirements and
conditions or restrictions on the use of those
facilities. Like fee/rate setting, it is important to
include provisions enabling revision of these
aspects of the contract.
3. Restrictions on facility modifications:
The contract may specify what modifications
may be undertaken on facilities operated by
the concessionaire (ranging from a requirement
to upgrade everything to a total prohibition
on any modification) and typically will require
prior approval from the public authority for any
modification not expressly specified.
4. Season and hours of operation: The contract
may specify the expected dates and hours of
operation. Typically this is done by facility, as
parks may differ in terms of seasonal use and hours
of operation.
5. Customer service: The public authority may
include in the contract particular expectations and
goals sought from the concessionaire in terms of
interacting with and delivering services to park
users. This may include such provisions as issuing
customer surveys, rules for accepting reservations,
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refund policies and things like cleaning and
maintenance standards. Since concessionaires
function as public entities, they are responsible for
conforming to guidelines and policies related to civil
rights and disabilities, and these should be included
in the contract.
These are obviously just illustrations of the sorts of
contract provisions that can be included. Actual terms
will depend very much on the long-term vision of the
elected officials and agents who oversee the park.
Given the widespread use of the above provisions,
however, it is worth reviewing their implications:
1. The argument advanced in support of fee setting
is that since the park is owned by taxpayers,
fees should be set at a rate that ensures access
to the widest group of people. But rate setting
may not be necessary to achieve that goal. The
argument for rate setting has traditionally been
made in the context of public utilities that are
“natural” monopolies and thus able to charge
monopoly prices. But parks are not monopolies.
People have a wide variety of parks from which to
choose. Even a park’s remoteness does not give
it market power, since parks may advertise their
rates online, effectively competing prior to a visit.
So the concessionaire has an incentive to price
competitively in order to attain customers. Also,
imposing restrictions on fees, or requiring approval
of changes, may discourage experimentation in the
supply of services and may effectively prohibit the
provision of higher-end services. It may also limit
the funds available for investments in conservation
and other improvements to the quality of the
habitat.
2. While it is important for concessionaires to know
what services the public authority will be providing,
it is not necessary for the public authority to
determine fully what services the park operator
will provide. As with fee setting, the specification
of what services and facilities are to be provided
by the concessionaire appears to ignore economic
reality and go beyond the logical division of
responsibilities between the owner and the operator
of the park (as discussed above). Operators clearly
have an interest in ensuring that the facilities
offered are consistent with the expectations of
customers. Nonetheless, it may be necessary
for the public authority to state restrictions on
the types of services that may be provided by
the concessionaire in order to ensure that facility
densities and extent and types of park use do not
exceed those deemed necessary to achieve the
conservation role of the site.
3. Facility modification provisions effectively prevent
any unanticipated or discretionary development
within parks by the concessionaire and are one
way to establish park quality standards. Rigid
provisions make sense for short-term leases, but
not for longer-term leases. In a longer-term lease,
they would discourage operators from investing in
improvements to the facilities that might increase
their attractiveness to paying customers. For longer
leases, it may make sense to set broad parameters
regarding what developments are permissible
without seeking park agency approval in advance.
4. It is important for the public authority to agree with
the concessionaire on the length of the season and
hours of operation, since these affect both parties.
5. It is important that concessionaries be required
to comply with service obligations dictated by
law and legislation. In addition, per point 3 above,
there may be a need to introduce restrictions on
certain activities in order to achieve conservation
objectives. However, it is also important to
recognize the existence of trade-offs: if a certain
activity, such as use of snowmobiles or motocross
bikes, has a negative conservation impact but
generates significant revenue, it may nonetheless
be worth permitting, perhaps to some limited
extent, in order to ensure that the park is able to
remain self-financing.
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In general, it seems unlikely that the public authority
will have a better view than the concessionaire of
the kinds of services that should be provided to
the public. One of the primary benefits of a PPP is
that private-sector service providers have stronger
incentives to draw from experience, and identify
and provide services to customers in order to
create a memorable and enjoyable experience.
Parks authorities can incorporate a wide range
of additional performance or service delivery
expectations into park operation PPPs, and these can
be tailored for each individual contract. For example,
contract provisions routinely cover such areas as:
• Division of maintenance responsibilities;
• Coordination with agency’s various pass programs;
• Existing deferred maintenance the concessionaire
may inherit;
• Emergency plans (e.g., fire or hurricane evacuation
plans);
• Coordination with law enforcement;
• Financial capability and cash on hand in case of
unexpected costs;
• Operating procedures;
• Conditions (including odor) of toilets and trash
receptacles;
• Vegetation around road and parking barriers;
• Educational/interpretive programs;
• Signage and branding;
• Marketing plans;
• Internet and social media presence;
• Multilingual programs and materials;
• Bear-resistant trash receptacles;
• Functional gravel sumps;
• Floats and lines designating swimming areas;
• Removal of hazardous trees, including stump
removal;
• Entrance signage featuring contact information;
• Recycling programs;
• Provision of fire rings and grills;
• Healthy foods initiatives; and
• Special events and public programs (e.g., National
Public Lands Day).
Contracting presents a spectrum of trade-offs that
ultimately lie in policy makers’ hands. Park facilities
in designated wilderness areas, for example, are
subject to The Wilderness Act of 1964, which defines
wilderness in part as, “an area of undeveloped
Federal land retaining its primeval character and
influence without permanent improvements or human
habitation, which is protected and managed so as to
preserve its natural conditions.”19 This has resulted
in public authorities imposing what might seem to be
quite extreme requirements, amounting to a directive
essentially to disturb nothing, build nothing, and
just run clean facilities. At one privately operated
concession in Florida in a designated wilderness
area, the contract bans the concessionaire’s use
of motorized vehicles. Instead, their employees
have to canoe into the recreation sites. Moreover,
the concessionaire is required to use hand tools
to conduct tree pruning and other maintenance,
precluding the use of power tools.
Notwithstanding the need to ensure that
concessionaires comply with existing laws,
onerous contract mandates may lead to adverse
consequences, including but not limited to reducing
the number of eligible/interested concessionaires;
decreasing revenue returned to the public from
concessionaires; increasing contract monitoring costs;
and redistributing capital from meeting the public
interest to meeting the whims of public officials. To
the extent that these onerous contract mandates are
driven by federal and/or state legislation, there may be
a case for revisiting that legislation in order to enable
parks to become more sustainable.
As evidenced above, PPPs offer a powerful way
to ensure that the long-run vision for a park is
implemented effectively and efficiently. These
provisions can offer dramatic improvements over the
status quo.
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Applying the Park Operation PPP Model: California
No state illustrates the parks crisis better than
California. Even though its parks charge entry fees,
only 5% of them (13 of 279) covered operating costs in
2009, according to the Los Angeles Times.20 The rest
relied on public subsidy.
In response to budget pressures in 2010, California
officials cut the parks budget by $11 million, and
planned a further $22 million of cuts for future years.
As a result, 150 state parks were shut down part-time
or suffered deep service reductions. Moreover, state
parks had already deteriorated significantly under the
state’s stewardship, accumulating over $1 billion in
deferred repairs and maintenance.21
A November 2010 California ballot initiative,
Proposition 21, proposed to increase vehicle license
fees in the state by $18 a year, with the revenues
(estimated at $500 million) going to a dedicated fund
for California’s state parks. When this initiative was
voted down 57.3% to 42.7%, the stage was set for the
permanent closure of dozens of state parks.
As a preliminary step, Governor Jerry Brown signed
a bill (AB 95) into law in March 2011that would
absolve the state from liability for injuries, crimes,
and damage incurred in closed state parks. In May
2011, the California administration followed that with
an announcement that 70 state parks (a quarter of
California’s total) would be closed.
California State Parks Seeks an Alternative
In response to this announcement, the state parks
division of the California Department of Parks and
Recreation, California State Parks (CSP), began
seeking partnerships with cities, counties, nonprofit
organizations, and private entities that would allow
it to keep as many of these parks open as possible.
It pursued various arrangements, ranging from
donor agreements and nonprofit partnerships to the
groundbreaking use of private concessions to operate
state parks.
This newfound courage soon paid dividends for CSP.
In July 2012, it was able to announce that 69 of the 70
parks previously targeted for closure would remain
open to the public in the short term, thanks to a
recently signed state budget that authorized funding
to keep the parks open while partnership agreements
were pursued.22
At the time of that announcement, partnership
agreements had already been signed for 41 state
parks. Of these:
• 20 will be operated by CSP under agreements with
outside donors;
• 11 will be operated by municipal governments
under intergovernmental operating agreements;
• 5 will be operated under park operation PPPs using
private concession management;
• 3 will remain open, but with significant service
reductions; and
• 2 will be operated by nonprofit organizations.
Negotiations were in progress for 24 further state
parks. Of these:
• 11 would be operated by CSP under agreements
with outside donors;
• 7 would be operated by nonprofit organizations;
• 2 would be operated under park operation PPPs
using private concession management;
• 2 would be operated by municipal governments
under intergovernmental operating agreements;
• 1 would remain open through an interagency
funding agreement; meanwhile
• Options are still being sought for the remaining park.
Five other parks still had no partnership, donor, or
concession agreement in place at the time of the
announcement. Four were to remain open in the short
term while CSP continued to pursue such agreements;
the other had to close.
PPPs for California State ParksAlthough successful arrangements were reached
(or were still being pursued at the time of writing) for
69 out of the 70 threatened state parks, it is worth
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noting that intergovernmental agreements and
nonprofit partnerships may not prove a sustainable
operating option in many cases. Indeed, many of
these arrangements are of a relatively short (1–2 year)
duration. Local governments are still facing strong
fiscal headwinds in the wake of the 2008 recession
and are in a poor position to take on new parks
and recreation funding responsibilities. Nonprofit
organizations may not have the capital or operational
expertise to keep individual state parks open for
the long term. Similarly, outside donor interest in
supplementing parks funding is likely to be highly
variable in a difficult economy.
CSP is aware of this. Indeed, these limitations
prompted CSP to solicit park operation PPPs for
several of the threatened parks referred to above—the
first such state-level initiative in recent times. The state
embraced the PPP model in earnest in March 2012,
when CSP issued a new request for proposals (RFPs)
seeking a five-year concession contract (or contracts)
to operate campground and day use state recreational
areas (SRAs) at five park units in the Central Valley:
• Turlock Lake SRA;
• Woodson Bridge SRA;
• Brannan Island SRA;
• McConnell SRA; and
• George J. Hatfield SRA.
Two of these—the McConnell and Hatfield SRAs—
were subsequently removed from the procurement
after the state struck agreements with outside donors
to keep them open. For the remaining three parks,
the procurement structured the PPPs as whole-park
concessions in which the state would retain ownership
and control over the parks while paying a private
operator nothing to operate them. The department set
a minimum annual rent level for each park that bidders
had to exceed in their proposals—based either on
percentage of gross revenue returned to the state or
specific minimum rent payment amounts set by the
state, whichever was greater—and it allowed would-
be concessionaires to bid for any combination of one
or more parks. The parks in question represented a
mix of revenue-generating and revenue-losing parks,
allowing a win-win for bidders and for the state by
bundling each of the parks into one PPP vehicle. (For
an explanation of how to address revenue-losing
parks, see the section above on U.S. Forest Service
Park Operation PPPs.) The Brannan Island SRA alone
had cost the state $740,000 to operate in 2011, over
twice the amount it raised through user fees and
traditional concession revenue, according to The Wall
Street Journal.23
According to the agency’s RFP (see Appendix A), the
objectives of the PPP were to:
1. Maintain campground, day use, and recreational
facilities and signage;
2. Ensure adequate staffing to maximize use and
protection of facilities, including roads and trails;
3. Collect campground and day use entrance fees;
4. Ensure the safety and convenience of park visitors;
and
5. Protect the state’s natural and cultural resources.
In June 2012 the department selected a winning
bidder—Utah-based American Land & Leisure, which
operates 492 campgrounds across 12 states—for the
three-park package. Some noteworthy aspects of the
PPP include:
• The contract term lasts five years.
• The state set forth clearly delineated maintenance
requirements for both itself and the concessionaire.
The concessionaire is generally responsible
for handling (and covering the costs of) minor
improvements and day-to-day repairs. For larger
maintenance jobs, all revenues paid back to the
state as concession rent in these three parks will
be put into a park maintenance fund from which the
concessionaire can seek state approval to spend.
Regardless, the state has removed the maintenance
costs for these parks from its books and transferred
them to the concessionaire.
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• To protect itself against lower-than-expected
concessionaire rent payments over the life of the
concession, the state required American Land &
Leisure to obtain a performance bond covering
100% of the anticipated rent payments over the
next five years. This is a risk-transfer mechanism
to ensure that the state receives 100% of the rent
payments originally envisioned in the procurement,
regardless of whether the anticipated revenues are
actually generated by the park.
• Workers at the affected parks who do not stay
on with American Land & Leisure will be transferred
to other parks in the system and will not lose
their jobs.
• The concessionaire will provide on-site, live-in staff
to operate the parks, while either the California
Highway Patrol or local sheriff’s offices will handle
law enforcement responsibilities.
• The concessionaire is required to provide
commercial general liability, automobile, and
worker’s compensation insurance under the
contract, at levels greater than the state had
previously insured itself.
• The concessionaire is required to maintain the
premises, trails, roads, facilities, furnishings, and
equipment in good condition in accordance with
agency standards and contract provisions. In fact,
the concessionaire is required to implement an
operations plan for each park unit (prepared by
the concessionaire and approved by the state) that
outlines how services will be provided and facilities
maintained over the life of the concession.
Each of these parameters of the PPP structure
ultimately lies in policy makers’ hands. For example,
CSP’s decision to retain all former employees not
retained by the concessionaire was a policy decision
that may or may not be desirable—or even feasible,
given ongoing budget pressures—in either California or
other states.
Additionally, CSP signed separate park operation
PPPs with the Bodie Foundation to operate Mono
Lake Tufa State Natural Resource Area, and with Parks
Management Company to operate Limekiln State
Park on the central coast, bringing the total number of
California state parks operated under park operation
PPPs to five. At the time of writing, the state was
continuing to pursue additional park operation PPPs
for two additional parks: Point Cabrillo Light Station
State Historic Park and the Benbow Lake SRA.
ConclusionGiven the extraordinary budget pressures on
California’s state parks system in recent years, it is
encouraging to see the state take proactive steps
towards leveraging the power of PPPs to keep parks
open and thriving. Perhaps more importantly for the
nation as a whole, California’s status as one of the
premier state parks systems makes it likely that other
states will start to explore how similar PPPs could
be used to enhance the fiscal sustainability of their
own parks.
Prospects for State Adoption of Park Operation PPPs
Given the potential benefits outlined in this report, it
is unsurprising that policy makers in several cash-
strapped states have begun to explore the use of
PPPs as a means to keep parks open and thriving
amid strained budgets and heightened competition
for limited state funds. We have already discussed
the application of the model in California. Other states
exploring the concept include Arizona, Utah, Hawaii,
New Jersey, and New York State. Here we offer a quick
overview of the status of the application of the model
in those states.
ArizonaIn the Grand Canyon State, severe state budget deficits
and threatened park closures have brought the parks
funding crisis to a head, prompting policy makers
to explore alternate management options designed
to lower costs and create a self-sufficient parks
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system. While Arizona State Parks (ASP) has, in recent
years, entered into a range of partnerships with local
governments and Indian tribes to keep several parks
open, these partnerships are short term and do not
ensure the long-term viability of the parks. This has led
to calls to explore the potential for park operation PPPs.
The policy discussion began in 2009 when one of the
largest national recreation concessionaires, Phoenix-
based Recreation Resource Management, offered to
lease six Arizona state parks targeted for closure amid
state budget cuts. The concessionaire proposed to
collect the same visitor fees the state charged at the
time, while taking the operations and maintenance
costs of these parks off the state’s books entirely.
Further, the concessionaire would pay the state an
annual lease payment based on a percentage of the
fees collected. The state would retain full ownership of
the land and the company would be subject to strict
state controls on operations, visitor fees, maintenance,
and other key issues. Policy makers failed to act on this
proposal, though it did serve to increase awareness
that PPPs could be a viable option for Arizona.
In September 2010, the Arizona Commission on
Privatization and Efficiency—a gubernatorial advisory
body—issued a report recommending the expanded
use of park operation PPPs to ensure that parks remain
open and properly maintained.24 Two months later,
the Arizona State Parks Foundation issued its own
report evaluating ways in which the state could pursue
more partnerships with private entities and introduce
systemic efficiencies that would lead the state parks
system toward financial sustainability. The report found
that “[t]here are certain functions of the Arizona State
Park System, as well as potential new opportunities
that are better suited for the private sector or other
public providers to either manage or pursue, or to
share the responsibilities with state parks.”25 Services
identified as most ripe for privatization within the
state park system included asset management and
maintenance, accommodations, food, hospitality, retail
and recreational services.
The foundation report assessed each of the state’s 28
parks on the potential for partnerships with either for-
profit or nonprofit organizations, identifying 10 parks
with high partnership potential, 12 parks with moderate
partnership potential, and 6 parks with low partnership
potential. Distinguishing qualities of parks with a high
potential for partnerships included:
• Large or reliable visitation;
• Significant revenue generation capacity;
• Moderate to few land restrictions;
• Moderate to few legal/land use encumbrances;
• Moderate to few resource management challenges;
and
• New revenue development potential.
Additionally, the report recommended transitioning
ASP to a quasi-governmental entity that could operate
in a more business-like manner and be more nimble in
pursuing financially beneficial partnerships with public
and private entities. The report also identified a series
of constraints and challenges to privatization that
included:
• The costs of effective contract management;
• The need for measureable performance criteria that
can be incorporated into all PPP agreements;
• Potential legal restrictions arising from agreements
that established state parks on land leased from
federal land management agencies (or owned by
the State Land Department);
• Compliance with federal rules on privatization
related to ASP’s use of federal conservation dollars;
and
• Suboptimal infrastructure and the need for capital
investment at many parks.
On the heels of the two privatization reports, ASP issued
a request for information (RFI) to private vendors in
December 2010 to “solicit feedback and recommendations
regarding the feasibility of transitioning or enhancing
various operations at ASP with the private sector.” The
RFI was open-ended in terms of scope, offering vendors
the opportunity to present creative ideas and concepts
III-22 Parks 2.0: Operating State Parks Through Public-Private Partnerships
Conservation & the Environment: Conservative Values, New Solutions
for the agency to consider for further procurements. ASP
received responses from several interested recreation
management companies, but at the time of writing,
the agency had neither announced the results of the
solicitation nor moved forward with specific procurements.
UtahUtah officials have been examining the potential for
park operation PPPs in recent years. The subject came
to the forefront in 2011, in the wake of a performance
audit of the state parks system issued by Utah’s
legislative auditor general in January of that year.
The audit was prepared at the request of a legislative
subcommittee to identify ways the parks system can
be more self-sufficient and less reliant on general
fund dollars. It recommended that the state’s Division
of Parks and Recreation adopt a more business-like
operation to improve park system efficiency and
suggested the adoption of a pilot program to evaluate
the effectiveness of park operation PPPs. Noting that
park operation PPPs have been seldom used to date
at the state level, the audit found that privatization “is a
feasible operational model,” pointing to the USFS as an
example. (For more on the Utah audit, see the section
above on U.S. Forest Service Park Operation PPPs.)
The audit found that Utah could contract for camping
and/or marina services (and potentially some visitor
centers) to essentially privatize the operations of 33
state parks, but as an initial step it suggested that
the legislature consider implementing a pilot program
covering the operations of only a few state parks.
Further, the audit reviewed the operating costs and
revenues at five state parks that provide camping and/
or marina services and found that three of the five
parks operating at a deficit in FY2010 would have had
surpluses if run under a PPP model similar to that used
by USFS. (Revenue-losing parks is addressed in the
section on U.S. Forest Service Park Operation PPPs.)
In May 2011, the Utah Privatization Policy Board—an
advisory body to the legislature on privatization and
PPPs—issued a set of recommendations to Gov.
Gary Herbert. It echoed the call for establishing park
operation PPPs for at least a portion of the state
parks, and it proposed the sale and/or lease of Utah’s
four state-owned golf courses. While the board
rejected any outright sales of state parks, it found that
“private contracting of the operations of state parks
or a portion of them will be in the best interest of the
taxpayers and that it can be done without harming
environmental amenities or the recreation experience.”
The board also encouraged Utah’s Division of State
Parks to develop comprehensive and easily monitored
PPP contracts.
HawaiiIn May 2011, state policy makers enacted a new law—
Act 55 (Senate Bill 1555)—that transferred state-owned
lands to a new Public Land Development Corporation,
a development arm of the state’s Department of Land
and Natural Resources authorized to form PPPs
to develop state land, renovate public recreation
and leisure assets, and generate revenues to offset
major departmental budget cuts in recent years.
The corporation can also issue revenue bonds for
land acquisition and the construction or renovation
of state facilities.
New JerseyThe final report of the New Jersey Privatization Task
Force—an advisory commission appointed by Gov.
Chris Christie shortly after entering office in 2010—
recommended that the state should enter into long-
term concession agreements with private recreation
firms for the operation and management of state
parks.26 Department of Environmental Protection
Commissioner Bob Martin told The Star Ledger in May
2010 that “[New Jersey is] barely getting by this year
with enough funding to run the parks, so [the state is]
looking for ways to ensure that [its] parks stay open
and all residents have an opportunity to be able to
use parks and recreation sites.”27 According to the
Privatization Task Force’s estimates, using PPPs for
the operation of some of the 58 state parks could save
the state $6 million to $8 million annually.
III-23Parks 2.0: Operating State Parks Through Public-Private Partnerships
Conservation & the Environment: Conservative Values, New Solutions
New York StateIn July 2011, the New York State Office of Parks,
Recreation and Historic Preservation (OPRHP) issued
a request for expressions of interest from private
entities interested in partnering with the state for the
adaptive reuse of unused structures and facilities at
Knox Farm State Park. The request aims to solicit
ideas for projects to enhance and improve the park—
with a particular focus on proposed improvements
to a 14,400-square-foot estate house and an
11,200-square-foot stable complex located on the site.
Conclusion
Early preservationists such as John Muir hoped that
transferring the ownership, operation and maintenance
of land to the government would ensure that the land
was cared for in perpetuity. State parks are an example
of the attempt to put that hope into practice. Recent
events, ranging from poor internal administration
to external economic conditions, show some of the
drawbacks to this approach. The ongoing threat of fiscal
uncertainty has left state parks in a precarious position.
Large numbers of people continue to want to
experience the wonders of the great outdoors.
The public also has certain expectations about the
conservation of nature and preservation of wilderness.
Policy makers and government officials should focus
on meeting these expectations in the most cost-
effective way possible. This paper shows that in many
cases that means using park operation PPPs.
Park operation PPPs can help ensure that parks
remain open to the public, are managed according
to the long-term vision of our elected and appointed
officials, and remain financially sustainable. Pioneered
at the federal level by the U.S. Forest Service, they
are a perfectly feasible option at the state level, as
evidenced by California, which is using park operation
PPPs to rescue five parks from closure.
PPPs offer a wide range of benefits in park operations,
including financial sustainability, optimization of
staffing and operations, enhanced risk management,
accountability for outcomes, proper facility
maintenance and much more.
Policy makers in other states should carefully consider
the long USFS history with park operation PPPs and
California’s recent initiatives as they contemplate ways
to ensure the long-term fiscal sustainability of their own
state parks. PPPs have proven to be an effective tool
for conservation, which can provide stability in the face
of fiscal uncertainty and transform underfunded state
parks into self-sustaining public environmental assets.
Appendix A: California State Parks Whole-Park Concession Request for Proposals
http://www.parks.ca.gov/pages/22374/files/Valley%20RFP%20%20Final%203-9-12.pdf.
Appendix B: California State Parks Whole-Park Concession Sample Contract
http://www.parks.ca.gov/pages/22374/files/valley%20contract%203-8-12.pdf.
III-24 Parks 2.0: Operating State Parks Through Public-Private Partnerships
Conservation & the Environment: Conservative Values, New Solutions
Notes1 Douglas Shinkle. January 2012. Across the country, Recreation Areas Are Being Hit Hard by State Budget Cuts.
Washington, DC: National Conference of State Legislatures. Accessed online August 28, 2012 at: http://www.
ncsl.org/issues-research/env-res/parks-in-peril.aspx.
2 Eric Connor. August 19, 2012. State Parks Turn to Fees to Survive. The Greenville [SC] News.
3 National Park Service Land and Water Conservation Fund. Land and Water Conservation Fund: State Assistance
Program 2010 Annual Report, p. 8. Accessed online at: http://www.nps.gov/ncrc/programs/lwcf/LWCF_2010_
Report.pdf.
4 National Trust for Historic Preservation. 11 Most Endangered Historic Places: America’s State Parks and State-
Owned Historic Sites. Accessed online July 10, 2010 at: http://www.preservationnation.org/travel-and-sites/
sites/nationwide/america-s-state-parks-and-state-owned-historic-sites.html.
5 California State Parks Foundation. State Parks and Wildlife Conservation Trust Fund Act of 2010 Fact Sheet.
Accessed online June 21, 2011 at: http://www.calparks.org/takeaction/spap-fact_sheet.html.
6 American Society of Civil Engineers. Report Card for America’s Infrastructure: Parks and Recreation, 2009.
Accessed online June 29, 2011 at: http://www.infrastructurereportcard.org/fact-sheet/public-facilities-public-
parks-and-recreation.
7 Jared Hardner and Bruce McKenney. May 30, 2006. The U.S. National Park System: An Economic Asset at Risk.
Amherst, NH: Hardner & Gullison, LLC, p. 5.
8 America’s State Parks Foundation. About America’s State Parks. Accessed online June 21, 2011 at: http://www.
americasstateparks.org/about.php.
9 Schultz & Williams, Inc. March 15, 2010. Tulsa Zoo: Organizational Analysis & Governance Study—Final.
Philadelphia, PA: Schultz & Williams Inc., p. 5. Accessed online June 15, 2011 at: www.tulsaworld.com/webextra/
content/items/zooprivatizationstudy.pdf.
10 Recreation Resource Management. May 3, 2011. A Successful Model for Keeping Arizona State Parks Open
Exists . . . Right Here in Arizona (press release). Accessed online August 8, 2012 at: http://parkprivatization.
com/2011/05/press-release-a-successful-model-for-keeping-arizona-state-parks-open-exists-right-here-in-
arizona/.
11 Margaret Walls. January 2009. Parks and Recreation in the United States: State Park Systems. Washington, DC:
Resources for the Future, pp. 5–7.
12 Washington State Parks and Recreation Commission. August 13, 2012. State of State Parks 2012: The Quest
for a Healthy Park System. Olympia, WA, p. 18. Accessed online August 15, 2012 at: http://www.parks.wa.gov/
Beyond2013/0-State%20of%20State%20Parks%20-%20OFM%20report%20FINAL%20%288-13-12%29.pdf.
13 Recreation Resource Management. How Is Your Recreation Fee Used? Accessed online August 8, 2012 at:
http://camprrm.com/how-is-your-recreation-fee-used/.
III-25Parks 2.0: Operating State Parks Through Public-Private Partnerships
Conservation & the Environment: Conservative Values, New Solutions
14 Legislative Analyst’s Office. March 2, 2012. The 2012–13 Budget: Strategies to Maintain California’s Park System.
Sacramento, CA. Accessed online July 16, 2012 at: http://www.lao.ca.gov/analysis/2012/resources/state-
parks-030212.pdf.
15 See n. 6.
16 U.S. Forest Service. October 1997. Campground Concession Desk Guide. Washington, DC: U.S. Department of
Agriculture, p. 1-1. Accessed online June 29, 2011 at: http://www.fs.fed.us/specialuses/concession/index_guide.
htm.
17 Warren Meyer. July 3, 2012. Private Park Operations on the Freakonomics Blog. Accessed online August 7, 2012
at: http://parkprivatization.com/2012/07/private-park-operations-on-the-freakonomics-blog/.
18 Utah Office of the Legislative Auditor General. January 2011. A Performance Audit of Utah State Parks. Report to
the Utah State Legislature Number 2011-03, p. 45.
19 The Wilderness Act of 1964 Public Law 88-577 (16 U.S.C. § 1131–1136). Accessed online August 9, 2012 at:
http://wilderness.nps.gov/document/wildernessAct.pdf.)
20 Louis Sagahun. July 30, 2009. California Seeks Sponsors for State Parks. Los Angeles Times. Accessed online
June 20, 2011 at: http://articles.latimes.com/2009/jul/30/local/me-state-park-cuts30.
21 See n. 5.
22 California State Parks. July 3, 2012. Lawmakers, State Parks and Partners Give 69 of 70 Threatened Parks a
Reprieve (press release). Accessed online August 1, 2012 at: www.parks.ca.gov/pages/712/files/nr_parks_stay_
open_release070312.pdf.
23 Max Taves, “Private Fix for Public Parks,” The Wall Street Journal, June 17, 2012. http://online.wsj.com/article/SB
10001424052702303410404577464724255828622.html
24 Arizona Commission on Privatization and Efficiency. Initial Report to Governor Jan Brewer: FY2011
Recommendations, p. 20. Accessed online July 24, 2012 at: http://azcope.gov/COPE%20Initial%20Report.pdf.
25 Arizona State Parks Foundation. December 2010. Arizona State Park Privatization and Efficiency Plan, p. 6.
26 New Jersey Privatization Task Force. May 2010. Report to Governor Chris Christie, p. 26. Accessed online July
24, 2012 at: http://www.nj.gov/governor/news/reports/pdf/2010709_NJ_Privatization_Task_Force_Final_Report_
(May_2010).pdf.
27 Cited in Leonard Gilroy et al. February 2011. Annual Privatization Report 2010: State Privatization. Los Angeles,
CA: Reason Foundation, p. 22. Accessed online July 24, 2012 at: http://www.reason.org/apr2010.
III-26 Parks 2.0: Operating State Parks Through Public-Private Partnerships
Conservation & the Environment: Conservative Values, New Solutions
About the Authors
Leonard Gilroy is the director of government reform at Reason Foundation (reason.org), a nonprofit think
tank advancing free minds and free markets. Gilroy researches privatization, government reform, fiscal,
transportation, infrastructure and urban policy issues. Gilroy has a diversified background in policy
research and implementation, with particular emphases on public-private partnerships, competition,
government efficiency, transparency, accountability, and government performance.
Gilroy has worked closely with legislators and elected officials in Texas, Arizona, Louisiana, New Jersey,
Utah, Virginia, and numerous other states and local governments to help design and implement market-
based policy approaches. In 2010 and 2011, Gilroy served as a gubernatorial appointee to the Arizona
Commission on Privatization and Efficiency, and in 2010 he served as an advisor to the New Jersey
Privatization Task Force, created by Gov. Chris Christie. Gilroy also edits Reason Foundation’s Annual
Privatization Report (www.reason.org/apr), which examines trends and chronicles the experiences of
local, state, and federal governments in bringing competition to public services.
Gilroy earned a BA and an MA in Urban and Regional Planning from Virginia Tech.
Harris Kenny is a policy analyst specializing in government reform at Reason Foundation, a nonprofit think
tank advancing free minds and free markets. He helps policy makers in states and municipalities across
the United States implement market-based policy reform to improve outcomes, increase transparency
and promote competition.
Harris also conducts research on privatization, public-private partnerships, public finance, transportation,
infrastructure, corrections and education policy issues. He contributes to the production of several Reason
Foundation publications, serving as an editor of the Annual Privatization Report (www.reason.org/apr).
Harris graduated from Pepperdine University with a BA in Economics.
Julian Morris is vice president of research at Reason Foundation, a nonprofit think tank advancing free
minds and free markets. Julian graduated from the University of Edinburgh with a master’s degree in
economics. Graduate studies at University College London, Cambridge University and the University of
Westminster resulted in two further master’s degrees and a Graduate Diploma in Law (equivalent to the
academic component of a JD).
Julian is the author of dozens of scholarly articles on issues ranging from the morality of free trade to
the regulation of the Internet, although his academic research has focused primarily on the relationship
between institutions, economic development and environmental protection. He has also edited several
books and co-edited, with Indur Goklany, the Electronic Journal of Sustainable Development.
Julian is also a visiting professor in the Department of International Studies at the University of
Buckingham (UK). Before joining Reason, he was executive director of International Policy Network (www.
policynetwork.net), a London-based think tank, which he co-founded. Before that, he ran the environment
and technology programme at the Institute of Economic Affairs, also in London.
IV-1Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
IV. Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Stephanie Gripne | University of ColoradoDan Last | AtSite
The United States can move toward a goal of energy
security through a combination of energy efficiency
and renewable energy strategies. While both energy
efficiency and renewable energy strategies are
essential in order to enhance energy security, energy
efficiency strategies remain the fastest, cleanest, and
lowest-cost way to reduce the nation’s demand for
energy, including fossil fuels. Since buildings consume
approximately 40% of all energy in the country—more
than any other sector including transportation—
retrofitting the built environment and making buildings
more energy efficient are essential parts of the
solution. A 2009 McKinsey Report (Granade et al.
2009) estimates that a U.S. investment of $520 billion
in energy efficiency building retrofits would result in
savings of $1.2 trillion by 2020. Additionally, such an
investment would reduce energy consumption by
23%. In order to achieve these goals, new sources
of capital need to be identified, and property rights
issues such as split incentives, where the investor of
the capital does not receive the financial benefits of the
investment, must be resolved.
The following paper focuses on new sources of capital
for building retrofits, specifically program related
investments. We outline the problems that arise from
dependency on importing fossil fuels; explain the
mechanics of retrofits; and explore how a specific
impact investing tool—program related investments—
can be used to finance building improvements and
retrofits. Ultimately, retrofitting the built environment
through energy efficiency projects improves national
security, creates American jobs, reduces energy bills,
lowers emissions, decreases infrastructure costs, and
improves air quality.
IV-2 Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
The Challenges
Fossil Fuel DependencyThe United States is the second-largest consumer
of energy in the world after China. According to the
World Bank (World Bank 2012), the average U.S. citizen
consumes four times more oil than the average citizen
globally (Table 1). The nation imports over $300 billion
of oil annually.1 Over 70% of U.S. energy usage is from
nonrenewable fossil fuels.
Energy and National DefenseAs an institution, the U.S. Department of Defense is
one of the largest consumers of energy in the world. In
2011, the U.S. Department of Defense energy bill was
$21 billion (Table 2).
In an effort to increase “combat effectiveness”
and “operational efficiency,” the U.S. Department
of Defense is actively working to increase energy
efficiency and source alternative fuels. It recently
released the report, “Energy for the Warfighter,” (DOD
2011) that outlines a strategy to dramatically reduce
energy consumption and expand the use of alternative
energy sources such as solar-generated electricity
and biofuels. Therefore, while the U.S. Department of
Defense is the largest consumer of energy, it is also
leading the way toward developing energy-efficient
and renewable energy strategies.
Table 1 U.S. Energy Consumption from 2004–2010
Population Millions Consumption TWh Production TWh Imports TWh Electricity TWh CO2 Emissions Mt
2004 294 27,050 19,085 8,310 3,921 5,800
2007 302.1 27,214 19,366 8,303 4,113 5,769
2008 304.5 26,560 19,841 7,379 4,156 5,596
2009 307.5 25,155 19,613 6,501 3,962 5,195
2010 309.3 28,714 22,063 6,334
Change 2004–2009 4.60% -7.00% 2.80% -21.80% 1.00% -10.40%
Mtoe (Mega-ton of oil equivalent) = 11.63 TWh (Tera Watt-hour).
Mt (Measurement tonne).
Source: U.S. Energy Information Administration. Annual Energy Review 2010. Released October 2011.
Table 2 Military by the Numbers
Defense Department’s 2011 energy bill $21 billion
Full cost of delivering a gallon of fuel to troops in Afghanistan $15–$40
Gallons of fuel per year used by the U.S. military 5 billion
Gallons of fuel burned per day in Afghanistan by the U.S. military 1.8 million
Convoys in Afghanistan delivering fuel or water 70%
Source: http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_a.htm
IV-3Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
Energy and JobsThe U.S. economy has been struggling, and the jobless
rate has remained above 8% during most of the past
three years, the longest such period with greater than
8% unemployment since the Great Depression.2 Jobs
in energy efficiency are not likely to solve the U.S.
employment problems. However, they will be able to
put a significant number of Americans back to work.
A 2009 report (Granade et al. 2009) concludes that
a $520 billion investment would yield up to 900,000
ongoing jobs through energy efficiency retrofits. More
recently, a 2012 study (Fulton, Baker, and Brandenburg
2012) reports that a $279 billion investment would
yield approximately 3.3 million cumulative job years.
These jobs would be associated with the physical
deployment of energy-efficient retrofits in the form of
construction, trade professionals, and managers, with
an average salary of $36,000–$41,000 (Granade et al.
2009). Furthermore, since most of these jobs are local
and cannot be outsourced abroad, they would serve as
a multiplier effect for the economy (Fulton, Baker, and
Brandenburg 2012). Hence, energy efficiency jobs will
provide quality jobs for Americans and would solve an
important piece of the jobs puzzle.
Energy and the EnvironmentIn addition to improving American national security
and employment, energy efficiency projects could also
improve the environment. The predominantly accepted
understanding by scientists of the contribution of
fossil fuels to climate change has been reported and
dissected at length.3 There is a near consensus among
scientists that burning fossil fuels releases carbon
dioxide into the atmosphere, which acts as a seal
that keeps heat in the Earth’s atmosphere. Scientists
have documented a 25% increase in the amount of
carbon dioxide in the atmosphere since 1850. The
increased heat in the Earth’s atmosphere has led to the
average temperature of the Earth’s surface increasing
by 0.5–1.1 degrees Fahrenheit over that time, though
actual temperature trends vary by region, season, time
of day, and other factors. Expected future increases
in carbon dioxide levels will result in melted glaciers,
rising sea levels, and more extreme weather events
such as droughts and hurricanes.4 Reducing the U.S.
carbon emissions through energy efficiency projects
would help slow down these predicted effects on the
environment.
Energy and the Environment—BuildingsBuildings, more than any other sector, contribute
significantly to these environmental impacts. Buildings
consume 40% of American primary energy, including
72% of its electricity and 36% of natural gas (DOE
2007). Retrofitting buildings has the potential to cut
energy use, electricity use, carbon dioxide emissions,
waste, and water usage almost by half in all cases
(Table 3). Hence, retrofitting buildings has been
increasingly accepted as one of the most effective and
efficient financial solutions for reducing dependency
on fossil fuels and emissions (Eichholtz, Kok, and
Quigley 2009, p. 2).
Table 3 Impacts of U.S. Buildings on the Environment and Potential Savings Retrofits Could Generate
Type of Use Impacts on Resources (%) Estimated Impacts on Resources After Reduction Potential Received (%)
Energy 40 20
Electricity 72 35
U.S. CO2 Emissions 39 23
U.S. Waste 30 21
U.S. Water 14 5
U.S. Green Building Council http://www.treehugger.com/sustainable-product-design/us-buildings-account-for-40-of-energy-and-materials-use.html
IV-4 Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
Energy and Public Opinion and InvestmentBoth the public and private sectors are expected to
spend trillions of dollars to mitigate the effects of
burning fossil fuels in order to reduce the effects of
global warming, improve air quality, and avoid oil spills
(Drummer 2011; see Table 4). Given that an expected
private and public multi-trillion dollar mitigation
investment is likely despite mixed public opinion
regarding climate change, energy efficiency projects
will likely be the first choice of investment because
these projects provide the lowest-cost, fastest, and
cleanest form of shifts in energy usage.
The Solution
Energy Efficiency and Retrofit EconomicsWhile energy efficiency and renewable energy
strategies are both key to solving America’s energy
problem, energy efficiency remains the cleanest,
lowest-cost, and fastest way to reduce our
dependence on fossil fuels. For example, energy
efficiency equates to a cost of $50 per MWH saved,
whereas the levelized cost of capital for wind, natural
gas, coal, and nuclear energy ranges from $57 to $364
per megawatt hour5 (Arimura, Newell, and Palmer
2009; EIA 2012). Additionally, energy efficiency projects
have the advantage over fossil fuels in that they are not
subject to fuel price risk or carbon mitigation risk, and
also provide a hedge against market price volatility.
Energy Efficiency Economics— Building RetrofitsTwo Models for Retrofits
Energy efficiency retrofits to buildings are particularly
important because they achieve a variety of benefits
without adding additional infrastructure that may not
be able to be supported in the future. The benefits
include lower energy bills for building occupants and
owners, decreased emissions and reliance on fossil
fuel sources, and increased comfort, and greater
productivity for building occupants due to improved
indoor environmental quality.
There are two primary business models used in
retrofits of buildings. The most well known is the paid-
from-savings model, where lenders are paid back
from the savings generated from a renovation project
(Figure 1). For example, a lender or investor provides
funds for building owners to upgrade their hot water
heater to a more efficient model. The savings that the
building owners/operators experience are initially split,
with a portion going to pay back the lender and the
rest staying with the owners/operators. Once the loan
is paid back, the owners/operators are able to reap
the full financial benefits of their projects for the life
of the equipment. This model is particularly attractive
for those owners who do not have the upfront
investment capital to self-fund the retrofit. Many
types of companies have embraced the paid-from-
savings model as an important cornerstone of their
Table 4 Gallup Poll Climate Change Opinions (2007–2008) by the Top 5 Emitting Countries
Country Awareness of Climate ChangePercentage who say result
of human activitiesPercent who perceived it as
a serious personal threat
Japan 99% 91% 80%
United States 97% 49% 63%
Russia 85% 52% 39%
China 62% 58% 21%
India 35% 53% 29%
Source: http://www.gallup.com/poll/147242/worldwide-blame-climate-change-falls-humans.aspx#1
IV-5Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
business, most notably Energy Service Companies
commonly referred to as ESCOs. Among the largest of
these companies are firms such as Johnson Controls
International, Siemens, and Honeywell.
A second model for retrofits is the consulting model
that works much like other types of consulting. A
building owner/operator will contract with a consultant
to identify areas for energy savings. The consulting firm
often begins by looking for easy-to-implement, low or
no cost opportunities to save energy such as schedule
changes and temperature set point adjustments. The
savings generated from these operational changes
build up over time, and the building owner/operator
is then able to invest the savings into additional
capital improvements that can accelerate the rate of
savings. Because these investments are made from
the savings generated from the initial operational
changes, this model can be thought of as similar
to the paid-from-savings model, except that in the
paid-from-savings model, large projects are typically
invested in upfront, while in the consulting model the
large, more costly projects usually come later. There
typically is some degree of consulting in paid-from-
savings engagements. However, because those
consulting contracts are usually fixed amounts that do
not fluctuate with the degree of savings that an owner/
operator experiences, if a particular project does yield
the amount of savings anticipated, an owner/operator
may find itself paying more than it is saving. For this
reason, it is important for all parties involved, including
lenders, owner/operators, and companies, to engage
in rigorous due diligence in advance of any money
being distributed or contracts being signed.
Financing Energy Efficiency
Buildings and Retrofits Source of CapitalBoth retrofit models require sources of investment
capital. Hence, one of the key issues for successfully
completing $520 billion of U.S. retrofits is developing
sources of investment capital that result in the
development of projects that provide competitive,
risk-adjusted returns. In many instances, energy
efficiency retrofits do not successfully compete for
financing because they require upfront investment, and
the larger projects generate relatively lower financial
returns over longer time horizons than conventional
investments. In other words, these projects rely on
patient or long-term capital investments, which have
either longer time horizons and/or lower returns.
Program Related Investments (PRIs)One potential tool for increasing investment for energy
efficiency projects is program related investments
(PRIs), a promising growth area within the field of
impact investing and venture philanthropy. Program
related investments are investments made by private
foundations to support charitable activities that involve
the potential return of capital within an established
time frame. Both impact investing and venture
philanthropy have existed for centuries. However, the
field has dramatically grown in recent years in both the
United States and Europe. Impact investing describes
a strategy that seeks to maximize financial and social
and/or environmental returns. Assets in socially
screened portfolios climbed to $2.71 trillion in 2007,
an increase from $0.55 trillion in 2003. Approximately
one out of every nine dollars under professional Years
0–4 0–8 0–20+
Ene
rgy
Exp
ense
s
Energy BillBefore Retrofit
Energy BillAfter
Retrofit
Investment Return
Savings to Customer
Energy BillAfter
Retrofit
100%
95%
70%
0%
Figure 1 Building Retrofit Paid-From-Savings Model
IV-6 Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
management in the United States is involved in impact
investing. Impact investing is growing and is expected
to continue to increase (US SIF 2007; Porter and
Kramer 2011). Venture philanthropy refers to a strategy
of using charitable contributions that seek to maximize
public-benefit impact per unit cost. PRIs can be
used as loans, loan guarantees, linked deposits, and
even equity investments in charitable organizations
or in commercial ventures for charitable purposes
(Falkenstein 2010). While PRIs have been utilized since
the late 1960s, the number of foundations that utilize
this tool remains relatively low.
How PRIs Benefit the BorrowerFor the recipient, the primary benefit of PRIs is access
to capital not typically available to the organization,
and which may be offered at lower rates and
potentially longer time frames than may otherwise be
available. Take the example of a nonprofit that wants to
retrofit its historic building (Figure 2). Assume that the
retrofits cost $5 million and are projected to generate
annual energy savings on the order of $500,000.
Assume further that the nonprofit qualifies for a
7% line of credit. If the nonprofit were to amortize the
credit over 15 years, the investment would be cash
flow negative: the required loan payments ($549,000
p.a.) would be greater than the projected savings.
If, however, the nonprofit were able to finance the
retrofits by means of a PRI loan at an interest rate of
3.00%, its annual debt service requirement would be
reduced to just under $419,000, a cumulative savings
of $2.0 million compared to the conventional financing
otherwise available, the investment would be cash flow
positive, and the nonprofit would generate net savings
of $1.2 million over the fifteen year period. This, in
$3,500,0000
$3,000,0000
$2,500,0000
$2,000,0000
$1,500,0000
$1,000,0000
$500,0000
0
Inte
rest
Pay
men
ts
Years
1 2 3 4 5 6 7 8 9 10
Cumulative Interest PRI Loan
Cumulative Interest Existing Loan
$5M loan at 7% and 4% PRI
Total Nonprofit Savings = $2.3M
Figure 2 Nonprofit’s Savings on a $5M Retrofit Assuming a 3.00% PRI Loan vs. a 7.00% Conventional Loan
How a Nonprofit Benefits Conventional vs. PRI Loan: Interest Payments
IV-7Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
addition to all of the other social benefits associated
with energy conservation.
How PRIs Benefit the Investor/LenderFor the private foundation lender, the principal benefit
is that the repayment, or return of capital, meets the
charitable 5% distribution requirements and can be
recycled for another charitable purpose. In the current
market climate, PRIs offer advantages for funders
seeking alternatives to preserve foundation assets
and for beneficiaries who may be abnormally capital
constrained (Falkenstein 2010).
For example, consider a private foundation with a
mission of capital infrastructure improvements or
energy benefits with $500 million of assets. Assume
that the foundation distributes 5% of its corpus
annually in the form of grants (4.25%) and operating
expenses (0.75%) and invests the remaining 95% of its
corpus at an average annual return of 5.2%. At the end
of twenty years, the foundation will have distributed
approximately $423 million in grants and have a
remaining corpus of $494 million.
Alternatively, assume that the foundation annually
invests 1% of the 5% charitable distribution
requirement in PRIs and allocates the remaining
4% to grants (3.25%) and operating expenses (0.75%).
Assume further that the PRIs generate a 3% annual
return, amortize over 15 years and experience a
1.5% annual default rate. At the end of twenty years,
the foundation will have made distributions totaling
$504 million gross—$326 million in grants and $178
million in PRIs—or $420 million net of $84 million in
PRI repayments. The foundation will have also grown
its corpus to $528 million ($600 million including the
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
Hun
dre
ds
of
Mill
ions
Years
1 2 3 4 5 6 7 8 9 19181716151413121110 20
Cumulative Direct Grants
Corpus
$500M Foundation Over 20 Years
Figure 3 Traditional Investment and Grant Distribution Strategy for a Private Foundation (assuming a 5% distribution requirement and 5.2% return on the corpus)
How a Foundation Benefits Foundation Strategy No PRI Strategy
IV-8 Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
$72 million in then-outstanding PRIs, net of loan loss
provisions). (Figure 4).
A comparison of both strategies demonstrates how the
PRI, grant-making, and investment strategy will grow
the corpus compared to the traditional investment and
grant-making strategy (Figure 5). While the PRI strategy
will not produce as many grants in the short term, this
strategy will continue providing financial support in the
form of below-market rate debt and equity.
Program Related Investments: Barriers to Entry and Transaction CostsIf PRIs are such a useful tool and have been in
existence since 1969, then why are fewer than 400
foundations using this tool? The National PRI/MRI
Research Project (sustainablefinance.net) is going to
explore this topic in great detail as we interview several
hundred foundations to understand the supply side of
capital and their willingness to invest in public benefit
infrastructure and real estate during 2013–14. However,
initial pilot interviews suggest several issues are
responsible for the underutilization of the tool, related
to (1) market education, (2) barriers to entry,
(3) lack of expertise, (4) lack of available deal flow,
(5) risk of charitable status, and (6) diversification risk.
First, despite the fact that the tool is over 40 years
old, most foundation staff is still unaware of the tool.
Next, while some foundations may be aware of the
tool, most of the foundations that use the tool either
have part-time or full-time staff responsible for the
Years
1 2 3 4 5 6 7 8 9 19181716151413121110 20
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
Hun
dre
ds
of
Mill
ions
$500M Foundation Over 20 Years
PRI Corpus
Cumulative Direct Grants
Cumulative PRIs – Net
Investment Corpus
Figure 4 A 1% Return PRI Strategy Where a Private Foundation Invests 1% into PRIs, 4% into Grants and Operating Expenses (assuming a 5.2% return on the corpus and a 3% return for the PRIs)
How a Foundation Benefits Foundation Strategy with PRI Strategy
IV-9Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
program related investment or have someone on the
board or staff with a strong financial background
and passion for the program side of the foundation.
Foundations that do not have the combination of
the expertise and program interest for both financial
underwriting and program achievement are less
likely to invest in the strategy. Even though private
foundations have financial expertise either in-house
or outsourced, this is often on the investment corpus
side of the foundation and in many instances the
program staff and the investment corpus staff
have very little interaction. Even if there were an
awareness, willingness, and available expertise
to make a transaction, several foundations have
expressed concerns about the lack of deal flow or
transactions that are investment ready. Additionally,
some experts have expressed concern that many
foundations may fear violating the IRS Regulations as
currently published under Section 4944. In response
to this concern, the IRS published a “Notice of
Proposed Rulemaking Examples of Program Related
Investments.” (IRS 2012). The proposed regulations
would add nine new examples of investments that
qualify as program related investments to the ten
examples in the present regulations, which were
published in 1972. The proposed examples clarify
program related investments:
• May be made in the United States or abroad
• May further a variety of charitable purposes,
No PRI Strategy PRI Strategy
$423MGrants
$494MCorpus
$325MGrants
$145MPRIs
$39MPRI Corpus
$529MCorpus
Figure 5 Comparison of a Traditional Investment and Grant-Making Strategy vs. a PRI, Grant-Making, and Investment Strategy*
How a Foundation Benefits Foundation Strategy No PRI vs PRI—5.2% Return Corpus
Assumptions
5.20% Corpus Return | 0.75% Overhead | 1.00% PRIs @ 3% Return/10 Year Balloon | 1.5% Default Rate
*Where the traditional investment and grant-distribution strategy for a private foundation assumes a 5% distribution requirement and 5.2% return on the corpus; and PRI, grant-making, and investment strategy assumes a 1% return PRI strategy, where a private foundation invests 1% into PRIs, 4% into grants and operating expenses and assumes a 5.2% return on the corpus and a 3% return for the PRI.
IV-10 Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
including preserving the environment, advancing
education and scientific research, promoting the
arts, and relieving the poor and distressed
• May involve additional financing structures, such as
credit enhancement arrangements
Finally, the last reported concern from pilot interviews
for the National PRI / MRI Research Project indicated
that some private foundations are concerned with risk
diversification and would be concerned in allocating
too many of their resources to one transaction.
Revolving Loan FundsRevolving loan funds offer a solution to many of the
barriers to entry and high transaction costs associated
with PRIs. Additionally, revolving loan funds are
becoming more commonplace as a way to self-fund
projects such as energy efficiency. For example, the
Sustainable Endowment Institute, a special project of
the Rockefeller Philanthropy Advisors, has launched
the Billion Dollar Green Challenge,6 with the intent
on being the catalyst and technical advisor to launch
a billion dollars of green revolving loan funds within
education and nonprofit institutions. Either internal or
external revolving loan funds offer a relatively low-cost
and flexible way to fund energy efficiency projects. The
following Billion Dollar Green Challenge Case Study
of the Harvard Green Loan Fund illustrates how these
revolving loan funds function.
Case Study
Harvard Green Loan Fund (GLF)
The Green Loan Fund (GLF) at Harvard University
has been an active source of capital for energy
efficiency and waste reduction projects for almost
a decade. The green revolving fund has been a
successful self-replenishing tool for encouraging
Harvard’s schools and units to invest in projects that
generate cost savings and reduce their environmental
impacts. Originally funded by the President’s Office
at $1.5 million, the now $12 million revolving loan fund
provides capital to Harvard for high-performance
campus design, operations, and maintenance projects.
The fund’s low-interest loans have successfully
financed projects that save the university electricity,
natural gas, water, and waste disposal fees, along with
other operating costs.
Challenges faced by the fund’s administrators have
included promoting the fund across a decentralized
campus, soliciting project proposals, and ensuring
that projects are successfully implemented and
documented. Despite these challenges, the fund has
experienced average annual returns of 30%, saved the
university $4.8 million dollars annually, and reduced
Harvard’s environmental footprint.
Year created: 2001
Size: $12,000,000
Source: Offices of the President and Provost
Average payback period: Approximately 3
years
Administrator: Office for Sustainability
Average return on investment: 29.9%
Total savings: Over $4.8 million annual
savings
Location: Cambridge, MA
Full-time student enrollment: 19,207
Combined gross square footage of all
buildings on campus: 26,500,000
Endowment: $26 billion as of June 30, 2009
Type: Private
IV-11Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
Managing the Fund
The GLF was initially administered by the Harvard
Green Campus Initiative (HGCI) and a Green Loan
Fund Review Committee facilities staff. Administrators
made project-approval decisions. Currently, the review
committee resides within the Office for Sustainability
and is co-chaired by its director. The committee
is made up of stakeholders from across campus,
including staff involved with new construction, existing
projects, renovations, consulting, energy auditing, and
commissioning, as well as financial staff. A majority
of Harvard’s schools and central administrative
departments are represented on the committee. This
committee composition not only allows proposed
projects to be scrutinized from multiple and diverse
viewpoints, it also helps spread knowledge of the
fund’s existence to many departments across campus.
Applicants are encouraged to contact the Office for
Sustainability (OFS) staff before submitting proposals,
both to benefit from the range of support services
and to align the project direction with the GLF criteria.
The ability of designated OFS staff to advocate for the
loan fund and solicit proposals, as well as to consult
and provide feedback on potential projects, is a crucial
component of the program’s effectiveness.
Approving Project Proposals
After submitting a proposal, the project applicant
presents to the committee and answers questions
about the proposal; the project can then be modified
to address the committee’s feedback and concerns.
Primary considerations for potential proposals are the
projected cost savings and how the applicant intends
to quantify and verify the results. The committee
requests that a report be prepared on the project’s
performance and savings six months after completing
implementation. Sometimes temporary metering
of energy and resource use is used to augment the
verification process. Applications are then sent to the
Director of Administration and Finance and the Vice
President of Campus Services, both within Harvard
University Campus Services, for final approval. Once
a loan is approved, a department moves forward
with the project and sends invoices to the Office for
Sustainability, where it then receives the loan in the
form of an internal fund transfer to reimburse the actual
cost of the project based on the invoiced amount. The
department begins repaying the loan at the start of the
fiscal year following project completion and according
to a payback schedule determined by the cost of the
project and annual cost savings. The loan fund will only
reimburse projects that are successfully completed.
Types of Loans
Currently, the GLF provides either full-cost loans
with a simple payback period of five years or less,
or incremental loans with an internal rate of return of
9% or higher. The incremental loans are often used
for high-performing, new construction projects. Both
types of loans are limited to $500,000. Applicants are
also required to apply for utility rebates when they are
available. When utility rebates are approved, they are
required either to be deducted from the loan amount
or used to fund other conservation projects. There
are several other finance payback options available in
addition to the five-year full cost- and incremental-cost
loans. Renewable energy projects qualify for GLF loans
regardless of the entire project’s payback period, but
the loan itself must be repaid within five years. Utility
sub-metering and engineering services also qualify
for GLF loans, and must be repaid within two years.
Additionally, projects may be “bundled” as long as the
average payback period is five years, allowing very low
payback projects to be leveraged for funding those
with longer paybacks.
Loan Criteria
An approved project must result in a direct reduction of
costs and environmental impact for the university with
a simple payback period of five years or less, based
on cost savings. Thus, the GLF allows departments to
improve their environmental and financial performance
without any up-front capital costs. The loan application
requires an engineering study or other form of
documentation demonstrating the case behind the
projected cost and resource savings. While the goal
IV-12 Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
of the GLF is to provide funding for a broad array of
projects within a dynamic field, eligible projects
often target:
• Greenhouse gas emissions
• Energy use
• Waste disposal
• Water use
• Pollutants
• Maintenance costs
• Procurement practices
• Community education and behavior, and
• Installation of renewable energy technology.
As loans are repaid, the fund is replenished; however,
the total fund size only grows through specific
additions of capital, such as from the President’s office
through the Central Administrative budget. While the
GLF itself has not sought new seed capital since 2006,
the ability of loan applicants to find additional funding
through grants, rebates, or even applying their own
operating budgets, has enabled the GLF to expand its
reach. The GLF has no limit on the number of loans a
department may take out, and the funding is available
on a first-come, first-served basis.
Over 60 colleges and universities have developed such
revolving loan funds and the concept is spreading to
hospitals, nonprofit organizations, and municipalities.
Community Investment Corporation
BackgroundThe Community Investment Corporation (CIC) is a
not-for-profit mortgage lender that provides financing
to buy and rehab multi-family apartment buildings
with five units or more in the six-county metropolitan
Chicago area. CIC’s loan pool of $563 million comes
from 47 different investors, and since 1984 CIC has
provided $1 billion in loans. CIC offers a number of
different loan programs, including some that utilize
program related investments. CIC’s primary program
using this investment tool is its Energy Savers
Program.
Overview of Energy Savers ProgramThe largest funder of CIC’s Program Related
Investment (PRI) program is Bank of America, which
provides $8 million for CIC’s Energy Savers Program.
Additional funding comes from the Catherine T.
McArthur Foundation, which has given $6 million to
the program. The Energy Savers Program provides
loans to building owners to implement capital
improvement within their buildings that will lower
energy use, thereby saving the owners and tenants
money. The program offers seven-year fixed loans
for mortgages, which generally go to private owners
of small multi-family buildings, since these buildings
typically fall outside the threshold for government loan
programs. According to CIC, 80% of rental housing
in the United States are in buildings of 5 to 49 units.
The majority of government programs currently are
directed at buildings with 100+ units. CIC’s Energy
Savers Program therefore targets buildings for which
government loans would not be available.
Energy Savers Program SpecificsA typical Energy Savers loan would begin with an
energy audit to determine what improvements are
needed at the property and the paybacks such
projects would yield. For projects that meet CIC’s
threshold, loans are provided. CIC monitors projects
for five years to verify that they are meeting their
projected savings. Since 2008 CIC has closed 57
Energy Savers loans totaling $4.6 million. An additional
$3.1 million for 13 loans are in progress but have yet to
close. The default rate for these loans is extremely low.
Of the 57 existing Energy Savers loans, only three are
currently delinquent. Loans are secured via a second
mortgage, and all borrowers must have reasonable
credit. CIC will loan up to 90% of the appraised value
of the building.
IV-13Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
Conclusion
Since buildings are responsible for 40% of energy
consumption and greenhouse gas emissions,
retrofitting the built environment to make it more
energy efficient is widely recognized as one of the
most cost-effective strategies for reducing energy
consumption and greenhouse gas emissions.
Investment capital for the development of retrofit
projects is lacking, as many energy-efficient retrofits
do not successfully compete for financing. Program
related investments could provide critical financing
for retrofitting the built environment, as they represent
an investment pool for charitable purpose-driven
capital projects that generate relatively lower financial
returns over longer time horizons than conventional
investments. Program related investments can be used
to leverage additional market rate mission-related
investment of institutional capital from foundation and
university endowments or pension funds to attract an
even greater amount of capital. Another option is to
use program related investments to establish external
revolving loan funds for organizations that lack the
technical capital or will to establish internal revolving
loan funds. Finally, program related investments
that allow for lower interest rates and/or longer time
horizons can help fund more substantial deep retrofits
and/or support organizations that otherwise do not
have access to the capital.
Notes1 http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_a.htm.
2 http://articles.chicagotribune.com/2012-09-04/business/sns-rt-us-usa-economybre88314j-20120904_1_
unemployment-rate-jobs-growth-healthy-employment-growth.
3 http://www.ucsusa.org/clean_energy/our-energy-choices/coal-and-other-fossil-fuels/the-hidden-cost-of-fossil.html.
4 http://www.ucsusa.org/clean_energy/our-energy-choices/coal-and-other-fossil-fuels/the-hidden-cost-of-fossil.html.
5 http://blog.cleanenergy.org/files/2009/04/lazard2009_levelizedcostofenergy.pdf.
6 The Billion Dollar Green Challenge (http://greenbillion.org) encourages colleges, universities, and other nonprofit
institutions to invest a combined total of one billion dollars in self-managed green revolving funds that finance energy
efficiency improvements.
References
Arimura, T. H., R. G. Newell, and K. Palmer. 2009. Cost-Effectiveness of Electricity Energy Efficiency Programs.
Discussion Papers dp-09-48. Resources for the Future.
[DOD] U.S. Department of Defense. 2011 Energy for the Warfighter. Nov 22 http://energy.defense.gov/OES_report_to_
congress.pdf
[DOE] U.S. Department of Energy. 2007. Buildings Energy Data Book. Accessible at: http://buildingsdatabook.eren.
doe.gov/.
IV-14 Using Venture Philanthropy Tools, Program Related Investments, to Fund Building Retrofits
Conservation & the Environment: Conservative Values, New Solutions
About the Authors
Stephanie L. Gripne, PhD. Research Fellow, Department of Business Ethics and Legal Studies, Daniels
College of Business, University of Denver, Colorado.
Dan Last, MBA, MEd. Senior Manager, Education Practice at AtSite, Washington, DC.
Drummer, R. 2011. Fund Invests $650M in Emerging Market for Green Retrofits of Aging Buildings. Accessed
online January 24, 2012 at: http://www.costar.com/News/Article/Fund-Invests-$650M-In-Emerging-Market-
for-Green-Retrofits-of-Aging-Buildings/132198.
[EIA] U.S. Energy Information Administration. 2009. Annual Energy Review 2009.
[EIA] U.S. Energy Information Administration. October 2011. Annual Energy Review 2010.
[EIA] U.S. Energy Information Administration. 2012. Levelized Cost of New Generation Resources. Annual Energy
Outlook 2011. Released January 23, 2012.
Eichholtz, P., N. Kok, and J. Quigley. (2009). Doing Well by Doing Good: An Analysis of the Financial Performance
of Green Office Buildings in the USA. London: Royal Institution of Chartered Surveyors (RICS).
Falkenstein, Jacobs. 2010. The PRI Directory. Foundation Center.
Friedrich, Eldridge, York, Witte, Kushler. 2009. Saving Energy Cost-Effectively. American Council for an Energy-
Efficient Economy.
Fulton, M., J. Baker, and M. Brandenburg. March 2012. United States Building Energy Efficiency Retrofits: Market
Sizing and Financing Models. Deutsche Bank Climate Change Advisors and The Rockefeller Foundation.
Accessible at: http://www.rockefellerfoundation.org/uploads/files/791d15ac-90e1-4998-8932-5379bcd654c9-
building.pdf.
Granade, H. C., J. Creyts, A. Derkach, P. Farese, S. Nyquist, and K. Ostrowski. 2009. Unlocking Energy
Efficiency in the U.S. Economy. McKinsey & Company. Accessible at: www.mckinsey.com/clientservice/
electricpowernaturalgas/downloads/US_energy_efficiency_full_report.pdf.
[IRS] Internal Revenue Bulletin: 2012-21. May 21, 2012. REG-144267-11: Notice of Proposed Rulemaking Examples
of Program-Related Investments.
Porter, M. E., and M. R. Kramer. 2011. The Big Idea: Creating Shared Value. Harvard Business Review. January–
February.
US SIF (Social Investment Forum). 2007. Report on Socially Responsible Investing Trends in the United States.
US SIF: The Forum for Sustainable and Responsible Investment.
World Bank. 2012. International Energy Agency: Energy use (kg of oil equivalent per capita). Nov. 24, 2012.
<www.iea.org/stats/index.asp>.
V-1The Tortoise Can Win the Race for Candidate Species Conservation
Conservation & the Environment: Conservative Values, New Solutions
V. The Tortoise Can Win the Race for Candidate Species Conservation
Laura HugginsPERC
In June of 2012, the world mourned the loss of the
giant tortoise, Lonesome George. The 100-year-old
tortoise lived in the Galapagos and was believed to
be the last of his sub-species. George served as an
ambassador for endangered species—especially in
Ecuador where many groups are working to restore not
only tortoise populations throughout the archipelago
but also to improve the status of other rare species.
George’s death made the headlines because it was
one of the few times people actually watched an
extinction take place. New York Times columnist Carl
Hulse wrote that this sentiment was expressed at the
shops and restaurants along Charles Darwin Avenue in
the Galapagos: “We have witnessed extinction,” said a
blackboard in front of one business. “Hopefully we will
learn from it” (Hulse 2012).
There is much to be learned from Lonesome George.
Perhaps the most critical lesson is if we really want to
help ensure a species survival than we should engage
in conservation activities prior to a species becoming
endangered. Acting late is risky and expensive; but
individuals respond to incentives and require a carrot
or a stick to act early to conserve species.
The federal framework for species conservation in the
United States—the Endangered Species Act (ESA)—is
often characterized as a reactive tool. This regulatory
stick triggers costly conservation requirements after a
species is critically imperiled (Lueck and Michael 2003,
Stokestad 2005). A system of positive incentives for
environmental stewardship upstream of listing under
the ESA could enhance the nation’s framework for
species conservation by motivating proactive species
management and removing perverse incentives for
landowners.
V-2 The Tortoise Can Win the Race for Candidate Species Conservation
Conservation & the Environment: Conservative Values, New Solutions
This type of system could also help avoid legal battles
that drain already strained resources from programs
intended to help vulnerable flora and fauna, enhance
regulatory predictability for major land users such as
energy developers and the military, and provide new
sources of revenue for landowners who choose to
manage their lands to enhance the survival of species.
The need for such an approach is underscored by a
recent court settlement requiring the United States
Fish and Wildlife Service (USFWS) to make a final
determination on ESA status for more than 250
candidate species by September 2016 (WildEarth
Guardians v. Salazar 2011).
Consider species such as the gopher tortoise, the
greater sage grouse, and the lesser prairie chicken.
These animals are considered by the USFWS to
be biologically imperiled to the point of needing
ESA protections. In at least parts of their ranges,
however, the USFWS is precluded from listing these
species under the ESA due to higher priority actions
and agency funding constraints. Until resources are
available to initiate a formal listing, these species
wait on the “Candidate” list (see the text box “What
Is a Candidate Species”). Waiting on this list equates
to regulatory limbo—the species are biologically
threatened or endangered, but receive no federal
protection.
Several nonprofit groups such as World Resources
Institute, and Advanced Conservation Strategies
are developing innovative programs that strive to
provide a system of positive incentives for candidate
species conservation. The incentive-based
approach to pre-listing conservation is commonly
referred to as “advance mitigation” or “candidate
conservation banking.” By aligning the interests of
project developers, private landowners, conservation
advocates, and the USFWS, this approach can
complement and improve the performance of existing
ESA programs by mobilizing actions that achieve net
conservation benefits for at-risk species before they
are listed.
Under this model, private landowners who conserve,
manage, or restore candidate species habitat on their
properties can receive “credits” (a unit of trade that
places monetary value on conservation measures)
that they can sell in the marketplace. Buyers in
that marketplace would include project developers
that expect to impact these species after listing.
Developers would purchase credits as mitigation for
future impacts. In exchange for alleviating potential
impacts, developers would receive a level of regulatory
predictability from the USFWS regarding the value
of the mitigation actions and applicability to future
impacts if the species is listed.
Although this approach is still under development,
the USFWS has indicated interest in the concept. In
March 2012, the USFWS issued an advance notice of
a proposed rulemaking to “encourage landowners and
other potentially regulated interests to fund or carry out
voluntary conservation actions beneficial to candidate
and other at-risk species by providing a new type of
What Is a Candidate Species?Candidate species are plants and animals
for which the U.S. Fish and Wildlife Service
has sufficient information regarding their
biological status to justify proposing them as
endangered or threatened under the ESA, but
for which development of a proposed listing
classification is precluded by other higher
priorities and agency capacity constraints.
Candidate status gives notice to landowners
and resource managers of species in need of
conservation, and ideally provides an impetus
to adopt measures that could preclude the
need to list the species as threatened or
endangered (USFWS 2011a).
V-3The Tortoise Can Win the Race for Candidate Species Conservation
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assurance that in the event the species is listed, the
benefits of appropriate voluntary conservation actions
will be recognized as offsetting the adverse effects of
activities carried out by that landowner or others after
the listing” (USFWS 2012). This shift could advance
a proactive framework that further motivates early
conservation efforts to help the gopher tortoise and
other imperiled species win the race for survival.
This paper offers a summary of the three generations
of the Endangered Species Act followed by a
discussion of the benefits and hurdles of pre-listing
conservation strategies—primarily in the form of pre-
listing conservation banking. The incentive-based
approach for the conservation of candidate species
is highlighted by a brief case study on the eastern
population of the gopher tortoise where partners
are working with the U.S. military, which is trying to
manage gopher tortoise habitats before federal listing
under the ESA becomes necessary and potentially
leads to a loss of training capacity on bases.
The concluding section suggests that this model
can be replicated in other parts of the United States
dealing with candidate species such as the lesser
prairie chicken and greater sage grouse.
The Foundation
The groundwork for the Endangered Species Act
was laid in the 1960s, as the modern environmental
movement emerged and the federal government
began legislating environmental policy (Anderson
and Huggins 2008). In 1966, Congress passed
the Endangered Species Preservation Act, which
authorized the Secretary of the Interior to establish
a list of endangered and threatened species and
to purchase land for conservation purposes.
International limits on trade in endangered species
and their products were established during the 1973
Convention on International Trade in Endangered
Species of Wild Fauna and Flora. That same year, the
ESA was enacted and evolved into one of the most
powerful environmental laws in the United States.
The ESA prohibits any actions that may cause harm
to endangered plants and animals or the ecosystems
upon which they depend. Over the past four decades,
more than 1,200 species have been granted legal
protection under the ESA, and while very few have
gone extinct, most remain in peril.
First Generation ESA— Perverse IncentivesAs former USFWS Director Sam Hamilton observed
when he oversaw Fish and Wildlife Service efforts
in Texas: “The incentives are wrong here. If I have a
rare metal on my property, its value goes up. But if
a rare bird occupies the land, its value disappears”
(Carpenter 1993, 89). It is not illegal to modify habitat
for candidate species that might be considered
endangered species habitat in the future. Nor are
landowners required to take affirmative steps to
maintain even endangered species habitat (Adler
2011b). The negative incentives built into the ESA
have led to less and lower-quality habitat available
to endangered species on private land (Bean 2002).
Such regulations may even encourage landowners to
destroy or degrade potential habitat on their land—
sometimes referred to as the “shoot, shovel, and shut-
up” syndrome.
Several empirical studies further suggest the perverse
effects of the ESA on private land conservation. Two
such studies found evidence of preemptive habitat
destruction by forest landowners in the eastern United
States due to the listing and presence of red-cockaded
woodpeckers. The first found that private landowners
engaged in preemptive habitat destruction when the
presence of red-cockaded woodpeckers placed the
landowners at risk of federal regulation and a loss of
their timber investment (Lueck and Michael 2003).
Providing habitat for a single woodpecker colony could
cost a private timber owner as much as $200,000 in
foregone timber harvests. To avoid the loss, those
landowners at greatest risk of restriction were most
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likely to harvest their forestlands prematurely and
reduce the length of their timber harvesting rotations.
The end result was the loss of thousands of acres of
woodpecker habitat (see figure 1).
The second study of landowner responses to red-
cockaded woodpeckers confirmed the existence
of widespread preemptive habitat destruction in
southeastern forests (Zhang 2004). Specifically, this
research found that “regulatory uncertainty and lack
of positive economic incentives alter landowner timber
harvesting behavior and hinder endangered species
conservation on private lands” and that “a landowner
is 25 percent more likely to cut forests when he or she
knows or perceives that a red-cockaded woodpecker
cluster is within a mile of the land than otherwise”
(Zhang 2004, 151).
The perverse incentives of the ESA have affected
other species as well. In another study, which relied
on questionnaires rather than raw data on habitat
modification, University of Michigan scientists
concluded that the 1998 listing of the Preble’s
Meadow jumping mouse prompted a backlash
against the species. The results of the survey sent
to affected landowners in Colorado and Wyoming
revealed a disturbing trend: For every acre of private
land managed to help the mouse, there was an acre
denuded to drive the mouse away. More than half of
the respondents said they had not or would not let
biologists survey their property, greatly hampering
the collection of data needed to help the species.
“So far, listing the Preble’s under the ESA does not
appear to have enhanced its survival prospects on
private land,” the researchers reported in Conservation
Biology (2003). “Our results suggest that landowners’
detrimental actions cancelled out the efforts of
landowners seeking to help the species. As more
landowners become aware that their land contains
Preble’s habitat, it is likely that the impact on the
species may be negative” (Brook et al. 2003, 1643).
These studies, combined with the wealth of anecdotal
accounts, provide evidence that, in many cases, the
ESA can discourage species conservation on private
land. Further, it suggests that the net effect of the ESA
on private land could be negative, at least for some
species. Recent administrations have sought to offset
these effects through various programs and initiatives
designed to encourage voluntary conservation efforts
and provide landowners with greater regulatory
certainty.
Second Generation ESA— Regulatory Restrictions RevisitedDespite decades of land regulation under the ESA,
the red-cockaded woodpecker continued to decline.
A shift came about, however, beginning in 1995
when the Environmental Defense Fund and the
Sandhills Area Land Trust began working with private
landowners to negotiate voluntary conservation
agreements on private property. In return for private
efforts that contributed to the recovery of a listed
species, participating property owners received
formal assurances from the USFWS that it would not
require any additional management activities by the
participants without landowner consent. In addition,
Ag
e o
f Tr
ees
60
50
40
30
20
10
0Industry Owned Land
337 Colonies
0 Colonies
25 Colonies
Figure 1 Predicted Harvest Age by Number of Red-Cockaded Woodpecker Colonies Within 25-Mile Radius
Source: Lueck and Michael (2003).
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at the end of the agreement period, participants could
return the enrolled property to the baseline condition.
Attorney Marshall Smith dubbed the area a “Safe
Harbor”—a name that reflects the policy’s benefits for
both wildlife and landowners (Bean 2002).
Today, longleaf pine foresters in seven states have
enrolled more than 600,000 acres under Safe Harbor
Agreements, and woodpecker family groups have
increased by at least 10 percent on these lands
(McMillan 2005). In essence, with assurances that
landowners’ timber will remain valuable despite
woodpeckers roosting among their trees, there is
now an incentive to steward endangered woodpecker
habitat by growing longleaf forests and landowners
bottom lines. There are currently 81 approved Safe
Harbor Agreements spread throughout the United
States (ECOS 2012a).
Similarly, Candidate Conservation Agreements with
Assurances (CCAAs) were instated to help protect
candidate species and species likely to become
candidates for the ESA. Under a CCAA, non-federal
property owners commit to implement voluntary
conservation measures that aim to preclude the
need to list the covered species. “In return for the
cooperator’s proactive management, we provide
an enhancement of survival permit under section
10 (a)(1)(A) of the Act, which if the species were to
become listed, would authorize take of individuals
or the modification of habitat conditions to the levels
specified in the CCAA” (Federal Register 2004, 24084).
Although CCAAs encourage landowners to conserve
candidate species by providing the assurance
that participants will not be subject to additional
restrictions beyond the provisions of the CCAA if
the species is listed, they do not provide financial
incentives to landowners for participation. Perhaps as
a result, the use of CCAAs has been limited with only
23 approved since 1999 (ECOS 2012b).
Regulatory assurances such as Safe Harbor
Agreements and CCAAs have done much to reduce
the economic consequences of species listings and
to mitigate the apparent perverse incentives created
by the ESA, but problems within the regulatory
framework remain (Epstein 1996). For example, the
financial support and regulatory predictability needed
to incentivize voluntary protection are still lacking
(Bean 2002; Womack 2008). Despite shortcomings that
have surfaced over the four decades of the ESA, there
is opportunity for innovation within the ESA for the
conservation of candidate species.
Third Generation ESA— Incentivizing ConservationWithout incentives for species management and
environmental stewardship upstream of regulation,
the ESA will continue to be characterized as a
reactive framework—a structure that serves as a
backstop to prevent extinction but is less effective
at recovering species and preventing them from
becoming endangered. Advance mitigation is at the
heart of the third generation of species conservation
programs, and focuses on the use of positive
incentives to mobilize conservation actions that can
help prevent species from being listed in the first
place. This new approach has the potential to provide
a suite of conservation and economic benefits, and
complement and improve the performance of existing
ESA programs by encouraging early actions that
achieve net conservation benefits for at-risk and
candidate species.
Advance mitigation builds on conservation
banking—a component of the current ESA
framework available under Section 7 of the regulation.
Conservation banking is the creation of “credits”
that represent conservation measures for ESA-listed
species on private land and the trading of those credits
to project developers to satisfy mitigation requirements
of incidental take permits. This approach has been in
place for more than a decade for listed species but
has never been applied to candidate species (Fox and
Nino-Murcia 2005).
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How It Works
The details for candidate conservation banking
will vary depending on the biological needs of the
species, the players involved, and final programmatic
determinations by the USFWS, but the basic
framework of advance mitigation looks like the
following:
1. A science-based, transparent, and peer-reviewed
crediting methodology is designed by leading
experts in the biology of the species with input
from USFWS, state agencies, landowners, project
developers, and others. The methodology clearly
defines the conservation actions, on-the-ground
habitat conditions, and/or resident population
conditions needed to generate advance mitigation
credits. The methodology is designed such that
the most beneficial practices for the species are
incentivized and the most beneficial habitat is
restored, conserved, and managed. Key players
also help design concurrent “rules of the game,”
such as minimum eligibility criteria, adaptive
management criteria, perpetuity requirements,
and the mitigation ratio—how many credits are
needed to offset a “debit” on the impact site. The
final package is approved by the USFWS, based in
part on its ability to generate net conservation for
the species even if credits are used as offsets for
future impacts. The USFWS could adjust program
elements as scientific understanding improves
or the status of the species changes to ensure
both a conservation benefit for the species and
engagement from buyers and sellers.
2. An interested and eligible private landowner
(the “seller”) receives a negotiated payment
to implement conservation measures on his or
her property. In accordance with the crediting
methodology and rules of the game, the landowner
generates advance mitigation credits. The credit
price paid to the landowner includes funds to
implement the conservation measures plus a
negotiated profit margin.
3. The entity paying the landowner (the “buyer”)
receives the credits in return. The buyer may use
the credits as a voluntary offset for impacts on
the species elsewhere to meet a positive or net
zero biodiversity impact goal. The buyer can also
save the credits to meet mandatory mitigation
requirements of an incidental take permit if the
species is listed under the ESA. Some buyers
(e.g., philanthropies or conservation groups)
may purchase credits simply to spur species
conservation before federal regulations kick in.
4. The USFWS maintains agreements with both
buyers and sellers. The agency may also provide
federal-level predictability to both the buyer and
seller through an ESA section 7(a)(4) conference
opinion, which would outline an approved crediting
methodology and the landowner’s post-listing
obligations. The USFWS could convert the
conference opinion to a biological opinion if the
species is listed, provided there are no material
changes in the agency action or the status of
the species (USFWS 2011d). Modified candidate
conservation agreements with assurances (USFWS
1999) and/or modified habitat conservation
plans (USFWS 1998) may also be appropriate
mechanisms for the USFWS to provide regulatory
predictability. In addition, many states have their
own regulations, assurances, and protections
associated with declining species. Advanced
mitigation will only be attractive if regulatory
predictability is aligned at the federal and state
levels (Donlan et al. forthcoming).
Pre-listing conservation projects based on
conservation banks will be most appropriate in
situations when there is some uncertainty around
future activities that will be offset by pre-listing
conservation actions. If the USFWS cannot evaluate
those impacts, they cannot issue a draft or final
incidental take authorization at the time an advance
mitigation agreement is finalized. The USFWS can,
however, offer participants two important guarantees:
(1) their pre-listing actions will be credited if those
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actions are in accordance with the specified crediting
methodology, and (2) those credits can be used
in a manner described in the advance mitigation
agreement,which would describe the debit assessment
process and mitigation ratio. Even if the USFWS
adjusts the mitigation ratio upward over time—
thereby deflating the value of each credit—to account
for further decline in the biological status of the
species, buyers could still apply their credits toward
future mitigation requirements. In contrast, project
developers like the Department of Defense currently
receive intangible “favorability” in future incidental
take permit proceedings in exchange for pre-listing
conservation actions.
In addition to regulatory predictability for developers,
this third generation pre-listing program could provide
a suite of conservation benefits for imperiled species.
Most clearly, it would incentivize conservation actions
ahead of regulation for species that are imperiled but
receive no legal protection at the federal level. The
program would mobilize new resources and provide
much-needed financial incentives for conservation on
private lands in particular (Donlan et al. forthcoming).
This can not only reduce costs and lift the threat of
the heavy hand of ESA regulations for landowners,
but can also improve prospects of species recovery
and potentially eliminate the need to list some
species. Moreover, unlike conservation banking for
listed species, advance mitigation outcomes can be
evaluated prior to impacts occurring, thereby ensuring
a net conservation benefit.
Basic Requirements
Markets rely on supply. Supply can come from both
large and small landowners that meet minimum
eligibility requirements stated under the crediting
methodology. These usually relate to habitat quality
and location relative to other tracts of viable habitat,
and would include a requirement for some minimum
resident population of the species in question.
Advance mitigation programs can mobilize additional
revenue streams to landowners who manage their land
for imperiled species. Accessing private landowners is
a critical function of the advance mitigation approach,
as much of the viable habitat for imperiled species is
found on private land. In the Southeast, for example,
80 percent of all land is in private ownership.
Markets also rely on demand, pre-listing conservation
will not materialize. Too often, market-based projects
are developed in a vacuum, only to create “products”
that do not fully address the needs of primary
purchasers. There are several classes of buyers,
however, that anticipate large impacts to species
and habitats over the foreseeable future. Although
the purchase of advance mitigation credits would be
voluntary, the primary incentive driving demand is
regulatory predictability. Robust demand in a pre-
listing marketplace will only materialize if developers
are assured that the USFWS will approve credits for
successful conservation measures and that those
credits are usable even if the species is listed. An
additional incentive for participation is that this tool, in
combination with others, may help preclude the need
to list these species. Major buyers could include the
Department of Defense, federal and state departments
of transportation, and wind, solar, oil, and natural gas
developers.
Achieving economies of scale in an advance mitigation
program is also a key component in lowering
transaction costs to the point where it makes sense
for multiple landowners to get involved. To aid in this
effort, credits for compensatory mitigation should
be transferable to third parties. Considering that
compensatory mitigation is often performed off-site,
it is sensible for the USFWS to allow a credit holder
to sell or transfer mitigation credits to third parties.
This feature enables the use of brokers who can
aggregate supply, act as expert implementers for
diffuse networks of non-expert private landowners,
provide upfront financing, and absorb the risk of failed
contracts—while enabling landowners to keep to their
farm and forest operations. This broker model is being
used successfully in the Pacific Northwest for water
quality trading schemes (Willamette Partnership 2011).
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Scientific Challenges
Aside from challenges related to mobilizing supply,
securing sufficient demand, and achieving scale,
determining the crediting metrics and methodology
present distinct challenges. These relate to ensuring a
net conservation benefit, providing proper incentives
for conservation, and producing valuable data for
USFWS listing decisions. Crediting metrics and
methodologies used in an exchange need to be clear
and quantifiable. These can be difficult to achieve
when dealing with the attributes associated with a
diverse ecosystem and scientific uncertainty (Walker et
al. 2009).
Available metrics can represent a spectrum with
scientific precision on the one hand and practicality
on the other. Some metrics (e.g., population size
with detailed age distribution) may be a closer
approximation of species status but considerably
less practical to measure than others (e.g., habitat
size and quality). Attempts to provide the closest
approximation of species health as possible, without
regard to practicality issues, may create substantial
transaction costs. Some population surveys, for
example, can be prohibitively expensive. In the face
of these issues, a balance must be struck between
scientific precision and practicality. Risk management
tools such as credit reserve pools and adaptive
management plans can be used to ensure a net
conservation benefit. Selecting an overly complex
and academic measurement system will not meet the
needs of decision makers or landowners to implement
conservation projects. In short, if crediting metrics are
overly onerous, associated transaction costs and lack
of understanding may prohibit large-scale adoption
by private landowners—without which an advance
mitigation program would have limited impact for
candidate species.
Monitoring and evaluation can play a critical role in
managing scientific uncertainty, particularly if linked to
adaptive management plans. Although these elements
are a stated component of CCAAs and other ESA
tools, the USFWS rarely evaluates implementation and
biological results to determine whether a particular
project is meeting its conservation goals. Although
limited resources currently impede these evaluations,
advance mitigation may improve this situation.
Monitoring and evaluation would be built into advance
mitigation agreements and the costs built into the
price of credits. The USFWS should establish a firm
commitment to evaluating the monitoring results of
advance mitigation projects and verifying whether
the projects are on track to meeting their objectives.
Given annual budgets and the significant difficulty of
getting monitoring funding through the Congress and
sustaining it over time, USFWS may be able to build in
advance mitigation fees to cover administrative costs
like these. The USFWS could also seek the assistance
of academic and non-governmental institutions to help
with these efforts.
In addition to scientific uncertainty, the metrics and
methodologies used in an advance mitigation program
have direct implications for the incentives placed
on landowners. For example, population size alone
as a crediting metric may incentivize a landowner to
“collect” species from adjacent properties and relocate
them to the mitigation property to artificially inflate the
resident population, without investing in management
practices to improve and maintain the habitat that
sustains that population. Further, population-based
metrics may not provide the proper rewards to
landowners for the conservation investments made,
particularly for long-lived species with naturally high
juvenile mortality rates such as the gopher tortoise.
Getting incentives right for landowners requires getting
the metrics right.
Finally, advance mitigation programs have the potential
to generate valuable data that the USFWS can factor
into key decisions such as whether or not to list a
species. This is critical given that advance mitigation
could potentially mobilize sufficient conservation
for pre-listed species to preclude the need to list.
However, the conservation outcomes from advance
mitigation cannot impact USFWS listing decisions
unless the impact can be measured. The metrics
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used for advance mitigation—measures of species
and habitat status that will be collected to distribute
credits—must be relevant to the factors considered by
USFWS in its listing decisions.
Political Hurdles
Given the leeway for a variety of features and the
tradeoffs between scientific precision and practicality,
the design of a mitigation program is often the source
of controversy. Consider National Wildlife Federation,
et al. v. Norton, et al. 2004. The USFWS authorized
Metro Air Park developers to take critical habitat
of the giant garter snake and the Swainson’s hawk
based on their Habitat Conservation Plan, which
included acquisition of superior habitat to mitigate
the impact of habitat lost. The mitigation ratio used
was 0.5:1 ratio of acres conserved to acres impacted.
The National Wildlife Federation argued that the
authorized take by USFWS, with the 0.5:1 ratio,
would jeopardize the survival and recovery of the
species in question. Although the courts found this
plan to uphold the provisions of the ESA (at least in
part because the conserved habitat was superior), it
exemplifies potential conflicts involved in translating
diverse ecosystems into a tradable commodity. This
is why proponents of advance mitigation recommend
a mitigation ratio greater than 1:1 to help ensure a net
conservation benefit.
These conflicts relate in part to the political sway
of special interests. “Inequality, divergence, and
coincidence of interests” can entice special interests
to dominate the political discussion and the creation
of a regulatory framework. In these circumstances,
as noted by Mancur Olson (1965), the motivated few
will be more powerful than the disorganized many.
Private interests, such as developers, can defeat public
interests, such as biodiversity protection, and reap
policy benefits. In the absence of credible solutions
to level the playing field, conservation banking may
continue to facilitate development at the expense of
biodiversity (Salzman and Ruhl 2000). Despite political
and ecological bumps in the road to establishing a
quasi-market for candidate species through advance
mitigation, the window for pre-listing conservation
banking is opening. Advances in landscape scale
conservation and measurement, combined with
regulatory predictability and transparency are leading
to more informed dialogue on new approaches
to conservation for candidate and at-risk species
upstream of ESA protections. Wading into this market
through select pilot programs will open the door
to more knowledge and more efficient trading in
the future.
Pre-Listing Conservation in Action
The Return of the Gopher TortoiseFire-maintained longleaf pine once occupied 90 million
acres in the Southeast. Today, roughly three million
acres remain (Gartner 2010). Land conversion and
lack of fire on the landscape have decreased habitat
for a variety of species dependent upon an open
canopy and diverse ground cover. Consequently,
many species have experienced population decline,
including the gopher tortoise.
The gopher tortoise is one of five North American
tortoises that belong to the genus Gopherus. Like
Lonesome George, the gopher tortoise is large with
forefeet well adapted for burrowing. By digging
burrows, the gopher tortoise provides shelter for nearly
400 other animals. But the gopher tortoise and its
habitat have been declining over the past decade.
Today, the gopher tortoise is federally listed as
threatened under the ESA in the western portion of
its range, and the USFWS is considering listing the
eastern population. With 80 percent of land in private
ownership in the Southeast, the greatest potential for
conservation, restoration, and management of pine
habitat for declining species lies in the hands of family
woodland owners. If a voluntary, pre-compliance
market can work for the gopher tortoise, the door will
be open for other imperiled species seeking good
habitat on private land.
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ESA meets DOD
The initial pilot project for a pre-listing conservation
bank envisions the U.S. Army as a key component.
Domestic army installations and installations of other
U.S. military services cover more than 25 million acres
of land in the United States (Guyer, Birkhead, and
Balbach 2006). This land area includes significant
parcels where species are designated as endangered
or threatened under the ESA and other species that are
not yet listed, but are considered regionally threatened
or of special concern (NatureServe 2005). The gopher
tortoise falls into this latter category in Georgia.
The Department of Defense (DOD) is therefore
interested in promoting increased gopher tortoise
management on private lands throughout the
Southeast to help preclude the need to list the gopher
tortoise. The Army Species At-Risk (SAR) policy
memorandum specifically identifies the gopher tortoise
as a priority species and encourages proactive habitat
management before federal protection under the ESA
is necessary. The DOD further encourages installations
to capitalize on partnerships and agreements when
managing for such species.
Military bases are concerned that listing could result
in a net loss of mission training land. Installations have
the authority to work with partners to protect and
restore habitat outside the installation if those activities
are deemed beneficial to sustaining the installation’s
military mission (Gopher Tortoise Team 2009). The
need for military readiness and training flexibility on
installations and development pressure around military
bases are some of the forces driving the search for
innovative solutions and partnerships.
Although still in the development phase, range-wide
application of the candidate conservation marketplace,
in combination with other efforts, may help preclude
the need to list the eastern gopher tortoise due to
the increase in acres that would be managed for the
species and its habitat.
Crediting Methodology
A draft crediting methodology has been designed by
the World Resources Institute, Advanced Conservation
Strategies, the American Forest Foundation, and the
Long Leaf Alliance, with robust input from leading
experts in gopher tortoise biology, the USFWS,
landowners, and prospective buyers. The methodology
balances scientific precision with practicality, in an
effort to ensure both uptake by buyers and sellers and
conservation for the tortoise.
The methodology integrates a species count with
a habitat proxy approach to credit generation. A
gopher tortoise population survey is conducted
to determine the size of the resident population.
Concurrently, a habitat quality assessment is done to
determine whether the parcel meets minimum eligibility
requirements and to calculate a habitat quality score.
By preserving and managing the habitat on his or her
land, the landowner may generate one credit (see text
box “The Currency”) for each resident gopher tortoise
weighted by the habitat quality score.
The Currency The “currency” involved in the gopher tortoise
trading system model is habitat credits. In
this case a credit is a unit of trade that places
monetary value on population estimates
weighted for habitat size and quality. Credits
are sold to offset impacts to species and/or
species’ habitats. The acreage component
will be weighted based on ecological factors,
priority locations, understory composition,
and other variables. The relationship between
credits and debits reflects the value of the
compensatory habitat provided compared
to the habitat impacted and is expressed as
a mitigation or trading ratio. For example, a
2:1 trading ratio could represent 200 acres
of restored habitat for every 100 acres of
negatively impacted land.
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The rules of the game also include risk management
provisions. A certain percentage of generated credits
must be held in reserve as “risk deposit credits” and
cannot be sold until a population resurvey five years
later demonstrates a population size equal to or greater
than the initial population. Scaling the credit score by
habitat quality awards high-quality habitat and helps
mitigate for the higher risk of “credit default” (i.e.,
tortoise decline due to marginal habitat). A landowner
may be eligible for additional credit allocations if
the habitat score improves over time. Resurveys
are conducted periodically to ensure performance.
Table 1 Actors for Successful Pre-Listing Mitigation Programs
Actor Description
Regulating Agency
The USFWS, and in some cases state wildlife agencies, is responsible for enforcing internal or external policy that brings firms into compliance with environmental statues. Ecosystem markets can represent opportunities for regulated entities to achieve compliance more cheaply.
Brokers
Implementing organizations will provide funds that are used to establish agreements with local landowners to create compliance-grade credits. They also facilitate agreements with credit purchasers. The brokers are responsible should the arrangement fail and serve as supply and risk aggregators, upfront financiers, and expert implementers.
Buyers
Buyers consist of commercial firms, government agencies, utilities, or philanthropic organizations that purchase offset credits from the broker or directly from the landowner. They are the consumers for species advance mitigation credits and the primary source of ongoing investment in ecosystem services.
SellersSellers are credit generators; they are landowners who have entered into agreements with either a broker or directly with a commercial firm, utility or agency with the intent of generating and selling offset credits.
Protocol Developers
Protocol Developers establish the “rules of the game,” outlining the specific operations of a market-based conservation initiative (eligibility, service areas, etc.). Increasingly, protocols are being modified and adapted to local context as opposed to being created from scratch each time.
Market Administrators
Market Administrators conduct market operations. They assist in the training of auditors, document retention, third-party validation, and verification of credits. Administrators also ensure credit registration either “in-house” or through a third party. This role requires continuous stakeholder engagement and facilitation, as well as long-term monitoring of market outcomes.
Metric DevelopersMetric Developers create the methods for generating and calculating conservation credits. In coordination with stakeholders, they provide the scientific link, models, and credibility between conservation practices and conservation outcomes.
Local Conveners
Local Conveners are the face of an initiative on the ground. They champion the market-based approach locally by leveraging long-term relationships and region-specific expertise. Conveners raise the local profile of pre-listing initiatives, highlight success stories, and assemble stakeholders by connecting the dots.
National “Talkers”
Talkers promote the idea of pre-listing mitigation systems as a viable policy and operational alternative to traditional infrastructure. They raise the profile of market-based conservation incentives and provide access to national-level organizations. They also work to join disparate efforts, increase consistency, and promote scale and institutionalization.
Market infrastructure Developers
These organizations develop the software, online platforms, and other tools used to facilitate credit transactions.
V-12 The Tortoise Can Win the Race for Candidate Species Conservation
Conservation & the Environment: Conservative Values, New Solutions
An adaptive management plan is triggered if these
surveys indicate declines in population or habitat quality.
The actors involved in this pre-listing conservation
marketplace include those in table 1. The players
interact as described in figure 2.
Scaling Out
An advance mitigation framework would provide
the incentive to motivate significant pre-listing
conservation efforts nationwide. As previously
mentioned, if military bases in the Southeast and
elsewhere expect to maintain or expand training
operations, the Department of Defense will need
solutions to manage risks to training operations that
may arise if the eastern gopher tortoise is listed. West
of longleaf pine country, the Great Plains states and
wind energy companies are also facing risk as they
make massive infrastructure investments in areas
critical to the lesser prairie chicken’s survival. And
further west, the elephant in the room is the greater
sage grouse.
Two of the biggest issues facing private and public
land managers in the sagebrush-dominated states of
the interior West are energy development and a loss
of habitat for the sage grouse. The push for domestic
energy production paired with the desire to upgrade
America’s energy transmission infrastructure has
made energy development one of the fastest growing
land uses in the West. In 2010, citing threats from
energy development as well as invasive non-native
plants, the USFWS determined that the greater sage
grouse is warranted for protection under the ESA, but
delayed listing. The USFWS will review its decision in
2015. If significant progress is not made, the species
will likely be listed, requiring substantial changes in
the management of public and private lands (Stiver et
al. 2010).
In announcing the species’ status as warranted for
listing, Secretary Salazar cited voluntary conservation
actions and incentives as important components of a
common-sense approach to recover sage grouse and
enable responsible development of energy resources.
Figure 2 Gopher Tortoise Candidate Conservation Marketplace Structure
Source: Gartner and Donlan 2011.
Bridge Financing
Broker• Tortoise management assurance fund• Credit insurance pool• Independent verification & monitoring• Legal defense fund
Seller• Private, nonindustrial• Private, industrial• Conservation NGOs
Primary Buyer• Federal and non-
federal: buys credits and holds for future mitigation if needed and species is ESA-listed
• Mitigation bankers: buys credits and holds for a later sale if species becomes listed
• Strategic Philanthropy: buys credits as an outcome-based strategy
• Companies: buys credits as part of sustainability program
US Fish & Wildlife ServiceProvides regulatory certainty and assurances
V-13The Tortoise Can Win the Race for Candidate Species Conservation
Conservation & the Environment: Conservative Values, New Solutions
A candidate species conservation marketplace
would lower the time costs and money needed to
recover the sage grouse and help lessen impacts to
agricultural producers and economic recovery in rural
communities. The window for this innovation is now.
Moving Forward
The logical next step in the adoption and
implementation of an advance mitigation program
for pre-listing conservation is the design and
implementation of pilot projects. There are several
factors to consider in selecting pilots. The USFWS
should prioritize the development of pilot projects most
likely to show significant progress toward long-term
conservation benefits for the affected species in a
timely manner. Ideally, these projects should cover
species for which the USFWS has enough viable
information to know what conservation efforts will
measurably improve the species’ status.
The USFWS has identified categories of listed
species for which advance crediting of mitigation
actions may be inappropriate. These include species
with poorly understood threats; species for which
minimal incidental take is likely to result in a jeopardy
determination; species with recovery plans that
provide only interim objectives due to a lack of
information; and species for which credits cannot
easily be valued due to the nature of threats. The
same criteria should inform the selection of pilot
projects for unlisted species.
Another factor to consider in prioritizing pilot
projects is the conservation record of the participant.
Landowners with a track record of implementing
successful conservation measures should receive
high priority, as they are more likely to achieve the
net conservation benefit goal.
Experience from these pilots can help to inform
national level policy guidance from the USFWS
headquarters to its regional offices. That guidance
could ensure program designs that successfully
navigate the tradeoffs discussed here in order to
promote private landowner participation and meet
species conservation objectives.
Conclusion
The great conservationist Aldo Leopold was well ahead
of his time in realizing that incentives are more effective
when they come in the form of a market carrot rather
than a regulatory stick. “Conservation” he wrote, “will
ultimately boil down to rewarding the private landowner
who conserves the public interest” (1934). Incentivizing
conservation of at-risk species upstream of regulations
represents a promising development not only in terms
of conservation mechanisms but, more generally, in
how we think about conservation.
By identifying the critical role that landscape
management plays in providing valued services
for species, environmental protection becomes a
matter of private ordering between suppliers and
beneficiaries. A system of positive incentives offers
an attractive and effective complement to traditional
regulations and can encourage landowners to view
their property in a different light. This approach to
candidate species conservation could help identify
new streams of income that may not have been
recognized before, creating incentives for landowners
to manage their properties specifically for the provision
of biodiversity. Doing so on private lands is particularly
important because that is where the majority of at-risk
species reside.
A candidate conservation marketplace is designed
to test this approach by providing financial rewards
and technical assistance to private landowners who
manage their lands for habitat and candidate species.
Although still in the development stage, initial insights
suggest that this model has the potential to mobilize
large-scale conservation efforts for candidate species.
Changes in land use across the country have sparked
new challenges in balancing ecosystem management
with residential and commercial development,
V-14 The Tortoise Can Win the Race for Candidate Species Conservation
Conservation & the Environment: Conservative Values, New Solutions
national security, and energy production. Some of
these challenges can be addressed by testing pilot
programs similar to the model discussed in this paper.
Most notably, interest is rapidly growing in the private,
public, and nongovernmental organization sectors to
apply candidate conservation banking for protection of
the lesser prairie chicken and greater sage grouse.
This arrangement is not a silver bullet. There are
conditions for pre-listing conservation markets for
them to work. Absent regulatory predictability, a
sufficient supply of habitat for species and a trading
infrastructure that creates efficiencies and economies
of scale by facilitating the buying and selling of credits
and verifying and monitoring credits, it is unlikely
that a marketplace will be effective. That said, pre-
listing conservation programs represent a promising
development of voluntary exchange through a
market-like approach that can mobilize environmental
stewardship on private lands and help keep the
gopher tortoise and other imperiled species off the
extinction path of Lonesome George.
Acknowledgments
The author is grateful to Todd Gartner (World Resources Institute and PERC Enviropreneur Fellow) for his
very valuable input on this paper. The author would also like to thank the following colleagues and peers
who provided critical reviews and other valuable contributions to this publication: Josh Donlan (Advanced
Conservation Strategies), James Mulligan (World Resources Institute), and David Currie (Property and
Environment Research Center). Pre-listing conservation development was supported by funding from
the Wildlife Conservation Society through the Wildlife Action Opportunities Fund (established by support
from the Doris Duke Charitable Foundation), the Robert & Patricia Switzer Foundation, and the Toyota
Foundation to Advanced Conservation Strategies and World Resources Institute.
V-15The Tortoise Can Win the Race for Candidate Species Conservation
Conservation & the Environment: Conservative Values, New Solutions
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VI-1Closing the Coral Commons to Support Reef Restoration in Florida
Conservation & the Environment: Conservative Values, New Solutions
VI. Closing the Coral Commons to Support Reef Restoration in Florida
Reed Watson and Brett HowellPERC
Despite their ecological and economic importance,
Florida’s coral reefs are teetering on the verge of
collapse. Scientific studies point to the impact
of effluent discharges from municipal storm and
wastewater treatment facilities along the coast. Other
reports document the physical destruction caused by
boat groundings, fishing equipment, and recreational
divers. Policy makers seeking to reverse the coral
decline are contemplating additional regulations
on coastal point sources, increased fines for boat
collisions, and extended Endangered Species Act
protections. All regulatory in nature, these policies are
aimed at equating the private and social costs of reef
deterioration.
This report explores the viability of an alternative
framework for managing Florida’s coral reefs, one
based on clearly defined, secure, and transferable
property rights. Rather than relying on the political
process to determine the optimal level of reef
protection, such property rights would allow voluntary
trades to occur between competing reef users,
namely divers, anglers, boat captains, conservation
organizations, and coastal communities. Already,
conservation entrepreneurs have developed methods
for growing imperiled coral species in nurseries
and replanting them on reefs. A market-based
management approach that rewards this kind of
innovative stewardship—and creates accountability for
reef deterioration—has greater potential to enhance
Florida’s coral resources than the command-and-
control policies currently under consideration.
Florida’s Coral Reefs: A Resource in Decline
Coral reefs are valuable ecologically, economically,
and socially. They provide habitat for many commercial
VI-2 Closing the Coral Commons to Support Reef Restoration in Florida
Conservation & the Environment: Conservative Values, New Solutions
fish stocks; offer recreational opportunities for divers,
snorkelers and fishermen; help protect coasts from
storm damage; and are biodiversity hotspots. Though
coral reefs make up about one-tenth of one percent
of Earth’s surface, covering only 1.2 percent of the
world’s continental shelves, they provide habitat
for roughly a quarter of the known marine species.1
Scientists now believe that somewhere between one
million and ten million distinct marine species live in
coral reefs around the world.2 Reefs are also a vital
component of the global economy, with an estimated
500 million people worldwide dependent on reefs for
food, coastal protection, and livelihoods.3
More than 80 percent of the domestic coral reefs are
found off the South Florida coast.4 Approximately
6,000 marine species depend on these reefs during
some portion of their life. The economic importance
of these reefs is difficult to overstate. According to a
2001 study, coral reefs, both natural and artificial (e.g.,
shipwreck) generated more than $5.7 billion in total
reef-related expenditures in southeast Florida.5
After years of degradation from coastal development,
effluent discharge, overfishing, eutrophication,6 and
boat collisions, the Florida Keys National Marine
Sanctuary (FKNMS) was established in 1990 to
protect what remained of South Florida’s reefs. The
Sanctuary covers 2,896 square nautical miles, 60
percent of which is state controlled and 40 percent
federal.7 The Sanctuary is a marine protected area
(MPA), technically defined as an area “where natural
and cultural resources are given greater protection
than the surrounding waters.”8 In zones throughout the
Sanctuary, regulatory restrictions limit what activities
are permissible. The regulations permit minimal fishing
in some zones, while others are strict no-take zones.
Despite their economic importance and the creation of
the Florida Keys National Marine Sanctuary, the health
of Florida’s coral reefs continues to decline. The Florida
Department of Environmental Protection reports that
the state’s coral cover declined 44 percent between
1996 and 2005.9 The coverage of elkhorn (Acropora
palmata) and staghorn (Acropora cervicornis) corals,
the two primary reef-building corals in the Caribbean,
has declined by upwards of 90 percent since the
1970s.10 On average, southeast Florida reefs contain
2 to 3 percent live hard coral cover, with typically
higher coral cover and habitat diversity found in
the southern compared to northern sections of the
reef.11 The remaining reefs are referred to by some as
“remnant” or “zombie” reefs because they support
very little marine life.12 Having suffered severe declines
in Florida, both corals were listed as threatened under
the U.S. Endangered Species Act in 2006.13
As described by the report “Coral Reef Restoration
and Mitigation Options in Southeast Florida,” the
threats to coral reef are numerous and varied.
Global stressors such as climate change and ocean
acidification, as well as local impacts from coastal
development, overfishing, eutrophication and direct
physical impacts, threaten the coral reef ecosystems
and the benefits that they provide.14 Numerous local
influences have been identified as having the potential
to seriously adversely impact the reef environment of
southeast Florida, many of which are a result of the
dense coastal human population (> 6 million). “These
threats include, but are not limited to, the introduction
of large volumes of freshwater, partially treated
wastewater, nutrients, and/or agricultural chemicals
into the marine ecosystem, boating, fishing, and
diving activities, high volume of ship traffic including
large container vessels, the presence of numerous
utility cables laid across the coral reef environment,
coastal armoring, beach nourishments, and port
expansions.”15
While the rate of coral decline is slower in the marine
protected areas of the Florida Keys National Marine
Sanctuary than in unprotected areas,16 the 2011
FKNMS Condition Report found an overall decline
in the status of habitats and organisms in protected
waters.17 This persistent decline is not surprising given
the inability of Sanctuary managers to influence forces
outside the Sanctuary, such as effluent discharge from
VI-3Closing the Coral Commons to Support Reef Restoration in Florida
Conservation & the Environment: Conservative Values, New Solutions
coastal development, that hinder the ability of these
habitats to maintain a healthy status.18
Advances in Reef Restoration
Because the designation of protected areas has failed
to restore reefs in the Florida Keys National Marine
Sanctuary, non-government restoration efforts have
been under way since the early 2000s. One method
involves growing pieces of coral in underwater
nurseries. The techniques used in Florida were
predominately developed by Ken Nedimyer of Coral
Restoration Foundation (CRF), with support from the
Nature Conservancy (TNC).19 The technique relies on
asexual fragmentation (essentially creating a copy
of the same coral as opposed to sexual spawning).
Since Acropora corals, such as staghorn and elkhorn,
rely heavily on asexual reproduction, there is little
genetic diversity among new colonies, limiting the
expansion of the population. However, propagation of
genetically diverse, nursery-grown parents planted in
high numbers in close proximity is expected to lead to
higher success rates of species recovery.20
Based on early successes with the technique, in 2009,
grants from the National Oceanic and Atmospheric
Administration (NOAA) funded through the American
Recovery and Reinvestment Act (ARRA) and
administered by TNC provided $3.3 million to support
the development of nurseries for corals in Florida and the
U.S. Virgin Islands. Coral nursery partners, in addition
to TNC and CRF, include Nova Southeastern University
with Broward County Natural Resources Planning and
Management Division, University of Miami, Rosenstiel
School of Marine and Atmospheric Sciences, the Florida
Fish and Wildlife Conservation Commission, Mote Marine
Lab, and the University of the Virgin Islands.21
Coral nurseries established through the ARRA grant
have proven to be highly successful at creating
colonies of threatened coral species. For example, as
of the end of June 2012, CRF alone had over 25,000
colonies in their nurseries, even after outplanting
approximately 1,500.22 However, 2012 NOAA
budget cuts significantly reduced funding for all but
essential services (e.g., weather satellites). If the coral
restoration efforts are to continue, alternative funding
sources must be secured.
Harnessing Markets to Recover Florida’s Reefs
The challenge of restoring Florida’s coral reefs
is twofold: limiting access and securing funding.
Regarding access, the various factors contributing
to the coral decline persist because there is no
clear ownership of the resource and, consequently,
no meaningful limit on access. As an open-access
commons, there is little incentive for reef users to
invest in stewardship or to limit present use for future
gains.23 Moreover, those who visit coral reefs and
those whose livelihood depends on reef visitors have
no claim against parties whose actions deteriorate
the resource.
Regarding funding, the Coal Restoration Foundation
estimates that to grow, plant, and monitor a coral
(staghorn and elkhorn) twice a year costs between
$75 to $135 (with elkhorn being more expensive
since there are fewer fragments in production).24
Fragmented pieces 2 to 3 inches in length take,
at minimum, 8 months to grow into small colonies
measuring 6 to 8 inches.25 Consequently, reef
restoration at the ecosystem level would require
several millions of dollars, far more than federal grants
or charitable donations are likely to provide.
Restoration efforts to date have primarily relied on
federal regulations and funding. With the continued
deterioration of Florida’s reefs and the 2012 expiration of
ARRA funding, reef users, environmental organizations,
and restoration practitioners are searching for new
restoration strategies and funding sources. By
establishing property rights or at the very least limited
access privileges to the coral reefs, policy makers could
overcome both the access and funding issues and
convert Florida’s reef resources from an open access
commons to an economic asset worth conserving.
VI-4 Closing the Coral Commons to Support Reef Restoration in Florida
Conservation & the Environment: Conservative Values, New Solutions
Linking Producers and Consumers
Markets for environmental goods and services are
premised on the notion that “those who benefit from
environmental services (such as the users of clean
water) should pay for them, and those who contribute
to generating these services (such as upstream land
users) should be compensated for providing them.”26
By financially linking the consumers and producers
of an environmental resource, markets rely on self-
interest and incentives—rather than regulations—to
engender resource stewardship.
As noted above, potential producers of reef
restoration include nonprofit organizations like the
Coral Restoration Foundation that grow staghorn and
elkhorn coral in ocean-based aquaculture nurseries
and transplant them to wild reefs. To date, CRF has
developed the largest offshore coral nursery in the
United States and transplanted more than 3,000 corals
at 22 different reef locations in the Upper Florida Keys.
This approach to active reef management has the
potential to increase the resilience and biodiversity
of the reefs.
Other potential sellers of reef restoration include those
whose actions currently degrade reef health, such as
wastewater dischargers, commercial fishing boats, and
cruise line operators. Although some might object to
the concept of paying an emitter to emit less, an angler
to fish less, or a cruise captain to divert off course less,
such objections fail to recognize the reciprocal nature
of costs and the practical effectiveness of forbearance
contracts. Because coral growth is measured in inches
per year, and because a single boat anchor can quickly
destroy an acre, limiting the harmful activities is just as
important, if not more so, than transplanting new coral.
The list of reef restoration consumers is eclectic.
The most obvious beneficiaries of a healthy coral
ecosystem are the local dive shop operators, charter
boat captains, hotel owners, restaurateurs, and tourism
agencies who profit from the reef visitors. These
groups may be willing to invest in reef restoration not
only for the business insurance it provides against the
potential total collapse of the natural asset, but also for
the reputation premium these businesses might collect
as restoration supporters.
Of course, the willingness of local businesses to
invest in reef restoration ultimately depends on the
demands of divers and snorkelers for a healthy reef
ecosystem. The evidence from the Gili Islands in
Indonesia suggests that this demand is sufficiently
high to support meaningful restoration efforts. There,
first-time divers pay 50,000 Rp ($5.50) and sometimes
more into the Gili Eco Trust, which funds an extensive
reef restoration program and compensates fishermen
who agree to forego harmful fishing practices, such
as using dynamite or cyanide.27 More than 20 local
hotels and restaurants also donate between 1 and 2
percent of monthly profits into the Trust, reflecting their
recognition that a healthy tourism industry depends
upon healthy reefs.
A less obvious but potentially significant source of
restoration funders are the “existence” consumers—
those who may or may not plan to visit the reefs but
who nonetheless are willing to pay some amount
to know that it exists and that they contributed to
restoration. Defenders of Wildlife demonstrated the
effectiveness of targeting this consumer group by
raising the wolf compensation trust fund with sales
of posters depicting gray wolves reintroduced to
Yellowstone National Park.28
The most obvious question is whether the buyers’
willingness to pay exceeds the sellers’ costs of
production, that is, whether the margins are sufficient.
Next is the all-important question of transaction
costs. Monitoring, measuring, and enforcing
performance of contractual obligations will not be
cheap, be they affirmative obligations to plant coral
or forbearance obligations to not destroy them. If
these transaction costs overwhelm the margin, then
access to the resource will remain open. Conversely,
if the producers and consumers of reef restoration
can strike mutually beneficial deals, a market for coral
VI-5Closing the Coral Commons to Support Reef Restoration in Florida
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restoration has the potential to expand the number
and size of viable reefs and allow the reefs to recover
some of the lost biodiversity that is so critical to their
ecological function.
The Property Rights PrerequisiteFor markets to enhance environmental assets, two
conditions must be met. First, there must be “clear and
recognized property rights and resource tenure so that
there is a legitimate seller of ecosystem services.”29
Second, the value of or benefit from the ecosystem
service must be transferable from the current owner
to a willing buyer, who could be geographically or
temporally distant from the resource. Without such
clearly defined, enforceable, and transferable property
rights, the consumers of an environmental resource
(such as scuba divers on a reef) will not take into
account the full cost of their consumption, and the
producers or stewards of the resource (such as the
Coral Restoration Foundation) will not be rewarded for
investing in restoration.
Defining property rights and establishing resource
tenure in the marine environment poses new, but not
insurmountable, challenges. While terrestrial property
laws address such issues as boundary disputes and
trespass, the definition and enforcement of similar
rights in the marine environment is less robust.
Technologies such as marine GIS and underwater
cameras reduce the costs of creating and monitoring
a virtual fence around underwater resources. However,
the legal institutions that govern these marine
resources pose significant challenges to market-based
reef restoration.
Property rights and markets have promoted the
conservation of such resources as commercial
fisheries, stream flows, and endangered species, to
name a few. However, this application of property
rights to the coral reefs off Florida’s coast raises
unique questions regarding the initial allocation of
rights, the logistics and legality of excluding non-
paying users, and the potential for transaction costs to
frustrate conservation agreements. The next section
examines these and other issues specific to Florida’s
deteriorating reefs.
Institutional Barriers and Opportunities
Market-based strategies have the potential to generate
the stable and long-term funding needed for sustaining
ecosystem scale coral reef restoration, but only if
the legal institutions governing coral reefs allow the
producers of reef restoration to charge the consumers
of reef restoration. The open-access nature of the
Florida Keys National Marine Sanctuary currently limits
opportunities for private investment in reef restoration.
Environmental entrepreneurs must overcome these
institutional barriers to develop and harness a market
for reef restoration.
The Public Trust DoctrineUnder the public trust doctrine of the United States,
the public, rather than private individuals, retains
ownership of certain resources.30 The doctrine
establishes a trustee relationship of government to
hold and manage wildlife, fish, and waterways for the
benefit of the resources and the public. Fundamental
to the concept is the notion that natural resources are
deemed universally important in the lives of people,
and that the public should have an opportunity to
access these resources for purposes that traditionally
include fishing, hunting, trapping, and travel routes
(e.g., the use of rivers for navigation and commerce).31
While generally important to environmental law, the
public trust doctrine is especially prominent in the
marine environment because marine resources and the
rights of fishing and navigation have historically been
considered part of the public trust.32
Private land rights cease at the mean high water mark to
protect the right of navigability. The federal government
has jurisdictional control over the exploration and use of
marine resources beyond state coastal waters and up to
200 nautical miles from the coast, including the right to
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lease assets for revenue (e.g., oil and gas leases), known
as the Economic Exclusive Zone (EEZ), established by
the Law of the Sea.33
The public trust doctrine is largely defined by state
ownership of submerged lands.34 In Illinois Central
Railroad v. Illinois, and later in Phillips Petroleum Co.
v. Mississippi, the Supreme Court recognized state
ownership of tidal lands within their borders.35 In 1953,
the United States formally granted title to the states
of submerged lands within three miles of the shoreline
and “the natural resources within such lands and
waters.”36 However, the federal government retained
a navigational servitude even over state waters.37
The Constitution of the State of Florida affirms that the
state maintains title to “lands under navigable waters,
within the boundaries of the state [and] which have
not been alienated . . . in trust for all the people.”38
The Florida Constitution also allows for the sale of
submerged lands “when in the public interest”39;
however, Florida has statutorily banned future sales
and conveyances of submerged lands that remain in
the public trust.40
The doctrine in Florida also protects certain rights.
“The public has the right to use navigable waters for
navigation, commerce, fishing, and bathing and ‘other
easements allowed by law.’”41 The public’s right to
fishing in Florida has also been protected by statute:
“No water bottoms owned by the state shall ever be
sold, transferred, dedicated, or otherwise conveyed
without reserving in the people the absolute right
to fish thereon, excepted as otherwise provided in
these statutes.”42
Although the public trust doctrine and the state
constitutional provisions noted above explicitly
proscribe full divestment of coral reefs to private parties,
limitations on public access to coral reefs are completely
legal if the purpose of such limitations is to benefit the
resource and the public. The following discussions of
ocean zoning and aquaculture leases highlight possible
strategies for overcoming this institutional constraint and
creating quasi-ownership rights.
Ocean ZoningOn July 19, 2010, President Obama signed Executive
Order 13547 directing federal agencies to implement
a new National Ocean Policy by developing plans to,
in effect, zone the oceans within U.S. territorial waters
and also to include control over key inland waterways
and rivers that reach hundreds of miles upstream, a
plan somewhat similar to the way local governments
zone land.43 The idea is that identifying areas suitable
for various economic, industrial, or conservation uses
in advance can help reduce conflicts and facilitate
compatible uses. Comprehensive Ocean Zoning
was defined as “a strategic allocation of uses based
on a determination of an area’s suitability for those
uses, and reduction of user conflicts by separating
incompatible activities.”44
The Florida Keys National Marine Sanctuary currently
uses a form of marine zoning to regulate fishing and
other activities.45 Expanding on the current zoning
efforts to include restoration zones, allocating the
management authority for each zone to conservation
groups or other restoration producers, and allowing
that group to charge an access fee would create
quasi-ownership rights to the reef. It would also create
an incentive for restoration zone managers to steward
the resource and attract the most visitors.
Florida Aquaculture LeasesThough full divestment of submerged lands in Florida
is not possible, the state does lease submerged
lands for aquaculture, mainly for growing hard clams,
oysters, and live rock.46 Lessees enjoy exclusive
use of the bottom and water column as required by
the licensed aquaculture activity. Though Acropora
corals are not a commercial product, restoration
producers could secure exclusive access rights and
charge an access fee using the state’s aquaculture
leasing program.
Under such a proposal, a private entity could apply
for a submerged lands lease with the intention of
promoting coral restoration. Such a lease could cover
a pre-existing reef or an area where the lessee intends
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to culture a new reef. Lessees would be able to limit
physical and ecological damage to the reef by being
able to exclude other users who might damage the
ecosystem by dragging anchors on reefs or harvesting
important species living on the reef, which reduces the
ecosystem’s resilience.
Charging a Sanctuary-Wide Access FeeAssuming exclusive access rights cannot be created
in the Florida Keys National Marine Sanctuary—
through zoning, leasing, or some other method—the
federal government could charge a sanctuary-wide
access fee and invest the funds in reef restoration.
Charging an access fee to the Florida Keys National
Marine Sanctuary and allowing Sanctuary managers
to retain and invest collected fees in the Sanctuary
could create a significant and sustainable funding
source for coral restoration. According to Scott
Saunders, owner of Fury Water Adventures, “user fees
could be placed in an environmental trust fund with
proceeds going toward coral restoration and other
environmental projects.”47
Though such a fee would not be a true market
approach to restoration, it would align the incentives
of Sanctuary managers with the demands of
visitors. If designed like the federal public lands
fee demonstration program, a majority of the
funds collected would remain under the control of
Sanctuary staff.48
Because such fees were deemed illegal in 1990 as part
of an agreement between NOAA and Florida to create
the Sanctuary,49 congressional action authorizing
user fees would be required. NOAA has not officially
expressed any interest in pursuing this option or
in studying the level of funds that could be raised
through a user fee structure.50 NOAA’s opposition to
user fees stands in stark contrast to the National Park
Service (NPS), which charges a $5 weekly access
fee to the Dry Tortugas National Park, approximately
70 miles west of Key West.51 Total fees collected by
all categories in Dry Tortugas National Park were
$183,591 in 2009 and $694,514 in 2010 (there was
a large Commercial Use Authorization payment
of $501,888 in 2010, significantly increasing fee
revenue).52 In January 2012, the Obama administration
proposed that NOAA, presently part of the Department
of Commerce, be placed under the Department of
the Interior, which includes the National Park Service,
Bureau of Land Management, and Fish and Wildlife
Service, all of which apply user fees in numerous
locations.53 If this change were to occur, the agency
could become more receptive to charging access fees.
Several other countries are using fees successfully
to support reef restoration and management. For
example, Bonaire has charged mandatory fees to
access its marine parks since the 1990s and had great
success with paying for active management of national
parks.54 In 2005, the legislation covering marine park
usage fees was changed with the inauguration of the
“Nature Fee.” Scuba divers are charged $25 for a year
pass or $10 for a day pass and all other users of the
marine park must pay $10 for an annual pass. Tag
receipts go directly to STINAPA Bonaire National Parks
Foundation and are used entirely for the management
of Bonaire’s National Parks.55 The Coral Restoration
Foundation recently began a coral nursery program
in Bonaire with funding provided in part through a
voluntary $1/night donation from guests at a local
dive hotel, Buddy Dive Resort, and a grant from the
Alex C. Walker Foundation.56 STINAPA is at the early
stages of considering direct payments, or other budget
support (e.g., materials), to NGO groups like the Coral
Restoration Foundation to assist with coral restoration
in Bonaire.57
Proposed Reforms
To be successful, market-based options require a
minimum level of tenure security, exclusive access to
sites (allowing fees to be charged), and enforcement.
Since state and federal policies currently preclude
such fees, financing options are limited to philanthropic
capital and conservation finance categories (e.g.,
donations and grants). To raise the amount of revenue
to support large-scale coral reef restoration, more
viable market-based solutions are required.
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The Florida Keys National Marine Sanctuary is
presently conducting a three-year public review
process of the regulations that will shape Florida Keys
marine conservation for the next 20 years.58 On June
29, 2012, on behalf of the Alex C. Walker Foundation,
Georgia Aquarium, the Property and Environment
Research Center (PERC), 18 endorsing organizations,
and 8 individuals, the authors submitted a public
comment recommending the following changes to the
Florida Keys National Marine Sanctuary’s regulatory
and zoning schemes.
Permitted Damage FeeNOAA has federal regulatory authority to charge
companies or individuals that receive construction
permits in the FKNMS a fee (technically a donation) to
mitigate for corals affected by activities that cannot
be avoided or minimized.59 This fee, set in 2006, is
presently $1.06 per square centimeter of affected
coral and provides funds for maintaining existing
coral nursery structures, such as the Key West rescue
nursery co-located at NOAA’s docks. NOAA uses
what it believes to be the best information available
on the costs to raise corals in a nursery environment
to set the mitigation fee, which is typically added to
construction permits through a legally binding letter
of authorization.
The program has gained some acceptance from the
local community as a reasonable way to protect coral
that would otherwise be lost, yet there are several ways
the coral mitigation program could be improved to
better reflect the cost of restoration and, consequently,
enhance restoration efforts. The first is to update the
mitigation fee charged by NOAA. Costs are estimated
based on how long a coral is going to be in nursery,
which is typically 6 months. But the $1.06 per square
centimeter calculation was based on coral production
costs in 2006 and does not account for subsequently
developed efficiencies in coral nursery operations,
which would likely reduce the cost, or increasing
scarcity values for threatened corals which would likely
increase the cost.60
NOAA should update these production cost values and
include some factor to account for the less-than-100
percent survivorship of outplanted coral colonies. Each
square centimeter of affected coral should be replaced
by a higher amount of coral in the nursery in order to
achieve the targeted square centimeter coverage area
of successful outplant to the reef. Extensive cost data
is available from ARRA-funded nursery operators to
assist with updating the mitigation fee. For example,
NOAA’s own rescue nursery reports quarterly on work,
maintenance, cleaning and data collection associated
with the coral nursery.
The mitigation fee charged should also include the
costs of outplanting the corals and monitoring their
survival, not just time in nursery. NOAA staff biologists
or independent contractors should conduct pre- and
post-construction assessments, the additional cost
for which should be added to the annual operating
budget or to the mitigation fee calculation. The post-
construction surveys are irregularly completed, yet
these are essential to analyze the effect on the corals
in construction buffer zones and ensure that work was
completed as permitted.
Limited Access Reef Restoration ZonesWhether entirely new restoration zones or existing
zones converted to restoration areas, NOAA should
cordon off special restoration sites and allow only
permitted or certified restoration practitioners and
water usage industry organizations, such as dive and
snorkel shops, recreational and commercial fishing
groups, to access the sites. Restoration practitioners
and water usage industry organizations could then
charge visitation fees for these sites in return for their
investment in the restoration efforts. Such an approach
would allow NOAA to facilitate restoration of the reef
ecosystem, including coral nurseries, coral outplanting,
Diadema urchin and fish reintroduction, removal of
invasive species and marine debris and other activities
that may increase the success of restoration and
overall health of the area, while allowing participants to
observe and be a part of reef restoration.
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This strategy likely would be consistent the National
Marine Sanctuaries Act and the resolution prohibiting
Sanctuary fees for allowed public uses because neither
NOAA nor the State of Florida would be administering
the fees. In the past, FKNMS-based dive shops and
the Tourism Development Council have been able to
circumvent this prohibition by creating voluntary fees
to access sites, as in the case of the USS Spiegel
Grove, a vessel sunk as a scuba site near Key Largo,
Florida in 2002.
To address concerns by the public about loss of
access to previously unpriced reef resources, such
restoration zones could be temporary in nature,
reverting back to previous level of access, that is, the
original zoning designation with no access fee, after
the site achieves certain ecological success criteria
measured against baseline pre-project monitoring.
Possible criteria include species diversity, population
size and genetic diversity of select species, live stony
coral cover, metrics of three-dimensional structure
or benthic complexity, and resilience to natural
disturbances, such as storms and very warm or very
cold conditions. Note that a minimum period of time
of exclusive access should be guaranteed to the
organization completing the restoration activities
so that it has the opportunity to offset its costs of
investing in the project. An additional consideration
may be that the organization(s) that complete the
restoration work be granted a percentage of the long-
term income derived from the restored site.
Reversion coupled with carefully crafted monitoring
may help increase understanding of the contribution of
various anthropogenic stresses to the restored natural
resources. Post-restoration reversion could be entire or
partial. Entire reversion may result in reestablishment
of regulations according to the current FKNMS zoning
plan, matching regulations in the restoration area to
analogous areas.
To offset NOAA management costs associated with
the new zones, NOAA could auction access rights
to restoration zones by category, such as certified
restoration practitioners/coral nursery operators and
water usage industry organizations, or NOAA Blue
Star–recognized dive shops. The auction should be
open to NGOs and for-profit entities alike. NGOs could
be competitive with for-profit entities by using their tax
deductible donation status to partner with corporations
interested in their cause to cover auction costs, to
jointly bid, etc.
Absent significant regulatory reform, the auction
must function and be characterized in a way that
does not violate the current user fee prohibition.
The access right could be categorized as a special
product or service, since NOAA’s policy is to recover
the full cost of providing a special product or service
when, for example a movie is filmed in FKNMS.61 If
this is not feasible, one alternative would be to have
the practitioner assume the management activities
under NOAA’s supervision. Another option is to have
the practitioners manage the auction activity and
limit auction participants to water usage industry
organizations.
Market-Enabling Regulatory ReformsCurrently, only NGOs are permitted for coral nurseries
and coral outplanting efforts, and the Sanctuary has
been hesitant to consider issuing additional permits
because it is uncomfortable with the number of
potential market entrants. To achieve the scale of
activity required for ecosystem restoration, NOAA
must expand the number of participants in the marine
ecosystem restoration space.
The Administration could maintain quality control
by developing a certification program for restoration
practitioners. The criteria should be developed by
working with CRF, TNC and other ARRA-partner
NGOs who pioneered the practice of coral restoration.
Dive certification agencies, such as PADI, Scuba
Schools International [SSI], or the National Association
of Underwater Instructors [NAUI], would be good
candidates to operate the programs since they have
experience in many aspects of curriculum development
and insurance considerations. For example, CRF has
VI-10 Closing the Coral Commons to Support Reef Restoration in Florida
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worked with PADI on a coral restoration specialty that
could be expanded to certify professional restoration
practitioners. Certification should be achievement-
based, not experiential.
The Nature Conservancy and the Coral Restoration
Foundation both went to great lengths to receive
permission to outplant corals grown in nurseries.
Now that the various federal, state and local regulating
agencies have become comfortable with the concept
of active coral propagation and outplanting, the
permitting process can be simplified and shortened
using a programmatic Environmental Impact Statement
(EIS) and related streamlining frameworks. The
permitting process is far slower than the exponential
growth rate of coral now demonstrated in nursery
environments and corals can be grown faster than
permits can be obtained to place them on reefs.
In addition to increasing the number of potential
conservation organizations, NOAA should increase the
number of coral nursery permits beyond those held by
current participants. Other individuals or organizations
with a conservation focus, regardless of entity type
and tax status, should be able to participate. For-
profit and developing hybrid organizations such as
Low-Profit Limited Liability Companies (L3Cs) and
B-Corporations should be allowed to participate in
restoration activities along with NGOs through full
management of their own, permitted, coral nurseries.
Perhaps most importantly, NOAA should allow nursery
and outplanting permits to be tradable between
holders of such permits. Like the NOAA-backed catch
share fishing program, such an approach would create
a tradable incentive for nursery operators. Permit
trading would allow different operators to buy or sell
nursery permits based on current funding levels,
operational efficiencies, etc. Additionally, if a new
group wanted to enter the market, it could purchase a
permit from an existing participant, lowering its startup
costs while recognizing, via cash payment, the efforts
of the seller in restoring coral reefs in FKNMS.
The coral nursery permit market could be modeled
on the existing trade of Marine Life Endorsements
that accompany a Saltwater Product License
issued through the Florida Fish and Wildlife
Conservation Commission. Marine aquarium trade
collectors operating in FKNMS currently trade these
endorsements. As part of the design of the tradable
permits, measures should be taken to prevent
monopolization where only one organization holds all
permits. The intent is to prevent individuals/entities
from being priced out of the market due to a situation
such as market speculators acquiring all permits
without the intent of participating in ecosystem
restoration.
Open the Coral Trade As ARRA partnership NGOs have demonstrated,
large amounts of coral tissue can easily be grown
once nurseries have been established. Current
understanding is that all corals grown in Sanctuary-
permitted nurseries belong to FKNMS because
broodstock corals were collected under a FKNMS
permit after the Endangered Species Act (ESA) listing
in 2006. Corals can be given away for free with the
appropriate permitting, but a sale between a nursery
operator and a private third party such as a hotel,
cruise line, port, or dive shop cannot legally occur.
Allowing the trade of corals is a first step in
establishing third-party coral mitigation banks, a
developing market-based solution being considered
by NOAA and the U.S. Coral Reef Task Force. The
evidence from other threatened and endangered
resources around the world suggests that prohibitions
on trading actually exacerbate illegal poaching and
increase the risk of extinction, but when resource
stewards can profit from effective stewardship,
recovery becomes a realistic outcome.62 The same
could prove true for Florida’s corals.
While these four proposed strategies are entirely new
approaches in the marine environment, achieving
the goal of restoring and conserving the FKNMS
VI-11Closing the Coral Commons to Support Reef Restoration in Florida
Conservation & the Environment: Conservative Values, New Solutions
ecosystem requires at least the consideration of new
approaches that have the potential to achieve a scale
that the status quo, regulation-based management
regime has failed to achieve.
Conclusion
Since no one owns the coral reefs off Florida’s coast,
no one group has taken ownership of the problem
of reef degradation. The issue is one of property
rights. Because Florida’s coral reefs are an open-
access commons, there is neither an incentive nor a
mechanism for private reef stewardship. Those who
recreate by coral reefs and those who depend on reef
recreationists for their livelihood currently have no claim
against those whose actions deteriorate the resource.
Defining and enforcing property rights to the reefs
will require institutional reform and entrepreneurial
vision. But doing so has the potential to close the
coral commons and generate stable funding for reef
restoration. Though full divestment of the reef resources
is not likely, given the institutional constraints noted
above, restoration zoning and aquaculture leases are
two options for defining and enforcing quasi-ownership
rights that would align the incentives of reef users with
the long-term health of the resource.
Notes1 Steven Johnson. 2010. Where Good Ideas Come From: The Natural History of Innovation. Penguin: New York,
NY, p. 5; TEEB. 2010. The Economics of Ecosystems and Biodiversity: Mainstreaming the Economics of Nature:
A Synthesis of the Approach, Conclusions and Recommendations of TEEB. Accessed online September 25,
2012 at: http://www.teebweb.org/; Susan Shaw. 2012. The Risk of Vostok—Time Capsule or Tipping Point? The
Explorers Journal (Spring), p. 12.
2 Johnson, p. 181.
3 C. Wilkinson (ed.). 2004. Status of Coral Reefs of the World, Volume 1. Australian Institute of Marine Science.
Townsville, Queensland, Australia. 301 pp.
4 S. O. Rohmann, J. J. Hayes, R. C. Newhall, M. E. Monaco, and R. W. Grigg. 2005. The Area of Potential Shallow-
water Tropical and Subtropical Coral Ecosystems in the United States. Coral Reefs 24: 370–383.
5 G. M. Johns, V. R. Leeworthy, F. W. Bell, and M. A. Bonn. 2001. Socioeconomic Study of Reefs in Southeast
Florida Final Report. Hazen and Sawyer Environmental Engineers and Scientists. 348 pp.
About the Authors
Reed Watson, Research Fellow and Applied Programs Director, Property and Environment Research
Center (PERC). Please direct inquiries to [email protected].
Brett Howell, 2011 PERC Enviropreneur.
VI-12 Closing the Coral Commons to Support Reef Restoration in Florida
Conservation & the Environment: Conservative Values, New Solutions
6 Eutrophication is the accumulation of dissolved nutrients in a body of water, such as from nitrogen fertilizers
used in agricultural operations.
7 Florida Keys National Marine Sanctuary Condition Report. 2011. U.S. Department of Commerce, National
Oceanic and Atmospheric Administration, Office of National Marine Sanctuaries, Silver Spring, MD. 105 pp.
8 Definition and Classification System for U.S. Marine Protected Areas, National Marine Protected Areas Center,
NOAA. Accessed online June 24, 2012 at: http://www.mpa.gov/pdf/helpful-resources/factsheets/mpa_
classification_may2011.pdf.
9 Florida Dept. of Environmental Protection. Accessed online August 12, 2012 at: http://www.dep.state.fl.us/
coastal/programs/coral/threats.htm.
10 Acroporid Coral Status & Conservation, NOAA Southeast Fisheries Science Center. Accessed online August 14,
2012 at: http://www.sefsc.noaa.gov/species/corals/acropora.htm.
11 R. P. Moyer, B. Riegl, K. Banks, and R. E. Dodge. 2003. Spatial Patterns and Ecology of Benthic Communities
on a High-latitude South Florida (Broward County, USA) Reef System. Coral Reefs 22: 447–464. DOI 10.1007/
s00338-003-0334-1; South Atlantic Fishery Management Council (SAFMC). 2009. Fishery Ecosystem Plan of
the South Atlantic Region. Accessed online at: www.safmc.net/ecosystem/Home/EcosystemHome/tabid/435/
Default.aspx; B. Walker. 2012. Spatial Analyses of Benthic Habitats to Define Coral Reef Ecosystem Regions
and Potential Biogeographic Boundaries along a Latitudinal Gradient. PLoS ONE. 7(1):e30466. DOI 10.1371/
journal.pone.0030466. Accessed online August 16, 2012 at: http://www.plosone.org/article/info percent3Adoi
percent2F10.1371 percent2Fjournal.pone.0030466.
12 Personal correspondence, Craig Downs, Ph.D., Executive Director, The Global Coral Repository, August 2012.
13 NOAA Fisheries Office of Protected Resources. Elkhorn Coral (Acropora palmata). Accessed online August 12,
2012 at: http://www.nmfs.noaa.gov/pr/species/invertebrates/elkhorncoral.htm; and Staghorn Coral (Acropora
cervicornis). Accessed online August 12, 2012 at: http://www.nmfs.noaa.gov/pr/species/invertebrates/
staghorncoral.htm.
14 Mark Ladd. 2012. Coral Reef Restoration and Mitigation Options in Southeast Florida. Report prepared by I.M.
Systems Group, Inc. for NOAA Fisheries Southeast Region Habitat Conservation Division. 77 pp., p. 6.
15 Ladd, p. 9.
16 L. Burke, K. Reytar, M. Spalding, and A. Perry. 2011. Reefs at Risk Revisited. World Resources Institute;
Conservation International. 2008. Economic Values of Coral Reefs, Mangroves, and Seagrasses: A Global
Compilation. Center for Applied Biodiversity Science, Conservation International, Arlington, VA.
17 See n. 7.
18 Ibid.
VI-13Closing the Coral Commons to Support Reef Restoration in Florida
Conservation & the Environment: Conservative Values, New Solutions
19 Personal correspondence, Ken Nedimyer, Coral Restoration Foundation, April 2011; “Coral Reefs Restoration
Case Study: Florida Keys.” Accessed online August 15, 2012 at: http://www.reefresilience.org/Toolkit_Coral/
CCR_Florida.html.
20 M. E. Johnson, C. Lustic, E. Bartels, I. B. Baums, D. S. Gilliam, L. Larson, D. Lirman, M. W. Miller, K. Nedimyer,
and S. Schopmeyer. 2011. Caribbean. Acropora Restoration Guide: Best Practices for Propagation and
Population Enhancement. The Nature Conservancy, Arlington, VA.
21 See n. 19 re: Case Study.22. Personal correspondence, Kevin Gaines, Coral Restoration Foundation, June 2012.
23 G. Hardin. 1968. The Tragedy of the Commons. Science 162: 1243–1248.
24 Personal correspondence, Kevin Gaines, Coral Restoration Foundation, April 2012.
25 Kevin Gaines. Coral Restoration Foundation Plants Trees Underwater. Accessed online September 14, 2012 at:
http://www.scubadiving.com/travel/bonaire/coral-restoration-foundation-plants-trees-underwater.
26 Stefano Pagiola. Can Payments for Environmental Services Help Protect Coastal and Marine Areas,
Environmental Matters 2008 Annual Review (FY 08: July 2007–June 2008). The World Bank. Accessed
online September 25, 2012 at: http://siteresources.worldbank.org/INTENVMAT/Resources/3011340-
1238620444756/5980735-1238620476358/8CanPayments.pdf.
27 Accessed online September 25, 2012 at: http://giliecotrust.com/.
28 See Hank Fischer. 2001. Who Pays for Wolves? PERC Reports 19(4), Winter.
29 C. McClennen. and J. C. Ingram. . Marine Payments for Ecosystem Services (MPES). Paper presented at the
annual meeting of the International Marine Conservation Congress, George Madison University, Fairfax, Virginia,
May 19, 2009. Accessed online September 25, 2012 at: http://www.allacademic.com/meta/p296571_index.html.
30 Excerpts from this section come from a legal memorandum entitled “Private Property Rights on Coral Reefs in
the State of Florida” by Natalie Harrison, University of Miami School of Law, August 14, 2012, written for Brett
Howell.
31 The Public Trust Doctrine: Implications for Wildlife Management and Conservation in the United States and
Canada, September 2010. The Wildlife Society, Association of Fish and Wildlife Agencies, Western Association
of Fish and Wildlife Agencies, Wildlife Management Institute. Accessed online August 19, 2012 at: http://www.
fw.msu.edu/documents/ptd_10-1.pdf.
32 See, e.g., Joseph L. Sax, The Public Trust Doctrine in Natural Resource Law: Effective Judicial Intervention, 68
Mich. L. Rev. 471 (1970).
33 Accessed online September 25, 2012 at: http://www.floridageomatics.com/publications/legal/mhwl.htm.
Tundi Agardy. 2010. Ocean Zoning—Making Marine Management More Effective. P. 33.
34 See, e.g., Robin Kundis Craig, A Comparative Guide to the Eastern Public Trust Doctrines: Classifications of
States, Property Rights, and State Summaries. 16 Penn St. Envtl. L. Rev. 1 (Fall 2007).
VI-14 Closing the Coral Commons to Support Reef Restoration in Florida
Conservation & the Environment: Conservative Values, New Solutions
35 Ill. Cent. R.R. v. Illinois, 146 U.S. 387, 435 (1892); Phillips Petroleum Co. v. Mississippi, 484 U.S. 469, 476–81
(1988).
36 43 U.S.C. §§ 1301; 1311–12 (1953).
37 43 U.S.C. § 1314 (1953).
38 Fla. Const., Art. 10 § 11.
39 Fla. Const., Art. 10 § 11.
40 Fla. Stat. § 379.232(1) (2008).
41 Brannon v. Boldt, 958 So. 2d 367 (Fla. 2d DCA 2007).
42 Fla. Stat. §379.244(1) (2010).
43 Top 10 Things to Know about President Obama’s Plan to Zone the Oceans. September 30, 2011. Accessed
online August 16, 2012 at: http://naturalresources.house.gov/news/documentsingle.aspx?DocumentID=262435;
Audrey Hudson. April 17, 2012. Zoning the Ocean. Human Events. Accessed online August 16, 2012 at: http://
www.humanevents.com/2012/04/17/zoning-the-ocean-2/.
44 Agardy, pp. 6–7.
45 See n. 7; and author personal observation.
46 See n. 30.
47 Timothy O’Hara. 2012. Sanctuary/Refuge Hearings Wrap Up. Accessed online August 16, 2012 at: http://
keysnews.com/node/40786.
48 J. Bishop Grewell. 2004. Recreation Fees—Four Philosophical Questions. PERC Policy Series (31).
49 Florida Keys National Marine Sanctuary Final Regulations. Rules and Regulations. Department of Commerce,
National Oceanic and Atmospheric Administration, 15 CFR Parts 922, 929, and 937 [Docket No. 9607292–6192–
03] RIN 0648–AD85. Federal Register 62: 113, June 12, 1997.
50 Personal correspondence, Vernon R. Leeworthy, NOAA, January—May 2012.
51 Fees and Reservations. Accessed August 16, 2012 at: http://www.nps.gov/drto/planyourvisit/
feesandreservations.htm.
52 2010 Dry Tortugas National Park Superintendants Annual Report. P. 17.
53 Michael Conathan. What Obama’s Government Reform Proposal Means for Our Oceans Making Sure NOAA
Stays Strong During Federal Reorganization. January 23, 2012. Accessed August 16, 2012 at: http://www.
americanprogress.org/issues/2012/01/noaa_reorganization.html.
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Conservation & the Environment: Conservative Values, New Solutions
54 Personal correspondence, Ramón de León, Bonaire National Marine Park Manager, October 2011.
55 Personal correspondence, Ramón de León, Bonaire National Marine Park Manager, August 2012.
56 Personal correspondence, CRF, August 2012; and personal observation during August 2012 visit to Bonaire.
57 See n. 55.
58 National Oceanic and Atmospheric Administration. 2012. NOAA’s Florida Keys National Marine Sanctuary Hosts
Public Meetings, Seeks Comment on Sanctuary Marine Zones and Regulations. Press release dated April 19.
59 See n. 49.
60 Preliminary Cost per Square Meter of Compensatory Coral Calculation Based on Coral Nursery Option, memo
from Steve Thur to Harriet Sopher, NOAA, December 20, 2006.
61 Chapter 9—Fees for Special Products or Services. Revision May 5, 2008. Accessed online June 28, 2012 at:
http://www.corporateservices.noaa.gov/~finance/documents/CHAPTER9Final.pdf.
62 Michael ‘t-Sas Rolfes. 2012. Saving African Rhinos: A Market Success Story. PERC Case Studies (31).
VI-16 Closing the Coral Commons to Support Reef Restoration in Florida
Conservation & the Environment: Conservative Values, New Solutions
Lowell BaierAttorney, author and President Emeritus of the Boone and Crockett Club
Jim ConnaughtonExecutive Vice President and Senior Policy Advisor, Exelon; former Chairman, White House Council on Environmental Quality; and former Director, White House Office of Environmental Policy
Floyd DesChampsSenior Vice President for Research and Policy, Alliance to Save Energy
Ambassador Paula J. DobrianskyAdjunct Senior Fellow, Harvard University’s JFK Belfer Center for Science and International Affairs and former Under Secretary of State for Global Affairs and Head of Delegation to the UNFCCC (2001-2008)
Alex EcholsPrincipal, Terra Altus
John FaraciChief Executive Officer, International Paper
Mary GadePresident, Gade Environmental Group LLC and former Region 5 EPA Administrator and former Director, Illinois Environmental Protection Agency
Coddy JohnsonChief Operating Officer, Activision Studios; former Associate Director, White House Office of Political Affairs; and former National Field Director, 2004 Bush-Cheney Re-elect
Derek T. KanConsultant, Bain & Company, former economic policy advisor to Senate Minority Leader McConnell
Kevin KolevarVice President, International Government Affairs and Public Policy, Dow Chemical and former Assistant Secretary for Electricity Delivery and Energy Reliability, U.S. Department of Energy
Richard NatonskiLieutenant General U.S. Marine Corps (Retired); former Commander, U.S. Marine Corps Forces Command; and former Deputy Commandant, Plans, Policies and Operations
Gale NortonPresident, Norton Regulatory Strategies; former U.S. Secretary of the Interior; and former Colorado Attorney General
Kameran OnleyDirector, U.S. Marine Policy, The Nature Conservancy; former Associate Director for Environmental Policy, White House Council on Environmental Quality; and former Acting Assistant Secretary for Water and Science, U.S. Department of the Interior
John RaidtPublic Administration and Public Policy Consultant, Nicholas Institute at Duke University; Advisor to the Chairman, U.S. Chamber of Commerce; Senior Fellow, Atlantic Council
Ed SchaferFormer Secretary, U.S. Department of Agriculture and former Governor of North Dakota
Lynne SherrodRancher, Western Region, Land Trust Alliance; formerly with Colorado Cattlemen’s Agricultural Land Trust
Jim StoneChairman, Board of Directors, Blackfoot Challenge
John TomkeChairman, Wildlife and Hunting Heritage Conservation Council; Board of Directors, National Fish and Wildlife Association; former President, Ducks Unlimited; and former Vice President, Global operations, Dow AgroSciences
Bob YoungPresident and Chief Executive Officer, Southeastern Natural Sciences Academy and former Mayor of Augusta, Georgia
Conservation Leadership Council Members:
To reinvigorate the conversation about conservation with conservative concepts and rebuild leadership on environmental issues, the Conservation Leadership Council (CLC) has gathered a distinguished group of visionary business executives, former government officials, public policy experts, and community leaders. The CLC’s goal is to advance innovative, solutions-oriented environmental and conservation policies at the local, regional and national levels.
These papers are intended to stimulate policy conversations and thought and do not necessarily represent policy positions of the council or individual members of the council.