How Congress pays industry with federal tax dollars to deplete and destroy
the nation's natural resources
by Edward A. Chadd, reprinted from Common Cause magazine, Fall 1995,
ach time a fast-food customer picks up an order of fries,
taxpayers pick up part of the tab. Food stamps? No, this is another kind
of free lunch.
Eighty percent of the nation's fast-food fries are made
from the Columbia River Basin Russett Burbank potato, which "makes
a perfect frozen French fry but needs to grow in a desert with lots of water,"
explains one industry analyst.
Thanks to the Grand Coulee Dam, Washington state's Columbia
Basin meets both poles of the oxymoron: It was a dust bowl before irrigation
made it an agricultural powerhouse. Now potato processors sell 3 billion
pounds of French fries each year to big retail chains, and everyone makes
a tidy profit. Very tidy. One potato sorter, J.R. Simplot, parlayed the
frozen French fry into a multibillion-dollar empire after meeting a hamburger-stand
owner named Ray Kroc back in 1967.
But not everyone wins on this deal. The water that made the Columbia Basin
bloom flows for a price, most of which the farmers, processors and retail
chains don't pay. It's the American public that foots the bill for more
than $3 billion in irrigation subsidies each year. Many of the water projects
also threaten stocks of endangered salmon. The free lunch, it turns out,
is not so free.
The potato industry is just one beneficiary of corporate
welfare, the estimated $104 billion the federal government spent last year
on subsidies, giveaways and tax breaks for favored industries. And while
the reform-minded Congress has aimed its budget-cutting axe at school lunches,
public broadcasting and poor women with children, the vast array of government
handouts to business remain virtually unscathed.
Yet, according to several studies, the government could
go a long way toward balancing its own budget by simply stopping its practice
of padding corporate bottom lines. The conservative Cato Institute, for
example, estimates that the government could save $500 billion in corporate
welfare spending over the next seven years fully halfway toward the $1 trillion
spending-cut target designated by congressional Republicans.
But for all the financial benefits that flow to business,
some corporate welfare programs take much more than money from the nation's
taxpayers. The Green Scissors Report, compiled earlier this year by Friends
of the Earth and the National Taxpayers Union Foundation, classifies 34
corporate subsidies as "both wasteful and environmentally destructive."
In much of the western United States, corporate welfare often results in
The potato industry's profitable frozen French fry is
just one resource-subsidy byproduct. In addition to loans, insurance and
tax breaks, the government also gives away its natural resources: minerals,
timber, water, rangeland and, sometimes, entire species and ecosystems to
what Rep. George Miller (D-Calif.) calls a group of "self-professed
rugged entrepreneurs who say they want government out of their lives but
can't get weaned off the federal bottle."
The nation's resource industries fight hard to protect
their $5.5 billion worth of government handouts - with lobbyists in Washington,
workers back home, public-relations blitzes and millions of dollars in campaign
contributions. This year the new Congress has expanded most resource-subsidy
programs - despite the budget-cutting climate and the opposition of some
20 public-interest groups, environmental organizations and think tanks ranging
from the liberal to the libertarian.
Corporate welfare, particularly its doubly costly resource subsidies, seems
to prove that whether Congress is controlled by Democrats or Republicans,
pro-business policies and constituent concerns usually win out over budget-cutting
promises. Some observers also see lawmakers' self-interest at work: "Politicians
fund [government] agencies to channel resources to industry, and industry
channels some of the proceeds back to politicians," says one public-lands
Dollars are replaced more easily than natural resources,
yet no giveaways are more passionately defended. History, lifestyles, even
birthrights are said to be at stake. Resource subsidies may have their roots
in Manifest Destiny, but their tendrils are in the web of big-money realpolitik.
A lode of handouts
With 730 million acres of public land, located primarily in the West, the
federal government is by far the nation's biggest landlord. After the Civil
War, it devised a system of subsidies, including the Homestead Act, railroad
rights-of-way and land-grant universities, to induce people to relocate
to its western lands. As the nation developed, most subsidies died a natural
death. Others lived on.
A case in point is the Mining Law of 1872, which regulates
the extraction of hardrock minerals. Originally designed to stimulate small-scale
economic activity on the frontier, the law gives U.S. citizens the right
to prospect on federal land free of charge, to stake a claim if minerals
are found and to buy, or "patent," mineable land for $5 an acre.
Since 1872, land and mineral values have risen considerably,
big corporations have displaced small prospectors and an area of mineral-rich
land the size of Connecticut has been sold for practically nothing. Some
3.2 million acres of federal land, containing $240 billion worth of minerals,
have been patented under the law, according to the Mineral Policy Center,
a Washington, D.C.-based group that works for mining law reform. Between
$2 billion and $4 billion worth of royalty-free minerals are extracted each
year from public lands, it estimates.
In return, mining companies have left a vast legacy
of polluted groundwater, unreclaimed ore pits and 12,000 miles of ruined
streams, says the center's Carlos Da Rosa. More than 52 mines have been
declared Superfund sites and will cost more than $17 billion to clean up,
the Environmental Protection Agency estimates. Reclamation of other abandoned
mines could cost as much as $60 billion.
Yet mining-related industries have defeated several
efforts to reform the Mining Law; from 1987 to 1994 they bolstered their
position with $17 million in campaign contributions to congressional candidates,
according to the U.S. Public Interest Research Group (PIRG). During the
same period the industry extracted $26 billion worth of minerals.
Last year Congress passed a one-year moratorium on the
issuance of new mining patents, and earlier this year the House voted to
continue it. But the Senate approved an amendment sponsored by Larry Craig
(R-Idaho) that would end the moratorium, speed up the patenting process
and lock in a patent fee that ignores mineral values. Congressional insiders
say mining interests wrote the legislation. Meanwhile 233 patent applications,
with a total mineral value of $15.5 billion, hang in the balance. Under
current law the government would have to sell them for less than a million
Like water for free
The water subsidies that bankrolled the frozen French fry have their origins
in a much humbler purpose: to entice small family farmers to the dry lands
of the West. Massive dams, canals and waterways, which required vast outlays
of capital, were built to bring them water.
Water users are supposed to pay for federal irrigation
projects, but the government charges no interest on capital outlays and
waits 10 years before starting to recover its costs - on a 40-year repayment
schedule. By 1986 the forgone interest on federal water projects had added
up to more than $20 billion.
Natural-resources economist Richard Wahl of the University
of Colorado estimates that the government collects less than 15 percent
of the construction costs of irrigation projects. In 1989 WahI, then with
the Interior Department, calculated that irrigation projects cost taxpayers
$2.2 billion a year; now the costs are even higher, he says.
Other water subsidies cost taxpayers billions of dollars
The biggest beneficiaries of federal water projects
are not small farmers but huge agribusinesses. By reorganizing their vast
land holdings into interconnected corporations and trusts that look like
separate farms, many agribusinesses have managed to get around a law that
sets a 960-acre limit for recipients of taxpayer-provided irrigation water.
- Water is provided free of charge to the users, but at great opportunity
cost. Irrigation in the Columbia Basin, for example, depletes 10 percent
of the government-run Bonneville Power Administration's generating capacity-which
translates into $250 million in lost annual income, says William Bean of
the Columbia Basin Institute.
- The power required to pump the water is provided at a discount. Columbia
Basin irrigators pay roughly 4 percent of the market rate, which Bean translates
to an annual subsidy of $50 million.
- Federal subsidies for the Inland Water Way System, which enable barge
companies to transport commodities on the cheap, cost ta· xpayers more
than $700 million a year, according to the Congressional Budget Office.
One such farm baron, Republican soft-money donor J.G.
Boswell, is believed to have more land - as much as 192,000 acres - under
cultivation than anyone else in America, and is said to be worth half a
billion dollars. Subsidized water helped make the man, and taxpayers all
over the country still help pay to irrigate Boswell's bountiful crops of
cotton and alfalfa. Taxpayers also subsidize Boswell's cotton crop; he and
other irrigators who grow federally-subsidized crops are, in effect, being
paid twice for expending a valuable commodity on an unneeded product. Estimates
of this "double dip" portion of irrigation subsidies range from
$85 million to $800 million a year.
What few small farms remain have been squeezed down
to bare-minimum profit margins by huge processors, including potato magnate
J.R. Simplot, who recoups part of what he pays out by selling fertilizer
back to the farmers. Nowadays, Bean concludes, the Columbia Basin Project
takes more money from low-income taxpayers nationwide than it distributes
to low income farm families in the region.
In addition to depleting the nation's financial resources,
these irrigation subsidies also encourage irrigators to waste water, according
to a study by the Columbia Basin Institute. Since water is cheap, irrigators
don't bother to maintain or upgrade their conveyance systems, and they often
take out more water than they need to resell it to other users at a profit.
Because of irrigation, several miles of Idaho's Snake River run dry most
of the year, and much of its pebbly bed is covered with thick mats of algae
that thrive on agricultural waste. And marginal differences in stream flow
spell life or death for thousands of endangered salmon in low-water years.
"Taxpayers are funneling both water and money to
corporate farms that dry up and contaminate our streams and groundwater,"
says John Ryan of the research group Northwest Environment Watch. "It's
a waste of both our fiscal and natural capital."
At home on the range
In addition to selling spuds and fertilizer, J.R. Simplot's company runs
livestock on nearly 2 million acres of public grazing land, most of it owned
by the federal government. On his feedlots, the fifth-largest in the nation,
cows are fattened with the half of every potato that's wasted in producing
French fries. The peelings are the product of subsidized water, and the
forage on which his animals graze is yet another government handout.
The Bureau of Land Management (BLM) and the U.S. Forest
Service currently lease 265 million acres of grazing land, constituting
more than a third of all the land in the western states. The rangelands
support a traditional American lifestyle but make little economic or environmental
sense, says Johanna Wald of the Natural Resources Defense Council (NRDC).
"The real owners of these lands are the American people," she
adds. "and we have a right to expect them to be managed well."
But they're not. The BLM and Forest Service currently charge $1.61 per animal-unit-month
(or AUM, the amount a cow and a calf eat in a month) on their leased rangelands.
By comparison, the state of Idaho charges $5.15 per AUM, and private rangelands
in Idaho charge an average of $10 per AUM. Many ranchers take advantage
of this discrepancy and sublease their federal lands at up to three times
what they're paying Uncle Sam-who's losing money on them.
In 1994, the BLM and Forest Service took in $29 million
from grazing programs that by their own estimates required $105 million
to manage. Karl Hess of the Cato Institute argues that the grazing program
actually loses more than $200 million a year.
Meanwhile grazing permits subsidize a smaller and smaller
number of increasingly large landholders. According to studies by the U.S.
General Accounting Office and the National Wildlife Federation, 75 percent
of the BLM's grazing land is controlled by less than 10 percent of the leaseholders.
The subsidized-grazing program also has a high environmental
cost. Studies by government agencies and environmental groups have documented
threats to endangered species, grasslands and entire ecosystems. But the
program lives on, supported by the industry's $1 million in congressional
campaign contributions from 1987 to '93, according to PIRG. Cato's Hess
says taxpayers lost $1.4 billion managing the public rangelands during that
Trees to cut, money to burn
With grasses and trees interspersed, the Boise National Forest provides
resources to both the livestock and timber industries. Last year's forest
fires burned a swath of 200,000 acres in the Boise, and scientists say it
was over-grazing, overcutting and fire-suppression practices that fanned
the flames. Logging companies in the Boise and elsewhere had taken the big,
valuable and fire-resistant trees and left the small, fire-prone ones. "What
had been an open forest of four-foot-thick, yellow-bellied Ponderosas slowly
became a dog-hair-thick stand of scraggly firs and brush, just ripe for
a lightning strike," explains the Idaho Conservation League's John
Use of this "high-grading" technique was accelerated
in the late '70s and early '80s with the encouragement of Sen. James McClure
(R-ldaho), a friend of the logging companies. McClure, who left the Senate
in 1990, now warms a chair in a different chamber: the boardroom of Boise
Republican Sen. Larry Craig, McClure's successor, has
continued the pro-logging tradition, says Mark Solomon, acting director
of the Inland Empire Public Lands Council, a Spokane-based grassroots environmental
group. At Craig's behest, the Boise has offered a salvage sale of 275 million
board feet of timber on nearly 80,000 acres. The sudden supply has driven
down local demand, forcing federal forest officials to revise their expected
net profit on the sale from $35 million to $8 million. But Bob Wolf, a forestry
analyst retired from the Congressional Research Service, estimates that
the government will end up losing $35 million on the Boise sale.
Meanwhile, potato-fertilizer-ranching baron J.R. Simplot,
who knows a good buy when he sees one, has just plopped down $80 million
to buy a 5 percent stake in Boise Cascade, owner of the only mills near
the forest. Once again, the nation's taxpayers will guarantee Simplot a
According to forest analyst Randal O'Toole, the Boise sale illustrates the
failure of the Forest Service and the BLM to manage the nation's forests
for either preservation or profit. The Forest Service reports that it made
a $214 million profit last year, but O'Toole calls the agency's accounting
procedures "worthless" and calculates an annual loss on timber
sales of more than $400 million.
O'Toole and Wolf are joined in their criticism by a
host of other parties, ranging from the Wilderness Society to the Cato Institute.
"In terms of assets, the [Forest Service] would rank in the top five
in Fortune magazine's list of the nation's 500 largest corporations,"
O'Toole says. "In terms of operating revenues, however, the agency
would be only No. 290. In terms of net income, the Forest Service would
be classified as bankrupt."
Among the ways the government subsidizes the timber industry:
From 1987 to 1992 - while the Forest Service was losing $1.5 billion on
timber sales - the timber industry contributed $6.9 million to congressional
candidates, according to PIRG. The contributions were a wise investment,
Wolf says, because the industry had overbuilt its mills and overcut its
lands and needed another source of timber. Applying political pressure to
federal land managers and politicians was cheaper than paying market rates
for privately owned timber.
- The Forest Service's definition of "fair market value" is
hardly fair. Traditionally, it determined prices together with timber-industry
representatives at an annual secret meeting. The Clinton administration
put an end to those meetings, but pricing policies continue to undervalue
the timber, Wolf says.
- The Service doesn't charge its customers for most of the $100 million
a year it spends to build and maintain its 360,000-mile road system.
- A provision in the 1987 tax reform bill exempts publicly-traded timber
partnerships from paying corporate taxes. As a result, companies such as
Burlington Resources, ITT and International Paper have spun off limited-partnership
timber subsidiaries. Plum Creek, Burlington's spin-off, saw its federal
tax liability plummet from $33 million in 1988 to zero in 1990, according
to a 1994 report by the House Natural Resources Committee.
- In 1991 a congressional oversight panel found that companies were
cutting trees at both higher volume and value than they were paying for;
timber theft is also said to be widespread.
Subsidies as usual
After the Republicans won control of Congress last year, some observers
thought these subsidies would land on the GOP's budget-cutting chopping
block. Many first-term Republicans showed a willingness to make a clean
sweep of all federal subsidies. "There was reason to think that the
104th Congress would do business in a new way,' Wald says.
But for all the Republican cries of "no more business
as usual," business is, as usual, faring quite well.
George Miller's Public Resources Deficit Reduction Act,
for example, called for $3 billion worth of cuts in federal subsidies to
natural resource industries. Miller challenged his colleagues to "demonstrate
that their professions of concern for the deficit, for federal spending
and for getting government out of business are sincere-not just campaign
rhetoric." His bill went nowhere.
Other congressmembers have also sponsored legislation
targeting resource subsidies: Rep. Nick Rahall (D-W.V.) and Sen. Dale Bumpers
(D-Ark.) attacked mining royalties; Rep. Jack Metcalf (R-Wash.) wanted to
end below-cost timber sales: Rep. Jerrold Nadler (D-N.Y) tried to raise
grazing fees; and Sen. Russell Feingold (D-Wis.) attempted to reform irrigation
The House bills all died in the Resources Committee.
Chaired by Don Young (R-Alaska), the Republican-controlled committee has
proven sympathetic to industry. Ranching, timber and mining interests have
been generous campaign contributors to Young and, more often than not, Young
seems to return the favors. Earlier this year one of Young's aides told
a lobbyist that "whatever Kennecott Mining wants is what Don Young
In the Senate only Bumpers's mining proposal was scheduled
for hearings, and it was overshadowed by Larry Craig's industry-friendly
bill. Craig is another favorite of resource-related industries.
Mining companies contributed more than $58,000 to his
campaign from January 1991 through 1992, while timber companies gave more
than $80,000 and ranching concerns kicked in more than $18,000, according
to the Center for Responsive Politics. Also progressing through Congress
are ranching industry-supported bills sponsored by Rep. Wes Cooley (R-Ore.)
and Sen. Pete Domenici (R-N.M.).
Still, there are those in Congress who view the resources
subsidies as congressional pork that must be cut from the budget. When the
Senate passed Bennett Johnston's (D-La.) resolution to "forgive"
up to $15 billion in future deep-water drilling royalties from oil companies,
Rep. George Miller won approval of a resolution instructing House conferees
to reject the measure. Among the 261 House members who supported the resolution
were 100 Republicans.
A proposal to accelerate logging in Alaska's Tongass
National Forest, sponsored by home-state Republican Sens. Frank Murkowski
and Ted Stevens, has also run into trouble. Murkowski recently sold his
stock in Louisiana Pacific Corp., but he still invests in the First Bank
of Ketchikan; both firms would benefit substantially from increased logging
in the Tongass. Murkowski hired Mark Rey, formerly a top lobbyist for the
American Forest & Paper Association, to help shepherd the provision
through Congress, but when some questioned Murkowski's ethics on the matter,
he backed off.
But lawmakers can avoid full debate and item-by-item
voting by slipping pork proposals into budget resolutions. "The [Republican]
leadership won't let individual programs be discussed on the House floor,"
explains a Democratic House staffer, "Instead, they put up a single
budget reconciliation package with amendments barred or severely limited,
and the Democrats get to present a single version of their own for the obligatory
Numerous resource giveaways have been buried in budget
bills. The biggest and most controversial one is the "emergency salvage
harvest" included in this year's budget rescisions package passed by
Congress and signed by President Clinton. Sponsored by Sen. Slade Gorton
(R-Wash.) and Reps. Norman Dicks (D-Wash.) and Charles Taylor (R-N.C.),
a tree farmer by trade, the provision calls for accelerated logging. The
harvest will cost taxpayers more than $370 million, including $78 million
for the mitigation of its own environmental damage, according to an analysis
economists Ernie Niemi and Ed Whitelaw prepared for the Pacific Rivers Council,
a conservation group based in the Northwest.
In addition to timber salvage sales, the rescisions
package calls for logging an additional 270 million board feet - enough
to build 27,000 houses - of old-growth forests. A court ruling had previously
set the trees aside to protect the marbled murrelet, an endangered sea bird.
(Environmental groups have sued to block the sale, while timber companies
have gone to court hoping to force the largest sale possible.)
Other resource-related provisions include a Craig amendment
that would override a court settlement and double harvest levels in Idaho's
Clearwater National Forest, creating a windfall for the Potlatch Corp.,
and a proposal by Rep. John Doo-little (R-Calif.) to sell the government's
Central Valley irrigation project in California to a group of irrigators
for $826 million, an amount the Environmental Defense Fund says is just
one-tenth of its true market value. To fit the provision into the budget
reconciliation bill, lawmakers argued that proceeds from the sale would
count toward deficit reduction.
Yet the resource industry's key sup-porters in Congress
don't seem to consider the federal budget deficit - or the environment -
when they're voting to preserve or expand billions of dollars in federal
subsidies for irrigation, logging, mining and ranching operations. According
to the NRDC's Wald, all these resource subsidies amount to the same thing:
"sweetheart deals for the lucky few, at huge costs to the Treasury
Freelance writer Edward Chadd lives in Port Angeles, Washington. Common
Cause Magazine is published quarterly by Common Cause, a non-profit citizen's
lobby that works to improve the way federal and state governments operate.