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


January 2013

I-1Community-Based Approach to Conservation for the 21st Century


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

I-2 Community-Based Approach to Conservation for the 21st Century


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



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



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



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.



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



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.



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



• 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.



• 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



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



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.



Attachment A The Blackfoot Challenge: A Watershed Initiative



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


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


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



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



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



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



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,

[email protected].

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


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


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.



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



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



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 $)



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



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.



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



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)



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,



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



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



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.



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).



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,



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.



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.



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



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.



• 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



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



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.



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.



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/.



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.



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


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


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



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



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



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



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



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



$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



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.



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



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



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.



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/.



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


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


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).



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



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).



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).



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



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).



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



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.



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.



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.



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



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,



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.



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VI-1Closing the Coral Commons to Support Reef Restoration in Florida


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


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



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.



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



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



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



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.



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.



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



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



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.



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.



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).



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.



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).



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.

www.leadingwithconservation.org

Documents

Conservation & the Environment: Conservative Values, New Solutions