Selling Government Assets

by on May 9, 2011 at 7:30 am in Current Affairs, Economics | Permalink

In November of 2008 I wrote:

The Federal Government owns more than half of Oregon, Utah, Nevada, Idaho and Alaska and it owns nearly half of California, Arizona, New Mexico and Wyoming. See the map (PDF) for more [N.B. the vast majority of this land is NOT parks, AT 2011]. It is time for a sale. Selling even some western land could raise hundreds of billions of dollars – perhaps trillions of dollars – for the Federal government at a time when the funds are badly needed and no one want to raise taxes. At the same time, a sale of western land would improve the efficiency of land allocation.

The Obama administration is beginning to implement just such a proposal. Jonathan Easley of Salon summarizes:

The administration has identified a massive asset class worth unloading. The federal government is the largest owner of real estate in the nation, sitting on hundreds of millions of acres of land that takes up about 30 percent of the country’s surface. The value of Uncle Sam’s nondefense real estate portfolio is estimated at $230 billion, and it carries a maintenance cost of around $20 billion a year.

If Congress moves ahead on the White House’s recommendation, 60 percent of sale proceeds from properties the White House has deemed excess will go to paying down the deficit, with 40 percent to cover costs on other government-run facilities. In addition to the one-time cash from the sale, the government can begin generating tax revenues on land that was previously an expense.

The first set of assets proposed to go on the auction block are mostly empty or little used warehouses, office buildings, barracks and other properties, quite a few of which are now scheduled to be demolished. The total acreage up for sale is very small so Easley greatly exaggerates when he says the proposed sale is Obama’s “libertarian turn,” but heh, it’s a start.

Jim May 9, 2011 at 8:08 am

They should put it on eBay.

Heck, I’d take a dozen acres of Wyoming for $50.

*daniel May 9, 2011 at 8:29 am

How did the federal government come to hold so much non-park land? What were they holding it for?

Bob Knaus May 9, 2011 at 9:17 am

Short answer, they used to own nearly all of it.

In general, western lands passed directly from the natives to the feds. Some parts of the Lousiana Purchase, and large areas of the 13 original colonies, included crown grants to private owners when the feds took over. So, less federal land in the east. Most national forest land in the east was purchased by the feds in the 30s from timber companies for back taxes owed to local governments. It saved counties from bankruptcy, at the cost of permanently removing land from their tax rolls.

They didn’t cover this in your high school American History class?

Michael Cain May 9, 2011 at 12:32 pm

Western states were in part the “victims” of unfortunate timing. Prior to the 1890s, the federal government operated on the principle of getting their land holdings into private or state hands. Beginning about that time, federal policy began to change in ways that encouraged holding onto the land: preservation of some of the unique geography (eg, Yellowstone), the value of the minerals, etc. The change in policy direction had a much larger impact on states that were “late to the party.” The change was fully formalized in 1976’s Federal Land Policy Management Act, which declared that public lands would remain publicly owned.

The FLPMA contributed to already-existing Western resentment of the federal government (eg, the Sagebrush Rebellion). Whether that resentment is justified is a good question, but there is no doubt that it exists. Much of the resentment is driven by the effects of unilateral decisions by the federal authorities. A classic example was Clinton’s decision (using authority granted to the President in the Antiquities Act of 1906) to create the Grand Staircase-Escalante National Monument in 1996. Utah’s governor and Congressional delegation received 24 hour notice of the designation, which reclassified 1.9 million acres. The reclassification blocked the construction of roads needed to access state-owned land where a coal mine had been planned.

Rahul May 9, 2011 at 12:37 pm

The focus on western states is a red herring. It seems the largest acreage (and probably value) of the declared excess federal lands is in Tennessee, Illinois and New York .

mrmandias May 10, 2011 at 2:06 pm

Of the ‘declared’ excess. The actual excess is mostly in the intermountain West.

mulp May 9, 2011 at 3:45 pm

Actually, circa 1905, efforts to sell of the West were redoubled with passage of the Reclamation Act.

FDR changed the policy to end the sale of additional lands and instead focus on undoing the damage of past sales, eg. the flooding that Hoover and FDR split on ideologically in the Mississippi watershed, and the Dust Bowl. Hoover had mapped out dams to support the private lands, but that development was the focus of FDR, and it was that Reclamation Act driven policy that gave the farmers in the West rights to so much of Western water damed in the 30s and late 40s and early 50s.

The costs of selling off Western Federally owned land were and are still higher than retaining Federal ownership and management. One can argue Federal management hasn’t been that great, but private commercial ownership has been worse. The private conservation ownership creates the same objections and resentments as Federal ownership.

ElamBend May 9, 2011 at 8:34 am

Generally I’m for this. What worries me is that I saw a similar stategypursued in Chicago. However the proceeds from the sales were used to pay operating costs while structural problems in the city budget were ignored. The result is that ‘rainy day funds’ created by the sales are nearly depleted and the budget is even worse off (due to decreased revenue).
So” go ahead and sell i say, but I fear it will only be used to fund short term political projects and never bring near the tax revenue advertised.

Andrew' May 9, 2011 at 8:50 am

Then at least a corrupt, incompetent government no longer “manages” those assets. You can’t save the world.

Slocum May 9, 2011 at 10:35 am

I know what you mean, but as in Illinois, asset sales on a large scale could paper over structural problems (or even allow them to continue to deteriorate) for quite a long time. And in some cases, selling ‘assets’ are just stealth tax increases. For example, selling toll collecting rights to interstate highways — the initial cash infusion comes from the company buying the rights, but the actual money ultimately comes from taxpayers. It’s one thing to collect tolls at a level needed to maintain the roads, it’s quite another to sell the roads to the highest bidder who will then, in turn, extract maximum toll revenue — possibly far above and beyond the cost of maintenance. Even worse, what happened in Illinois is that these sales were treated (and spent) as manna-from-heaven, onetime windfalls. And politicians desperate for cash right now (rather like payday loan customers) may not cut very good deals (even when the deals don’t reward friends and supporters). Look at what happened in the deal Chicago made to sell its parking meter rights:

http://www.bloomberg.com/news/2010-08-09/morgan-stanley-group-s-11-billion-from-chicago-meters-makes-taxpayers-cry.html

anon May 9, 2011 at 10:38 am

It is typically the transition that leads to maximum corruption.

Rahul May 9, 2011 at 8:47 am

Wouldn’t selling land on a massive scale in the western states be like a distress sale? Most of it isn’t too valuable right now on a per acre basis and wouldn’t make a huge dent in the budget anyways. Besides I suspect private entities that buy this land will mostly be speculators rather than someone who has a near term real use in the private domain. This would probably not stimulate much real economic activity. Reminds me of web-squatting in a real estate sense. Doubt that many small investors would flock, or even hear, of these sales. Most of the transfer would be between the government and a few Trumps and corporations.

Besides, if the government sold all of the land now, what’s left for the future. Isn’t this stealing from the future generations? They’ll leave behind an asset strapped federal government for the future with not much room to wiggle around.

US May 9, 2011 at 9:00 am

“…Isn’t this stealing from the future generations? They’ll leave behind an asset strapped federal government for the future with not much room to wiggle around.”

Only if the government doesn’t take the land back again from the new owners at a later point in time. You already provide some of the arguments that would (will?) be invoked in that case – they’ll take the land back from the ‘speculators’ who don’t ‘use it’.

Rahul May 9, 2011 at 9:03 am

That’d need something like the Homestead act or maybe long term leases?

US May 9, 2011 at 9:08 am

I was thinking more along the lines of outright nationalization.

Do you trust an armed addict with a cash flow problem? I don’t.

Rahul May 9, 2011 at 9:12 am

Historically, though, has there been much of a precedent for transfer of land back to the government once it was sold out?

US May 9, 2011 at 9:23 am

“Historically, though, has there been much of a precedent for transfer of land back to the government once it was sold out?”

I don’t know. I do know that I wouldn’t want to still have the land if they were to decide in 10 years time that they’d really like to have it back without paying all that much for it. The prices that can be obtained when they sell out should reflect the fact that I can’t be the only one thinking along those lines.

Andrew' May 9, 2011 at 10:00 am

“Isn’t this stealing from the future generations?”

Not really, the stealing has already been done. Perhaps if they continue to waste the money as they have been. Also, they could (and probably will) get a terrible deal on the land, in fact I suspect the goal is to get a terrible deal for the government to give someone else a good deal. So that could ostensibly necessitate greater future taxation (unless they decide to not tax). But the bulk of the waste is water under the bridge. They are doing this for reasons and probably not because they suddenly decided to try some libertarian ideas, although as Alex says, I’ll take it.

Gabe May 9, 2011 at 12:33 pm

They should give away the land to citizens and default on the debt that was accumulated by despicable tryants the last 30 years

Andrew' May 9, 2011 at 8:49 am

The Great Libertarian Offer

Ted Craig May 9, 2011 at 8:54 am

Is that part of California’s problem?

Orange14 May 9, 2011 at 8:59 am

There is a lot of prime California real estate occupied (or formerly occupied) by military bases. Some of it was freed up in the base closing activity 15 years ago but some still exists. I grew up in San Diego and the Navy/Marines had prime properties right near downtown, on Point Loma (where I lived) and 1/2 of Coronado (where an airbase still stands). I always felt that the Feds could make a pretty penny selling the property for development (save the cemetery on Point Loma. There’s other military properties to be sure and some national parklands but the amount of land is not nearly as big as in some of the other western states.

Whether it would be a fire sale or not, the government probably does not need 90% of this land.

Rahul May 9, 2011 at 9:15 am

I agree with Orange14. It’d be better to concentrate on, say, the top 5% of the government lands (prime real estate) that probably account for 90% of the asset value. These would tend to have good civilian alternative uses anyways. Trying to sell large amounts over short durations would probably give the government a pretty bad deal.

Zach May 9, 2011 at 9:12 am

Why sell now when prices are depressed, debt is cheap, and we’re in an employment crisis during which the government shouldn’t expend resources to encourage investment that’s not immediately productive?

If someone wants to buy land at a fair price that we’re paying a ton of upkeep on (old VA facilities for instance) that can be spent more productively, that’s fine, but that definition doesn’t apply to most of the available land.

a forester's brother May 9, 2011 at 9:22 am

Much of this land is forest land, and has timber that can (and is) sold as lumber. Forests are maintained and marked periodically, and some timber is harvested and sold, as needed to allow the forest to maintain a healthy balance of trees. The sold timber constitutes a dividend, and depending on the forest, can offset or exceed the cost of holding the property.

Rahul May 9, 2011 at 9:26 am

Does the Federal Government pay state and local taxes on the land it holds? The western states might have a motive in promoting this idea.

Anthony May 9, 2011 at 10:08 am

Generally, no. They will *sometimes* make agreements with local governments if they use local government services (particularly sewers, streets, and fire, but also other utilities, police, etc.), but they are under no obligation to do so, nor, when they do so, to pay an amount equal to what a private property owner would pay.

Michael Cain May 9, 2011 at 11:54 am

Since 1976, the US federal government has had a “payment in lieu of taxes” program to compensate local governments for at least a portion of the property taxes they can’t collect. The size of the PILT payment is determined by the Department of the Interior, using a formula contained in the federal statute. TTBOMK, local tax rates are not part of the formula, and the actual payments depend on Congress appropriating the necessary funds.

farmer May 9, 2011 at 9:36 am

i was curious so i peeked around. one of the gems was a 400 sq ft housing unit for sale @ the bottom of the grand canyon. Someone’s really going to luck out and get the mother of all summer homes with that one

SteveX (formerly Steve) May 9, 2011 at 12:43 pm

Did they say how it got to the “bottom”? May not that great a deal if was once at the top.

Besides, it’s probably right where the Corp of Engineers is planning reroute the river to build a reservoir.

Rahul May 9, 2011 at 9:47 am

The post had me thinking that the majority of these excess lands are in the western states. Not true. The top three states in terms of acreage are Tennessee, New York and Illinois. TN is a quirk; it somehow has 5 million excess sq feet, nearly 20% of all the land. What’s up with that? The Military Industrial complex?

Another quirk was that 14 “monuments” and “memorials” are listed as “excess”. Wonder who’s the unlucky historical figures and events. Might raise some hackles.

SteveX (formerly Steve) May 9, 2011 at 12:48 pm

Wonder if it had anything to do with the TVA. A lot of land was designated for projects that might never have needed all of it.

Zach May 9, 2011 at 9:50 am

I would like to know how this works; I would like my own vacation shack on Assateague National Seashore – http://maps.google.com/?ie=UTF8&ll=38.027186,-75.247271&spn=0.007293,0.013164&t=h&z=17 – I’m guessing there’s some restrictions on development?

Zach May 9, 2011 at 10:01 am

Scratch that; I’d prefer one of the abandoned tropical fruit and vegetable research sheds in Hilo, HI.

khc May 9, 2011 at 9:53 am

Two notes: I’m sure every administration has noted this. I expect there is more to the story as to why this isn’t a very viable opportunity. Remember most of this will be the most raw land available – not even having road or rail access.

Keep in mind this is still a small amount of money. This would pay for 3 months of current deficit spending. We need better ideas.

E. Barandiaran May 9, 2011 at 10:00 am

Maybe it’s a start –of something that will take some time to finish or worse of something that will be a new source of funds for governments to spend in their pet programs and for politicians to spend on themselves. The first scenario can be based on Chile’s experience since 1974 and the second one on Argentina’s since 1991. There are many other experiences of privatization of state assets in Latin America as part of the adjustments to the fiscal and debt crises of the 1980s. Those experiences triggered hundreds of studies about the benefits and costs of privatization, most undertaken by opponents that attempted to show how bad the sale processes were, how bad the new private companies were managed, or how bad the new companies were regulated. Since 1990, the show moved to the so-called “economies in transition” and now it is starting in Europe, particularly in Ireland and the other countries facing huge fiscal crises. Last month, an Irish report was issued on the sale of assets; see
http://www.finance.gov.ie/viewdoc.asp?fn=/documents/Publications/Reports/2011/revgrpstatassets.pdf
and immediately the old arguments for and against privatization emerged again.
In principle, the sale of state assets could be an important source of funds to pay back the debt. In practice, it will never be important because the coalition of corrupt and inept politicians and lefty intellectuals will block some sales and force nonsense conditions and terms on the sales that are completed.
Today the same political forces that condition privatization also condition the undertaking of large projects. Let me give you an example of a project that has to be approved by the Chilean government. Later today (Monday 5/9/2011), in Coyhaique –a small town in Chile’s Patagonia– there will be a meeting of regional government officials to decide about the environmental costs of a large hydroelectric plant –the HidroAysen Project. It is the first step of a long process before the project can be started. Indeed the decision has been totally politicized and all parties involved have been playing games either to start construction soon so later “sunk costs” will justify the long transmission lines to reach consumers (the total investment is estimated at U$S 7.5 billion, including 4.0 billion for the lines) or to stop the project on the basis that its environmental costs or some intangible costs will be much larger than those of alternatives that are never detailed (Chile is already facing the consequences of bad decisions made in the past 20 years and the cost of energy is increasing rapidly in relation to neighboring countries). The decision making process promises to be Chile’s Greatest Show of the 2010s with the participation of all sorts of fraudulent clowns, and most likely ten years from now we will be able to say that the costs of the project were much higher than anticipated (I’m talking about costs excluding compensatory payments to owners of land and other resources) and the benefits much lower because of the many conditions and terms to meet the demands –several reasonable, many phony– of the many parties that looked after their interests (power and money) as part of that process.
You should expect that kind of Show in any large privatization program.

Andrew' May 9, 2011 at 12:13 pm

It’s probably offered because it is so modest. Even Yahoo!News was spinning it as just to blunt Obama’s ‘socialist’ label for the election. “Of course he’s not a socialist! After all, he privatized a tree!”

Dirk van Dijk May 9, 2011 at 10:02 am

Speaking of selling gov’t assets, how about doing an IPO of the TVA and the Bonneville Power Authorities. They would simply become privately owned utilities, subject to the same sort of regulations as Soutern Co or Duke Power.

Zach May 9, 2011 at 10:19 am

To what extent do private utilities do hydro generation? The political and legal mess behind water control is bad enough when it’s just balancing the interests of agriculture, shipping, tourism, and public safety… throwing power generation into the mix could be a disaster, but that doesn’t mean it’s impossible or anything. The states that’d be affected also seem to like drawing in various businesses with cheap power… especially with tech stuff in the northwest.

Rahul May 9, 2011 at 10:28 am

An interesting question is would privatizing the TVA reduce or increase the cost of electricity?

The TVA does stuff besides power. e.g. flood control.Privatized flood control seems risky.

mobile May 9, 2011 at 10:46 am

So. Cal Edison and PG&E operate some of their own hydropower facilities in California.

Right Wing-nut May 9, 2011 at 10:57 am

The changed the LCRA’s (Lower Colorado River Authority) charter to include power generation. This was followed by three hundred-year floods in five years.

The solution was to change the flood plain. No, I don’t recall hearing ANYTHING about compensation for the homeowners.

The constitution limits federal property outside the district to landed necessary for “Needful Buildings”. (Including military installations.) Most of these holdings are blatantly unconstitutional.

Ricardo May 9, 2011 at 10:57 am

Hmm, 30-year yields are currently at 4.29% according to Bloomberg. Funds are only “badly needed” if the expected 30-year return on land is less than 4.29%.

dirk May 9, 2011 at 11:42 am

Wouldn’t this amount to reverse helicopter drops?

E. Barandiaran May 9, 2011 at 12:01 pm

You can bet that neither Tim Geithner nor Ben Bernanke will burn any dollar they get from a buyer of state assets. The only problem is what Tim Geithner –on behalf of his principal– will buy with that dollar.

Andrew' May 9, 2011 at 12:32 pm

And will they buy radically different things than what got us into this pickle?

Frank May 9, 2011 at 11:48 am

Selling assets is a way of financing the deficit; it doesn’t the deficit.

chris May 9, 2011 at 1:43 pm

In the short term, no, but if private parties find more useful uses for the land than the government did (which they’re supposed to be awesome at, right?), then that will create more economic activity and, thus, tax base in the future. Possibly take some people off unemployment too.

dirk May 9, 2011 at 1:15 pm

Increasing the supply of real estate should cause real estate prices to drop, but we already have a real estate market that isn’t clearing, partly due to sticky nominal prices. Won’t this make the currently private real estate market even worse? Isn’t this the WORST possible time to do this? Why not at least wait for the private real estate market to start functioning?

Ryan Vann May 10, 2011 at 1:31 pm

If the land is substitutable (i.e zoned residential area near population densities), which most probably isn’t.

MC in Alaska May 9, 2011 at 1:39 pm

Sell all the non-national park land in Alaska so we can actually drill for oil and create some jobs, like they’re doing on private land in North Dakota.

mark May 9, 2011 at 1:49 pm

So this will pay for two months of deficit spending.

figleaf May 9, 2011 at 2:19 pm

“The value of Uncle Sam’s nondefense real estate portfolio is estimated at $230 billion, and it carries a maintenance cost of around $20 billion a year.”

Wow, Alex, that makes it sound like a dead loss of $20 billion a year on $230 billion in assets.

Do you think…

Naw…

Could it be…

Naw, couldn’t be…

Well, do you think there’s any, um, revenue generated by those $230 billion worth of land?

Maybe any, you know, income from minerals? Oil, coal, or natural gas leases? Timber? Ski resorts (they’re almost all on DNR or BLM land?) Hydroelectric and irrigation reservoirs? Not even any from campground user fees?

Quick question: how come all those rabid “fiscal” and “anti-socialism” conservatives out west fight repeal or reformation of the General Mining Act of 1872? We could make that $20 billion in maintenance costs revenue-neutral in a heartbeat. But for some reason nobody every wants to address that kind of fiscal responsibility.

And how about that $20 billion in maintenance costs? Wow, I mean, that’s an awful lot of money isn’t it? Makes the government look really stupid and wasteful doesn’t it? It couldn’t be that any of that loss goes to, oh, say, constructing logging roads to service private logging contracts? Reservoir maintenance for hydro and irrigation dams? Roads to, from, or through ski resorts? Maintaining all those mixed-use, park, and campground areas?

Hey, Alex, how about all that land under the Interstate and National Highway systems? Geez! The parts through and around New York City alone must be worth many tens of billions. Taxpayers hardly get any compensation at all for our national highways. What a waste! I say let’s privatize them and let their new owners extract maximum value from them!

Actually I’m mostly just really disappointed by the ideologically-motivated duplicity of an economics professor who can announce an assets value, and revenue costs, but neglect to include its income. It simply can’t be that economics isn’t as rigorous as, say, accounting or even Business 101, or that Libertarians have their heads so far up their confirmation bias they can’t make all the lines on a spreadsheet.

figleaf

Bill May 9, 2011 at 4:10 pm

Great comment. And don’t forget low priced grazing rights.

mulp May 9, 2011 at 4:57 pm

And in the West, “rights” is the word used for renting grazing land for the season, or taking water from a government funded dam maintained by taxpayer money, or from revenue from selling electricity to, well, taxpayers.

Once the government stole it from native people and gives it to others in political deals, changing the terms is now a violation of rights.

Rahul May 9, 2011 at 4:14 pm

Very nicely put!

Bill May 9, 2011 at 4:07 pm

I like the comment by the person who said that selling these assets would reduce the deficit.

The person must be unaware of double entry bookkeeping. These were always assets, but they did not show up as monetized assets on the balance sheet.

I wonder what we can get for an aircraft carrier to be converted into a fly in casino?

al May 9, 2011 at 7:04 pm

Random checking shows that most all of the offerings are structures not land which will presumably have to to moved or demolished for scrap. The process for land has actually been the opposite – the government recently bought back the checkerboard lands granted to the railroads back in the day and put then in the Mojave preserve (this was a good thing. Folks who are commenting ideologically and who haven’t boots on the ground experience should go check the land out. Most of the good land (BLM) in the west, i.e. with water, is in private hands and has been for over a century.

rhd May 9, 2011 at 8:58 pm

It seems like it is more relevant is the land is considered to be “surplus” land and not “excess.” The federal government is the only entity allowed to buy the land (again under a different agency) if it is “excess.”
Here is the White House definition from the link you provided:
*_”Excess property is property that an agency has identified as no longer needed for mission or program performance. When a building is “excess” it means that it can be offered to other Federal agencies. Even buildings that once served a humanitarian purpose, like family housing or schools, may be long-abandoned or out of use. When no need is found by a fellow Federal agency for the property, it then becomes “surplus.” Surplus property is what is typically sold or disposed outside of the Federal Government.”_*
-

jk May 9, 2011 at 9:58 pm

Krugman will write a scathing article on this…you watch.

Larry May 10, 2011 at 3:20 am

How does it make sense to liquidate assets to pay operating expenses? The government doesn’t really have a balance sheet, but that doesn’t obviate the folly. If we want to do this, we should buy some other income-producing asset with the proceeds, as we should be doing with the money we get from mineral leases on government lands.

Bill May 10, 2011 at 9:03 am

It makes sense in the same way that you sell goods you don’t need at a second hand store.

Mulberry May 13, 2011 at 7:12 am

The decision making process promises to be Chile’s Greatest Show of the 2010s with the participation of all sorts of fraudulent clowns,Even buildings that once served a humanitarian purpose, like family housing or schools,

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