Despite an increase in wildfire severity and a corresponding increase in loss of life and property, wildfire and forest management continue to be a hot button issue that both Republicans and Democrats struggle to address. From 2007 to 2016, wildfires burned an average of 6.6 million acres of federal and nonfederal lands every year, doubling the average annual acreage burned in the 1990s. More than 10 million acres burned in 2017, and 2018 followed suit with over 8.3 million acres consumed as of November 20. Despite these increasingly large and severe fires, wildfire appropriations have failed to keep pace. Historically, agencies run out of funds for wildfires, resulting in reallocation of the agency’s discretionary budget that would have been used for other land and forest management activities to fund wildfire suppression costs.
Unsurprisingly, fire management has been forced to the forefront of the public eye, and both the public and private sectors are responding. A bipartisan effort resulted in the Consolidated Appropriations Act, 2018, Pub. L. No. 115-141 (2018 Appropriations Act), which fundamentally changed how federal agencies pay for wildfire suppression. And both public and private sectors have pursued innovative solutions in the form of fire bonds and other proposals at the state and local level—and now in the private sphere—to provide funding for forest management activities.
At the federal level, the U.S. Forest Service (Forest Service)—a part of the U.S. Department of Agriculture—is responsible for wildfire management and response across the approximate 193 million acres of the National Forest System. The U.S. Department of the Interior (DOI) is responsible for more than 400 million acres of national parks, wildlife refuges and preserves, Indian reservations, and other public lands. See Congressional Research Service, Wildfire Suppression Spending: Background Issues, and Legislation in the 115th Congress 1 (Oct. 30, 2017). Likewise, at the state level, state and local governments are responsible for wildfires beginning on nonfederal (state, local, and private) lands, except for lands protected under a cooperative agreement with a federal agency.
Until recently, Forest Service and the Department of the Interior federal wildfire management budgets, including wildfire suppression on federal lands, have been funded primarily through congressional appropriations via annual discretionary appropriations under the Interior, Environment, and Related appropriations bill. These budgets and annual appropriations generally are set based on the 10-year rolling average of suppression costs. These appropriations are then transferred into two funds: (1) a Wildfire Management Account, and (2) a reserve fund known as the Federal Land Assistance, Management, and Enhancement Act (FLAME) account, which can only be accessed to transfer funds if certain conditions are met. Wildfire suppression includes all work associated with extinguishing or confining wildfires, including fuel reduction, preparedness, suppression, and site rehabilitation. Congress also has authority to grant additional funds if agency wildfire suppression funding is exhausted in an emergency appropriations bill.
Based on this budget setup, wildfire management has been primarily reactive. This perpetuates the problem of “fire borrowing” where federal agencies, including the Forest Service, are forced to reallocate funds that would be used for non-fire programs, such as forest management or other fire prevention work, to aid in fire management and suppression. Consequently, fuel-reduction operations or thinning projects go unfunded or cannot occur because these budgets are reduced and shifted to cover wildfire expenses for that year. That is, the agency “borrows” against its forest management budget to cover wildfire costs, without replacement or other reimbursement of the “borrowed” money. Consequently, there are insufficient funds available to complete other proactive timber management projects. This continuous “borrowing” from the agency’s general account, which would typically fund other timberland projects, has resulted accordingly in an ongoing year-to-year budget shortfall because budget allocations have remained static year to year and have not resulted in significant budget allocation increases to cover budget shortfalls from previous years. The resulting budget deficits cause the agency to continue to fall behind on proactive timberland management projects for the upcoming year, and from prior years, that could assist with reducing wildfire severity.
For example, over the last 10 years, on average, approximately 50 percent of the Forest Service’s discretionary funds have gone to wildfire appropriations, while wildfires accounted for approximately 8 percent of the Department of Interior’s discretionary appropriations. See Katie Hoover, Congressional Research Service, Wildfire Management Funding: Background, Issues, and FY2018 Appropriations 2 (Oct. 31, 2017), https://fas.org/sgp/crs/misc/R45005.pdf. In 2018, the administration requested a combined $3.72 billion ($2.85 billion for Forest Service and $874 million for Department of Interior), and in the last 10 years, Congress has appropriated an average of $3.72 billion annually, with $4.18 billion combined appropriations for the Forest Service and the Department of Interior in 2017. See Congressional Research Service, Wildfire Management Funding: Background, Issues, and FY2018 Appropriations 2–3, 11 (Jan. 30, 2018) (including tables showing Forest Service and Department of Interior appropriations between fiscal years 1994 through 2017). As a result, these budgetary constraints (i.e., reallocation to wildfire management) negatively impact the availability of funds for other proactive restoration, forest management, and initiatives to promote forest health.
At the state and local level, wildfire suppression funding not shared with the federal government varies state by state, but can include general fund appropriations, landowner assessments, assessments on timber harvests, private insurance programs (e.g., Oregon), revenues from unrelated activities (e.g., Utah and bonus payments from federal mining leases), disaster response accounts (e.g., Washington), and legal actions. See Philip S. Cook & Dennis R. Becker, State Funding for Wildfire Suppression in the Western U.S., PAG Report No. 3, University of Idaho (Aug. 2017). However, the federal government also provides assistance to states, local governments, and private landowners for wildfires that begin on nonfederal lands, and agencies may enter into cost share agreements with states.
In addition to general appropriations, cooperative wildfire management may be subject to disaster relief under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), 42 U.S.C. § 5122(2), if the wildfire originates on state lands and threatens damage to state and county infrastructure, including private homes, and a major disaster is declared by the president upon request by the governor of the affected state. These amounts are separate and distinct from the general budgets of the Forest Service and Department of Interior and are funded through the Disaster Relief Fund within the Department of Homeland Security appropriations acts, which are administered by the Federal Emergency Management Agency. The Disaster Relief Fund is funded annually, and any unused funds from the previous fiscal year, if available, are carried forward to the next year.
Section 420 of the Stafford Act authorizes the president to provide financial assistance to a requesting state in the form of a Fire Management Assistant Grant. This grant may be requested if a governor determines that a fire is burning out of control and threatens to become a major disaster and certain criteria are met, including a cost threshold. Once issued, the grant authorizes federal assistance, such as equipment, personnel, and grants to state, local, and tribal governments for fire management and mitigation.
Recognizing these problems, on March 23, 2018, the 2018 Appropriations Act, 2018 was signed into law, which included bipartisan measures to change how federal agencies, including the Forest Service, pay for wildfire suppression (i.e., cut the current practice of “fire borrowing”), in addition to addressing forest resilience and other forest management initiatives, as discussed below. See 2018 Appropriations Act, supra at Division O––Wildfire Suppression Funding and Forest Management Activities Act. The Act fundamentally changes the way the Forest Service and other federal agencies pay for wildfire suppression by providing additional funds and budget authority to these agencies by (1) appropriating an additional $500 million above the 10-year average for wildfire suppression for fiscal year 2018 and similar amounts for 2019 under the Stafford Act; and (2) creating a new “disaster cap allocation” for fiscal years 2020 to 2027 at a rate of $2.25 billion in fiscal year 2020, with annual increases of $100 million to $2.95 billion in fiscal year 2027.
Under this new budgetary authority, agencies effectively must make a budget request for the baseline fiscal year 2015 funding level and forecasted excess under the disaster cap. If costs exceed this estimate, the agency must seek congressional approval to use additional funds under the disaster cap. The agency also must provide an annual report at the end of the fiscal year if these funds are used, including a report on risk factors, costs, accounting, and lessons learned.
Over the years, Congress has taken several steps to try to address forest management and restoration beyond annual wildfire appropriations, recognizing the positive impact on the environment and economics to a range of beneficiaries. However, as noted above, funding and the practice of “fire borrowing” arguably has continued to create obstacles to implementation of these and other programs. This includes the following programs.
Healthy Forests Restoration Act of 2003. The Healthy Forests Restoration Act of 2003, 16 U.S.C.A §§ 6501–591, is a statute that expedites environmental review under the National Environmental Policy Act (NEPA) for authorized hazardous fuel reduction projects, including thinning projects, establishment of strategic fuel breaks, and prescribed fires. The 2014 Farm Bill expanded these provisions to allow the secretary to work with state officials to designate forest restoration treatment areas within the National Forest to address deteriorating forest health conditions caused by insect infestation and disease, and to include a new categorical exclusion for certain small projects (under 3,000 acres) meeting specific location requirements. Pub. L. No. 113-79, 128 Stat. 649 (2014) (§ 8204).
Good Neighbor Authority. The Good Neighbor Authority allows the Forest Service and Department of Interior to enter into cooperative agreements or contracts with the states to perform watershed restoration and forest management services on federal public lands. 16 U.S.C. § 2113a.
Consolidated Appropriations Act, 2018. In addition to funding, the 2018 Appropriations Act included several forest management policy reforms, including amendment to existing agency authorizations and regulatory requirements. For example, these changes included amendment to the Healthy Forests Restoration Act of 2003 to include (1) a categorical exclusion from environmental review under NEPA for certain hazardous fuels reduction projects that are no more than 3,000 acres and (2) expansion of the type of projects that qualify under the Healthy Forests Restoration Act to include fuel breaks and firebreaks. Likewise, the 2018 Act expanded the Good Neighbor Authority to include road reconstruction, repair, and restoration in the list of permitted activities. The Act further amended the Federal Land Policy and Management Act to include provisions for additional guidance, planning, and other measures for utility transmission and distribution line vegetation management directed at enhancing grid reliability and reducing wildfire risk.
In addition to amendments to prior agency authorizations, the Act encourages proactive measures to address fire management and innovative utilization of timber resources. In particular, the Act allows the award of 20-year stewardship contracts and provides that the agency may give preference to a contractor that would as part of the contract, promote an innovative use of forest products, including cross-laminated timber. The Act further focuses on development of wildfire hazard severity zone maps for at-risk communities to inform wildfire risk and to prioritize fuels management needs for future planning.
Lastly, the Act exempts the Forest Service from further section 7 Endangered Species Act consultation for existing land management plans unless the plan is 15 years old and 5 years have passed since the ESA listing or critical habitat designation or date of enactment of the Act, whichever is later. This provision overturns the decision in Cottonwood Environmental Law Center v. U.S. Forest Service, which required the Forest Service to reinitiate consultation with the U.S. Fish and Wildlife Service (FWS) to consider changes to its existing land management plan after FWS revised its critical habitat designation for the Canada lynx in National Forests. 789 F.3d 1075 (9th Cir. 2015).
While Congress has taken some steps to address proactive forest management at the federal level, in the wake of particularly destructive wildfire seasons in the past several years, state, local, and private entities have been grappling with other opportunities and innovative ways to address forest management and restoration to protect communities, their water supplies, and to reduce flooding impacts.
One unlikely area that has resulted in local response is a voter-approved municipal bond. Municipal bonds are a form of debt security with a fixed face value that may be issued by states, cities, counties, and other governmental entities to finance capital projects. These projects typically include building schools and infrastructure such as highways or sewer systems. A state or local entity also may issue municipal bonds to fund day-to-day operations. While investors are effectively lending money to the issuing entity in exchange for repayment with interest, most offerings by municipal issuers are exempt from the federal securities laws requiring filings with the Securities and Exchange Commission (SEC). However, annual financial information and operating data, as well as notice of certain events, may be required by SEC dealer regulations and filed with the Municipal Securities Rulemaking Board.
There are generally three types of municipal bonds: (1) general obligation bonds are backed by the issuer’s “full faith and credit” (i.e., general revenues) and often are tied with a tax levy to provide revenue for the repayment of the bonds; (2) revenue bonds, which are used to fund specific projects, and the project’s revenues are used to repay the obligations on the bonds (e.g., water, sewer, electric utilities, or mass transportation); and (3) short-term debt securities that mature quickly (within 13 months). See U.S. Sec. & Exch. Comm’n, Investor Bulletin: Municipal Bonds–An Overview (Feb. 1, 2018), www.sec.gov/oiea/investor-alerts-and-bulletins/ib_munibondsoverview; Charlotte W. Rhodes, Living in a Material World: Defining “Materiality” in the Municipal Bond Market and Rule 15c2–12, 72 Wash. & Lee L. Rev. 1989, 1995 (2015). Because municipal bonds are a form of debt, before a state or local government entity can issue a bond it must comply with local, state, and federal laws. Bond counsel to the issuer must confirm that the entity is authorized to issue debt, determine what authorizations are required before issuance, and ensure compliance with applicable limits. In some instances, there may be legal limits on the ratio of debt to general revenues.
The Flagstaff Watershed Preservation Project (Flagstaff Project) initiated by the City of Flagstaff (City) provides a good example of a local entity in search of other proactive ways to obtain funding to manage and address fire management at the local level in coordination with the federal government. The Flagstaff Project was spurred by the catastrophic results from wildfires in the 2010 fire season, specifically the Shultz Fire, which burned 15,000 acres; destroyed approximately $60 million in local property; caused devastating post-fire flooding events damaging neighborhoods, aquifers, and critical county infrastructure; and resulted in loss of life. In response, the City overwhelming approved (73.6 percent passing in all 26 precincts) a $10 million bond to fund the Flagstaff Project in 2012 specifically for forest management projects. City Council of the City of Flagstaff, Ariz, Information Pamphlet for the City of Flagstaff, Arizona Special Debt Authorization Election Nov. 6, 2012 (2010) at 3; see also Flagstaff Watershed Protection Project, http://flagstaffwatershedprotection.org/ (last visited Dec. 14, 2018).
The Flagstaff Project consists of forest restoration and watershed management to reduce the risk of severe fire and flooding in the Rio de Flag and Lake Mary watersheds. Under the terms of the 2012 ballot measure, Flagstaff may issue the bonds periodically over a 10-year period to raise funds as needed for specific projects. Revenue raised from property taxes on present and future residents will repay the bonds over 10 to 25 years. Under the Flagstaff Project, the bond funds, together with federal funding, are to be used to begin selective thinning and prescribed burns within overstocked forests—dense woodland with small trees vulnerable to catastrophic wildfire—among other restoration activities, including traditional logging, hand thinning, prescribed fire, helicopter logging, and cable logging on both state and federal lands. While the project structure unites many private and public partners, the city maintains the primary oversight role and a focus on planning and monitoring.
While Flagstaff proposed to begin field operations by 2013 to complete restoration of approximately 11,000 acres within a five- to eight-year period, by early 2018 it had spent $3.2 million on initial planning efforts but only completed 5,000 acres of restoration on city and state land where work could begin without federal environmental review, or around 40 percent of the total area designated for treatment. Ultimately, after five years the project faces a $4.5 million shortfall and around 35 percent of the intended work cannot occur without additional funding. Emery Cowan, City: $10 Million Bond Not Enough to Cover Flagstaff Forest Thinning, Ariz. Daily Sun (Feb. 12, 2018), https://azdailysun.com/news/local/city-million-bond-not-enough-to-cover-flagstaff-forest-thinning/article_8797048a-2261-583b-9181-b3b8e60792fa.html.
While the Flagstaff Project demonstrates an innovative approach taken to address fire management using municipal bonds, the success and challenges of the project can provide lessons for other municipalities as they consider using bonds to fund such restoration activities. Some of these lessons include the importance of public buy-in and support for the project. As noted above, the Flagstaff Project’s creation was spurred by the experience and aftermath of the Schultz Fire in 2010, motivating action by public officials and garnering broad public awareness and voter support to engage in proactive timberland management. With this support, the Flagstaff Project had the political momentum to move forward, as opposed to facing political opposition, negative publicity, and challenges preventing financing or funding opportunities or implementation of the project.
Separately, the Flagstaff Project highlights the importance of carefully considering funding mechanisms and required financing approvals (e.g., the use of municipal bonds over other traditional funding mechanisms like water utility user fees, storm drainage fees, or sales taxes) as part of strategic project planning and the time line and goals of the project. By way of example, the advantage to a fee or sales tax is that this assessment eliminates the need for voter approval, the delay required to pass a ballot measure, and the cost of mounting a bond election campaign (totaling around $150,000 for the Flagstaff Project). However, on balance, a bond election clarifies public opinion and spreads costs throughout the community—giving everyone an interest in success. But regardless of the outcome, municipalities must repay investors even when a bond-funded project fails to meet expectations.
While the Flagstaff Project started at the local level, to the extent a project involves federal lands, a project will be subject to environmental review under NEPA in addition to any state or local level review on non-federal lands. Not only does this raise complexities in coordinating environmental review and the time and cost involved with preparation of an Environmental Assessment or Environmental Impact Statement, but the presence of endangered species and the character of the project area increases the potential risk of litigation. As indicated above, the recent revisions under the Act may resolve some of these NEPA issues for smaller projects, but it remains to be seen whether this will result in a reduction in litigation for broader timberland management projects. However, despite the challenges that may face a project, collaboration and funding from a state or local entity can streamline management of both federal and nonfederal lands that share similar goals by providing an alternative funding source to complete specific project work.
Sometimes mistaken for socially responsible investing (SRI) or social impact bonds (SIBs), green investments or environmental impact bonds (EIBs) are investments that focus on projects designed to further the conservation of natural resources, efficient energy production and use, improvements to air and water quality, or other environmentally responsible business practices. EIBs are more narrowly focused than SIBs in general, but still cover a range of projects. Investopedia, Green Investing, www.investopedia.com/terms/g/green-investing. asp#ixzz5QQ6siOyO (last visited Dec. 14, 2018). These investment vehicles are designed to generate both an environmental benefit and financial return—frequently by improving resource management.
EIBs commonly involve public-private partnerships in the form of a contract that provides that some portion of the repayment to investors will be based on the outcomes of the project. In the case of forest management, investors could purchase a bond to fund restoration activities and forest management initiatives designed to reduce the frequency and severity of forest fires. Investors also would enter into a contract that provides for additional returns tied to future savings in firefighting costs. This allows a public entity to act proactively in pursuit of environmental benefits where this is a likely financial benefit down the road. An excellent example of an EIB is the DC Water Bond. Goldman Sachs, Fact Sheet: DC Water Environmental Impact Bond, www.goldmansachs.com/media-relations/press-releases/current/dc-water-environmental-impact-bond-fact-sheet.pdf (last visited Dec. 14, 2018).
DC Water issued a tax-free bond to finance capital expenditures to reduce stormwater runoff. The bond was backed by DC Water with regular payments of interest and full repayment of principal at the end of the term. Investors also are eligible to receive a bonus “outcome payment” if the infrastructure outperforms expectations. One of the key aspects of an EIB is that it spreads the risk between investors and the bond issuer—enabling the pursuit of innovative solutions to existing problems. This approach is particularly useful in the context of managing forests in pursuit of reduced firefighting costs due to prevalence of wildfires in the West and the associated economic impacts.
Similarly, pursuant to a 2016 Conservation Innovation Grant, the National Resources Conservation Service, American Forest Foundation, Blue Forest Conservation, and the World Resources Institute have developed a public-private partnership and a Forest Resilience Bond, which uses private capital to fund proactive forest restoration. In short, those under the Forest Resilience Bond partner with the Forest Service, utilities, forest collaborators, or other stakeholders to identify and complete a restoration project with Forest Service oversight under a contract, in which beneficiaries pay back investors over time. See Blue Forest Conservation and Encourage Capital, Forest Resilience Bond, Fighting Fire with Finance: A Roadmap for Collective Action, Trust for Conservation Innovation/Private Capital for Public Good (2017), www.forestresiliencebond.com/ (last visited Jan. 9, 2019).
As has been seen in recent years, wildfires increasingly are having more devastating impacts. Given increasing development in areas with high wildfire risk and global warming, this trend is almost certain to continue. In combination with these factors, overdue forest management (i.e., unnatural forest density), including fuel management and thinning projects, has resulted in wildfires that burn longer and hotter impacting not only public lands, but private lands. The cost of fighting and rebuilding from a large fire can be astronomical, without even considering the loss in human lives and damage to the environment. Actively managing a forest to reduce the severity and frequency of wildfires is expensive and carries a certain amount of risk with it as well due to the uncertainty of wildfires. Even considering the risk and cost of active management, doing nothing will likely result in increasing costs across the board. Instead of doing nothing, public bodies can make use of EIBs to share the risk and cost of trying a new approach. And, due to the potential savings associated with a reduction in wildfires, there is a significant possible outcome payment for investors.
