North Carolina State Agency Conservation Funding Needs Assessment

North Carolina State Agency Conservation Funding Needs Assessment By the Environmental Finance Center at the University of North Carolina, Chapel Hill (efc@unc) Report by Ron Sutherland and Richard Whisnant efc@unc 4/16/03

Introduction The scenic beauty and natural diversity of North Carolina are simply legendary. However, with the state losing more than a million acres of open space from 1987-1997 (NRCS data), scenic vistas, rich biodiversity, and excellent recreational opportunities can no longer be taken for granted. Rapid population growth and sprawling cities have seriously begun to threaten the viability of the native ecosystems, imperiling at the same time the vital services these ecosystems provide to the public. In the year 2000, after a decade of unprecedented urban growth and tremendous habitat loss, outgoing Governor Hunt challenged the state to protect a million acres of open space by the end of 2009. The legislature officially adopted this aggressive goal that same year. Early in 2001, the Environmental Finance Center (EFC) at UNC released a report, Costs and financing options for the NC Million Acre Initiative, which estimated the costs of protecting the extra acreage and presented a range of options for generating the necessary funds. Despite the endorsement of the legislature and the EFC report, no major funding initiatives for conservation were passed from 1999-2002. Under the administration of Governor Easley, the state Department of Environment and Natural Resources has embarked upon a planning process whose end result will be a statewide strategy for land and water conservation. This process, called One North Carolina Naturally, will produce a draft strategic plan during late spring of 2003. The plan is expected to address three general questions relating to North Carolina conservation: What needs to be protected (and where)?; How will the protection occur (and by whom)?; and How will the additional conservation efforts be funded? This report provides some background details related to the third question: How to pay for a major conservation initiative. Specifically, it addresses: How much money is currently available for conservation efforts by state agencies. How much additional funding is needed to meet current state agency conservation goals the gap between current and needed funding. Exact details of necessary funding will await completion of the other aspects of the One NC Naturally Plan, but it is hoped that this preliminary report will provide sufficiently robust data to allow the search for additional funding sources to begin on sound footing. The assessment was carried out using a rapid survey of state agency personnel, and all numbers should be treated as reasonable estimates (See Appendix A: Methods). Numbers given represent funding associated with state conservation agencies, the various conservation trust funds, the conservation tax credit program, and some miscellaneous federal grants made to state programs. N.C. State Agency Conservation Funding Needs Assessment: efc@unc 2

Funding Categories Conservation of natural habitat requires funding for both initial protection (e.g. purchases of land and easements) and subsequent management of protected lands (e.g. prescribed burning, law enforcement). In this report acquisition and management funding will be tabulated separately first, then combined into total funding availability and needs. Current Protection Funding State conservation agencies (see Appendix B, at www.efc.unc.edu, for detailed list and individual funding levels) spent $108,123,388 in fiscal year 2001-2002 on conservation land acquisition and protection. This includes money spent on fee simple purchases of land for parks, funds devoted to the purchase of conservation easements restricting the use of properties, and funds granted to local governments or private groups for such purchases. Of the total, $14,695,425 came from state appropriations, $1,125,151 from agency-specific taxes and fees, $27,046,035 from the Federal Government, $64,359,957 from the state conservation trust funds, and $896,820 from other sources. Protection funding needs Agencies varied in the degree to which they possessed specific acquisition funding goals based upon identified projects. The total value of acquisition funding gaps expressed was $1,035,481,400, equivalent to $152,210,612/year for the next 7 years till 2009. This includes both the needs of the conservation agencies themselves, and the unmet demand experienced by the conservation trust funds for local and private funding. Current Management Funding Agencies spent $111,739,444 managing protected lands in fy 2001-2002. Management funding pays for such activities as burning, law enforcement, visitor education and management, and invasive weed control. Sources of management funding were $40,650,993 from state appropriations, $25,802,303 from agency-derived funds, $29,632,181 from the Federal Government, $10,377 from the conservation trust funds, and $15,643,590 from other sources. Management Funding Needs Almost all of the agencies had identifiable needs for additional management funding, yielding a gap between current funding and needs of $24,431,161/yr. This includes a very limited measure of estimated need from the trust funds, which tended not to provide funding for management, only acquisition. N.C. State Agency Conservation Funding Needs Assessment: efc@unc 3

Overall Conservation Funding Needs Assessment Combining the management and acquisition needs identified above yields a yearly funding gap of $176,641,773, or $1,206,499,526 (1.2 billion) total over the next seven years. The total amount that will be need to be spent on conservation during this time to meet agency goals, including current funding and the funding gap, is $2,775,532,238. Issues related to conservation funding gap assessment As noted above, not all agencies had already prepared precise statements of acquisition and management needs, and therefore some of the numbers used in this assessment are rough estimates. For example, the Wildlife Resources Commission estimated that it needed to protect an additional 500,000 acres of gamelands, in addition to the 2 million acres owned, leased, or managed now, in order to meet constituent demand for hunting lands and wildlife protection goals. While this number is reasonable given the rapid loss of wildlife habitat in the state, there is no firm basis for choosing 500,000 acres instead of some other figure. Any overestimation of conservation needs by particular agencies is likely to be balanced out, however, by underestimation by others. The Coastal Reserve Program in the Division of Coastal Management, for example, was unwilling to speculate on future acquisition needs when their current management funding was already inadequate. With many state conservation agencies already chronically underfunded, the overall estimates of future needs can best be regarded as modest and pragmatic rather than idealistic. The second point of concern in this assessment is the strong possibility of overlapping goals, needs, and functions among entities pursuing conservation. Such overlaps do not appear to negatively impact the achievement of conservation, but they do complicate the assessment of funding needs. For example, lands acquired for biodiversity protection and recreation by the state parks will also serve to meet wildlife conservation and water quality improvement goals. In the absence of an overall conservation strategy for the entire state, it is essentially impossible for the different state agencies to temper their funding needs via recognition of other agencies planned accomplishments. At the same time, it must also be remembered that if the individual agencies underreport their needs, the overlap between the impacts of their conservation activities may serve as a necessary buffer against insufficient protection. Broad overlap exists not only among the state conservation agencies, but also between these agencies and local governments, non-profit conservation groups, and the various branches of the Federal Government. These overlaps are not really a problem from a practical standpoint, as the actions and funding of all of the different agencies and groups can complement and support each other well. It does mean, however, that it would be inaccurate to extensively tally private, local, and federal conservation needs and add these en masse to the state agency totals. In this assessment, the only private and local government funding needs included are those represented by unfunded grant proposals N.C. State Agency Conservation Funding Needs Assessment: efc@unc 4

received by the Clean Water Management and Parks and Recreation Trust Funds. Federal programs are only included if they either fund state agencies in the form of grants (e.g. the LWCF) or depend in part upon matching state funds (e.g. CREP, which combines USDA and state funds). The issue of overlapping goals, protection activities, and funding needs is perhaps best seen as excellent evidence for the need for collaborative, comprehensive conservation planning of the sort now being contemplated by One NC Naturally. Comparisons with EFC Million Acre Financing Report As mentioned above, the EFC prepared in 2001 an assessment of the expected additional costs of achieving Governor Hunt s Million Acre Initiative by 2009. Yearly costs were estimated as ranging from $95-270 million per year, with a middle ground figure of $125/ million per year over ten years. Ten years was chosen as an acceptable compromise between the nine years remaining at the time, and the eleven years (1999-2009) officially adopted as the Million Acre timeline by the State. The middle ground estimate assumed protection of 50,000 acres per year (at $2500/year), on top of the estimated 50,000 acres/year already being protected at that time. The cost per acre included pre-acquisition expenses and post-acquisition management endowments. The total yearly funding gap identified in this report ($176 million), although determined using an entirely different technique, is surprisingly close to the earlier middle estimate. This suggests that meeting the expressed needs of state conservation agencies may be functionally equivalent to protecting a million acres of open space. However, it should be remembered that 4 years (1999, 2000, 2001, and 2002) have passed since the beginning of the Million Acre Initiative, and progress at land protection during this time has been slower than the pace needed to meet the 2009 deadline. The 2002 Million Acre Report indicates that 175,515 acres had been protected at the end of 2001, with roughly 80,000 more being conserved during 2002, for a total of 256,000 acres. To protect a million acres in the seven years remaining, conservationists will need to find the funding to place 106,000 new acres per year under open space management. Using the EFC s middle estimate of $2500/acre total cost, getting back on track to meet the Million Acre Goal will cost $256 million per year, or a total of $1.855 billion in new acquisition costs and management endowments. An equivalent figure can be reasonably produced from the state agency needs assessment by adding current acquisition funding ($108 million/yr) to the total annual gap ($176 million/yr), yielding a $284 million/yr total cost of new land protection and management ($1.98 billion over seven years). Neither the $1.855 billion nor the $1.98 billion estimates include background funding for management of existing state protected areas ($112 million/yr, or $784 million over seven years). Conclusions Regardless of whether state agency needs or Million Acre plan requirements are used as guides, it is clear that meeting North Carolina s conservation goals will N.C. State Agency Conservation Funding Needs Assessment: efc@unc 5

cost a substantial sum of money over the next seven years. The convergence of two independent estimates at around $1.9 billion lends credence to this figure as a reasonable target for conservation funding goals. However, caution is needed in two respects in interpreting the estimates derived above. First, as mentioned in the Issues section, funding and land protection goals among state, federal, local, and private groups overlap. The million-acre goal was never intended to be financed and pursued only by state government agencies. Therefore, the state may not need to raise the entire 1.9 billion in order to protect a million acres of open space by 2009. Clearly, though, in the absence of a major state-led funding initiative or a fundamental shift in federal priorities, achieving the million-acre goal will be impossible. That the state agencies themselves were able on short notice to describe conservation funding needs equivalent to the cost of protecting a million acres is illustrative of the second point of caution. As DENR Secretary Bill Ross mentioned at several of the regional One NC Naturally planning meetings, a million acres of new open space will not be enough to ensure scenic vistas, excellent recreation opportunities and the survival of NC s native plants and animals for decades to come. Mechanisms other than acquisition of land and development rights will have to be employed for convincing a great number of private landowners to protect their lands from urbanization. Such mechanisms will need to possess sufficient incentives to reward private landowners for their contributions to the public good, but will by necessity be less expensive and less managementintensive than outright purchases of open space (example: open space zoning). If no funding for achieving the Million Acre Initiative via acquisition can be found, state leaders may need to consider this kind of alternative strategy more quickly. However, given creativity and perseverance, it can be hoped that funding for protecting at least one million acres of open space for public use and enjoyment will be found in the near future. Possible Funding Mechanisms A variety of possible funding options for achieving North Carolina s conservation goals are already described in detail in the 2001 EFC report. These include issuing general obligation bonds, raising the real estate transfer tax, raising severance taxes on mineral extraction, raising specific sales taxes on luxury goods, and adding landfill tipping and other fees. Two options not mentioned in the earlier report are also worthy of consideration. The first, which was nearly enacted on a federal level by the Teaming with Wildlife coalition several years ago, is to add a specific excise tax onto all products whose major purpose is enjoyment of the outdoors. Hunters and fishermen already pay such a tax on their equipment, so it seems only fair to allow other outdoor enthusiasts in NC the chance to support conservation through their purchases. The second option is for the legislature to arrange for a specific fraction (~1/3) of the Highway Trust Fund monies to be devoted to open space N.C. State Agency Conservation Funding Needs Assessment: efc@unc 6

conservation. Such a transfer would accomplish conservation goals twice as fast by slowing the pace of new road construction. It would also help alleviate traffic congestion by reducing subsidies for traffic growth. About the efc@unc and the Environmental Finance Center Network The efc@unc was begun in 1998 as a joint venture between the Institute of Government and the Office of Economic Development, both at UNC-Chapel Hill. Faculty and students working with the efc@unc concentrate on helping improve the financing and delivery of environmental goods and services. The Environmental Finance Center at UNC-Chapel Hill (efc@unc) is one of a group of university-based centers that concentrate on problems in the financing of environmental services. The U.S. Environmental Protection Agency originally established the centers in order to bring the work of researchers in the universities directly to bear on local environmental problems. For more information on the Environmental Finance Center network and the efc@unc, see: www.efc.unc.edu or call Richard Whisnant, Director of the center, at (919) 962-9320. Credits and thanks and disclaimer The authors are grateful to the numerous individuals and organizations that readily gave time and effort to support this report. In particular, they wish to thank the UNC School and Institute of Government and Kenan Center for Private Enterprise for giving time to pursue this research; the Department of Environment and Natural Resources and its divisions; and the numerous individuals who gave time and data in support of these estimates. Needless to say, but to be explicit for the record, the views and findings expressed in this report are purely the authors own and do not reflect the opinions of or endorsement of these individuals and organizations. N.C. State Agency Conservation Funding Needs Assessment: efc@unc 7

Appendix A: Methods used in assessment The conservation funding needs assessment was carried out by email and phone interviews of relevant state agency staff during the period January-February, 2003. Each agency or program involved in land and water conservation was queried as to its current management and protection funding, and the sources of said funding. Staff were then asked to estimate their needs for additional funding for management and acquisition. Management funding needs were typically expressed as additional dollars per year, and therefore the figures given were simply equated with the management funding gap. Acquisition funding needs were often expressed as total needs over some timespan, and therefore to derive protection gaps it was necessary to subtract current funding. When calculating acquisition gaps, the federal and other non-state-derived components of current funding were ignored, as were those elements of future funding needs that were expected to derive from federal sources (e.g. potential matching funds from USDA). It is important to keep in mind that the protection gaps indicated in the report are above and beyond the current level of funding for both acquisition and management. This assessment targeted fiscal year 2001-2002 as a recent, yet completed, year for calculating funding and needs. 2002-2003 data would have been more difficult to estimate on the short project timeline. For some of the trust funds (most notably CWMTF), calendar year 2002 funding was used when fiscal year funding breakdowns were not available. The impact of such substitutions should not be severe. For the trust funds, unmet need was calculated as either the total amount of unfunded non-state proposals (CWMTF,PARTF) or at some figure estimated by agency staff (e.g. FPT). Measuring needs by the amount of unfunded proposals is undoubtedly an underestimate of true private and local government demand for conservation funding. This is because the number of proposals received is a function of funds available, and so the more money the funds had available the more applications they receive. To avoid double counting, state agency needs from the trust funds were assumed to be accounted for by the agencies own statements of protection and management need. The 2001-2002 funding data are without question more accurate than the estimations of future need. As discussed in the Issues section, agencies varied significantly in the degree to which they had available estimates of funding needs, especially for new land acquisition. For the state parks and Plant Conservation Programs, additional management funding based on 2001-2002 rates/acre was added to account for the costs of stewardship for newly protected lands. The amount listed for the Conservation Tax Credit Program under Protection was generated by multiplying the 2001 donated value ($79.5 million) by a fraction taken from previous years representing non-excess donations (71.1%), and then by ¼, the amount of the credit. This value represents an upper bound on the total cost to the state of 2001 donations in lost taxes the real cost to the state is likely to be much lower. The protection gap for the tax credit program was estimated as the amount of additional credit that would have been available assuming no excess value. N.C. State Agency Conservation Funding Needs Assessment: efc@unc 8