of the General Accounting Office well points out. The capital asset values are arrived at in an unrealistic manner; there is inadequate handling of investment expenditures and of depreciation, and there are differences between agencies in what should be comparable matters the differences in the way the Forest Service and the Bureau of Land Management handle payments to States and counties is an example of the latter. But these deficiencies are recognized both by the General Accounting Office and by the agencies, and I am sure that steps to overcome them will be taken as rapidly as practicable.

I support the position taken by the Comptroller General, in his letter to you, that the accounts of the land managing agencies should conform to the general accounts developed for all Government agencies. After all, these agencies are part of the executive branch of the Federal Government, and it would be most confusing if their accounts were on some different base.

However, it does seem to me that two additional broad lines of approach are called for. In the first place, it would be most helpful if the land managing activities of the land managing agencies were set forth clearly and separately from their other activities. The Forest Service, for example, carries on research and cooperative fire control and other activities with the States, as well as manages the national forests. A substantial part of the total expenditures by that agency are for these activities which are not directly part of Federal land management. A similar, but smaller scale, situation exists for each of the other agencies. If it is possible to have accounts and reports relating directly and exclusively to the land managing activities, these would be much more useful in reaching decisions as to the best public policy for those lands.

In the second place, it seems to me that no system of accounts, however complete and accurate, will alone provide a sufficient base for sound public decisions. Any accounts that may be developed must be supplemented by certain economic analyses, to reveal major alternative lines of public action and to provide the best basis for choosing among them. I think of three directions in which accounts should be supplemented by further analysis.

1. Each agency should prepare an annual report on its land management activities, according to a common model, bringing together in realistic fashion an account of all income, including that "in kind" and the value of those services provided free, and bringing in also all costs, including those not in cash. I have drawn up, and attach hereto, a very brief and simplified statement of the kind I have in mind. Some of the figures for this statement I have taken from the Comptroller General's report to you; others I have had to guess at or invent. The statement therefore has only limited accuracy, but perhaps it will be illustrative of what could be accomplished with proper and accurate data. The annual output from the Federal lands falls into three groups: cash revenues, which accounts may be expected to show clearly; "in kind," or the value of roads built, forest plantings made, or other land improvement practices carried out by timber purchasers as part of their contracts-these could be shown on accounts, although they are not shown now; and the value of products or services provided free or for less than a full market value. For instance, recreation is provided free or at a nominal fee, yet it is surely of great value. Most mineral leases are on a noncompetitive basis,

so that less revenue is obtained than might be. In fact, for nearly every resource or services, less than a full market value is obtained, at least in some instances. Important policy issues are involved in the pricing of products and services from Federal lands; I am not here challenging present policies, but only suggesting that it would be helpful to have full information. You will note that according to my rough estimates, the cash receipts are less than half of the total annual output. Among the expenses, not only should cash operation and maintenance costs be included, but also depreciation on depreciable items, payments to States and counties (in lieu of taxes), and interest at a reasonable rate on the value of the capital assets. According to my very rough estimates, two-thirds of the total annual costs are interest on the value of the capital assets.

This form of statement could surely be refined; perhaps more detailed supplementary statements would be helpful, to indicate how the various parts were estimated. Some of the items which I have simply guessed at could be estimated or recorded with accuracy, thereby making such statements much more reliable. In particular, much study would be required to estimate the full value of many services and products now supplied free or below full market values. I have no doubt that experience would show many ways for improvement of this form of statement. But I think that something of this approximate character, treating all values and all costs, is essential for a correct understanding of Federal land management.

2. Each agency should prepare another statement, or statements, on its land management activities in which would be shown the effect of different levels of expenditure and of investment than actually occurred. At the best, the foregoing types of reports show only what happened in the year in question. The critical question on which the public wants an answer is, what would have happened had we done something different? If we had made greater or less expenditures for operation and maintenance, or for investment, what effect would this have had upon revenues, upon output, upon capital value of the land? This type of analysis is exactly what well-managed private firms do. They are not content to report what their gross income and profits were in the year just passed; they consider carefully how to increase both in the year ahead. They consider the possibility of larger output, greater investment, more sales effort, and various other practices, as these affect profits. In the illustrative figures in the attached statement, what would have happened had $10 million, or $25 million, or $40 million more or less been spent on the Federal lands, either for operation and maintenance only or for investment also? Such an analysis must be made carefully, and be based on the best possible facts. It should consider not merely what happens to cash revenue in the year under consideration, but what effect a different program would have on the outputs not represented by cash revenues, on the value of the capital assets, and on output in future years. Public agencies must present these analyses for public discussion, before congressional committees and elsewhere; to this extent, they differ from the operating plans of a private company, which can be and usually is a private matter. But the real policy decisions of the Congress and the public turn on these alternative plans and their consequences. A simple budget request which is defended by the agency concerned, as is the present practice, is not

adequate; it is made at only one level of operation and there is no clear picture of the consequences of different programs.

3. The agencies should prepare reports considering in some detail the payments to States and counties out of revenues from land management activities. At present, there are widely differing arrangements in existence. The sums involved are considerable in excess of $60 million annually now, and sure to rise in the future. On the average, one-fourth or more of gross cash receipts from Federal lands are paid to States and counties. In our book, The Federal Lands: Their Use and Management (published by Johns Hopkins Press), Dr. Held and I emphasized that this form of payment is undesirable both to the States and counties and in its effect upon sound business management of the Federal lands. A sharing of gross revenues from Federal lands is a form of gross income tax-a kind of tax widely condemned for its adverse effects upon business of all kinds. In addition, I cannot help but wonder if the sharing of gross revenue does not give the States and counties more money than taxes on a private ownership base would give them for the same lands. I note with much interest a recent annual report of the Weyerhauser Timber Co., with summary financial data for 10 years 1948-57. The total of Federal income taxes and all other taxes for this company has run from 10 to 17 percent of gross annual income, averaging about 12 percent. By far the greater part of this has been Federal income taxes; all other taxes have been less than 5 percent of gross income in every year. It seems to me we should not continue to pay out very large sums to States and counties without knowing more than we now know about how these amounts compare with possible local

taxes.

I wish again to emphasize how pleased I am with the interest of your committee, of the General Accounting Office, and of the agencies. The Federal lands are extensive in area, great in importance, and growing in importance. They must be managed to achieve their full productivity. The costs of their management must be considered carefully. If the conservation and wise use of these lands is to be promoted, and if the interests of all the people are to be protected, then we need more information about the lands than is now available, and we need to consider carefully all the possible lines of action in their management.

Sincerely yours,

MARION CLAWSON, Director, Land Use and Management Program.

Schematic annual economic report for Federal land managing agencies, fiscal year 1957 (data partly from various official reports, partly hypothetical)

1 As far as practicable, these data apply to land management activities only. As such, they exclude research, cooperative work with States, cooperative work done for other agencies, trust funds (except as these are receipts from resources), and the like.

Cash payments to Forest Service for brush disposal, maintenance of roads and other improvements and other purposes; cash expended by Forest Service for these purposes.

Value of roads, bridges, and other structures built, and of reseeding and other services performed, by timber purchasers and range users, as a part of contracts or leases. These values are part of annual output but they do not go to the Forest Service in cash; expenditures to these values made by users.

These amounts are the estimated differences between the full market value at competitive prices, and the cash revenues actually received from the various uses or resources.

Due to increased volume of timber and other increases in value, but assuming a stable general price level; includes value of annual investment in excess of annual depreciation.

As shown in item 2 (a) vi, above.

As shown in items 2 (b) ii to 2 (b) iv, above.

• From appropriations and from item 2 (a) v, above.

⚫ As shown in item 2 (b) i, above.