FEDERAL BUDGET INSIGHT

President Bush released his budget proposal for fiscal year 2006 and it includes some sobering news for many entitlements.  Amtrak, Medicaid, farm subsidies, and many other domestic programs are targeted for reduction.  Debate is already heating up across party lines on whether the scheduled cuts are prudent.  Congressman Peterson was quick to chide the proposal for gutting many initiatives considered critical to rural America.

 One point is crystal clear, the war on terror, like it or not, remains center stage and escapes any roll-back in funding.  Therefore, if the President is to honor his word regarding deficit reduction, cuts must come elsewhere.  Entitlements of all kinds received strict scrutiny and several became casualties to deficit reduction.

 Interestingly this past week, bi-partisan legislation was introduced in both halls of Congress to reauthorize a $500M per year entitlement known as PL 106-393.  Officially entitled, “Secure Rural Schools and Communities Self-Determination Act of 2000,” the law subsidizes rural schools and rural road maintenance through federal tax dollars.  It was passed to replace the legal obligation of the Forest Service to share 25% of their yearly receipts, which had declined precipitously over the last decade and a half.  In light of the President’s fiscal approach to 2006, it is difficult to imagine he will support reauthorization for this expensive rural entitlement.

 The sad fact is, however, local municipalities within the Allegheny National Forest (ANF) do not need to be subsidized given current circumstances.  The ANF by all accounts contains largely mature timber (estimates run as high as 60% of the inventory), which is in desperate need of attention.  If the Forest Service properly attended to the situation, the ANF would no longer be a burden to taxpayers.  Money would flow into rather than out of the US Treasury.  Let me illustrate the point.

In FY 2004, the local Forest Service reported selling 23.3mmbf and listed 16.9mmbf as having been harvested.  The selling price for the timber was $25.6M and the harvested timber fetched $16.8M.  Simple mathematics tells you the rate of return is one dollar per board foot.  If the harvest level had reached 24mmbf, $6M would have been eligible for 25% payment, an amount equal to the current subsidy from the US Treasury, but with no burden placed the taxpayer.  Just imagine what the 25% payment would have been if the Forest Service reached the planned allowable sale quantity (ASQ) of 53.2mmbf.   The potential of $13M would far surpass anything currently available to schools and townships under PL 106-393.

 The unfortunate consequence of the 2006 budget rhetoric is that too much time is spent addressing expense cuts and too little time addressing revenue increases.  If federal authorities are really serious about reducing the deficit, one solution is right before their noses.  The ANF can turn a huge profit, thereby supporting the US Treasury while at the same time creating jobs and bolstering the local economy.  If, however, they turn a blind eye to this fact, our school districts and townships will struggle absent reauthorization.