The Effect of
the Voluntary Grazing Permit Buyout Act on Third-Party Grazing Permit Buyouts
Third-party grazing permit/lease buyouts are three-way
In a few situations, a second government agency has
funded permit/lease buyouts. Perhaps two or three third-party buyouts occur each
year, usually on specially designated landscapes where there is high political
controversy over grazing in the area. 1
- a federal grazing permittee/lessee who is willing to
end his/her public lands grazing in exchange for compensation;
- a federal land management agency that has agreed to
"retire" the allotment from further livestock grazing; and
- a conservation organization willing and able to pay
the permittee/lessee to relinquish his/her permit or lease back to the government.
Although they serve as worthy examples of the value of voluntary permit/lease
buyout, several factors conspire to severely limit the wide-scale application
of third-party permit/lease buyout as a tool to resolve grazing conflicts across
the quarter of a billion acres of federal public lands where they occur. 2
Of particular concern is that permit/lease retirement by third-party buyout is
not permanent under current law. 3
There are two additional factors that negatively affect third-party buyouts:
In fact, the Wyss Foundation and Hewlett Foundation
have notified the Secretary of Interior that they will not support anymore third-party
buyouts on Department of Interior holdings until the Department can guarantee
that such buyouts are permanent. 4
a.  a decline in foundation
funding for permit buyout after the stock market bubble burst; and
b.  an administration that has shown hostility toward third-part buyouts.
The effect of the Voluntary Grazing Permit Buyout Act (H.R. 3324) on third-party
permit/lease buyouts must be considered in two parts: (1) effect on third-party
buyouts prior to enactment; and (2) effect on third-party buyouts after enactment.
Prior to Enactment
Concerns have been expressed that the mere introduction of legislation that proposes
voluntary buyout at a generous rate of $175/AUM (animal unit month; the amount
of forage necessary to sustain one cow/calf for one month) is causing federal
grazing permittees/lessees who desire to retire their permit/lease to suddenly
demand $175/AUM from third-party conservation buyers, rather than a lesser market
value or some other negotiable rate.
While NPLGC is aware of a few instances where a permittee/lessee opens (or returns
to) negotiations with conservation buyers demanding $175/AUM (the westwide average
market value of a federal AUM is $35-75 5
), they have usually reduced their price and negotiations proceed once the conservation
buyer explains that:
After considering the IRS restrictions on nonprofit
conservation buyers and the uncertainty of the legislative process, most permittees/lessees
who wish to retire their permits/leases immediately would rather negotiate a lower
(market) price with a conservation buyer for guaranteed compensation now, than
wait (perhaps for years) for the possibility of a larger payoff from the federal
- regulations issued by the Internal Revenue Service
(IRS) governing nonprofit, tax-exempt organizations prevent them from enriching
private parties beyond the purposes of the organization. 6
Consequently, to protect their nonprofit tax-exempt status, conservation organizations
are unable to pay more than the appraised market value for a federal grazing
permit/lease (lest they violate the law by unduly enriching a permittee/lessee);
- if the permittee/lessee insists upon $175/AUM - which
only the government can pay and only if the law is changed to require that
price - then they are welcome to join with conservationists and other permittees/lessees
to lobby for H.R. 3324, which may or may not pass; and if it does pass, there
is no guarantee that the final version of the bill will retain the proposed
payment price of $175/AUM; and if Congress actually appropriates funds for
buyout, there is no guarantee that the individual permittee/lessee in question
will be among the first payees under the new law.
A recent third-party buyout of the Blackrock/Spread Creek Allotment on the Bridger-Teton
National Forest near Jackson Hole, Wyoming is illustrative. 7
The permittee came to negotiations asking $175/AUM. However, the parties soon
settled on $78/AUM, which is likely close to market value of a national forest
grazing permit in the Northern Rockies.
As H.R. 3324 progresses through Congress and enactment appears imminent, it is
reasonable to assume that third-party buyouts will drop to near zero in anticipation
of the new law passing.
If H.R. 3324 is enacted into law as drafted, the new effective market value of
a federal grazing permit/lease will be $175/AUM. In addition to federal buyout,
this would likely become the new price that permittees/lessees ask from third-party
conservation buyers and even other ranchers who desire to buy their permit/lessee.
With the new law in place, if Congress follows through and appropriates adequate
funding for the voluntary buyout program, conservation buyers will be able to
save their money and withdraw from the permit/lease market. Even if Congress does
not appropriate (adequate) funding, the new law will still require that any permits/leases
bought by third-party conservation buyers must be permanently retired by the appropriate
federal land management agency.
Some third-party conservation buyers have expressed that they would be pleased
to pay $175/AUM to retire permits with the certainty that the permits/leases would
be permanently retired. However, given that both the conservation community and
grazing permittees/lessees would be requesting full federal funding for permit
buyout, Congress will likely acquiesce and third-party conservation buyers will
be spared from paying the higher price (or any price).
The worst case scenario for third-party buyouts might be that H.R. 3324 is enacted,
but Congress refuses to fund the buyout program. However, even if this occurred,
permit/lease values would eventually fall from the proposed $175/AUM back to market
value (approx. $35-$75/AUM) and perhaps a bit more to account for the prospect
of future federal funding for a government buyout program. In this case, third-party
conservation buyers would be very much back in the market to purchase federal
grazing permits and leases, and now with the certainty that they would be permanently
retired from livestock use.
There might still be a role for conservation organizations even if Congress did
fully fund a permanent buyout program. For example, conservation organizations
may wish to offer a permittee/lessee a "premium" bonus payment of some
amount to induce them to take the government buyout at $175/AUM. Such a premium
might be as little as $5/AUM or as much as $50/AUM. Conservation organizations
could also justify premium payments under IRS rules. Consider this example: To
protect an endangered species harmed by grazing on public lands, a conservation
organization is contemplating protracted and uncertain litigation under the Endangered
Species Act (ESA). However, experts have confirmed that if domestic livestock
were removed from the area, the species would benefit, possibly even more than
if the grazing regime was simply adjusted by ESA litigation. Instead of paying
attorneys, it would be rational (and defensible to the IRS) for the conservation
organization to pay that money directly to the permittee/lessee as a permit buyout
premium, bypassing the uncertain legal system.
1. Salvo, M. and A. Kerr. 2001. Permits for cash:
a fair and equitable resolution to the public land range war. Rangelands 23 (1):
2. NPLGC. Limitations
of Third-Party Buyouts of Federal Grazing Permits (factsheet).
3. NPLGC. Limitations
of Third-Party Buyouts of Federal Grazing Permits (factsheet).
4. Wyss Foundation and William and Flora Hewlett Foundation. Letter to Interior
Secretary Gail Norton (July 3, 2003).
5. Bartlett, E. T., L. A. Torell, N. R. Rimbey,
et al. Valuing grazing use on public land. J. Range Manage. 55: 426-438 (reporting
permit values are between $35-$75 in seasonal grazing states, and higher rates
in states where yearlong grazing occurs) (citations omitted); Torell, L. A., N.
R. Rimbey, J. A. Tanaka, S. A. Bailey. 2001. The lack of profit motive for ranching:
implications for policy analysis. Proc. Current Issues in Rangeland Resource Economics
Symp. Western Reg. Coord. Comm. on Rangeland Economics WCC-55. New Mexico State
University Res. Rep. Ser. 737. New Mexico State University. Las Cruces, NM (unpaginated)
(reporting average permit value of $40/AUM on public lands in Idaho and Wyoming).
6. See Internal Revenue Service. 2001. Tax-exempt status for your organization.
Publ. 557. US Dept. of the Treasury, Internal Revenue Service (rev. July 2001):
18 ("[n]o part of the net earnings of the [501(c)3 nonprofit] corporation
shall inure to the benefit of...private persons, except that the corporation shall
be authorized and empowered to pay reasonable compensation for services rendered
and to make payments and distributions in furtherance of the purposes [of the
7. Israelsen, B. "Room for bears." Salt Lake Tribune (September 04,