Although it attracted scant public attention, a recent debate sparked by the State of Michigan’s $1.8 billion deficit raised a rarely asked question: Does the state own too much land?

It certainly owns a lot of land — 4.5 million acres, more than any other state east of the Mississippi River. The Michigan Department of Natural Resources manages it, and when Lansing was slashing that department’s budget this spring, Governor Jennifer Granholm proposed cutting the state’s annual payments to local governments whose borders contain parts of this vast, publicly owned domain. These “payments in lieu of taxes” (PILT) made by the DNR compensate townships, counties, school boards, and other local units of government whose tax bases are limited by the presence of state-owned land, which technically cannot be taxed.

So, when the 2003 deficit raised the possibility that PILT payments might be reduced, some government officials, conservative lawmakers, and an influential free-market think tank argued that if the state couldn’t pay those local units the money they were expecting, it should sell off land both to meet those obligations.

‘A Foolish Idea’
Many legislators, including Republican state Senate Appropriations Committee Chair Michelle McManus of Traverse City, called that a foolish idea. They said that Michigan’s public domain generates thousands of jobs, millions of dollars in economic activity, and countless smiles from residents who enjoy the state’s wealth of outdoor attractions and activities.

They prevailed. Democratic Governor Jennifer Granholm and Republican leaders, who control both chambers of the statehouse, found the money to cover the PILT shortfall. Payments by the DNR to local governments will continue for at least another year.

But Sen. McManus predicted that this debate over public lands would also continue. At issue are the size of Michigan’s public land holdings and the PILT program itself.

Given how PILT works, it becomes more expensive each year. While slightly less than half of the current $16.5 million PILT price tag is stable because it is based on a $2-per-acre flat fee that covers 3.5 million acres of state land, the remaining $9.5 million of payments for the state’s other one million acres is based on an ad valorem calculation. So, as property values rise, and as the state steadily accumulates more land (an additional 44,800 acres in the last seven years that’s subject to the ad valorem method), the cost of PILT rises too.

How Much Is Too Much?
Republican state Senator Alan Cropsey, from DeWitt, said this behooves the state to reappraise its land holdings.

“The state owns a tremendous amount of land,” Sen. Cropsey said. “The question becomes, should the state own all the property it owns? And if it can put some of that back into the private sector, then there’s a lot of savings that can be made. I think selling land needs to be an option.”

Diane Katz, a researcher at the Mackinac Center for Public Policy, a free-market think tank in Midland, had an even stronger opinion.

“The state has no business owning property for which it won’t pay taxes,” Ms. Katz said. “The DNR should be compelled to sell property at least equal to its outstanding tax liabilities. After all, any private citizen would be forced to do no less.”

Now the DNR is conducting a formal inventory of its holding. Dave Freed, head of the department’s Land and Facilities Office, which buys and sells state land, said the review would identify “public lands that fall outside designated boundaries and are thus surplus to the state.”

He added that the DNR would then either sell those surplus holdings or exchange them for land that’s more relevant to its mission.

A State of Land Lovers
Yet some lawmakers from districts with large amounts of public land within their borders say the state should be very careful about conducting land sales. One of them is Democratic state Representative Matt Gillard of Alpena; his district includes Crawford County, which is about half state-owned. He said selling land is not a solution to state deficits, but neither is cutting PILT payments — a strategy that he believes would quickly backfire.

“If we eliminate PILT,” Rep. Gillard said, “we’re going to see a lot more talk from local government and citizens when they see their services cut because their local government can’t afford to provide them. Then you’re going to see more citizens talking about selling public land.”

That would mark a sharp reversal of public sentiment. Most Michiganders support maintaining and expanding Michigan’s public domain. Even former Governor John Engler, who dedicated himself to reducing the size of state government, saw the state’s public holdings expand by an average of 5,000 acres a year during his 12-year administration.

Perhaps something that former Republican state Senator George McManus, Ms. McManus’s uncle, tried eight years ago taught Mr. Engler a lesson. Mr. McManus and other very conservative legislators attempted to convince the state to sell public land, but the idea went nowhere. Citizens strongly rejected it at public hearings about the proposal.

There are statistics that confirm this anecdotal evidence: Michigan’s 97 state parks frequently set new attendance records. Nearly one million hunters take to Michigan’s state-owned forests every fall, a national record. Two decades ago, the state’s voters strongly supported the establishment of the Natural Resources Trust Fund, which now channels state revenues from private oil and gas wells to the purchase of still more land for public recreation and permanent preservation.

“That’s a concept that is really at the heart of what drives people in saying how they want to see the lands that are publicly owned in Michigan managed,” said Anne Woiwode, who directs the Michigan chapter of the Sierra Club. “We as citizens expect that there will be state forests and beautiful state parks.”
 
Freezing PILT
So, with the state in serious budget trouble and its citizens opposed to selling off its matchless land holdings, some observers say Lansing must find another way to reduce its PILT burden.

Sen. McManus and several of her Republican colleagues are sponsoring a bill that would eliminate the ad valorum mechanism that gradually inflates the PILT payments. It would freeze those payments at their current level, assuring local governments that they would at least get the same amount of money ever year. This would represent a compromise with Gov. Granholm, who during budget negotiations called for converting the ad valorem payments to the lower, flat, $2-per-acre rate, saving the state approximately $5.2 million annually.

Joe Wakeley, Crawford’s County’s treasurer, supports the freeze, even though it would eliminate any possibility that the state would pay more than it does today for the land it owns in his county.

“I think local units might be able to handle the cap,” Mr. Wakeley said. “It certainly would be much easier for counties, townships, and school districts to accept that rather than go back to $2 an acre, where they’re forced to raise the taxes on the private property owner to make up the shortfall. We know we’re going to get what we got last year.”

Ms. Woiwode said the proposal is a vast improvement over the idea of selling state land.

“Selling land to make up for PILT payments is like selling the equipment in your factory in order to pay your tax bills,” she said. “We need to fix this problem, but the fix needs to assure that public lands are being properly maintained, that we’re meeting the public interest at both the local and the state level.”

Kyle Smiddie, a senior at Haverford College, is writing for the Institute’s news desk this summer as a Haverford College Peace and Global Citizenship intern. Reach him at smiddie@mlui.org.