Dedicated Funds for State Parks: Designing the Right Approach

March 1, 2013, Department, by Margaret Walls

The recent recession has compounded an already serious funding problem for state parks. General fund revenues for parks, declining nationwide since the 1990s, have nosedived in many states in recent years.

State park systems have responded by cutting their operating costs in a variety of ways and searching for new revenue sources. They have looked at significant increases in user fees; greater reliance on the private sector through more expansive concessionaire agreements, corporate sponsorships, and various kinds of partnership arrangements; and some tentative steps toward more philanthropy and enhanced relationships with conservancies and nonprofits. In addition, in an effort to avoid the ups and downs of the legislative appropriations process and ensure some baseline public funding, some park advocates are pushing for greater reliance on dedicated, or earmarked, public funding streams.

Creating such a fund can be an uphill battle. In some states, advocates work directly with the legislature for the introduction of a bill. In others, the effort is directed toward ballot initiatives. In some cases, the fund may be created through an amendment to the state constitution. But is this approach for state parks a good idea? What are the pros and cons? And if states are to go this route, what sources of revenue should they be looking to?

Background on Dedicated Funds
Many states already have dedicated funds for state parks, though in some cases, they raise only a limited amount of revenue. These funds are financed by lottery proceeds; general sales taxes; motor vehicle registration fees; hunting and fishing licenses; fees on RV, ATV, boat, and snowmobile registrations; motor fuel taxes from off-road uses; real estate transfer fees; and oil, gas, and other mineral revenues from lease payments and severance taxes. Some states have multiple funds. In Oregon, for example, lottery proceeds and an RV tax provide funds for state park operations. Minnesota relies on both a dedicated sales tax and lottery revenues.

Use of dedicated funds has risen over the past two decades. In 1990, only seven percent of state park operating expenditures nationwide were covered by dedicated funds; by 2011, that figure had risen to more than 20 percent. In the 11 states that received no general fund revenues in 2011, the share of operating costs covered by dedicated funds averaged 48 percent. The highest share was in Maryland at 67 percent.

Sales Taxes
Ideally, a dedicated fund should be created from a tax or fee with a relatively broad base. A general sales tax on all goods and services is one example. Because the tax is assessed on a large number of transactions, a relatively low tax rate can generate a reasonable amount of revenue for parks without overly burdening households. Three states with sales taxes for state parks—Missouri, Arkansas, and Minnesota—have rates that range from one-tenth to three-eighths of one percent, so an average person pays only between $20 and $30 per year.

The broad base also ensures that all citizens are contributing to state parks. This is important as it can help create broad support for the parks and limit the influence of any single interest group. In Missouri, the sales tax for state parks is taken back to voters every 10 years. Each time, it passes by a wide margin—73 percent in the most recent vote in 2006. By contrast, some funds come from fees or taxes that fall on select groups of users—hunters and anglers or owners of snowmobiles, ATVs, and RVs, for example. These kinds of fees can create an additional problem: The groups of users who contribute to the fund may have undue influence on the use of the revenues.

Lotteries, which are used to fund state parks in three states—Colorado, Oregon, and Minnesota—can also exhibit a disconnect between those who pay and those who benefit from parks. People who buy lottery tickets are often a subset of the general population and may not be the heaviest park users. Lotteries are also an inefficient way of raising revenues in comparison with most tax-based systems because a large share of the revenue is paid out in prizes—typically more than 50 percent.

Revenues from Resource Extraction
Royalties and bonus payments from oil and gas leases on public lands are gaining interest in states such as Pennsylvania and Ohio, which have significant shale gas resources. Florida uses revenues from phosphate mining to fund state parks. But such options may be unavailable to many states, either because the resources do not exist or because there is an unwillingness on the part of the state government to drill on public lands. Severance taxes on oil and gas extraction on private lands are important sources of revenues in some western states, but thus far, those revenues have not been dedicated to state parks.

Environmental Taxes
Hawaii and New York are considering a plastic-bag fee to fund parks.  In New York, the initiative has come to be called “Pennies for Parks.” Taxes on “bads” to fund expenditures on “goods” can be popular, but there is an inherent drawback to the approach: If consumers respond to the plastic-bag fee by reducing their use of plastic bags, revenues can be expected to decline over time. In fact, this has been the experience in cities such as Washington, D.C., that have adopted such fees. The virtue of environmental taxes is their ability to bring about these kinds of behavioral changes and not their ability to raise reliable and sustainable funding for government programs.

Dedicated Funds: Not a Panacea
Many studies show that the adoption of earmarked taxes for a particular public good leads to a reduction in general fund revenues for that good. This holds across states and for services ranging from education to transportation to parks. Sometimes the reduction is even one-for-one, i.e., every dollar raised by the new tax leads to a $1 reduction in general fund revenues.

What’s worse, in some states the dedicated funds themselves have been swept into the state general fund at times of budget shortfalls. This happened most recently in Arizona with its Heritage Fund, which is financed by lottery proceeds, but has also happened in the past with Maryland’s Program Open Space and New York’s Environmental Protection Fund. Interestingly, in Missouri, where the sales tax goes back to the voters periodically, the legislature has not shown interest in diverting the funds. States with constitutional amendments—Colorado, Michigan, Minnesota, and Oregon fall in this category—are most protected.

Finally, it is worth pointing out that not all state park systems that rely heavily on general fund revenues are in bad shape. Some continue to have support from their state legislatures and receive relatively consistent year-to-year funding. These include New York, North Carolina, Kentucky, and Tennessee, among others. This is not to say that they haven’t suffered in recent years with the recession and state budget cutbacks, but state parks there continue to receive support.

States need to start thinking outside the box and looking at a package of reforms to save their state parks. The best approach will probably include a combination of smart user fees, some public-private contracts, a more creative approach to philanthropy that builds off successful models in other areas, and some reliance on dedicated public funding. In thinking about how to finance these dedicated funds, states need to search for a revenue source that provides reliable and sustainable funding over the long run, imposes a comparatively small efficiency cost on the economy, and relies on contributions from all citizens.

Margaret Walls is the Research Director and Thomas J. Klutznick Senior Fellow at Resources for the Future, a nonprofit organization that conducts independent research on environmental, energy, natural resource, and environmental health issues (