The Value of Primacy: Ordering Land Uses by Greatest Need

     The United States is a big place.  In total there are approximately 1.9 billion acres of land within the borders of the nation and that would seem like plenty of space to allow all endeavors room to site and develop their projects without ever coming into competition.  If you have ever flown across the country, you spent hours looking out a plane window at a vastness that didn’t seem to end.  That feeling would be compounded if you have ever driven across this country.  In states like Texas or Montana you could set out well before dawn and even driving at highway speeds on essentially straight roads would not bring you out of those states until early the next morning.  Just south and west of Chicago you would pick up your first corn fields.  Those corn fields would stretch for days until you reached the high plains and in turn the Rocky Mountains, both of which would almost make you forget how large those corn fields were.

     But as large and spread out as this nation seems to be there are of course limits.  Not only are there the obvious physical limits (planet Earth is not infinite in scale) but much of the land that we do have within our borders is already in use and those existing land users typically need a fair amount of convincing before agreeing to transfer, convey, lease, or surrender their space to you.  When you remove the three largest land uses – pastureland (654 million acres), forest land (540 million acres), and cropland (392 million acres) – you are left with “only” 314 million acres. Of that, 70 million acres have already been developed for urban or suburban usage and this figure grows by approximately one million acres each year.  To put that last figure in perspective, that growth rate is the equivalent of adding the combined land mass of Los Angeles, Houston, and Pheonix every year.  When all of this is taken into consideration the amount of usable acreage theoretically remaining to the energy, mining, and infrastructure sectors becomes greatly reduced. Further compound the situation with the realization that much of the remaining acreage is either inherently undevelopable (in a flood plain, slope far too great, etc.) or the same acreage most suitable for the development of new residential, shopping, and commercial developments and the acquisition process becomes highly competitive.

     At some point the question becomes what potential land use becomes the best choice? And the best choice for which stakeholder?  The needs of the current landowner, the companies intending to sit a project on the tract, the local community, the larger state and federal governmental entities seeking to fulfil their various mandates, investors at large, and citizens foreign and domestic can sometimes be aligned with one another but are quite often antithetical to one another.  When push comes to shove, do we feed the nine or do we keep the lights on?  As a society, how do we make that choice?

     The seemingly obvious solution would be to encourage several potential land users to find a way to cooperate with each other and share acreage whenever possible (i.e.: stacking enterprises).  I have discussed this in other blog posts (The Value in Speaking With Others and The Value of Strength) and publications, and so will not go into it again here.  Assume for the purposes of this discussion that for any one of several reasons such cooperation is not possible here.

     One plausible approach would be to simply let the “free” market select out the winners and losers.  A smart and savvy landowner would be well within their rights to “auction” their tract of land to the highest bidder without care or concern as to the eventual end use.  They are certainly under no legal obligation to use any factor beyond offered sale price and terms as the shibboleth for identifying the best transaction for their family or business.  Each potential land use type will be subject to general, theoretical revenue and cost parameters which will affect how it competes both with similar and out-of-industry competitors and each individual project will carry its own economic assumptions and possibilities which will further affect its chances of successfully competing against both direct competitors and alternate land use strategies.

     The problem with letting this admittedly free market approach select winners and losers is that the market will, predictably, select winners and losers.  This works well in theory and investor circles, but again, we all want to both eat and turn the lights on.  An unfettered free market system does not, cannot, and should not care about any factors other than the ability of the winning project to out-compete any other options.  But that also means that sometimes a free-market approach will not produce a result that is useful or palatable for the several other associated stakeholders.  Accordingly, on occasion these markets need to be acted on by external forces that either through gentle persuasion, coercion, or outright regulation force choices that are in the greater public good.

     Another conceivable approach would be for government entities to decide and control the outcome.  State and federal agencies could use their existing regulatory and taxing authority to support certain outcomes and hamper others.   At the outset of the Republic Chief Justice John Marshall said that “the power to tax is the power to destroy,” but when properly envisioned and drafted it can also be used as the power to incentivize.  As for the regulatory environment that exists in the United States, this is already the most heavily regulated society in the history of mankind so what would be a few more regulations?  Using these two approaches a governing body could shepherd into existence what it felt was in the best interests of its citizens.

     In reality this already happens to a great extent.  There are countless tax subsidies supporting most industries.  The Oil & Gas industry enjoys being able to deduct a percentage of the gross revenue from their properties as opposed to deducting the actual costs associated with a given project (the “Percentage Depletion” subsidy), along with tax credits for marginal wells and some of the costs associated with enhanced oil recovery efforts, as well as numerous other development and production costs for domestic production activity.  The Renewable industry, for their part, cannot wean themselves off of the Production Tax Credits (“PTC”) and Investment Tax Credits (“ITC”) that have helped support the proliferation of solar and wind generation sites throughout the nation over the past several decades.  Agriculture enjoys a significant number of support subsidies.  The federal government provides one of history’s great backstops against hunger by protecting the nation’s farmers against crop loss through its Federal Crop Insurance Program and the reason most gasoline you purchase is a partial blend containing ethanol is because the government supports the nation’s corn farmers with both tax incentives and financial assistance programs such as the Biomass Crop Assistance Program.

     So, the notion that we exist in a “free market” is a fallacy.  From the moment you’re born there is not an aspect of your life that is not in some way impacted by the regulatory and taxing powers of the local, state, and federal jurisdictions in which you exist and operate. Should you choose to enter into the stream of commerce in any fashion this is exponentially compounded. 

    But the notion that decisions such as these could be made solely by governing bodies and jurisdictions somehow strikes quite the Unamerican tone.  Even in the current modern age Americans still have a powerful belief in the right to self-determination, no matter how admittedly regulated that right has become. I don’t know of many individuals or companies that would want to wholly submit to a forward-looking planning process entirely co-opted by a state or federal government entity.  And, to be fair, having spent years meeting and working with many of the individuals who would likely be in a position to make such decisions I am fairly certain that they don’t want that authority or responsibility either.  Over the preceding two and a half centuries, for better or for worse, the national ethos has determined that to at least some extent individuals and businesses enjoy some modicum of free will and self-determination.

     So where then does that leave us in this discussion? If we cannot rely on either the free market or the government to provide the society best suited to our needs, how do we determine which competing land use is correct or best at any given time?  As with so many questions of any appreciable scale and scope there will not be any single answer found to satisfy the issue, but rather consensus must be sought and found among the many stakeholders.  Indeed, this is the way all issues of any appreciable size were meant to be considered and solved in this country.  In the run up to the ratification votes enacting the U.S. Constitution, Alexander Hamilton, John Jay, and James Madison, under the pseudonym “Publius,” wrote the Federalist Papers in an effort to explain the underlying rationales and importance of the concepts embodied by that document.  There is no end to the useful and timely material put forth in their writings, but of use in this discussion is the following excerpt from the first of eighty-five articles and papers published:

“It has been frequently remarked, that it seems to have been reserved to the people of this country to decide, by their conduct and example, the important question, whether societies of men are really capable or not, of establishing good government from reflection and choice, or whether they are forever destined to depend, for their political constitutions, on accident and force.”

“Publius” – The Federalist No. 1

     The framers of the Constitution wanted the large problems to be faced by the nation in the future to be solved by many different voices acting in collaboration and concert.  They had the wisdom to understand that “accident and force” were not the appropriate means by which to convince individuals and businesses to accept the end result of a decision-making process.  Only through consideration and compromise will intelligent parties be willing to bind themselves to an outcome.

     So how do we apply these basic and foundational tenants to the idea of prioritization when acquiring and developing land?  How do we feed the nine and keep the lights on with either driving up the price of groceries or electricity beyond the reach of affordability?  We accept the fact that a market-based economy, even a heavily regulated one, is likely the best starting point.  Organizations and investment groups are made up of people and people are motivated by profiting from their efforts and investments.  We also accept the notion that a well-run and well-meaning government has a rightful place in the process to ensure that the many and various needs of its citizens are protected.  As landowners we take the point of view that we are caretakers for an immensely valuable resource and, when possible and in line with the ability to secure a profitable and reasonable return, we take into account the best possible use of that resource when given a choice.

     No one party or point of view should determine what will be the best end use for a tract of land.  The founders knew that concentrating too much power in the hands of any one individual or entity would inevitably lead to some form of tyranny (for more on this point look at The Federalist Papers Nos. 10 & 51).  As messy and frustrating as the current system is we are left to accept that it is also likely the best way forward toward both an equitable and profitable society.  This multi-party process is best suited to make sure that the best use for the available land will eventually be found, regardless of how messy and chaotic the journey might be.  At the end of the day, if we cannot as a society find a way to work together toward our own best interests, then we deserve whatever the result.  As a citizen born into a republic we inherit the dual responsibilities of taking part in the process and actively working toward a mutually successful outcome.  They were able to do it two hundred and fifty years ago and there is no reason we cannot follow that same example today when it comes to how best to utilize the acreage left to us.