Memorandum

To:                   Len Materman, FEMA
cc:                   Mike Eggl, Office of Senator Byron Dorgan
From:               Brad Crabtree, Consensus Council
Date:                September 29, 1999
Subject:            Cost Estimates for MN and ND Portions of   Red River Basin Pilot 

This week I made inquiries on pilot project costs with Jim Birkholz of the MN Board of Soil and Water Resources (BWSR), Don Ogaard of the Red River Watershed Management Board in Ada, MN, Wes Weidenmeyer of NRCS-ND, and Roger Hollevoet of U.S. FWS in Devils Lake, ND. 

First, some general observations gleaned from the conversations.  

Size of Pilot

If we are serious about pilots as a demonstration tool, then our pilots must be large enough to have measurable outcomes for runoff, water quality, conservation, etc.  Among those consulted, 20,000 acres seemed the minimum, larger being preferable.  They emphasized that work must be concentrated in a tributary watershed or even subwatershed to enhance the potential for monitoring and assessment. 

Ideally, we are looking at a minimum of 20,000 acres each for the North Dakota and Minnesota portions of the Red River Basin.

Duration

Currently, many farm program contracts with annual payments run 10 years, with an option to renew for an additional 5 years.  Everybody I consulted felt that 5 years is an absolute minimum for the pilot.  Wetlands and nesting cover restoration require 3-4 years just to show good results.  And farmers won’t find a shorter time period attractive.  Ten years would be ideal, but the cost might make our pilots too small.

Don’t Neglect Conservation-Minded Producers

A recommendation was that we set aside some resources within the pilot project areas to recognize producers who already do the right thing without incentives.  Farm programs like CRP, WRP, EQUIP, etc. have angered some farmers whose past stewardship practices render them ineligible or noncompetitive for government conservation programs.  It was suggested that offering 25 percent of the value of any given incentive would avoid alienating conservation-oriented producers and help establish the FSI principle of compensating farmers for services rendered.

Present Costs

Here are some examples of costs obtained from NRCS and MN BWSR data:

Conservation tillage/high residue farming: 

$10/acre works well in ND to encourage farmers to switch.  However, in the upper basin in MN, conservation tillage can mean not getting your crop in except during a very dry year.

Retiring marginal land: 

Cash rent at $55-60/acre for cropland in the upper Red River Basin of MN compares with CRP rental payments of $35-50/acre for Red River Basin counties in ND (toward the lower end of that range for upper basin counties).

Easements in ND: 

Average value for EWP 99-year easements is $520/acre (includes cropland, forest and noncrop acres combined).  Acquisition costs were $16/acre (appraisal, survey, closing) and restoration costs were $85/acre (seeding, tree planting, wetland restoration, and fencing).  Average easement size was 143 acres.

Easements in MN: 

20 year Reinvest in MN (RIM) easements capped at 60 percent of assessed township market value; permanent easements capped at 90 percent.  These are often added at the front end of a CRP or CREP contract to purchase a permanent easement at the end of the contract for a total value to the producer of 110-120 percent of market value.

MN RIM easement rates vary widely.  For example, Beltrami County in the upper basin has fairly low RIM payment rates—roughly between $200-300/acre for cropland and $100-250/acre for non-cropland.  In Otter Tail County, cropland rates range from about $350-725/acre and non-cropland about $225-525/acre.  In lower-basin Polk and Clay Counties, rates can jump considerably, reaching $800-1,000 near urban areas.

Administration:

Jim Birkholz at MN BWSR stated that their administrative overhead for the RIM program is 16 percent for a fully operation program.  He felt that 20 percent might be reasonable for a pilot.

Cost Estimate for the Pilot

Estimating costs will be difficult for the FSI, since so many measures and activities will be compensated—at different rates, on different acreage bases, and according to different payment frequencies.  For example, some activities such as conservation tillage, planting native grasses or restoring wetlands will merit an annual payment; others such as easements will represent a one-time payment over the lifetime of the pilot.  Also, no work will be done on a certain percentage of the pilot project area, expensive easements will be purchased on another percentage, and less expensive annual payments will be made on yet another percentage—all of which is not known at this time.

In the end, we will have to settle on an average per-acre cost for the pilot project area and work to allocate those resources for optimal impact as the project is developed and implemented.  Given that here are some ballpark scenarios over a five-year pilot (MN and ND):

40,000 @ $50/acre + 20% overhead + 5% monitoring/assessment x 5 yr. = $15 million

40,000 @ $60/acre + 20% overhead + 5% monitoring/assessment x 5 yr. = $17 million

50,000 @ $50/acre + 20% overhead + 5% monitoring/assessment x 5 yr. = $18.75 million

50,000 @ $60/acre + 20% overhead + 5% monitoring/assessment x 5 yr. = $21.25 million