smart growth and the FY 2002 bush budget
(June 6, 2001)

The report was authored by Wesley Warren of the Natural Resources 
Defense Council.

The Bush Administration’s first budget proposal (FY 2002) is a disappointing missed opportunity to promote smart growth activities in America.  Although the budget does contain progress on smart growth in certain areas, it fails to follow through on many of the major proposals of the previous Administration and in some cases actually reduces the leadership role the federal government could play.  In general, this budget reflects Bush’s philosophy of turning over government activities to state and local officials.  In the case of smart growth, however, this approach neglects the partnership role of the federal government and fails to provide supporting resources for local efforts. 

Many activities of the federal government, and therefore many different parts of the federal budget, can affect smart growth efforts around the country.  However, this summary focuses on four major areas: (1) support for open space through the land and coastal conservation programs of the Department of Agriculture (USDA), the National Oceanic and Atmospheric Administration (NOAA), and the Department of Interior (DOI); (2) Brownfield redevelopment, mainly through the Environmental Protection Agency (EPA) and the Department of Housing and Urban Development (HUD); (3) alternative transportation policies at the Department of Transportation (DOT); and (4) targeted tax policies. 

In some of these areas, such as open space preservation and brownfield redevelopment, President Bush made explicit campaign promises.  Unfortunately, many of these campaign promises have not been fully kept.  In other areas, most notably tax policy, the Bush budget is actually a step backwards for smart growth policy. 


The Clinton administration proposed a wide range of tools to assist communities in managing development patterns in ways that would make those communities more livable.  The administration’s approach emphasized making resources available that would promote sustainable prosperity, improve the quality of life, and enhance a sense of community by addressing issues such as reducing congestion, preventing crime, protecting the environment, and making schools the center of communities. 

The Clinton administration’s budget proposals for smart growth met with success in some cases but not in others.  The most notable accomplishment was the creation by Congress of a new trust fund for land conservation, called the Land Conservation, Preservation, and Infrastructure Improvement fund (LCPII), in response to the President’s Lands Legacy proposal.  The purpose of this fund was to provide assistance for the preservation of open space at the federal, state and local levels, including funding for wildlife habitat, urban parks, and historic preservation.  The new trust fund also provided funding for the Land and Water Conservation Fund (LWCF), but unlike the way in which the LWCF has operated in the past, money provided for this new trust fund was dedicated solely to these purposes and protected from use for other programs. 

The previous administration also made some progress on the redevelopment of brownfields.  For example, between 1993 and 2000 EPA funded over 2,000 site assessments and leveraged over $2.8 billion in cleanup and redevelopment funds.  A tax incentive for brownfield redevelopment, passed as part of the 1997 Taxpayers Relief Act, was extended in 1999. 

In transportation policy, the Transportation Equity Act for the 21st Century (TEA-21) enacted into law in 1998, helped pave the way for major increases in funding for alternative transportation.  Between FY 1993 and FY 2001, funding for mass transit increased 66% and funding for the Congestion Mitigation and Air Quality (CMAQ) program increased 176%.  However, very little redirection of surface transportation policy in relative terms occurred after the passage of TEA-21. 

In the area of tax policy, no major administration proposals for smart growth tax incentives were adopted by Congress except the enactment and extension of the brownfield cleanup tax incentive. 


Open Space Land Conservation

One of the clearest promises made by Bush on the campaign trail seemed to be his pledge to fully fund the Land and Water Conservation Fund (LWCF) at the authorized level of $900 million a year.  The LWCF is a trust fund that provides federal, state and local money through the DOI and the United States Forest Service for the protection of open space through the use of easements or land acquisition.  When the FY 2002 budget was submitted, the administration claimed to have fulfilled this promise.  Unfortunately, this claim turned out not to be true. 

The reality of the Bush administration’s funding for open space is complicated by the creation by Congress last year of a new trust fund, which makes money available to the LWCF; and by changes to the use of the LWCF that have been proposed by the Bush administration.   The following section sorts out these two issues, but in the end there are only two important questions: (1) what is the net amount of money available for desirable open space purposes compared to what was expected, and (2) of that amount of money, what is the total that is guaranteed for legitimate LWCF purposes? 

 The answer to the first question is that only about three-fourths of the amount of open space funding that should have been expected was actually provided by the Bush budget (about $1.5 billion compared to $2.0 billion).  The answer to the second question is that only $390 million of the $900 million total for LWCF is for original uses of that fund. 

Last year when Congress approved the LCPII, it provided a total of $10.4 billion in dedicated and protected land conservation funding over five years, with funding divided among a set of conservation categories and increasing year-by-year.  In FY 2002 under this agreement, total funding for all these categories was to equal $1.76 billion, with at least $540 million and as much as $660 million guaranteed for LWCF.  When Bush promised full funding of LWCF at $900 million, the most reasonable expectation should have been that at least another $240 million would be added to the upper estimate for LWCF ($660 million).  Furthermore, this increase of $240 million should be added on top of the existing total of the new trust fund ($1.76 billion) for a total of $2.0 billion.

However, when the Bush budget was submitted the amount actually provided for land conservation was drastically reduced below this expected level to just over $1.5 billion.   This amount was roughly the same as the level appropriated in FY 2001 for all land conservation activities, despite anticipated increases in both LWCF and LCPII.  In effect, the Bush budget stripped funding from numerous, existing conservation programs to pump up the total for the LWCF and attempted to disguise the real impact on land conservation spending.  Victims of this raid on funding included several programs that were totally zeroed out, such as DOI state wildlife grants (-$100 million), state partnership grants through the United States Geological Survey (-$25 million), and Urban Parks and Recreation Recovery Grants (-$30 million).

Although it is unfortunate that the increase in funding for the LWCF in the Bush budget was paid for by cutting other land conservation programs, what is worse is that not all of the funding proposed for the LWCF actually goes to legitimate LWCF purposes.  In order to complete its budget shell game on land conservation, the Bush budget actually proposes changing the authorities of the LWCF so that purposes not historically supported by the fund can now be covered. 

Under the Bush proposal, the $450 million of the LWCF money that goes to the states would be made available for the original purpose of land acquisition, but would also be made available for a range of other purposes, including those activities zeroed out under the LCPII.  Therefore, it is not clear under this scheme whether any of the state money would be spent ultimately on acquisition.  Although other activities proposed for inclusion in the LWCF may have merit and deserve funding, they are no substitute for dedicated land acquisition money.  They should be funded as separate items, and money in the LWCF trust fund should not be diverted to pay for them. 

The remaining $450 million in LWCF money that goes to Federal land acquisition in the Bush proposal actually includes $60 million for two newly proposed private landowner incentive programs.  While these private incentive programs may also have merit, they are not purposes for which the LWCF was established.  Therefore, the total money guaranteed for purposes for which the LWCF was originally intended only amounts to $390 million (this portion of the Federal half, and none of the state half of money). 

On a separate matter in the DOI budget, the Bush administration has proposed reducing  funding for the National Water Quality Assessment  (NAWQA) program at USGS
by nearly a third, cutting it from $63 million in FY 2001 to $40 million in FY 2002.  NAWQA is an important resource for smart growth planners at the local level because of information that it provides on the effects of urbanization, agricultural run-off, and nutrient loadings on streams, groundwater, and aquatic ecosystems. 

Brownfield Redevelopment

Brownfield redevelopment cleans up old, polluted industrial and commercial sites and brings in new economic activity instead of leaving the site abandoned.  During the campaign, Bush promised to help redevelop brownfield sites mainly by changing the way the EPA Brownfield Cleanup Revolving Loan Fund works, limiting the liability of developers, and making the brownfields cleanup tax incentive permanent.   Although the Bush budget for FY 2002 does make some progress in these areas, it does not take any dramatic steps beyond current activities. 

The budget for EPA brownfields work in FY 2002 contains a modest increase of about $5 million over FY 2001 levels – a change from $92.6 million to $97.4 million.  In addition, the budget proposes shifting about $6 million out of the Brownfield Cleanup Revolving Loan Fund.  This total of $11 million would go to other EPA brownfield activities, focusing on assessment demonstration pilots and state voluntary cleanup programs.  Unfortunately, as EPA’s budget document indicates, the FY 2002 level of funding will likely provide additional site assessment funding for only 38 new communities, compared to 50 in FY 2001. The total number of sites that will be assessed shows a similar decline. 

The Senate recently passed new brownfields legislation that authorized $200 million a year in new grants to the states starting in FY 2002 and changed the potential liability of certain kinds of property owners.  Although the Bush administration endorsed this proposal, no provision has been made in the administration’s budget for supporting such budget increases in the future.  In fact, the Bush budget shows a long-term decline in funding for EPA’s core operating budget from about $2.88 billion in FY 2001 to 2.84 billion in FY 2004. 

Bush did propose extending the brownfields cleanup tax incentive permanently in his budget.  This incentive allows redevelopers to treat certain environmental remediation expenditures as deductible in the year paid or incurred.  Although permanent extension of this tax incentive (which does not expire until the end of 2003) is a desirable action, continued extension of this popular tax provision has never really been in doubt. 

Although Bush did not highlight the budget of the Department of Housing and Urban Development (HUD) in the campaign, it is worth noting that he did include $25 million for HUD’s Brownfield Redevelopment initiative in his FY 2002 budget.  This level of funding is the same as HUD has received in each of the last two years, although the Clinton administration proposed $50 million in FY 2001.  The proposed level of funding for FY 2002 will permit the reclamation of about 25 brownfield sites. 

Alternative Transportation

An increase in overall funding for alternative forms of transportation has been proposed in the Bush budget for FY 2002.  These Department of Transportation programs, especially the Congestion Mitigation and Air Quality Program (CMAQ) and mass transit, help to reduce pollution and congestion while increasing commuter choice.  However, the Bush budget largely follows the established patterns of funding under TEA-21, which emphasizes traditional highway use over alternative forms of transportation, and misses an opportunity to set out in an innovative direction. 

The proposed obligation limit for funding for federal aid to highways in FY 2002 is $31.6 billion, an increase of $2 billion or 7% above FY 2001 levels.   About 90% of this funding is distributed to states by formula.  The allocation of funding in this area, which includes CMAQ, is largely divided in the same manner as it has been in other years since passage of TEA-21.  However, the amount of money expected to be obligation for CMAQ under this budget does grow slightly, from $1,635 million in FY 2001 to $1,721 million in FY 2002. 

To the extent that there are additional highway funds that can be distributed in other ways (as Revenue Aligned Budget Authority), very little in this budget proposal could be considered specifically related to smart growth activities.   The most important related initiative is a proposed level of spending on Intelligent Transportation Systems that is 32% above FY 2001 -- a total of $253 million in FY 2002. 

In the area of mass transit, proposed funding for the Federal Transit Authority would grow from $6.2 billion in FY 2001 to $6.7 billion in FY 2002, although funding for Amtrak would remain essentially flat.  With this general increase in funding, FTA hopes to increase transit ridership from 45.3 billion passenger-miles in 2000 to 47.4 billion passenger-miles in 2002. 

As part of this budget, the administration intends to continue funding “New Starts” transit projects, but recommends a cap on the federal contribution of 50% starting in 2004.  This new cap could have a potentially disastrous effect on the ability of many communities to start new transit projects at the same time that highway spending will be reaching an all-time high. 

Tax Policy

As a candidate for President, Bush proposed three principal changes in tax policy to help fight sprawl.  One was the Brownfields cleanup incentive that has previously been discussed.  Another was a capital gains tax break of 50% for private landowners that sell their land for conservation purposes.  The third was the abolition of the estates tax, which Bush claimed forced individuals to sell family farms in order to pay their tax bills.

The capital gains tax break has been included in Bush’s budget proposal, but has not yet been approved.  The tax break would go to private landowners if they sell land or water for conservation purposes to a government agency or qualified conservation organization.  Supporters of the incentive believe the existence of the tax break will make it easier for conservation groups or government agencies to bid on these properties when they are sold on the market. 

The implications of the estate tax for smart growth are more complicated.  The recently enacted tax legislation pushed by the Bush administration contained a repeal over several years of the current estate tax.  Despite the claim of the administration that the estate tax contributed to the breakup of family farms, there was actually very little factual evidence to support that position.  At the same time, repeal of the estate tax removed an important incentive for land conservation that existed in current law – the deduction from the estate tax that was allowed for donations of land for conservation purposes.  Concerns about the adverse effects of the repeal of the estate tax on conservation led a coalition of environmental groups to oppose repeal during consideration of the tax bill.

While Bush’s proposed tax policies offers a mixed picture in terms of their effect on smart growth, his failure to take up the Clinton administration’s proposal on Better America Bonds represents a significant step back for the issue.  Better America Bonds were a new financing tool that would have helped local governments preserve open space, redevelop brownfields, and protect water quality.  The proposal would have provided $700 million in tax credits over five years that could have been used to pay down interest on loans, generating an estimated $9.5 billion in investments by state, local, and tribal governments for these purposes.