America’s public lands have become part of a valuable strategy to preserve biodiversity, protect clean water, and provide universal access to nature. But scattered within the 193 million acres of public land across 154 National Forests are 30 million acres of privately owned land parcels. This mixed ownership not only complicates Forest Service management, it diminishes the ecological and recreational potential of these landscapes.
Acquiring inholdings from willing sellers to increase the connectivity and contiguity of National Forests is a critical priority for the Forest Service.
In a new feasibility study, the Environmental Policy Innovation Center and Lyme Timber explore the potential for a revolving loan fund to address a critical financing gap to buying and holding private inholdings for eventual sale to the Forest Service. Based on an understanding of previous years’ transactions and future federal funding, our study found an opportunity for a $160 million revolving loan fund designed specifically for National Forest inholdings.
Conservation finance obstacles
The primary federal funding source for acquiring National Forest inholdings is the Land and Water Conservation Fund, or LWCF, which is permanently authorized at $900 million annually. The Forest Service receives approximately $123 million per year for land acquisitions. While this is a reliable source of funding, the process to access these funds can take anywhere from two to 10 years.
It’s common for conservation nonprofits, land trusts, and other entities to step in and pre-acquire land from willing sellers (see below), as this ensures that key conservation lands are not lost while waiting for fund disbursement. Many land trusts don’t have enough capital on hand to purchase large tracts of land, however. Conservation-minded buyers, most of which are nonprofits, are reluctant to borrow at market rate to acquire land–especially in the current high interest-rate environment–since most public funding programs do not allow payment of interest expense as an allowable cost.
Thus the extensive waiting period and lack of affordable short-term financing often leads to missed opportunities, as landowners may not be able to wait on federal bureaucracy. In many cases, important conservation lands are lost to development.
Fund appetite
Our team interviewed more than a dozen land trust and conservation finance experts and they told us:
- that there is absolutely a demand for “more low interest, charitable foundation or public loans at intentionally low rates, supported by tax deductible donations or taxpayer dollars”
- that loans “are [too] expensive if they are solely dependent on a private return on investment” that “the core competence of land trusts is not financing, it’s deals / transactions”
- that “access to low cost capital is critical”
- and that “if we had more [affordable financing], it would increase our work”
Many examples illustrate the role of land trust partners and affordable financing for forest protection. For instance, Clemow Cow Camp (317 acres, 2 river miles) and Eagle Rock Ranch (200 acres) are two inholdings in the Beaverhead-Deerlodge National Forest that support important wetland and stream habitat in Montana’s Big Hole Valley. Western Rivers Conservancy purchased both of these parcels, financed by a program-related investment from the David & Lucile Packard Foundation, and conveyed them to the Forest Service.
A key piece of this project was the acquisition of irrigation water rights; now the streamflow on those parcels will flow directly into streams or seep into the meadows on the parcels to stay cold and then be delivered naturally over time into the streams during periods of low flow.
From idea to practice
Precedent for such a fund already exists. The National Park Foundation is launching its own revolving fund, bolstered by a loan provided to the Cuyahoga Conservancy for the protection of a critical inholding in the Cuyahoga Valley National Park. The loan allowed Cuyahoga Conservancy to assemble enough money by the closing date and protect it from being purchased by a developer.
Several charitable donors capitalized pilot loans while the foundation assembled a team to create loan fund policies and processes. They have hired LegacyWorks Group to help administer the loan fund and provide coaching to potential borrowers.
Some next steps to move this revolving loan fund concept toward reality are to:
- Identify a suitable entity to lead its development (e.g., conservation-focused NGO, a Community Development Financial Institution, or foundation).
- Reach out to foundations and individual donors who already support National Forest conservation, encouraging them to consider making low-cost conservation loans. Platforms like CapShift and community foundations, which manage donor-advised funds, could also be approached.
- Raise more awareness of the need for interim financing for National Forest inholding acquisitions with Forest Service staff, the National Forest Foundation, Indigenous-led conservation efforts, etc. By building a broader community of practice around interim finance for conservation, the potential for scaling and accelerating inholding acquisitions will increase.
- Explore opportunities to collaborate with the Clean Water State Revolving Funds.
The creation of a revolving loan fund dedicated to National Forest inholdings represents a critical step toward accelerating the pace of conservation in the US. By providing low-cost, flexible interim financing, the fund would empower conservation NGOs to pre-acquire key inholdings, safeguarding these lands for future generations. Moreover, by unlocking additional sources of capital, the fund has the potential to catalyze a broader movement toward more efficient and effective conservation finance.
As conservation finance continues to evolve, innovative solutions like this revolving loan fund will play an essential role in protecting the natural resources and ecosystem services that are vital to both people and the planet.
Kavita Kapur Macleod and Phoebe Higgins are with the Environmental Policy Innovation Center. Liz Adams and Peter Stein are with Lyme Timber Advisory Services.
