PRIVATE SECTOR TRANSFER OF LANDSAT ACTIVITIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R001700060009-4
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 14
• Document Creation Date: December 20, 2016
• Document Release Date: October 4, 2007
• Sequence Number: 9
• Publication Date: December 14, 1981
• Content Type: REPORT

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CABINET COUNCIL DECISION MEMORANDUM
I. Subject: Private Sector Transfer of LANDSAT Activities
II. Originator: Cabinet Council on Commerce and Trade
III. Date: 12/14/81
IV. Issues: The LANDSAT Program: Level of Federal Commitment
The Civil Weather Satellites: Level of Policy and Cost
Analysis
SUMMARY AND AGENCY RECOMMENDATIONS
The President's 1982 Budget policy stated that the Administration
would terminate the commitment to earth sensing satellite data
continuity through the 1980's because,
"It is the Administration 1,s judgment that the present NASA
investment in LANDSAT satellites is sufficient to permit
evaluations of operational uses of LANDSAT data and, if these
uses are cost effective, to attract a private sector
owner/operator.
NASA's program to develop, launch, and test two additional
satellites (LANDSAT D and D') will continue as previously
planned. Expansion and extension of the U.S. civil land remote
sensing program, beyond that already funded by NASA, is
inconsistent with the need for across-the-board fiscal
restraints. The NOAA operation of LANDSAT D and D' should
provide satellite data continuity through the mid 1980's, by
which time the private sector could develop a system if a
sufficient market exists."
In order to carry out the President's budget policy and develop a
policy for handing off civil satellite sensing to the private sector,
the Deputy Director of the Office of Management and Budget
asked the Cabinet Council to address two issues:
1. What is the best mechanism to implement the current policy
of transfer of civil land remote sensing systems (LANDSAT),
to the private sector as soon as possible?
2. Should the Administration consider simultaneously private
sector transfer of both civil weather and land remote
sensing systems?
.Civil Land Remote Sensing
The Administration's current policy is that additional satellites
after the government funded LANDSAT D and D' are contingent on
commercializing the system. Most agencies on the Working Group (the
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Departments of Agriculture, Interior, Defense, State and Commerce
(NOAA) and the Central Intelligence Agency). favor a transfer to the
private sector, but are concerned that a hasty transfer could result
in a demise of the United States program. They feel that a vigorous
U.S. capability is essential to establishing important national and
international policies; to management of resources and public lands;
to the U.S. energy, minerals and agricultural industries; and to the
economic and national security interests of the nation as. a whole.
While some of these benefits are potential, they may be very
valuable. This new technology has not been fully adopted in
government and industry, creating a dilemma. The data market cannot
grow to support a viable commercial venture without continuity of
data. In turn, under present budget guidance continuity cannot be
guaranteed in the absence of a viable data market.
Other working group members (the Council of Economic Advisors and the
Office of Management and Budget) believe that the central issue is
the real market value of this technology. They recognize that there
'is a possibility that the private sector might not make large capital
investments in a commercial venture if Federal commitments are
limited to data purchases. However, they believe that private sector
involvement may well evolve from limited remote sensing ventures to
meet the needs of specific near-term' markets which may require
significnatly smaller investments. Continuation of the large Federal
subsidy for LANDSAT satellites could undermine such private sector
initiatives. Finally, the view of OMB is that five Federally funded
LANDSAT satellites and over ten years of Government-subsidized
satellite -data is enough "technology push" for this activity and that
the Administration should continue its present policy of making
additional satellites, beyond LANDSAT D and D', dependent on
commercializing the system. If there should be a hiatus in the
availability of new satellite data, the main application that would
be affected would be agriculture forecasting. OMB does not believe
LANDSAT data is critical or essential for this application because
it believes there are other reliable sources of data; however, the
key user agencies disagree.
In addition, CEA believes it is important that we move rapidly toward
the transfer of LANDSAT from the public to the private sector. In
the view of CEA, LANDSAT no longer contains, to any significant
degree, the natural monopoly, externality, or high transaction cost
elements that have traditionally been used to justify government
interference in market processes. Initially government involvement
was justifiable based on the external benefits that are generated
when a new area of basic research is explored. CEA believes that now
the basic question is one of applying technology, an area where
market forces are more appropriate.
The principal user agencies (the Departments of Agriculture,
Interior, and Defense, and the Central Intelligence Agency) and the
Departments of Commerce (NOAA) and State* point out that agencies use
the data to produce information. Decision makers in government (and
Department of State positions in this report are based on oral
communication; written response had not been received by November 25,
1981.
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in industry in some cases) could use this information in ways that
may have positive impacts' on the growth of the gross national
product, the reduction of U.S. dependence on foreign sources of
strategic minerals, the export of agricultural products, and the
balance of payments. Thus, these decision makers are the ultimate
users of the satellite system, and the importance to the U.S. of the
information cannot be measured only in terms of agency data budgets.
However, OMB believes the data uses are not critical or essential to
the Government because it believes other sources of data provide
decision makers with the minimum data needs. Furthermore, the type
of data needed on a continuous and costly basis is related to
monitoring renewable domestic resources (agriculture) and monitoring
overseas crops.
The majority of the Working Group concludes that the central decision
facing the Administration with respect to Issue 1 on the mechanism to
transfer the LANDSAT program to the private sector is the level of
commitment it is prepared to make. There are two options:
Option 1 - The Federal commitment is limited to data purchases on
the order of $15 to $20 million per year from the
budgets of the user agencies. In the future agencies
could allocate additional resources within overall
budgetary allowances. This approach to
commercialization would allow private participation in
other government satellite programs, various forms of
joint ventures, transfer of the government's LANDSAT
assets in return for financing or services or other
approaches that could be implemented at no additional
cost to the government.
Option 2 - The Federal commitment would include the above Federal
.data purchases plus other forms of direct support to
encourage investment. Support could include transfer
of the LANDSAT assets, "free" government services,
subsidy payments, loan guarantees, or other financial
arrangements. The direct support required to
encourage private sector investment of perhaps one to
three billion dollars over the next decade is believed
by some to total perhaps $250 to $500 millon over a
number of years (five to ten), but this amount cannot
be determined with, certainty until firm proposals are
in hand.
The Departments of Agriculture and Interior suggest focusing on a
particular mechanism to achieve the transfer, but the majority of
the Working Group believes that the best mechanism cannot be chosen
until the level of Federal commitment is determined. Once this
determination is made by the Cabinet Council/President, the
Department of Commerce, in consultation with the interagency LANDSAT
Program Board, can select the best mechanism to achieve the
transfer. Subsequent decisions can be implemented through the normal
administrative, legislative, and budget processes.
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The Departments of Agriculture, Interior, Defense, State, and
Commerce (NOAA) and the Central Intelligence Agency recommend an
enhanced Federal commitment. They do not believe that the minimum
level commitment is sufficient to create a viable land remote sensing
program in the U.S. private sector. The small data market today,
combined with competition from subsidized foreign systems, poses too
large a business risk with too small a return on investment for a
commercially viable venture at this time. Companies will be unable
to get needed financing to continue or improve the system. Continued
United States leadership in this space technology is considered by
these agencies to be in the national interest. They believe that the
public benefits of the information derived by the user agencies from
a United States ' system are more than sufficient to warrant an
enhanced level of Federal support from general tax revenues. All
these agencies except Agriculture and Interior recommend Option 2.
The Departments of Agriculture and Interior cannot support either of
the options as they are stated. To do so would give Agriculture's
"implicit approval to an ill-advised decision to prematurely transfer
the land satellite system to the private sector." Interior believes
that the budgetary decision to transfer the program to the private
sector as soon as possible is based on an overestimate of the
program's technological maturity and user acceptance. These agencies
urge reconsideration of the Administration's policy to commercialize
the land remote sensing system as soon as possible.
The Office of Management and Budget, the Office of Science and
Technology Policy and the National Security Council staff recommend
the minimum Federal commitment specified in Option 1. They believe
that the real market value of LANDSAT can best be determined by free
market forces (i.e., by the private sector's willingness to make the
required investments in a commercial venture without a .Federal
subsidy). Furthermore, they feel that the magnitude of the
enhancement suggested in Option 2 cannot be supported in this period
of fiscal constraint when the costs and benefits are uncertain.
Given the relatively small price that users appear to be willing to
pay, the program's ability -to pass a cost benefit test is suspect.
Other non-LANDSAT options (e.g., the large format camera) may,
however, pass such a test with equal or greater benefits.
On the question of maintaining technological leadership in land
remote sensing, it is OMB's judgment that the. ongoing DOD and NASA
R&D programs will ensure that the U.S. continues to have the most
advanced satellite remote sensing capability.
Civil Weather Satellites
With respect to Issue II on the simultaneous transfer of the civil
land and weather satellites, the Working Group believes there is
insufficient information at this time to make a recommendation on
commercialization of the civil weather satellites. National and
international policy implications of commercializing the government's
civil weather satellites could be severe. The potential cost to the
government of transferring these weather satellite programs to the
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private sector is unknown. A decision to commercialize them
simultaneously with land remote sensing from space is therefore
considered premature. There are two options to obtain the required
information:
Option 1 - Initiate the competitive bidding process required
under OMB Circular A-76 to determine the relative
costs of industry versus government ownership and
management of civil weather satellites. Assume that
the Working Group analysis of national security and
national and international policy implications of
commercialization and of possible future Federal roles
in providing weather services identify no show-
stoppers.
Option 2 - Conduct analyses of national and international policy
issues over the next six to twelve months, including
consideration of the possible future *Federal role in
providing weather services. Preliminary estimates
would be made of commercial costs to provide weather
satellite data. If the results of these analyses
warrant, the full competitive bidding process required
under OMB Circular A-76 would be conducted.
The Departments of Commerce (NOAA), Defense, State, Interior and
Agriculture and the CIA stated. that the national security and
interational concerns over commercialization of the civil weather
satellites will be significant. Any analysis leading to a possible
decision to transfer these civil satellite systems to the private
sector must be thorough and comprehensive. An unnecessarily
superficial, short-term study that attempts to identify and resolve
these policy issues is not a sound approach. The Departments of
Interior and Agriculture did not specifically support either option.
Agriculture opposes proposals to move the civil weather satellites
before all domestic and international implications have been
carefully studied and appropriate decisions made. Interior comments
that the issues involved are too important to be rushed through the
policy making process. Other agencies, except OMB, OSTP and NSC
staff, recommend the adoption of the second option. All these
agencies oppose linking decisions on civil weather and land
satellites. They feel that decisions on the private sector role in
these two satellite systems should be made on their own merits.
Option 1 is supported by the OMB, OSTP and the NSC staff. They
believe that policy decisions on national and international issues
can be made more quickly (i.e., during the two to four month period
necessary to prepare the statement of work needed to initiate the
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A-76 process) than the other agencies believe, and that there is no
valid reason to delay initiating the process of determining relative
private sector versus Federal costs. If significant cost savings can
be achieved, they should be available as soon as possible. A delay
of up to six months is unnecessary and, recognizing the potential for
delay, may deny the Administration the opportunity to achieve this
significant private sector transfer before the next Presidential
election. It could result in the loss of interest in commercializing
civil weather satellites expressed by one or two major firms.
DISCUSSION AND ANALYSIS OF ISSUES AND OPTIONS
I. The Landsat Program
Issue Statement: What is the best mechanism to implement the
current policy of transfer of civil land remote
sensing systems (LANDSAT) to the private sector as
soon as possible?
The fundamental issue considered by the Working Group is. the level of
commitment the government should make to achieve the transfer to the
private sector. Resolution of this issue will permit the selection
of the mechanism to accomplish the transfer. Secondary issues
discussed in the OMB's July 13, 1981 memorandum, can then be resolved
also. These decisions can be executed by the Department of Commerce,
in consultation with the interagency LANDSAT Program Board through
normal administrative, legislative, and budgetary channels. Two
options are discussed below:
Option 1 - Minimum Federal Commitment
The Federal commitment to commercial land remote sensing from space
beyond the five federally purchased LANDSAT satellites is limited to
the funds identified in the budget for the purchase of LANDSAT data.
The present plan is to transfer $14.5 and $17.9 million per year in
FY 1983 and 1984, respectively, from the LANDSAT operations and
maintenance budget of the Department of Commerce to the budgets of
the user agencies to establish a base for Federal data purchases.
Funds as the user agencies are willing to reprogram could augment
this Federal commitment. No other investment incentives involving
increased budget commitment would be offered. A modified "laissez
faire" approach to commercialization would be adopted. The
government would consider any private sector proposal. Possibilities
include new private sector initiatives, transfer of the government's
LANDSAt assets in return for financial or service commitments, or
various forms of joint ventures (such as adding privately owned
sensors on government satellites or launch vehicles where feasible)
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if such can be accomplished at no additional cost to the government.
Details would be negotiated with the appropriate operators of
government satellites such as NASA, NOAA, or DOD.
Option 2 - Enhanced Federal Commitment
The Federal commitment would include the data purchases suggested in
Option 1, augmented by any of several forms of direct support to
encourage investment. LANDSAT assets could be transferred in
exchange for service commitments to the government. Support could be
in the form of joint financial ventures, or combined
government/industry satellites. Other forms of support could include
direct subsidy payments, special tax incentives, guaranteed loans or
other forms of financial support. This. support would need to be $250
to $500 million over a number of years to encourage the sizable
private capital investments required, and to support the market
development efforts needed to make the system self-sustaining. The
form and extent of the Federal commitment cannot be determined
without specific industrial proposals. An owner/operator could be
selected through a competitive selection process or designated by
legislation.
Assumptions
The following assumptions apply to both options:
1. The focus of this issue is on the continued availability to
Federal and non-Federal users of multispectral data such as that
provided by LANDSAT's Multispectral Scanner or Thematic Mapper.
Other forms of remote sensing from space (e.g., stereoscopic data or
film images taken by satellite) could be permitted under Option 1.
These unique forms of satellite data would not necessarily be
included under Option 2.
2. It is unlikely that either option can be implemented without some
form of legislation. To create an environment that will encourage
private sector investment, the government should make it clear that
regulation will be kept to the minimum needed to protect national
security and foreign policy interests, and to meet U.S. treaty
obligations. Any legislation will take time. The Congress can be
expected to express its views on the level and form of Federal
commitment, on the form and type of regulation, and on the best
mechanism to achieve the transfer to the private sector.
3. If the government users need assured continuity of space-derived
data after the projected lifetime of LANDSAT D and D' (circa 1988),
the government needs to decide on its level of commitment as soon as
possible. Time is needed to make and implement subsequent decisions,
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including time to enact any. required legislation, complete any
implementing mechanisms, and allow the private sector time to build
and launch its satellite systems. This process may take up to five
or six years.
4. Either option could include early transfer of the government's
LANDSAT D space and ground assets. Some companies consider LANDSAT D
to be a research and development system not suitable for commercial
operation, and feel that it is best left under government operation
until industry designs and builds its own commercial version using
different sensor technology. Other companies have expressed interest
in managing the government's system in order to gain operating
experience in commercial land remote sensing from space, and to
acquire a data source needed to begin marketing efforts. The amount
of any financial or service remuneration that would be offered for
the government assets is unknown.
5. The analysis of civil weather satellites considered under Issue
II could result in the decision to commercialize all or parts of
these programs. If such a conclusion is reached, private sector
transfer could be treated along with that of the land system, or as a
separate activity, depending on the conditions when the decision is
made.
The pros... and cons of the two options for the private sector transfer
of the land remote sensing activities are:
l - Minimum Federal Commitment
_
Option
Pros
1. Would be more consistent
with
this
Administration's general
philosophy on the role
of
the
Federal Government in
commercialization activities.
In
most
areas (e.g., Department
of Energy) this Administration is
reducing the Federal role in
technology development that is
designed to accelerate the
introduction of new technology in
commercial ventures.
2. Avoids Government subsidies for additional LANDSAT
satellites. Expenditures. are limited to budgets for Federal
data purchases. The level of these expenditures would be
determined in the normal budget process, but probably would be
on the order of $15 to $20 million per year.
3. Ensures the maximum flexibility for private sector
initiative and innovation, and the greatest incentive for the
owner/operator to develop a vigorous, successful marketing
program.
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4. Transfers a technology developed by the government to
commercal application, and shifts the financial risks from the
government to industry.
Cons
1. Most, but not all, representatives from private industry
have indicated that they are not interested in commercializing
land remote sensing from space without a Federal commitment that
will enable it to obtain private financing. This commitment is
inadequate.
2.' There would be no certainty that U.S. multispectral data
will continue to be available to those users in all levels of
government and industry. Programs designed to provide broad
public good and benefits in the areas of global crop production
forecasting, improved management of renewable and non-renewable
resources on public lands, and the search by industry for new
sources of oil, gas, and other minerals could be adversely
impacted.
3. If for financial reasons the private sector does not elect
to invest in this technology, the United States could lose the
technological leadership it has developed at a cost of over one
billion dollars. Other nations (e.g., France and Japan) would
reap the benefits of this U.S. investment without U.S.
competition. The U.S. industry may not be able to regain this
leadership in the future.
4. If the private sector were to take the initiative under this
option, an unsubsidized U.S. commercial venture would be in
competition with subsidized systems operated by other nations
(France and Japan).
Option 2 - Enhanced Federal Commitment
Pros
1.. May encourage large private sector .investments in the
near-term (i.e., over $500 million) that will lead to
longer-term reductions in Federal expenditures for the data
needed to deliver these public and commercial benefits.
Reflects the presently undeveloped market for data as being
insufficient, at this time, to support a pure commercial venture
of the size and scope that many users would like to have.
2. Provides greater assurance of the continuity of satellite
data for the future public goods such as the benefits derived
from crop production forecasting, management of renewable and
non-renewable resources, and the search for new sources of
petroleum and other minerals.
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3. Recognizes that the Federal government has national and
international policy interests in the continued evolution and
maturation of space technology. While not measurable in dollar
terms, United States technological leadership and international
goodwill, combined with the economic benefits from activities
such as crop production forecasting and the location of new
sources of minerals, may provide a return to the nation that is
in excess of the enhanced level of Federal commitment.
4. Places a U.S. commercial venture on a more sound footing in
its competition with systems operated and subsidized by foreign
nations.
Cons -
1. Continues significant Federal subsidy -- perhaps as high as
$250 to $500 million over a five year period -- for information
services that may not be critical or essential to the
Government, and whose true market value is not certain at this
time, when the goal is to reduce Federal expenditures and
balance the budget.
2. Fails to achieve the desired level of private sector
investment and its full assumption of marketing and financial
risks-. The availability of large governmental support may
reduce motivation for technical innovation, better management,
and aggressive marketing.
3. The legislation required to implement this option,
particularly those portions dealing with the magnitude, form and
duration of the enhanced Federal support, may be difficult and
time consuming to enact. The Congress can be expected to
express views on these issues that may be difficult to reconcile
with those of the Administration.
II. The Civil Weather Satellite
Issue Statement: Should the Administration consider simultaneously
private sector transfer of both civil weather and
land remote sensing systems?
The Working Group finds that there are major policy, market, and
potential cost saving differences between the land remote sensing
system and the civil weather satellite programs. Among them are:
o While important national security concerns may arise as the land
system technology advances, commercialization of the civil weather
satellite programs will raise important national security concerns
over military dependence (as a backup to military satellite systems)
on a commercial system observing weather data critical to strategic,
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tactical, and intelligence missions, and over the ability of the
Federal Government to control this important source of information in
a national emergency.
o No negative international reaction to the commercialization of the
land program has yet been voiced. Some countries have already
expressed concern over commercialization of the U.S. civil weather
satellites. It is not known how widespread this concern will prove
to be. What position other nations will take on the free exchange of
weather data from satellites and other sources with U.S. Government
users is also unknown. Upward of 100 nations now receive weather
data from U.S. satellites. If these nations were charged significant
amounts for U.S. weather satellite data, they might either terminate
the present international free flow of other. weather observations
that are essential to U.S. civil and military weather programs, or
charge the United States for global data which it now receives
without cost.
o Revenues from non-Federal users to the operator of the land system.
in FY 1983 are projected to be between 40 to 50 percent of the total
receipts. This figure is expected by some sources to rise to 60 to
70 percent. in the late 1980s. In contrast, the Federal Government
would likely provide 95 percent or more of the revenues from the sale
of weather satellite data, at least during the balance of this
decade.
Conclusion
The Working Group concludes that there is now insufficient
information on the weather satellite services to be commercialized,
on the relative costs of private sector versus government operations,
and on the national security and international policy implications
of commercializing these functions to make a recommendation on
commercialization. However, preliminary analysis by OMB, OSTP and
NSC staff suggests that the national security and international
implications, although important, do not present insurmountable
obstacles. There are two options for obtaining the required policy
determinations and cost information:
Option - 1 Assume resolution of the national and
international policy issues associated with
commercializing civil weather satellite services
and initiate the competitive bidding process
described in OMB Circular A-76 to determine cost
impacts.
Assume that there are no show-stopping policies to preclude
commercialization of the civil weather satellites. Initiate the
development of the Statement of Work required in the competitive
selection process specified under OMB Circular A-76. Include in the
Statement of Work provisions to ensure that the international flow-of
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weather data needed by government civil and military weather services
will continue. Include also terms and conditions to protect
identified national security concerns and reflect the needs of the
government's current civil weather services. Submit unresolved
policy issues to the Cabinet Council for resolution. Upon completion
of the Statement of Work, initiate the competitive bidding process
and evaluation specified in the Circular to determine relative costs
of government versus industry ownership and management.
Option 2 - Conduct analyses of the national and international
policy issues associated with commercializing
civil weather satellite services, make preliminary
estimates of the cost impacts of various forms of
commercialization, and, if warranted, conduct the
A-76 bidding process to determine actual cost
impacts.
Conduct analyses over the next six months to a year to identify
alternatives for meeting government needs for civil weather satellite
data. Take into consideration possible future government roles in
the provision of weather services. In consultation with industry
representatives, make preliminary estimates of the cost of providing
the required data under industry versus government ownership of the
civil weather satellite systems. If these studies identify no
significant policy barriers to commercialization and the preliminary
cost estimates indicate that total Federal costs for weather
satellite data are comparable to or lower than costs under government
ownership, initiate the full competitive bidding process as specified
in OMB Circular A-76.
The pros and cons of the two options to obtain the information needed
to make decisions on the commercialization of the civil weather
satellite systems are:
Option 1 - Concurrent policy analyses and competitive bidding
Pros
1. Avoids long-term policy studies which OMB, OSTP and NSC
staff believe are not required.
2. Allows decisions to be made in perhaps one to two years,
several months earlier than under Option 2.
3. Savings, if any, would reduce the Federal budget earlier.
4. Would provide a clear signal of the Administration's
intention to meet its civil weather satellite data needs from
the private sector, if it is cost effective to do so.
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Cons
1. Allows only a very short time to assess carefully and
resolve the national security and national and international
policy implications of commercialization.
2. There may not be time to consider options for the future
Federal role in the provision of weather services.
3. Precludes consideration of other alternatives in reducing
the total Federal costs for weather satellite data, such as
increased mutual support of the requirements of the civil and
defense sectors and possible forms of internationalization.
4. The preparation of performance specifications to which a
private owner/operator must respond are complex and must be
responsive to the policy determinations. Premature statement of
these requirements could result in a service that is not
responsive to future Federal needs. Subsequent amendment of
these statements could necessitate a new bidding process with
the result that the availability of the required cost
information could be delayed longer than in Option 2.
5. Decisions made as a result of the A-76 bidding process will
govern government civil and military weather activities for
decades to come. Less than optimum decisions made prematurely.
could adversely impact both civil and military weather
activities. They could result in greater rather than smaller
long-term Federal costs.
Option 2 - Sequential policy analyses and competitive bidding
Pros
1. Permits civil weather satellite policy decisions to be made
based on more comprehensive analyses of national security and
national and international issues.
2. Allows consideration of alternatives other than
commercialization to achieve the goal of reducing Federal civil
and military expenditures for weather satellite data.
Cons
1. Decisions to commercialize civil weather satellite programs
would be delayed by perhaps six to eighteen months. Savings, if
any, would be delayed that long.
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2. Does not provide as clear a signal that the Administration
intends to meet its weather satellite data needs from the
private sector, if it is cost effective to do so.
3. Initiates in-depth, detailed policy studies which OMB, OSTP
and NSC staff believe are not required.
Approved For Release 2007/10/19: CIA-RDP84B00049R001700060009-4