Tongass Timber Economics 101

By Joseph R. Mehrkens (retired economist)

This paper is designed as a briefing paper.  Future revisions and additions will periodically occur.  It will be available on the Greater Southeast Alaska Conservation Community website.  It is the sole product of J.R. Mehrkens and is based primarily on Tongass information collected since 1977 and organized into a series of Excel Spreadsheets.

Introduction:  It is well known that the Tongass timber program is a real money loser.  The GAO (federal Government Accountability Office) found in the late 1990s that the Tongass timber program lost 80-94 cents on every dollar spent.  The loss is far worse today – especially with the new wrinkle where the Forest Service uses old-growth timber sale revenues to finance even greater money losing activities, e.g., stewardship/restoration contracts.  In essence, this means more old-growth is logged to ostensibly repair past old-growth logging and to create more potential restoration projects.

While forest restoration is a good goal, there are far superior ways to pay for it.  However, first it’s important to revisit some of the basic underlying issues of Tongass timber economics such as taxpayer losses, the steep decline in timber demand and the high costs for logging roads (the greatest contributor to taxpayer losses).

In economic analysis there are two primary tasks: (1) identifying the stream of costs and benefits over time to determine if benefits exceed costs, and (2) identifying who benefits from and who pays for the project.  To date all of the Tongass restoration projects (proposed or in-progress) have done neither.

Download the entire paper here.

NOTE: Joseph R. Mehrkens is a retired resource economist residing in Juneau, Alaska. He has B.S. in Forestry from the University of Minnesota and a M.S. in Forest Economics from Michigan State University. Since 1979 he has worked as an economist for the U.S. Forest Service, The Wilderness Society, the Alaska Department of Commerce and Economic Development and as a private consultant. Past work assignments include assessments of the timber trade between Alaska and the Pacific Rim countries, Congressional reports on the annual supply and demand for Southeast Alaska timber, lobbying for the passage of the Tongass Timber Reform Act of 1990, testifying before Congress on taxpayer subsidies for Tongass NF timber, and recommending changes to the President’s Budget for the Tongass NF for consideration by the House and Senate Appropriations Committees.

Retired Forest Service Economist on Folly of Sealaska Bill

The following piece was written by Joe Mehrkens, a retired Forest Service economist and a former alternate member of the Tongass Futures Roundtable.  We’ve discussed the Sealaska bill on this blog previously. – mk

Back in the heydays taxpayers paid a subsidy of $12,000-$36,000 per Tongass timber job. Based on more recent Forest Service accounting information, this subsidy has grown during the last decade to a staggering $224,000-$510,000/job, a nearly 1,400% increase. How can this be? Simply, the Forest Service kept spending like the industry was in its heyday while the industry was in a persistent long-term decline.

To the Forest Service’s credit the Tongass timber program expenditures have decreased in recent years, but the fact remains that the Forest Service is still chasing after fewer and fewer timber jobs. The result is that the subsidy/job remains extraordinarily high. However, the current subsidies will be pale in comparison to those to support a 2nd-growth industry. The 2nd-growth subsidies will be from cradle to grave: for mill construction, raw material procurement, manufacturing, transportation, and perhaps even marketing & sales.

Ironically, the need for these vertically integrated subsidies is very well documented in a letter from Senator Murkowski to USDA Secretary Vilsack, dated March 13, 2013. In her letter Senator Murkowski asks the federal taxpayers to build two biomass plants, three lumber mills, and even help start a guitar factory. But Senator Murkowski also relays a very big ask made by the Viking mill owners: Most recently Kirk Dahlstrom has made a new proposal saying that he could remodel a current small log processing line for a grant of just $1.5 million to cover some equipment costs, if the Forest Service would enter into a true partnership with his mill to prove the economics of young growth. He is now proposing that the Forest Service cover the costs of logging and transporting young growth to his mill . He [Mr Dahlstorm] is asking the Forest Service to cover his actual costs of processing, sawing and kiln drying of the timber and provide him a 20 percent profit on just those operations the Forest Service then keeping any profits from shipping and marketing the timber. That is about as cradle to grave as you can get. But in all honesty, reading between the lines indicates little confidence in transition to 2nd-growth any time soon.

There are, and will be, small and sporadic opportunities for 2nd-growth, but not supporting a new region-wide integrated timber industry. Like old-growth the limiting factor will be the inability to sustainably compete against the many other global suppliers. This means the Alaska Transition simply has no clothes.

Nonetheless, the Forest Service is even going one step further by proposing policy changes to accelerate the Transition . Not surprisingly, there are no predicted dates except perhaps when the old-growth will be cut-out in about 30 years. If the Transition has no clothes than an accelerated Transition is wishing makes it so . Yet, the Transition is very much alive and well.

In fact, provisions for an accelerated Transition are now part of the political horse trading surrounding Sealaska Corporation’s expanded settlement under ANCSA (S.340). Sealaska’s S.340 is now conveniently bundled with a wider set of lower 48 lands/wilderness bills known as the Omnibus bill.

S.340 is viewed as the last legislative train leaving the station for environmentalists who want to salvage what little lands protection S.340 has offered them to date. To boost their meager take, especially in light of giving up gems they once described as most worthy of protection, some environmental groups are now supporting the legislative provisions for an accelerated transition — not for Alaska — but for the timber industry in the PNW. In the PNW, immature 2nd-growth is already economic.

Nonetheless, the provisions for an accelerated transition are far reaching in terms of changing long-standing National Forest management polices sets a major precedent.

So the grand deal may works like this. The lower 48 Senators who want their Omnibus bill will have to capitulate to Senator Murkowski s quid pro quo of including S.340. In Alaska, opposition to Sealaska’s lands legislation has been prolonged and widespread. So the bundling of S.340 in the Omnibus bill gives Senator Murkowski much needed cover.

Moving on, environmentalists are hoping to get more Tongass wilderness beyond the meager amount provided in S.340 — and its five previous versions. But, environmentalists have relatively little leverage, except perhaps for supporting the provisions for an accelerated transition. Not for Alaska industry, but really for PNW s timber industry. Note, that Oregon is the home state of the Chairman of the Senate Energy and Natural Resources.

In my opinion, it is age-old backroom politics — cover-for-cover, deal-for-deal. Unfortunately, the subsidies and other economic losses due to taking federal timber before it’s time (an accelerated transition) could certainly mean that the taxpayer will be the biggest loser.

Audubon: Implications of Pending Tongass National Forest Land Selections on Forest Diversity

Thank you to reader David Beebe for passing along this new report from Alaska Audubon titled, “High‐grading on the Tongass National Forest: Implications of Pending Land Selections on Forest Diversity.”  The entire Audubon report is available here.  I’ve pasted the report summary below, although that’s also available in PDF form here, with the citations included. – mk

UPDATED:  Paul Olson from Sitka, Alaska (who has been a commercial fisherman in southeast Alaska since the 1970s and is the board president of a new regional organization called the Greater Southeast Alaska Conservation Community) provided some excellent context in the comments section that deserves to be highlighted here:

“This legislation is also relevant to the issues you discuss in the ‘collaboration’ blog since the current version of the bill is largely the result of negotiations between a subdivision of a Forest Service initiated ‘collaborative’ group, the Tongass Futures Roundtable. That secretive subdivision is known as the “Devil’s Club” and has been primarily responsible for persistent but to date unsuccessful efforts to rezone public lands on the Tongass National Forest for the primary benefit of private timberland owners. That collaborative group has all the characteristics of a typical collaborative stewardship group – it meets during the day when the working public cannot attend its deliberations; most of the NGO stakeholders had funding funneled to them as a result of high level Forest Service efforts; the participating environmental group representatives are for the most part inexperienced imports from distant lands or otherwise “soft” on certain types of resource development….”

Read Paul Olson’s entire comment here.
___________

Coastal temperate rainforests of the world occur in only ten areas, are extremely rare, and account for less than 3% of all forest cover on earth. Alaska’s Tongass National Forest contains a large portion of the world’s last remaining old‐growth rainforest. Regarded widely as the “crown jewel” of the national forest system, the Tongass is home to the bulk of America’s remaining old‐growth forest.

Over the last century, the Alaska timber industry has focused logging on the largest and most valuable old‐growth trees of the Tongass. This controversial practice is referred to as “high‐grading” and has already eliminated half or more of the very large‐tree stands on the Tongass. The very biggest trees, the ancient giants greater than 10 feet in diameter that can grow for many centuries, have largely been cut and eliminated from the forest.

Today, the remaining stands of very large‐tree old growth are extremely rare and account for only 0.5 percent (82,000 acres) of the 16.8 million‐acre Tongass. Known as volume class 7, these remnant stands are not only visually impressive but also provide important habitat for five species of Pacific salmon, Steelhead, brown bear, black bear, wolves, Sitka black‐tailed deer, river otter, marten, flying squirrel, Bald Eagle, Marbled Murrelet, Northern Goshawk and other wildlife.

Congress has long‐recognized the problem of high‐grading and took specific action to eliminate this practice of logging “a disproportionate amount of old growth timber” on the Tongass as part of the Tongass Timber Reform Act enacted in 1990.  Some twenty years later, however, the Sealaska Corporation is seeking legislation (S 730/HR 1408) that threatens a return to high‐grading of the largest and most profitable trees. If enacted, the legislation would eliminate a substantial portion of the last remaining very large‐tree old growth forest on the Tongass.

S 730/HR 1408 would re‐open the Alaska Native Claims Settlement Act (ANCSA) of 1971 to give the Sealaska Corporation the unprecedented ability to select and obtain highly valuable public lands in the Tongass containing extremely disproportionate quantities of very large‐tree old‐growth timber. The legislation would permit a 12‐fold increase in the Sealaska Corporation’s logging of very large‐tree old growth. The legislation would also authorize Sealaska Corporation to obtain some the most popular public lands in the Tongass in hundreds of smaller parcels scattered throughout the forest that are currently open to the public for fishing, hunting, and recreation.

Signed into law in 1971, ANCSA is the largest land claims settlement in U.S. history, andwas enacted with strong bi‐partisan support to resolve all aboriginal land claims in Alaska. Under existing ANCSA law, Sealaska Corporation has already made its final land selections within the Tongass. S 730/HR 1408 would give Sealaska Corporation approximately 65,000 acres in new public lands for logging and development outside of areas where the corporation’s existing selections have been made.

To evaluate the impact S 730/HR 1408, Audubon Alaska mapped each of the proposed new timber selections using a US Forest Service forest cover database.

Key report findings include:

• Following decades of controversial logging involving “high grading” (i.e., logging that targets the largest and most valuable old‐growth trees) the remaining stands of very large‐tree old‐growth (class 7) are extremely rare. These stands account for only 0.5 percent or ~ 82,000 acres of the 16.8 million‐acre Tongass National Forest.

• S. 730/HR 1408 would enable Sealaska Corporation to clearcut vastly greater amounts of highly valuable very large‐tree old growth than under current law. Public lands that would be transferred to Sealaska Corporation contain up to 12 times more acres of very large‐tree old growth than occurs on the lands the corporation has already selected under current ANCSA law.

• The public lands that would be obtained by Sealaska Corporation include a significant portion of the last remaining very large‐tree old growth in the Tongass. These highest‐volume large‐tree stands account for only 1.6 percent of productive old growth on the Tongass as a whole but make up 24‐27 percent of the lands Sealaska Corporation seeks under S 730/HR1408.

• Under S 730/HR 1408 Sealaska Corporation could clearcut up to 17 percent of the last remaining very large‐tree old growth (class 7) on the Tongass.

• Public lands that Sealaska Corporation would obtain under S 730/HR 1408 are far more valuable than the corporation’s existing land selections and include approximately $50 million worth of taxpayer‐funded infrastructure and other investments (e.g., roads, trails, bridges, transfer sites, fish habitat restoration projects).

S 730/HR 1408 would result in the permanent loss of a substantial portion of the remaining very large‐tree old growth on the Tongass National Forest. This loss would be additive to the logging of any other large‐tree old growth resulting from U.S. Forest Service timber sales, with long‐term impacts on forest diversity and associated wildlife habitat.