Legislature(2015 - 2016)SENATE FINANCE 532
03/25/2015 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB33 | |
| SB49 | |
| SB32 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 33 | TELECONFERENCED | |
| + | SB 49 | TELECONFERENCED | |
| + | SB 32 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 32
"An Act relating to the sale of timber on state land;
and providing for an effective date."
9:36:10 AM
CHRIS MAISCH, DIRECTOR, DIVISION OF FORESTRY, DEPARTMENT OF
NATURAL RESOURCES (DNR), discussed the legislation, which
proposed to make changes to timber sale authorities in the
Division of Forestry.
Mr. Maisch spoke to a document entitled "Briefing Paper: SB
32 CS(RES), Negotiated Timber Sales" (copy on file.) He
reviewed the state timber sale types on page 2:
Competitive sales (AS 38.05.120)
· No volume limit within allowable cut
· No duration limit
· Requires best interest finding, advertisement,
and public notice
· Price determined by auction, but not less than
base price
· This is the standard sale type. Use of
negotiated sales is limited to the specific
conditions listed below.
Small negotiated sales (AS 38.05.115)
· Less than or 500thousand board feet (This is
roughly equivalent to 20 acres in SE, 125 acres
in SC and 80 acres in the Interior)
· Less than or
· 1 year in duration.
· No more than one per purchaser each year.
· No best interest finding, advertisement, or
public notice required.
· Price determined by fair market value appraisal
and base price (11 AAC 71.092).
Negotiated sales for value added product (AS
38.05.123)
· Up to10 million board feet per year (100 million
board feet total over 10 years).
· Up to 10 years.
· Requires best interest finding and public notice.
· Restricted to use for local manufacture that
includes "high value-added" wood products. By
statute, wood chips are defined as a "value-
added" product rather than a "high value-added"
product. Therefore, sales to supply a chip
operation would not qualify for this type of
sale.
· Operators must submit a business plan/operating
plan for their processing facilities prior to
negotiating a .123 sale. Processing facilities
must be operational prior to harvesting timber
sold under this authority.
· Requires best interest finding and public notice.
· State typically uses RFP process to select
winning proposal, especially where there is
competitive interest in state resources.
Negotiated sales for areas with high unemployment (AS
38.05.118)
· No volume limit.
· Up to 25 years with reappraisal every five years.
· Limited to areas with unemployment > 135% of
statewide average.
· This sale type does not apply in the Mat-Su
Borough or Fairbanks North Star Borough because
their unemployment rates are close to the
statewide average).
· Area must have underutilized manufacturing
capacity.
· Must have underutilized allowable cut or salvage
timber.
· Requires best interest finding and public notice.
· Price determined by fair market value appraisal
and base price (11 AAC 71.092).
Personal use sales (AS 38.05.850)
· Not for commercial use.
· No best interest finding, advertisement, or
public notice required.
· Up to10 thousand board feet per purchaser per
year.
· Price determined by fair market value appraisal
and base price (11 AAC 71.092).
Mr. Maisch qualified that competitive authority was used
most frequently and comprised about 90 percent of timber
sales. The sales required competitive bidding with outcry
or sealed bids, and when there was competitive interest it
gained the best price. He continued that all of the other
methods were forms of negotiated sales.
Mr. Maisch discussed negotiated sales for value-added
products, designed to encourage high value-added
manufacturing. He pointed out the example of the wood-
pellet mill in Fairbanks, with which DNR was in the process
of doing two 5-year sales. He added that the definition of
"high value wood products" was covered both in statute and
in regulation, and could be updated with the advent of new
technology and products.
9:39:10 AM
Mr. Maisch discussed the authority in AS 38.05.118, which
allowed for negotiation of sales for up to 25 years in
length. He noted that three criteria that the bill proposed
to strike from the current law were found in subsection C,
and had to do with specific items that had to be in place
to use the authority: a high level of unemployment in the
area of the sale; an excess allowable cut in the state
forest or geographic area of the timber sale; and excess
manufacturing capacity at the mill that would negotiate the
sale. He explained that it was currently difficult to use
the authority statewide. In Fairbanks, Kenai, and Mat-Su,
the high level of unemployment criteria was not met.
Mr. Maisch discussed the log export and manufacturing
components of the industry, explaining the state's policy
of leveraging timber sales to support jobs in communities.
He related that the state was currently almost at the limit
for the allowable timber cutting in southern Southeast
Alaska, which was the original target area of the bill.
When the limit was reached (in approximately two years)
only the competitive authority would allow for timber
sales. He furthered that the round log segment of the
timber industry could outbid the domestic part of the
industry, which would put the state at a disadvantage in
supporting communities and manufacturing in the area.
Mr. Maisch discussed Section 1 and Section 2 of the bill,
reading from the sectional analysis:
Section 1 - New Subsection
Amends AS 38.05.110 to clarify that the commissioner
determines which of the applicable sale methods is the
most appropriate authority to use for each timber
sale.
Section 2 - Amendment to (a).
Amends AS 38.05.118 to clarify that negotiated timber
sales under this section do not have to comply with
the restrictions on negotiated sales in AS 38.05.115
and the timber sale procedures for competitive sales
in AS 38.05.120, but they do have to comply with the
requirements for Forest Land Use Plans (AS 38.05.112)
and Five-year Schedules of Timber Sales (AS
38.05.113). This exempts sales under .118 from limits
on size and duration up to 25 years, but ensures that
large negotiated sales are developed with adequate
notice to the industry and general public, and
necessary site-specific design. This section also
clarifies that DNR may negotiate sales to wood fiber
users, including biomass energy producers, in addition
to wood product manufacturers.
Mr. Maisch clarified that under state law, there must be a
best interest finding to allow public process for timber
sales, including a civil process following any appeals.
Section 2 of the bill also added wood fiber users to
allowable sales, specifically to address the needs of the
biomass industry in the state, particularly in the Interior
where several schools used wood chips for heating.
Additionally, there was a pellet mill in Fairbanks and
compressed fuel logs being made in several locations in the
state.
9:43:03 AM
Mr. Maisch stated that there was significant support for
the legislation, and referred to letters from Southeast
Conference, the Alaska Forest Association, the Resource
Development Council, and the Board of Forestry.
Senator Dunleavy related that he had discussed timber sale
contract duration with individuals who were logging in the
Interior. He wondered if the short contract duration had
prevented loggers from lending and capitalizing (borrowing
capital for needed equipment) for the project, or if there
were other such issues related to contract length. Mr.
Maisch expressed that the situation would depend upon the
sale authority being used; all DNR timber sale authorities
(especially competitive sales under AS 38.05.120) could be
any length of time, and were typically three and five years
in length. He explained that when an entity was making a
fairly large investment in manufacturing, 15 to 20 years
was needed to fully amortize the investment. He furthered
that such considerations were the rationale for the
differing sale authorities; and through the best interest
finding process the department would select the most
appropriate method. He added that typically DNR would
default toward the competitive process, so as to not be in
the position of selecting the proposer to negotiate with.
He thought that in cases like Southeast Alaska, where DNR
was trying to encourage manufacturing, the competitive
process was the appropriate authority to use.
9:45:05 AM
Senator Bishop asked what the typical timeline was for
negotiating a timber sale. Mr. Maisch estimated 12 to 16
months was a typical time frame for a timber sale on longer
term project. He conveyed that there was a specific set of
steps required; including preliminary and final best
interest findings, as well as a forest land use plan to be
completed after the decision was made to make the sale. The
land use plan would contain site-specific details and could
be appealed by commenters. He mentioned the recently
concluded sale process with the pellet mill in Fairbanks,
and estimated that it had taken approximately one year. He
furthered that the project had been fairly ambitious, had
two 5-year back to back timber sales under the value added
timber authority, and there had been competitive interest
in the area to work through.
Senator Hoffman asked if there were any timber sales on the
Kuskokwim River on state land. Mr. Maisch related that
there had been biomass interest from rural communities -
both chipping and round-wood operations which fueled
boilers in rural areas. He continued that there had been
timber sales on state land on the Kuskokwim River in the
past, and the department continued to respond to requests
for timber in that part of the state.
Senator Hoffman asked if the legislation would affect any
of the sales in the area. Mr. Maisch stated that the
legislation would not negatively affect the ability of DNR
to offer sales in the area. He thought it was likely that
the department would use the competitive sales authority,
but it would examine the circumstances to make the best
decision within the preliminary best interest process. He
added that such decisions were made by the commissioner and
delegated to the state forester.
9:48:10 AM
Co-Chair MacKinnon clarified that the "meat" of the bill
was on page 2, line 1 - repealing AS 38.05.118c:
(c) A sale of timber may not be negotiated by the
commissioner under this section except on a finding
that, within an area proximate to the business site
that the manufacturer may economically serve, there
exists, or will exist within two years,
Mr. Maisch concurred that the section Co-Chair MacKinnon
referred to was where most of the change occurred, and the
rest of the bill was clarification language.
Co-Chair MacKinnon remarked that the appeal section of the
bill was where the committee should be focused. She
referred to current statutes (specifically AS 38.05.115) on
timber sales and suggested there was an antiquated
reference to "board feet". She wondered if the language
needed to be updated. Mr. Maisch concurred that the
language referenced an older measurement term "MBM", which
stood for thousand-board measure. He explained that the
term was interchangeable with the current wood volume
measurement terminology of MBF, which stood for thousand
board feet. He was not sure that the change was necessary,
and thought it would be important to examine whether the
term appeared in other areas in statute or regulation.
9:50:40 AM
RON ARVIN, MEMBER, MATANUSKA-SUSITNA BOROUGH ASSEMBLY,
spoke in favor of the bill. He related that the assembly
had taken up the subject in the form of a unanimous
resolution of support after robust discussion on the
matter. He shared that he was a former logger from
Southeast Alaska, and discussed the importance of
supporting the timber industry. He spoke of the many
logging companies that were no longer in business.
9:52:04 AM
ERIN MCLARNON, EXECUTIVE DIRECTOR, WORKING FOREST GROUP,
ANCHORAGE (via teleconference), spoke in support of the
bill. She relayed that she was a member of the Board of
Forestry, and thought the legislation would enable DNR to
better respond to the economic and geographic realities of
the forest product industry. She discussed biomass energy,
and demand for state timber. She thought the 25-year
negotiated timber sale provision was crucial for medium and
large biomass energy projects to get off the ground. She
mentioned the timber sale methods available to DNR, and
highlighted the importance to the state and wood fiber
users.
9:53:18 AM
JAMES MACKOVJAK, SELF, GUSTAVUS (via teleconference), spoke
in opposition to the bill. He expressed preference for the
value-added timber sale authority and related that he lived
in a house built almost completely of wood cut in the
Tongass National Forest. To build the house, he had
purchased wood from eight small sawmills in the region. He
wondered who would benefit from the legislation, and
questioned that there was no discussion of building wood
processing facilities. He thought that long-term sales of
up to 25 years conveyed special rights to a public resource
to the exclusion of others. He was concerned that a
negotiated 25-year sale would ignore the market, and price
redetermination by bureaucrats rather than the open market
was objectionable. He thought that limiting timber sales to
5 years and selling through a bidding process was the only
way to ensure transparency and ensure the public received
fair value for the resource.
9:54:57 AM
AT EASE
9:57:28 AM
RECONVENED
STEVE GIBSON, SELF, HOMER (via teleconference), spoke in
opposition to the bill. He related that he had been in the
wood milling business for the previous 35 years using
primarily state timber. He clarified that he was not a
direct purchaser of the timber, but his supplier was a
customer of the state. He was alarmed about the long
duration of a 25-year negotiated timber sale, and expressed
concern that there could be deals with DNR that were overly
advantageous for some manufacturers or loggers. He
recognized that there was a great deal of infrastructure
required to solidify the supply line of timber, but did not
consider that a 25-year contract would allow for enough
private enterprise to bid on regularly. He thought the
extended contract length would set up a lumber utilization
structure that had not been productive in the past.
10:00:09 AM
Co-Chair MacKinnon CLOSED public testimony.
Co-Chair MacKinnon asked Mr. Maisch to address the concerns
of the previous testifiers who spoke regarding the proposed
25-year contract length and fears of lack of transparency
in the process. Mr. Maisch clarified that the bill
specified the contract would be up to 25 years, and they
would select length of time necessary to achieve the
objectives during the best interest findings process. He
reviewed the process; which would start with a preliminary
best interest finding to include the proposed method of
sale, length of contract, and rationale. The preliminary
finding would also inform the reasoning for the length of
the proposed sale, and would be open for inter-agency and
public comment. The department would consider the comments
and incorporate any changes into the final best interest
finding, which would be the decision document to affirm or
deny a sale. Following the final decision, individuals had
administrative appeal rights and finally the ability to
pursue a civil case when appeal rights were exhausted. He
referred back to the forest land use plan, also open inter-
agency and public review and comment. He added that the
most often discussed item in such plans was road access.
Mr. Maisch addressed the testifier's concern regarding a
large negotiated sale and subsequent export of logs. He
related that the statute specified a manufacturer (on-shore
domestic processor) and the authority could not be used for
a sale for round-log export. He furthered that the only way
to do a sale for export was through the competitive bid
process which would be an open market competition.
10:03:03 AM
Senator Bishop thought that the bill was consistent with
the governor's recent comments regarding getting value-
added for the state's resources. Mr. Maisch concurred, and
remarked that the governor and the administration wanted to
generate the maximum amount of jobs out of each timber sale
in the state, and the bill was consistent with encouraging
domestic manufacturing.
Senator Bishop spoke about preventative forestry practices
and thought the legislation might aid DNR in meeting its
mission and increase fire safety around rural communities.
Mr. Maisch reflected that there were increased biomass
activities statewide, and used the example of the community
of Tok, which has been investing in the biomass industry
for several years. He recounted that DNR had made
significant progress in reducing dangerous fuels that were
close to communities, which in turn helped with mitigation
of wildland fires.
10:05:07 AM
Co-Chair MacKinnon asked if DNR already had the authority
to issue timber sale contracts up to 25 years. Mr. Maisch
answered in the affirmative, and specified that there was
no time limit on the competitive sale statute.
SB 32 was HEARD and HELD in committee for further
consideration.
10:05:32 AM
Co-Chair MacKinnon relayed the afternoon agenda.