Legislature(2015 - 2016)BUTROVICH 205
02/13/2015 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HJR10 | |
| Confirmation Hearings | |
| SB32 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | SB 32 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| HJR 10 | |||
SB 32-TIMBER SALES
3:49:43 PM
CHAIR GIESSEL called the meeting back to order and announced SB
32, expanding the Department of Natural Resources' (DNR)
authority to offer negotiated timber sales statewide, to be up
for consideration.
CHRIS MAISCH, State Forester and Director, Division of Forestry,
Department of Natural Resources (DNR), Juneau, Alaska, began by
walking the committee through options for selling state timber
in the "Review of State Timber Sale Types."
He explained that he would refer to the statutes by their
shorthand, the last three digits of the statute number.
The 120 authority is for competitive sales: timber sales that
are offered in a competitive way either through an oral outcry
auction or a sealed bid auction. The best bidder with the
highest price is successful in acquiring that timber sale. Oral
outcry auctions are used in areas where there are a number of
purchasers. Sealed bid sales are used in areas where there may
be just one or two potential purchasers. That tends to achieve
the best purchase price for the state.
MR. MAISCH said negotiated sales use three methods. The 115
authority is the small negotiated sales for less than 500,000
board feet. It may sound like a lot of timber volume, but it
really isn't. There would be about 20 acres in Southeast Alaska,
about 125 acres in Southcentral Alaska, and about 80 acres in
Interior Alaska. This has to do with the different types of
forests and their productivity in terms of how much acreage it
takes to meet that volume.
The sales currently can only be for one year in length, but the
division is in the process of changing a regulation to allow
those sales to be two years in length. These sales are typically
purchased by very small operators, someone who might have a sole
proprietorship or a one or two-person kind of a mom and pop-type
sawmill operation.
3:53:40 PM
The 123 authority is for negotiated sales that are high-value 10
million board feet per year for 10 years. They have to meet the
definition of high-value added wood products as opposed to just
a definition of value-added wood products. A value-added wood
product would be a-sawmill that produces sawn lumber but doesn't
kiln dry, plane it or grade it, so it could be used
structurally. High-value added would be a facility that does
that: kiln dry, planed and graded. Wood pellets are on this
list. This enables the department to use the 123 authority to
prepare a timber sale for a pellet mill that is located between
Fairbanks and North Pole.
3:54:59 PM
MR. MAISCH said the 118 authority is the subject of this
proposed legislation. It is also a negotiated sale that fits in
between the other two. It can be up to 25 years in length and
has three criteria:
1. There has to be a high level of unemployment in the census
district as calculated by the Alaska Department of Labor and
Workforce Development (DOLWD). It has to be greater than 135
percent of the statewide average, a high hurdle. But places that
meet it are the Fairbanks North Star Borough, the Mat-Su
Borough, the Kenai Peninsula, and the Juneau Borough. That
authority cannot be used in those areas currently and the
proposed change would allow the department to start using this
authority in those areas if it is the best way to sell timber.
2. There has to be an under-utilized allowable cut. That means
extra volume has to be available to offer under a negotiated
sale; for example, in Southern Southeast Alaska where the annual
allowable cut is 13 million feet per year off the Southeast
State Forest. That is managed on a 10-year basis, so in any
given year they may sell 13 million or 5 million board feet. If
they only sell 5 million, they put 8 million feet in reserve to
be brought forward at a later time and can actually have a sale
for over 13 million feet. The key is that it has to be managed
on a 10-year rolling basis, so the allowable cut can never be
exceeded in a 10 year period.
MR. MAISCH explained that right now the department is ramping up
the timber sale program in Southern Southeast Alaska to help the
mills survive the downturn in the federal timber sale program on
the Tongass, because it is going through a plan amendment
process in which very little timber is being made available. The
department is essentially trying to buy some time for the
remaining industry in Southeast, especially the manufacturing
industries.
3. The facility that the wood would be used in has to have
underutilized manufacturing capacity. This would mean a mill
could add a second shift to the operation or it might mean
instead of operating only eight months the mill could actually
operate 12 months, because they have enough wood to do so.
MR. MAISCH explained that the reason they use the 118 authority
in Southern Southeast so much is because of the competition
between round-log export and domestic manufacturing. The Pacific
Rim markets can afford to pay a much higher value for a round
log, so if the competitive timber sale authority is used in
Southeast, the wood would go mostly offshore. However, it has
long been a policy of the department and various administrations
to try and have state-owned wood go to manufacturing facilities
in Alaskan communities. That's what this 118 authority allows
them to do; it allows them to use other factors besides price in
their decision process.
3:58:45 PM
SENATOR WIELECHOWSKI asked if competitive bids typically go to
outside organizations.
MR. MAISCH answered yes.
SENATOR WIELECHOWSKI asked if they are trying to get timber that
will get sold, no matter what, to Alaskan manufacturers as
opposed to outside corporations.
MR. MAISCH replied that was correct.
4:00:28 PM
SENATOR MICCICHE asked if he had any areas in mind (with a
harvestable surplus above the 135 percent of statewide average
for unemployment).
MR. MAISCH answered yes. He explained that Southern Southeast
Alaska has three state forests, two of them are the Southeast
State Forest and the Haines State Forest, both of which have
forest management plans and associated allowable cuts. It also
has lands that are classified for forestry use under various
areas plans around the state. The department determines where
timber sales will happen based on the five year schedule of
timber sales. That can be put out every year but is only
required to be put out every other year. This is the early
notice to industry and the public of areas where they are
contemplating proposing a timber sale.
SENATOR MICCICHE asked if the vast majority of communities in
Southeast where the sales will take place are above the 135
percent statewide average for unemployment.
MR. MAISCH answered that was correct. That criterion is not an
issue; the criterion that is the issue is the allowable cut.
Because after this ramped-up program is used for two or three
years, that criteria will no longer be met (because all of the
available surplus will have been used) and the 120 authority
will be used to sell all of the remaining wood.
SENATOR MICCICHE asked if anywhere else in the state would be
able to satisfy all three criteria.
MR. MAISCH answered yes; Tok is where they last proposed to use
the 118 sale authority for a power facility that would have used
wood chips to produce electricity. They entered the 118 process
with a preliminary best interest finding and in that process
another competitor showed up. That competitor proved to have the
ability to perform, and so that sale was offered as a 120 sale.
SENATOR WIELECHOWSKI noted the zero fiscal note, but said he
thought that revenues should increase as the industry
diversifies. To be fair, though, there could also be a decrease
since they will no longer go out to a competitive process.
4:03:51 PM
MR. MAISCH agreed that was correct and added that it's
definitely a tradeoff in Southern Southeast. The decision has
been made to support the communities' manufacturing and the
associated jobs that come with that because of the wood going to
a domestic source rather that selling for price only.
The department has the ability under the current timber sale
program to collect some timber sale receipts and that amounts to
about $850,000 per year. This is used to support a couple
forester positions, do reforestation and to maintain roads in
the state forest system. Roads are typically built by the timber
purchasers and are appraised against the value of the timber
sale. So, the roads are initially constructed by those
purchasers who maintain them while they are being used for
timber purposes. Once they are not, the maintenance reverts back
to the Division of Forestry.
SENATOR WIELECHOWSKI asked what happens when foreign companies
want to negotiate a sale.
MR. MAISCH explained that first it has to meet the criteria of
why a sale would be negotiated. If it's in an area where the
department would normally do a competitive sale, they would
politely say no. As a state agency, they don't want to pick who
the winner and loser is in a negotiation process if the two
parties are not on equal footing.
SENATOR WIELECHOWSKI said except they are trying to pick the
winners. So, there could be problems down the line with foreign
organizations.
MR. MAISCH explained that an RFP process is associated with a
negotiated sale. Some of the questions they can ask in the RFP
are the number of jobs created, how many high-value products
will be made and where they will be sold, so they can determine
what will produce the most value in terms of jobs and community
support. Points are awarded for the different types of questions
and a high bidder is chosen; then they negotiate the terms. Even
when they negotiate, the buyer has to meet all the bonding
requirements, fiscal due diligence and sign a standard timber
sale contract.
4:07:29 PM
SENATOR WIELECHOWSKI said he appreciated what they were trying
to do, but wondered if the language could be tweaked to
specifically give Alaskans preference, because legally they are
allowed to be given some preference.
MR. MAISCH replied that the department has a good track record
of using 118 authorities in Southeast and currently has three
active timber sales that were sold under it. Foreign interests
have come to Alaska to look at purchasing timber - all the time,
actually. But no offshore party has been willing to make an
investment in Alaska, because of the cost and the fact that the
state doesn't have that much timber to support the industry
(that went from 5,000 direct employees in Southeast Alaska to
about 250 today) when the Forest Service quit selling the amount
of timber it should be selling.
SENATOR COGHILL asked if what he has been talking about is a
part of the criteria in the best interest finding.
MR. MAISCH answered yes; it can be made the criteria. He
explained that section 1 adds a subsection clarifying that the
commissioner currently has the authority to choose which timber
sale authority is the appropriate one to use and the way that
would be done will be with a best interest finding. A best
interest finding is not needed for 115 sales. He added that the
small "b" best interest finding is not the large "B" Best
Interest Finding, which means an actual best interest finding.
4:10:24 PM
SENATOR COGHILL asked for the criteria under the little "b" best
interest finding.
MR. MAISCH replied that it has to be read as a two-part
statement. First you choose the authority you're going to use -
the applicable sale method. If the commissioner decided to use
the 118 authority, then a large "B" Best interest finding is
required (and for most of the other authorities). The only
authority that doesn't require that big "B" Best Interest
Finding is the 115 small negotiated sales, because it's too much
process to go through for 500,000 board feet, but it still has
to comply with all the normal forest practices and other
standards. He asked the Department of Law (DOL) for a legal
opinion on their interpretation and that should be forthcoming
soon.
4:11:36 PM
SENATOR COSTELLO said she understood that this bill came out of
a recommendation from the Alaska Timber Jobs Task Force and
asked if this is the first or highest priority recommendation.
MR. MAISCH answered that this is one of the recommendations that
came out of the Alaska Timber Jobs Task Force under the previous
administration that was completed in 2012. It made roughly 32 or
36 specific recommendations; some were prioritized and some were
not. This did not fall in that top five priority, but it was
worth pursuing. It was in the first two sections of the Susitna
State Forest legislation that was discussed in the previous
legislature. The Board of Forestry and the Tanana Citizens
Advisory Committee support this legislation.
SENATOR MICCICHE asked when the department determines maximum
and best use, if someone wants to create wood pellets and employ
three people in a particular piece of forest where there is no
volume limit and someone else comes along, maybe another
company, that wants to manufacture staircase spindles for some
company outside of Alaska, except they want to hire hundreds of
Alaskans, finish the product here and send it outside, that they
are not just focused on some Alaskan company when they may
potentially be able to employ hundreds of other Alaskans with
the other option under the 118 authority.
MR. MAISCH agreed with that example, but clarified that "no
volume limit" means they can do a large sale, but it still has
to comply with sustained yield and annual harvest quantities.
However, the second company he described would perhaps fit much
better under their 123 authority, because they are making a very
high-value finished product in Alaska that gets shipped to
markets in other parts of the world.
4:16:12 PM
SENATOR STOLTZE said he didn't see any dialogue about this
legislation from the pro-development group in the Mat-Su
Borough.
MR. MAISCH said the Susitna State Forest is not part of this; he
just mentioned it because it was in that previous legislation.
4:18:26 PM
SENATOR WIELECHOWSKI asked if deleting the provision of "must
have a high level of local unemployment" would include the
Susitna State Forest if it were to become a state forest.
MR. MAISCH answered yes, because it would be a statewide
authority.
CHAIR GIESSEL opened public comment and invited Mr. Rogers to
comment.
RICK ROGERS, Executive Director, Resource Development Council
(RDC), Anchorage, Alaska, supported SB 32. It's a small step to
adjust statutes to help get some timber supply, which is the big
impediment to the industry, particularly in Southeast Alaska.
The DNR has been very effective in using what limited lands it
holds in Southeast Alaska to help bridge the gap for timber
supply for the remaining mills. The timber sale statutes have
not been modified for a couple of decades, and this change
acknowledges the market for wood chips, a new industry with
respect to biomass energy.
4:22:53 PM
CHAIR GIESSEL left public testimony open and said she would hold
SB 32.
SENATOR WIELECHOWSKI asked the department for a list of
competitive sales with a comparison to their appraised values
for the past couple of years, to get a handle on how much this
bill would cost.
MR. MAISCH answered he would do that, but he also knew that
there was a range of 30-50 percent difference in what they would
get if they offered a sale under a 120 authority. That amounts
from tens of thousands to maybe a hundred thousand dollar
difference in purchase price for an export sale versus a
negotiated sale.
SENATOR MICCICHE asked if there is any way to quantify the value
of local employment and its trickle-down effect into the
community using a per board foot measurement.
MR. MAISCH replied that the Forest Service and others have tried
to do that, but it is tough, because there are a lot of
intangibles. The economic, social and an environmental aspects
of managing the forests are hard to put numbers on, but he would
do his best to at least give him some rules of thumb the
department uses in making those decisions.
SENATOR COSTELLO asked what problem as identified by the task
force that this bill solves.
MR. MAISCH answered that he would provide a written response to
that question.
CHAIR GIESSEL said she would hold SB 32 for a further hearing.