Legislature(2015 - 2016)SENATE FINANCE 532

03/25/2015 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 33 Presentation: Overview FY17 Operating Budget TELECONFERENCED
Heard & Held
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled 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                                                                               
        · 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                                                                    
        · 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                                                                      
        · 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                                                                    
        · Must have  underutilized allowable cut  or salvage                                                                    
        · 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                                                                    
        · 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                                                                    
     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                                                                    
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                                                                    
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                                                                                                                    
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                                                                    
10:05:32 AM                                                                                                                   
Co-Chair MacKinnon relayed the afternoon agenda.                                                                                

Document Name Date/Time Subjects
SB33 Sponsor Statement.pdf SFIN 3/25/2015 9:00:00 AM
SB 33
SB 49 civil legal services fund sheet.pdf SFIN 3/25/2015 9:00:00 AM
SB 49
SB 49 Letter of Support-Alaska Mental Health Board.pdf SFIN 3/25/2015 9:00:00 AM
SB 49
SB 49 Letter of Support-Council on Disabilities.pdf SFIN 3/25/2015 9:00:00 AM
SB 49
SB 49 Letter of Support-VCI.jpg SFIN 3/25/2015 9:00:00 AM
SB 49
SB 49 Sponsor Statement. ALSC.pdf SFIN 3/25/2015 9:00:00 AM
SB 49
SB49 Letter of Support-ACOA.pdf SFIN 3/25/2015 9:00:00 AM
SB 49
SB 32 AFA Support Letter.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB 32 Briefing Paper.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB 32 CSSB32 Supporting Documents- Resolution.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB 32 Letter of Support 2.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB 32 Sectional Analysis.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB 32 Sponsor Statement.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB 32 Written Testimony - Knight.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB32 Letter of Support 1.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB32 Letter of Support 3.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB32 Summary of Changes.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB32 Supporting Documents- Letter of Support Superior Pellets.pdf SFIN 3/25/2015 9:00:00 AM
SB 32
SB 33 Public Testimony Myers - opposition.pdf SFIN 3/25/2015 9:00:00 AM
SB 33