Legislature(2015 - 2016)SENATE FINANCE 532
03/25/2015 09:00 AM FINANCE
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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.