Legislature(1995 - 1996)
02/21/1996 03:45 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SRES 2/21/96 SB 180 VALUE-ADDED TIMBER SALES; MARKETING SENATOR LEMAN announced SB 180 to be up for consideration. SENATOR PEARCE moved to adopt the work draft "c" CS to SB 180. There were no objections and it was so ordered. TOM BOUTIN, State Forester, said this was a bill requested by the Governor after meeting with the timber industry which told him that a reliable timber supply was needed before any kind of capital investment could be made. This bill would allow negotiated sales and the CS would allow the sales to have up to 10 million board feet per year. The Commissioner of DNR would determine to what extent the timber in the particular sale would be used to make "high-value added products." There would be a requirement in the timber sale contract that that percentage of timber be used for high-value added products. MR. BOUTIN said that the 10 million board feet is a problem with the administration which prefers 5 - 7 million board feet. Most timber sale contracts would be far less than that and a higher amount would alarm the public without gaining any utility. CSSB 180 takes all the Board of Forestry comments and turns them into the bill with the exception of the timber volume limit. The CS puts a limit on the number of contracts per region per year in the first three years and then specifies that for the rest of the years the limit would be set by regulation. The Board of Forestry recommended that some products be added to the list of high value added products and then came up with a separate category called "value added products" that the Commissioner would take into account. The new category includes pulp, chips, wafer board, and green lumber products. The Board of Forestry did not recommend eliminating section 3 of SB 180. SB 180 does not add timber sales. Timber sales on State land are unlikely to approach the ceiling of sustained yield with multiple use because of budget realities. SB 180 is simply a method of sale option that doesn't change the public process. It doesn't transfer any forest management responsibilities to the timber purchaser and it doesn't close the door on round log exports, MR. BOUTIN said. Number 366 KARL OHLS, Resources Development Specialist, said the original version of SB 180 established an Alaska Forest Products Research and Marketing Program, essentially a support program for value added timber production and marketing efforts. He explained that in the Department of Commerce a position has been budgeted for a forest products specialist who will be Kathleen Morse. She currently is working for the U.S. Forest Service and under an intergovernmental personnel act agreement they will borrow her for some time. Her background is an economist and she is also very knowledgeable about value added timber products and manufacturing. The DOCED wants to dedicate a large amount of Ms. Morse's time to the duties described in the original version of the bill. Since this is an existing position, there is a $0 fiscal note for the marketing and research program. MR. OHLS said that no matter what version passes, the Department intends to dedicate a lot of time to value added products and will be continuing forward with the duties as described in the original version of the bill. SENATOR TAYLOR said he was pleased to see the legislation and asked if they were opposed to some of the changes in the CS. MR. BOUTIN said he didn't oppose it at all. He spoke about raising the limit on the size of timber sales from the 5 million board feet per year to the 10 million board feet. He said they would much prefer the 5 - 7 million board feet. Secondly, the elimination of the forest products research and development was important. Number 450 SENATOR TAYLOR commented that he knew people who would harvest more fire wood over a 10-year period than 10 million board feet. He asked what the sustained yield was for the State. MR. OHLS said they calculate sustained yield on an area basis. The Haines State Forest has a sustained yield of 7.2 million board feet and they do offer that and have been selling that without a problem. On the Kenai Peninsula there is a special situation where the sustained yield is a very small amount, but in the past 12 - 18 months they have offered about 35 million board feet which is a multiple that Trustee For Alaska might argue for instance. Because it's dead and dying, they don't include it in the sustained yield calculation. The Interior is the place where the State has a much larger sustained yield than what it's offering, predominately in hard woods which at the moment they don't have a market for. They are not at the allowable cut in the river system at McGrath, but there isn't a market for that spruce. He explained that the spruce they can reach economically in the Interior is being offered. The mills in the Interior use the kind of volume that is in the bill. The largest mill uses about 4 million board feet a year. He knows from a Tongass perspective this volume seems small, but in other parts of the State it is a volume that people are willing to talk about. SENATOR TAYLOR asked what is the sustained yield on our State Forest lands that is annually available. MR. OHLS replied in the Interior the hard wood is about 60 million board feet per year and the soft wood that is economically accessible is about 12 million board feet per year. In South Central it's 2 - 4 million board feet. The State does have appreciable timber at Cape Yakutaga and has agreed to a settlement whereby the University of Alaska has the State's allowable cut for the next 20 years and there the sustained yield is about 16 million board feet. SENATOR TAYLOR said those are incredibly low numbers compared to what he has been told. MR. OHLS commented that they do not include areas that are not classified for forestry. SENATOR TAYLOR asked what he meant by value added. MR. OHLS replied that it is defined in the bill on page 4. SENATOR LEMAN asked the specifications for a cant. MR. OHLS answered that it has to be 8 3/4 inches or less on a side. MS. MORSE said that you only have to cut two sides. SENATOR FRANK asked why the CS doesn't include the marketing program. ANNETTE KREITZER answered there was testimony in the House earlier to the effect that the marketing program wouldn't increase the fiscal note and the House is now considering putting that marketing provision back in. SENATOR FRANK said he would like to see that in the CS. It would aid the smaller timber operators and give some perspective to the government that it might not otherwise have. MR. OHLS reiterated that there is already a position budgeted for a forestry person. He said putting the marketing in statute reinforces the administration's position. Number 562 SENATOR LINCOLN said she also thought it was important to have the whole marketing and research section included in the bill. SENATOR TAYLOR commented that he thought it was ludicrous to develop a marketing and research program so we can pay lip service and pander to the public and then not put up any timber for them to sell or do anything with. TAPE 96-17, SIDE B MR. BOUTIN said the Governor's office had given them very firm direction about putting timber up for sale on Wrangell and Mitkoff Islands. In Southeast for this calendar year the Division of Forestry will be offering 25,420,000 board feet. That's with about eight and a half foresters. Number 550 JACK PHELPS, Alaska Forest Association, said they support CSSB 180. They had basically three major areas of concern with the original bill; the 5 million board feet limitation on individual sales, the 50 percent allocation for value added products which they felt was unworkable, and the definition of high-value added was entirely too restrictive. All of those concerns were adequately addressed in the CS. He added that the increase to 10 million feet was a step in the right direction, and he asked that they resist attempts to reduce the maximum sale size. He said he thought the Division of Forestry was underfunded and it would be appropriate if the legislature could fund additional State foresters. SENATOR LEMAN asked what he thought about the marketing and research. MR. PHELPS said he didn't have a position on that, he did think it was important for the Department of Commerce to have forestry represented. BUCK LINDEKUGEL, Conservation Director, SEACC, supported the concept of SB 180. He was not familiar with the CS. He thought it was appropriate to work with the industry to create the most jobs per board foot cut from State lands. Such action would reduce and avoid conflicts with other forest users who depend upon the fish, wildlife, and scenic values of State forests to protect their livelihoods as well. Number 434 SENATOR TAYLOR asked if there was anything preventing round logging of timber. MR. LINDEKUGEL said he wasn't aware of anything in the bill that prevents that. SENATOR TAYLOR asked if he supported round log exports from Alaska. MR. LINDEKUGAL said he didn't. SENATOR TAYLOR asked who funded their organization. MR. LINDEKUGAL said they are made up of 15 volunteer citizen groups and 12 different communities in Southeast. The majority of their funding is through private membership fees and private grants from foundations. He said their dues are a minimum of $15. SENATOR LINCOLN said that she appreciated the public testifying in front of any legislative committee whether she agreed with them or disagreed. SENATOR TAYLOR pointed out that their dues aren't paying for their organization, but there is a lot of money from "Outside." MR. LINDEKUGAL clarified that they are not funded completely by membership dues. They do seek funding and grants from different foundations across the country. SENATOR LEMAN explained that Senator Taylor's district had been hit hard by losses of jobs in the timber industry. MR. LINDEKUGAL said he understood that and SEACC supported Wrangell's request for money from the federal government for certain projects they had proposed. Number 425 SARAH HANNAN, Alaska Environmental Lobby, said they had been incorporated in the State of Alaska for 14 years and are a coalition of 20 Alaskan environmental groups; they have a staff of one and are largely a volunteer organization. They have a dual mission: to lobby on behalf of their coalition and to train Alaskans in the process. She pointed out Mr. Boutin said this bill is not intended to change the volume of timber sales the State is doing. There is very little State forested land in Southeast, most of the trees largely belong to the federal government. Negotiated sales is a new way to sell trees. The reason is because in the last couple of years many Alaskans who work in forest products say their problem is that they cannot get a steady supply and a certain volume. This bill will not add more timber sales, but it will give the opportunity to the small value added processor to be able to negotiate with the State and not have to compete with open bidding. MARK WHEELER, Alaska Environmental Lobby, said they support the concepts behind this legislation, but they have specific concerns about its present form. It represents a good first step on the road toward high value added forest products industry in Alaska. Their major concerns with SB 180 as originally drafted are first they feel 10 years is too long for negotiated contracts. Experiences in the Tongass have shown how dangerous it is to allow contract obligations rather than sound resource policy drive forest management. They suggest three year contracts as small value added operations in the interior have indicated they need a three year guaranteed supply to acquire loans. More than 50% of the trees should remain in state. They would like to see a base level of 70 percent of timber cut on State lands to undergo high value added processing. Above that, the Commissioner should insure the maximum percentage feasible should be dedicated to high value added processing. Volume should be determined on a regional basis rather than one Statewide maximum and they feel 10 million board feet per year is too large to accommodate regional variations in timber. CSSB 180 misrepresents the Board of Forestry's recommendations on this issue. It says that the first three years the Commissioner will allow two contracts per year and then no less than two contracts per year. The original recommendations were that for the first three years there would be a maximum of two contracts per region and after that the Commissioner would set the number of contracts per region through regulation. SENATOR LEMAN asked what he thought about the marketing and research program. MR. WHEELER said they feel it is a good idea to help in selling product. SENATOR TAYLOR asked how he would apply the 70 percent for high value added timber in Southeast. MS. HANNAN replied that she didn't think it applied in Southeast, since the State is not able to negotiate a sale in Southeast that comes anywhere close to meeting the needs of any of the timber operators here. SENATOR TAYLOR said that 10 million board feet per year would be attractive to his small mills. MS. HANNAN added that if 70 percent of it could stay in Alaska for high value added processing, they would support it. SENATOR TAYLOR pointed out they make it look like they support the bill knowing that 50 percent of the timber is utilizable for only low value added processing, but in reality they are killing any timber sale in Southeast. MS. HANNAN replied that their concerns are at a policy level of going into a new style of negotiated sales, allowing exports. This is the place where provisions are built in guaranteeing some new developments. A reduced stumpage rate is a reasonable trade off for 70 percent of the timber to be processed in high value added processing. MR. WHEELER asked SENATOR TAYLOR if he meant there are no forests in Southeast that would have 70 percent of timber utilizable for high value added processing. SENATOR TAYLOR replied there is a lot of good timber here, but it is sitting next to a salmon stream or something like that. SENATOR TAYLOR asked him what experience he had to recommend the 70 percent. MR. WHEELER replied that they represent 20 different environmental groups all over Alaska, some of whom have done polls in their area. They talked to small value added processors and asked what return they make on what they harvested and they came up with 70 percent as a reasonable figure. He said they did not want to see a token industry covering for a pulp mill or for the exporting of round logs if there is no minimum percent of the trees that must undergo high value added processing. SENATOR TAYLOR asked if there was some basis for him suggesting in Southeast Alaska you could somehow get more than 50 percent of the timber that would be good for high value? MS. HANNAN replied they are suggesting that as State policy, not for Southeast. They think the volumes should be set on a regional basis because the forests of Southeast and the forests of the Kuskokwim are very different. Setting those differences out at the statute level is very cumbersome. She said they represent timber experts within their group and these are their recommendations. Number 258 SENATOR LEMAN stated they would set aside CSSB 180 for the time being. Number 203 SB 180 VALUE-ADDED TIMBER SALES; MARKETING SENATOR LEMAN announced SB 180 to be back up for consideration and asked Mr. Boutin to respond to the question of exports. He said the bill does not prohibit exports, but the rationale the Department of Law has provided is that a percentage of timber specified by the Commissioner for the specific timber sale would go into these high value added and value added products. SENATOR LINCOLN asked to clarify on page 1 the difference between "affecting" and "impacting." MR. BOUTIN replied that the Forest Practices Act prohibits DNR from impacting fish habitat, water quality, and specific wildlife habitat. SENATOR LINCOLN asked him to get back to her with the reasoning for the word change and then asked about the letter that was written from the Chief Forester of Ahtna Corporation saying the bill was unconstitutional and required timber be value added in state rather than outside the State which was detrimental to their company. MR. BOUTIN replied that he hadn't talked to Ahtna and they hadn't been a bidder on State timber sales. He explained that Ahtna has a timber export program and this bill would in no way affect it. Number 113 SENATOR FRANK asked Mr. Boutin to respond to the letter because it might change people's opinions about this bill. SENATOR LEMAN said they would hold the bill over for a couple of days to give him a chance to look over the letter and anything else they have discussed. SENATOR FRANK said that some people think a negotiated timber sale is subsidizing the forest industry. He didn't think that was the case and he was concerned with the implication in the CS that that is the case, as in line 9 where it says one means of encouraging such facilities is through the use of an incentive by reducing the stumpage price of timber. This language was not in the original bill. MR. BOUTIN explained that sentence addresses a Board of Forestry resolution that said if there is a subsidy, it should only be in the stumpage price, not in other ways like low interest loans. SENATOR FRANK said he was still uncomfortable implying there was going to be a subsidy. MR. BOUTIN replied in any negotiated sale someone can second guess the price later whereas in the current timber sale program, almost all sales are sold by competitive sale and they know the market price. SENATOR FRANK asked if he envisioned a negotiated sale that is not competitive. MR. BOUTIN replied that he didn't really know if there would be competing proposals. SENATOR FRANK asked if it would be the State's policy to exclude competing proposals, for example, from a company that was going to do value added and hire Alaskans, etc. That wouldn't make sense. MR. BOUTIN agreed. One of the considerations for the Commissioner is the stumpage price (page 3, line 17). He said they could just eliminate that sentence. TAPE 96-18, SIDE A Number 001 PAM LA BOLLE, President, Alaska State Chamber of Commerce, said they represent 700 business members who employ approximately 70,000 Alaskans and the 35 local Chambers of Commerce and the 6,000 business members they represent. One of their top ten priorities is maintaining the viability of Alaska's forest products industry. They support expansion of the State sales program on State lands. They support CSSB 180. They believe the 10 million board feet is less than desirable; 15 million would be better in drawing the kind of economic development and impact that is needed to establish long term investment conditions. SENATOR LEMAN asked Senator Lincoln if the Committee could take up her amendment when the bill is back before them. SENATOR LINCOLN replied that was fine and added that there would need to be a new section added as well as a title change. SENATOR LINCOLN asked if they could also address section 3 where it says, "may negotiate no more than two sales of timber." Its calendar year is 1996, 1997, and 1998. She wanted to know why that was added. MR. BOUTIN explained that was also a recommendation of the Board of Forestry. Some of the public was concerned there would be too many lease sales. SENATOR FRANK asked if the marketing program would apply to the high value added products only. MR. OHLS answered the original bill applied to the high valued added category, but he had no objection to helping everyone in the timber industry as much as they could. SENATOR LINCOLN said she intended for it to apply to both.