Legislature(1995 - 1996)

02/21/1996 03:45 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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
 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             
 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            
 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                   
 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              
 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               
 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              
 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                    
 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                   
 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             

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