Legislature(2015 - 2016)BUTROVICH 205

02/13/2015 03:30 PM RESOURCES

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Audio Topic
03:30:13 PM Start
03:31:44 PM HJR10
03:35:48 PM Confirmation Hearings
03:49:43 PM SB32
04:27:05 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation of Governor's Appointments: TELECONFERENCED
Big Game Commercial Services Board - James
(David) Jones, Kelly Vrem
-- Public Testimony on Appointments --
*+ SB 32 TIMBER SALES TELECONFERENCED
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled: TELECONFERENCED
HJR 10 OPPOSE ANWR WILDERNESS DESIGNATION
Moved SCS CSHJR 10(RES) Out of Committee
-- Companion Bill to SJR 10 --
                      SB  32-TIMBER SALES                                                                                   
                                                                                                                                
3:49:43 PM                                                                                                                    
CHAIR GIESSEL called  the meeting back to order  and announced SB                                                               
32,  expanding   the  Department  of  Natural   Resources'  (DNR)                                                               
authority to  offer negotiated timber  sales statewide, to  be up                                                               
for consideration.                                                                                                              
                                                                                                                                
CHRIS MAISCH, State Forester and  Director, Division of Forestry,                                                               
Department of  Natural Resources (DNR), Juneau,  Alaska, began by                                                               
walking the  committee through options  for selling  state timber                                                               
in the "Review of State Timber Sale Types."                                                                                     
                                                                                                                                
He  explained  that he  would  refer  to  the statutes  by  their                                                               
shorthand, the last three digits of the statute number.                                                                         
                                                                                                                                
The 120  authority is  for competitive  sales: timber  sales that                                                               
are offered  in a competitive  way either through an  oral outcry                                                               
auction  or  a sealed  bid  auction.  The  best bidder  with  the                                                               
highest price is  successful in acquiring that  timber sale. Oral                                                               
outcry auctions  are used in  areas where  there are a  number of                                                               
purchasers. Sealed  bid sales are  used in areas where  there may                                                               
be just  one or two  potential purchasers. That tends  to achieve                                                               
the best purchase price for the state.                                                                                          
                                                                                                                                
MR.  MAISCH said  negotiated  sales use  three  methods. The  115                                                               
authority is  the small  negotiated sales  for less  than 500,000                                                               
board feet.  It may  sound like  a lot of  timber volume,  but it                                                               
really isn't. There would be  about 20 acres in Southeast Alaska,                                                               
about 125  acres in  Southcentral Alaska, and  about 80  acres in                                                               
Interior  Alaska. This  has to  do  with the  different types  of                                                               
forests and  their productivity in  terms of how much  acreage it                                                               
takes to meet that volume.                                                                                                      
                                                                                                                                
The sales currently  can only be for one year  in length, but the                                                               
division  is in  the process  of changing  a regulation  to allow                                                               
those sales to be two years  in length. These sales are typically                                                               
purchased by very small operators,  someone who might have a sole                                                               
proprietorship or a one or two-person  kind of a mom and pop-type                                                               
sawmill operation.                                                                                                              
                                                                                                                                
3:53:40 PM                                                                                                                    
The 123 authority is for  negotiated sales that are high-value 10                                                               
million board feet  per year for 10 years. They  have to meet the                                                               
definition of high-value  added wood products as  opposed to just                                                               
a  definition of  value-added wood  products. A  value-added wood                                                               
product would be a-sawmill that  produces sawn lumber but doesn't                                                               
kiln  dry,   plane  it  or  grade   it,  so  it  could   be  used                                                               
structurally.  High-value added  would  be a  facility that  does                                                               
that:  kiln dry,  planed and  graded.  Wood pellets  are on  this                                                               
list. This  enables the  department to use  the 123  authority to                                                               
prepare a timber  sale for a pellet mill that  is located between                                                               
Fairbanks and North Pole.                                                                                                       
                                                                                                                                
3:54:59 PM                                                                                                                    
MR.  MAISCH  said  the  118  authority is  the  subject  of  this                                                               
proposed legislation. It  is also a negotiated sale  that fits in                                                               
between the  other two. It  can be up to  25 years in  length and                                                               
has three criteria:                                                                                                             
                                                                                                                                
1. There  has to be  a high level  of unemployment in  the census                                                               
district  as calculated  by the  Alaska Department  of Labor  and                                                               
Workforce  Development (DOLWD).  It has  to be  greater than  135                                                               
percent of the statewide average,  a high hurdle. But places that                                                               
meet  it  are  the  Fairbanks  North  Star  Borough,  the  Mat-Su                                                               
Borough,  the  Kenai  Peninsula,  and the  Juneau  Borough.  That                                                               
authority  cannot  be  used  in those  areas  currently  and  the                                                               
proposed change  would allow the  department to start  using this                                                               
authority in those areas if it is the best way to sell timber.                                                                  
                                                                                                                                
2. There  has to be  an under-utilized allowable cut.  That means                                                               
extra  volume has  to be  available to  offer under  a negotiated                                                               
sale; for example, in Southern  Southeast Alaska where the annual                                                               
allowable  cut is  13 million  feet  per year  off the  Southeast                                                               
State  Forest. That  is managed  on a  10-year basis,  so in  any                                                               
given year they  may sell 13 million or 5  million board feet. If                                                               
they only sell  5 million, they put 8 million  feet in reserve to                                                               
be brought forward  at a later time and can  actually have a sale                                                               
for over 13  million feet. The key  is that it has  to be managed                                                               
on a  10-year rolling basis,  so the  allowable cut can  never be                                                               
exceeded in a 10 year period.                                                                                                   
                                                                                                                                
MR. MAISCH explained that right  now the department is ramping up                                                               
the timber sale program in  Southern Southeast Alaska to help the                                                               
mills survive the downturn in  the federal timber sale program on                                                               
the  Tongass,  because  it  is going  through  a  plan  amendment                                                               
process in which very little  timber is being made available. The                                                               
department  is  essentially  trying  to buy  some  time  for  the                                                               
remaining  industry in  Southeast,  especially the  manufacturing                                                               
industries.                                                                                                                     
                                                                                                                                
3.  The facility  that the  wood  would be  used in  has to  have                                                               
underutilized  manufacturing capacity.  This  would  mean a  mill                                                               
could  add a  second  shift to  the operation  or  it might  mean                                                               
instead of  operating only eight  months the mill  could actually                                                               
operate 12 months, because they have enough wood to do so.                                                                      
                                                                                                                                
MR. MAISCH explained  that the reason they use  the 118 authority                                                               
in  Southern Southeast  so  much is  because  of the  competition                                                               
between round-log export and  domestic manufacturing. The Pacific                                                               
Rim markets  can afford to  pay a much  higher value for  a round                                                               
log,  so if  the competitive  timber  sale authority  is used  in                                                               
Southeast, the  wood would  go mostly  offshore. However,  it has                                                               
long been a policy of  the department and various administrations                                                               
to try and  have state-owned wood go  to manufacturing facilities                                                               
in  Alaskan communities.  That's what  this 118  authority allows                                                               
them to do; it allows them  to use other factors besides price in                                                               
their decision process.                                                                                                         
                                                                                                                                
3:58:45 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked if competitive  bids typically  go to                                                               
outside organizations.                                                                                                          
                                                                                                                                
MR. MAISCH answered yes.                                                                                                        
                                                                                                                                
SENATOR WIELECHOWSKI asked if they  are trying to get timber that                                                               
will  get  sold, no  matter  what,  to Alaskan  manufacturers  as                                                               
opposed to outside corporations.                                                                                                
                                                                                                                                
MR. MAISCH replied that was correct.                                                                                            
                                                                                                                                
4:00:28 PM                                                                                                                    
SENATOR  MICCICHE asked  if  he had  any areas  in  mind (with  a                                                               
harvestable surplus  above the 135  percent of  statewide average                                                               
for unemployment).                                                                                                              
                                                                                                                                
MR.  MAISCH answered  yes. He  explained that  Southern Southeast                                                               
Alaska has  three state  forests, two of  them are  the Southeast                                                               
State  Forest and  the Haines  State Forest,  both of  which have                                                               
forest management  plans and associated  allowable cuts.  It also                                                               
has  lands that  are classified  for forestry  use under  various                                                               
areas  plans around  the state.  The department  determines where                                                               
timber  sales will  happen based  on  the five  year schedule  of                                                               
timber  sales.  That can  be  put  out  every  year but  is  only                                                               
required  to be  put  out every  other year.  This  is the  early                                                               
notice  to  industry and  the  public  of  areas where  they  are                                                               
contemplating proposing a timber sale.                                                                                          
                                                                                                                                
SENATOR MICCICHE  asked if  the vast  majority of  communities in                                                               
Southeast  where the  sales will  take  place are  above the  135                                                               
percent statewide average for unemployment.                                                                                     
                                                                                                                                
MR. MAISCH  answered that was  correct. That criterion is  not an                                                               
issue;  the criterion  that is  the issue  is the  allowable cut.                                                               
Because after  this ramped-up  program is used  for two  or three                                                               
years, that  criteria will no longer  be met (because all  of the                                                               
available  surplus will  have been  used) and  the 120  authority                                                               
will be used to sell all of the remaining wood.                                                                                 
                                                                                                                                
SENATOR MICCICHE  asked if  anywhere else in  the state  would be                                                               
able to satisfy all three criteria.                                                                                             
                                                                                                                                
MR. MAISCH answered  yes; Tok is where they last  proposed to use                                                               
the 118 sale authority for a  power facility that would have used                                                               
wood chips to  produce electricity. They entered  the 118 process                                                               
with  a preliminary  best interest  finding and  in that  process                                                               
another competitor showed up. That  competitor proved to have the                                                               
ability to perform, and so that sale was offered as a 120 sale.                                                                 
                                                                                                                                
SENATOR  WIELECHOWSKI noted  the zero  fiscal note,  but said  he                                                               
thought   that  revenues   should   increase   as  the   industry                                                               
diversifies. To be  fair, though, there could also  be a decrease                                                               
since they will no longer go out to a competitive process.                                                                      
                                                                                                                                
4:03:51 PM                                                                                                                    
MR.  MAISCH  agreed   that  was  correct  and   added  that  it's                                                               
definitely  a tradeoff  in Southern  Southeast. The  decision has                                                               
been  made  to support  the  communities'  manufacturing and  the                                                               
associated jobs that come with that  because of the wood going to                                                               
a domestic source rather that selling for price only.                                                                           
                                                                                                                                
The  department has  the ability  under the  current timber  sale                                                               
program to collect some timber  sale receipts and that amounts to                                                               
about  $850,000  per year.  This  is  used  to support  a  couple                                                               
forester  positions, do  reforestation and  to maintain  roads in                                                               
the state forest system. Roads  are typically built by the timber                                                               
purchasers  and are  appraised against  the value  of the  timber                                                               
sale.  So,   the  roads  are   initially  constructed   by  those                                                               
purchasers  who  maintain them  while  they  are being  used  for                                                               
timber purposes. Once they are  not, the maintenance reverts back                                                               
to the Division of Forestry.                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI  asked what  happens when  foreign companies                                                               
want to negotiate a sale.                                                                                                       
                                                                                                                                
MR. MAISCH  explained that first it  has to meet the  criteria of                                                               
why a  sale would  be negotiated.  If it's in  an area  where the                                                               
department  would  normally do  a  competitive  sale, they  would                                                               
politely say no.  As a state agency, they don't  want to pick who                                                               
the  winner and  loser is  in a  negotiation process  if the  two                                                               
parties are not on equal footing.                                                                                               
                                                                                                                                
SENATOR  WIELECHOWSKI said  except they  are trying  to pick  the                                                               
winners. So, there  could be problems down the  line with foreign                                                               
organizations.                                                                                                                  
                                                                                                                                
MR. MAISCH  explained that  an RFP process  is associated  with a                                                               
negotiated sale.  Some of the questions  they can ask in  the RFP                                                               
are  the number  of jobs  created, how  many high-value  products                                                               
will be made  and where they will be sold,  so they can determine                                                               
what will produce  the most value in terms of  jobs and community                                                               
support. Points are awarded for  the different types of questions                                                               
and a high bidder is chosen;  then they negotiate the terms. Even                                                               
when  they negotiate,  the  buyer  has to  meet  all the  bonding                                                               
requirements,  fiscal due  diligence and  sign a  standard timber                                                               
sale contract.                                                                                                                  
                                                                                                                                
4:07:29 PM                                                                                                                    
SENATOR WIELECHOWSKI  said he appreciated  what they  were trying                                                               
to  do,  but  wondered  if  the  language  could  be  tweaked  to                                                               
specifically give  Alaskans preference, because legally  they are                                                               
allowed to be given some preference.                                                                                            
                                                                                                                                
MR. MAISCH  replied that the  department has a good  track record                                                               
of using  118 authorities  in Southeast  and currently  has three                                                               
active timber  sales that were  sold under it.  Foreign interests                                                               
have come to Alaska to look  at purchasing timber - all the time,                                                               
actually.  But no  offshore party  has  been willing  to make  an                                                               
investment in Alaska,  because of the cost and the  fact that the                                                               
state  doesn't have  that  much timber  to  support the  industry                                                               
(that went  from 5,000  direct employees  in Southeast  Alaska to                                                               
about 250 today) when the  Forest Service quit selling the amount                                                               
of timber it should be selling.                                                                                                 
                                                                                                                                
SENATOR COGHILL  asked if  what he  has been  talking about  is a                                                               
part of the criteria in the best interest finding.                                                                              
                                                                                                                                
MR.  MAISCH  answered  yes;  it  can be  made  the  criteria.  He                                                               
explained that  section 1 adds  a subsection clarifying  that the                                                               
commissioner currently  has the authority to  choose which timber                                                               
sale authority  is the appropriate  one to  use and the  way that                                                               
would  be done  will  be with  a best  interest  finding. A  best                                                               
interest finding is  not needed for 115 sales. He  added that the                                                               
small  "b"  best interest  finding  is  not  the large  "B"  Best                                                               
Interest Finding, which means an actual best interest finding.                                                                  
                                                                                                                                
4:10:24 PM                                                                                                                    
SENATOR COGHILL asked for the  criteria under the little "b" best                                                               
interest finding.                                                                                                               
                                                                                                                                
MR.  MAISCH  replied  that  it  has to  be  read  as  a  two-part                                                               
statement. First you  choose the authority you're going  to use -                                                               
the applicable  sale method. If  the commissioner decided  to use                                                               
the  118 authority,  then a  large "B"  Best interest  finding is                                                               
required  (and  for most  of  the  other authorities).  The  only                                                               
authority  that  doesn't  require  that  big  "B"  Best  Interest                                                               
Finding is the 115 small  negotiated sales, because it's too much                                                               
process to  go through for 500,000  board feet, but it  still has                                                               
to  comply  with  all  the  normal  forest  practices  and  other                                                               
standards.  He asked  the Department  of  Law (DOL)  for a  legal                                                               
opinion on  their interpretation  and that should  be forthcoming                                                               
soon.                                                                                                                           
                                                                                                                                
4:11:36 PM                                                                                                                    
SENATOR COSTELLO said  she understood that this bill  came out of                                                               
a  recommendation from  the  Alaska Timber  Jobs  Task Force  and                                                               
asked if this is the first or highest priority recommendation.                                                                  
                                                                                                                                
MR. MAISCH answered that this  is one of the recommendations that                                                               
came out of the Alaska Timber  Jobs Task Force under the previous                                                               
administration that was completed in  2012. It made roughly 32 or                                                               
36 specific recommendations; some  were prioritized and some were                                                               
not. This  did not  fall in  that top five  priority, but  it was                                                               
worth pursuing. It  was in the first two sections  of the Susitna                                                               
State  Forest  legislation that  was  discussed  in the  previous                                                               
legislature.  The  Board  of Forestry  and  the  Tanana  Citizens                                                               
Advisory Committee support this legislation.                                                                                    
                                                                                                                                
SENATOR  MICCICHE asked  when the  department determines  maximum                                                               
and best use, if someone wants  to create wood pellets and employ                                                               
three people  in a particular piece  of forest where there  is no                                                               
volume  limit  and  someone  else   comes  along,  maybe  another                                                               
company, that  wants to manufacture  staircase spindles  for some                                                               
company outside of  Alaska, except they want to  hire hundreds of                                                               
Alaskans, finish the product here  and send it outside, that they                                                               
are  not just  focused  on  some Alaskan  company  when they  may                                                               
potentially be  able to  employ hundreds  of other  Alaskans with                                                               
the other option under the 118 authority.                                                                                       
                                                                                                                                
MR.  MAISCH agreed  with  that example,  but  clarified that  "no                                                               
volume limit"  means they can do  a large sale, but  it still has                                                               
to  comply with  sustained yield  and annual  harvest quantities.                                                               
However, the second  company he described would  perhaps fit much                                                               
better under their 123 authority,  because they are making a very                                                               
high-value  finished  product  in  Alaska that  gets  shipped  to                                                               
markets in other parts of the world.                                                                                            
                                                                                                                                
4:16:12 PM                                                                                                                    
SENATOR  STOLTZE  said he  didn't  see  any dialogue  about  this                                                               
legislation  from   the  pro-development  group  in   the  Mat-Su                                                               
Borough.                                                                                                                        
                                                                                                                                
MR. MAISCH said the Susitna State  Forest is not part of this; he                                                               
just mentioned it because it was in that previous legislation.                                                                  
                                                                                                                                
4:18:26 PM                                                                                                                    
SENATOR  WIELECHOWSKI asked  if deleting  the provision  of "must                                                               
have  a  high level  of  local  unemployment" would  include  the                                                               
Susitna State Forest if it were to become a state forest.                                                                       
                                                                                                                                
MR.  MAISCH  answered  yes,  because  it  would  be  a  statewide                                                               
authority.                                                                                                                      
                                                                                                                                
CHAIR GIESSEL  opened public  comment and  invited Mr.  Rogers to                                                               
comment.                                                                                                                        
                                                                                                                                
RICK  ROGERS, Executive  Director,  Resource Development  Council                                                               
(RDC), Anchorage, Alaska,  supported SB 32. It's a  small step to                                                               
adjust statutes to help get some  timber supply, which is the big                                                               
impediment  to the  industry, particularly  in Southeast  Alaska.                                                               
The DNR  has been very effective  in using what limited  lands it                                                               
holds  in Southeast  Alaska to  help  bridge the  gap for  timber                                                               
supply for  the remaining  mills. The  timber sale  statutes have                                                               
not  been modified  for  a  couple of  decades,  and this  change                                                               
acknowledges  the market  for  wood chips,  a  new industry  with                                                               
respect to biomass energy.                                                                                                      
                                                                                                                                
4:22:53 PM                                                                                                                    
CHAIR GIESSEL left public testimony  open and said she would hold                                                               
SB 32.                                                                                                                          
                                                                                                                                
SENATOR  WIELECHOWSKI   asked  the  department  for   a  list  of                                                               
competitive  sales with  a comparison  to their  appraised values                                                               
for the past  couple of years, to  get a handle on  how much this                                                               
bill would cost.                                                                                                                
                                                                                                                                
MR.  MAISCH answered  he would  do that,  but he  also knew  that                                                               
there was a range of 30-50  percent difference in what they would                                                               
get if  they offered a sale  under a 120 authority.  That amounts                                                               
from  tens  of  thousands  to maybe  a  hundred  thousand  dollar                                                               
difference  in  purchase  price  for  an  export  sale  versus  a                                                               
negotiated sale.                                                                                                                
                                                                                                                                
SENATOR MICCICHE asked if there is  any way to quantify the value                                                               
of  local  employment  and  its   trickle-down  effect  into  the                                                               
community using a per board foot measurement.                                                                                   
                                                                                                                                
MR. MAISCH replied that the  Forest Service and others have tried                                                               
to  do  that,  but it  is  tough,  because  there  are a  lot  of                                                               
intangibles. The  economic, social  and an  environmental aspects                                                               
of managing the forests are hard  to put numbers on, but he would                                                               
do  his  best to  at  least  give him  some  rules  of thumb  the                                                               
department uses in making those decisions.                                                                                      
                                                                                                                                
SENATOR COSTELLO  asked what  problem as  identified by  the task                                                               
force that this bill solves.                                                                                                    
                                                                                                                                
MR. MAISCH answered  that he would provide a  written response to                                                               
that question.                                                                                                                  
                                                                                                                                
CHAIR GIESSEL said she would hold SB 32 for a further hearing.                                                                  

Document Name Date/Time Subjects
SRES-Agenda and Hearing Materials-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-Resume-James David Jones-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-Resume-Kelly Vrem-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-Support Letter for Kelly Vrem and David Jones-Aaron Bloomquist-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-Support Letter for Kelly Vrem-Henry Tiffany-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-Support Letter for Kelly Vrem-Loren Karro-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-Support Letter for Kelly Vrem-Steve Perrins-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-Support Letter for Kelly Vrem-Wayne Kubat-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-HJR10W-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-HJR10 Sponsor Statement-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-CSHJR10E-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-HJR 10-Explanation of Changes-W to E-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-SB 32 Governor Transmittal Letter-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SB 32
SRES-SB 32-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SB 32
SRES-SB 32-Fiscal Note-DNR-DOF-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SB 32
SRES-SB 32 Negotiated Timber Sales Briefing Paper-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SB 32
SRES-SB 32- Letter of Support-RDC-02-06-2015.pdf SRES 2/13/2015 3:30:00 PM
SB 32
SRES-HJR 10-Fiscal Note-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SRES-SB 32-Letter of Support-Viking Lumber-02-10-2015.pdf SRES 2/13/2015 3:30:00 PM
SB 32
SRES-SB 32-Letter of Support-(TVSFCAC)-2-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SB 32
SRES-Letter of Support for Vrem and Johnson-APHA-02-13-2015.pdf SRES 2/13/2015 3:30:00 PM
SB 32 Sectional Analysis.pdf SRES 2/13/2015 3:30:00 PM
SB 32