CS FOR SENATE BILL NO. 32(RES) "An Act relating to the sale of timber on state land; and providing for an effective date." 9:57:17 AM CHRIS MAISCH, DIRECTOR, DIVISION OF FORESTRY, DEPARTMENT OF NATURAL RESOURCES, provided a quick overview of the bill. The bill would change the authority process of timber sales: The bill would amend AS 38.05.110 and 38.05.118 to expand the authority of the Commission of Natural Resources to negotiate the sale of timber at appraised value. The Department of Natural Resources may offer timber sales either through competitive bid or through negotiation. Currently under AS 38.05.118, the Commissioner of Natural Resources may negotiate the sale of timber to a local manufacturer at appraised value. However, negotiated sales larger than 500,000 board feet may only be offered in areas of high unemployment, excess manufacturing capacity, and an underutilized allowable cut of timber. These criteria prohibit larger negotiated timber sales in many areas of the state that are actively managed for forestry, and where there is high demand for wood for timber products and biomass energy. The proposed bill would provide that, in addition to sales to local manufacturers of wood products, sales may also be negotiated with users of wood fiber. This change clarifies that negotiated sales may be used to support wood energy production as well as traditional products. In addition, the bill would eliminate the current limitations that negotiated timber sales be based on a finding that in the area of the sale there is a high level of unemployment, an underutilized manufacturing capacity, and an underutilized supply of timber that will lose value if not cut. The requirement that al three conditions be met substantially limits the Commissioner of Natural Resources' authority and flexibility to approve negotiated sales that would be in the best interest of the State. Competitively bid timber sales are the preferred sale method under most conditions. However, negotiated sales provide the ability to tailor some sales to the needs of local processors in areas that lack competitive interest or where there is competition from round log export markets in a region with a constrained timber supply. The latter situation exists in Southern Southeast Alaska where the State of Alaska is small landowner compared to the Tongass National Forest, and the State of Alaska's full allowable cut is a critical source of logs for the remaining sawmills. 10:04:26 AM Representative Wilson relayed that the pellet plant was in North Pole. Representative Kawasaki remarked that there was concern about the ability of the commissioner to engage in the 25- year process. He requested an explanation of the 5-year appraisal process. Mr. Maisch replied that sales occurred at a base rate. The rate was determined by an appraisal that covered the cost of the division to offer and administer a sale. The division negotiated from the base rate point. He stressed that the 25 years was the maximum, and the commissioner determined the best interest for the state. He remarked that financing was the most important reason for longer term sales. He explained that there were no restrictions in the 120 sales to any particular length of time. He stated that, as a matter of practice, those sales were typically three to five years. He remarked that there was a reappraisal clause in both the contact and legislation. Representative Kawasaki wondered whether, under the reappraisal, there would be another submitted best interest finding. Mr. Maisch replied in the negative, and stated that it would be a part of the contract. Co-Chair Neuman noted that the legislation considered negotiated sales with areas with high unemployment, and wondered how those areas were identified. Mr. Maisch replied that it was 125 percent of the statewide average. He shared that the statewide average was published by the DLWD was currently 6.5 percent. He stated that the level must be above 7.6 percent to employ the authority. The current unemployment rate in Ketchikan was Ketchikan. Co-Chair Neuman asked whether the Fairbanks and Mat-Su boroughs qualified for the sales. Mr. Maisch answered that currently the areas did not, but the bill would allow for the authority consistently statewide. Co-Chair Neuman remarked that the timber sales must be added value sales, where they process the log. Mr. Maisch answered in the affirmative. He shared that it had long been the department's policy to encourage managing in Alaska. 10:09:28 AM Co-Chair Neuman wondered if the funds would be directed into forestry management in Southeast Alaska. Mr. Maisch replied in the affirmative, and explained that currently all the forestry positions in Southeast Alaska were funded under the timber sale receipt authority. Vice-Chair Saddler queried what would occur without a timber source for the Viking Mill. Mr. Maisch replied that the mill was currently operating one forest service sale to big foreign sales, so there was roughly one year of timber under contract. He stated that it was likely that there would not be enough timber to keep the mill open, without the ability to negotiate sales. OWEN GRAHAM, ALASKA FOREST ASSOCIATION, KETCHIKAN (via teleconference), spoke in support of the bill. He remarked that it was very difficult to have two operators operating. 10:12:52 AM CARL PORTMAN, RESOURCE DEVELOPMENT COUNCIL, ANCHORAGE (via teleconference), testified in support of the bill. The basic premise of the bill was to allow long-term sales where appropriate. Vice-Chair Saddler CLOSED public testimony. Representative Kawasaki had originally thought the bill may have been related to special interest, but he had come around and believed it was good policy. 10:16:28 AM Representative Wilson supported the bill. She remarked that the bill provided another way to best utilize the timber. Co-Chair Neuman remarked that the department had the opportunity to offer the high value processing timber or logging companies to enter into contracts for up to $10 million board of feet a year consistent with principles for a term of up to ten years. He did not believe that the department had every utilized that allowance. Representative Guttenberg remarked that it occasionally paid off to "not be first." Co-Chair Thompson addressed the zero fiscal note from the Department of Natural Resources (DNR). Co-Chair Neuman MOVED to REPORT HCS CSSB 32(RES) out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HCS CSSB 32(RES) was REPORTED out of committee with a "do pass" recommendation and with one previously published zero fiscal impact note: FN2 (DNR). 10:21:21 AM AT EASE 10:22:46 AM RECONVENED