SENATE BILL NO. 87 "An Act relating to a lumber grading training program and lumber grading certificates; relating to use of lumber graded and certified by a person holding a lumber grading training program certificate; and providing for an effective date." 1:08:24 PM SENATOR JESSE BJORKMAN, SPONSOR, read the title of the bill and offered a sponsor statement: Senate Bill 87 would create a local lumber grading program in Alaska Statute to allow dimensional lumber produced in the state to be graded by locally trained Alaskans and then used in some residential construction applications. Currently, dimensional lumber used in construction must be graded and stamped in order to meet lender requirements and building codes. However, the grading process is expensive, and most Alaska sawmill operators do not produce enough lumber to cover grading costs. Under SB 87, locally milled dimensional lumber that conforms to DNR's substitute equivalents for agency grading standards consistent with Number 2 and better, Stud and Number 3 grades could be sold directly to the end user or a contractor for use in residential structures with up to three units. This will create economic opportunities for small businesses, provide an opportunity for Alaskans to purchase local products, and perhaps offer building materials at a lower cost than dimensional lumber from the lower 48. It could also help address Alaska's housing shortages across the state, which are made worse by the significant increase in the cost of construction materials and lag time due to supply chain issues and encourage higher value-added use of materials harvested from forest thinning and hazardous fuels reduction projects that would otherwise be piled and burned. A local lumber grading program would lower the barrier for entry to create new sawmills. These sawmills can serve as a catalyst to increase investment in forest management and help build the timber sector statewide. This will result in permanent, stable, family-wage jobs in rural communities and villages, and strengthen and diversify local economies. A larger timber sector in turn can provide the additionality needed for creating and selling forest carbon offset projects, adding further investment and revenues to the timber sector. 1:12:11 PM Senator Bjorkman continued his testimony. He discussed the high cost of lumber in rural communities. He noted support for the legislation in the building as well as within the lumber industry. 1:14:23 PM LAURA ACHEE, STAFF, SENATOR JESSE BJORKMAN, introduced herself and discussed a Sectional Analysis (copy on file): SB 87 Ver. A: Lumber Grading Program Sectional Analysis Section 1: Adds new statutes to AS 41.17 directing the Department of Natural Resources Division of Forestry and Fire Protection to establish a local lumber grading training program for conservative grading standards established by DNR. It specifies the frequency of the courses and directs the division to identify the content of courses, qualifications for instructors, and requirements for completion. The section also provides guidance for issuing certificates, specifies the duration of the certificate, defines exceptions for certification without taking a training course, and specifies how a certificate may be revoked. The section also adds new statutes to AS 41.17 that allow for the use of locally graded lumber in residential construction of single homes, duplexes, or triplexes. The new language allows an individual holding a lumber grading certificate to grade and sell lumber that they have produced directly to a person constructing a residence or a contractor and specifies the documentation the seller must provide. The language also provides a building inspector the authority to approve, conditionally approve, or reject the lumber for use in a residence. Section 2: Provides an immediate effective date. 1:16:24 PM ALISON ARIANS, DEPUTY DIRECTOR, DIVISION OF FORESTRY AND FIRE PROTECTION, DEPARTMENT OF NATURAL RESOURCES, discussed a presentation entitled "SB 87 - Local Lumber Grading" (copy on file). 1:17:07 PM Ms. Arians looked at slide 2, "Grade Stamped Lumber": • Grade Stamped lumber allows the purchaser to know the wood meets a quality standard • Grading agencies such as Western Wood Products Association (WWPA) publishes the Western Lumber Grading Rules for appearance grading • Grading rules are accredited by the American Lumber Standards Committee (ALSC) • Members of WWPA receive mill training, quality assurance (QA), market analysis, and professional development • Small mill operators find it economically challenging to become a member of these types of associations Ms. Arians discussed lumber grading practices. She relayed that appearance grading was when a piece of wood was bent until broken to determine the strength of the wood. She stressed that membership in grading agencies could be prohibitively expensive for smaller mills. 1:19:17 PM Ms. Arians spoke to slide 3, "Cost of grading agency membership in Alaska": • Membership Dues + Monthly Site Inspections + Inspector Travel Costs ˜$2200/month • Membership options for small mill operators: - Only pay for membership fees during active periods - Stockpile milled material and bring in an inspector when there is enough to justify the travel costs • Difficult for small mills to produce enough volume to justify these costs and remain profitable Ms. Arians stated that small mills would not have to pay month to month and could be selective about membership options. However, grading costs were high for smaller mills producing a limited volume of wood. She relayed that Northland Wood and Viking were the two mills in Alaska that were members of the WWPA. 1:20:29 PM Co-Chair Olson asked where the two WWPA members were located. Ms. Arians relayed that Northland Wood was in the Interior and Viking was on Prince of Whales Island. 1:20:43 PM Ms. Arians referenced slide 4, "What is a Local Use Lumber Program?": • It is state law/regulation in seven states allowing non graded/stamped locally produced dimensional lumber in some construction applications • It is often an exemption to a building code that requires grade stamped lumber • It is focused on small mill operators providing opportunities for them to enter home construction markets Ms. Arians shared that building homes offered structural redundancy and predictability. 1:21:53 PM Co-Chair Olson asked about the lumber from mills and whether the lumber was 2x4 and 4x4, or larger pieces of wood. Ms. Arians relayed that a list of wood products would be addressed later in the presentation. 1:22:34 PM Ms. Arians turned to slide 5, "What is a Local Use Lumber Program?": • It includes a training program for small mill operators on grading their own lumber and includes a recertification schedule • Because of the code exemption, it allows for traditional home construction financing • Gives building inspectors an opportunity to inspect and reject the wood if necessary Ms. Arians said that if a person currently wanted to build a home, they could use cash to buy lumber but would not be able to get a loan. The bill would allow for a loan. 1:24:00 PM Ms. Arians considered slide 6, "What is a Local Use Lumber Program?": • Local use lumber must be sold to the end user or the contractor building the home • Most states only allow residential (1 3 family home) construction as well as outbuildings • Mill operator must take and pass a grading course • Certification only lasts for 5 years • Mill operator provides a certificate with the local lumber Only applies to softwood 1:25:06 PM Co-Chair Olson asked whether there was any place in the state that milled hard wood. Ms. Arians thought there were mills that made hardwood for cabinets and flooring but not dimensional lumber. 1:25:34 PM Ms. Arians displayed slide 7, "Why is this program needed in Alaska?": • Wood prices have increased dramatically for home construction National Association of Home Builders notes wood prices add $36k to new single family home construction Alaska Housing Finance Corporation cites high cost of construction as a reason new building permits fell 15% • Canadian import tariffs on softwood were raised to 17.99% in early 2022 Alaska imports ~$20 million annually in wood products from Canada (Canadian Trade Commission) • Forest Management Salvage harvest of beetle-killed trees less than 4 years past mortality Increase forest management opportunities for private landowners • Increase economic activity in rural communities • Increase milling capacity 1:27:18 PM Ms. Arians highlighted slide 8, "Mill Capacity and Production in Alaska," which showed a graph of dimensional lumber production capacity in Alaska. She noted that the graph was sourced from the United States Forest Service Southeast Alaska mill survey. The graph showed how much capacity the state had in the past, how much was still available, and how much could be available in the future. 1:27:54 PM Ms. Arians looked at slide 9, "Grading Agency lumber standards," which showed a table with categories of lumber and grades of lumber. She said that the program would train people in the categories of light framing, stud, structural light framing, and joists and planks. The training covered the scope of materials for smaller, residential homes. 1:29:11 PM Ms. Arians addressed slide 10, "Alaska Local Use Lumber - Substitute Equivalent Grades," which showed a table of lumber grades. The grades included Number 2 and Better, Stud, and Number 3. The one-day class would cover these three grades. 1:29:57 PM Ms. Arians advanced to slide 11, "Alaska Training and Certification": • One day free class focusing on visually grading lumber to the three Alaska grades. o Issuance of Alaska Local Use Lumber handbook o Issuance of Air-Drying Best Practices document • Offered at least annually in Southeast, Southcentral and Interior • Recertification required every five years • Certification issued to the person, not the mill 1:30:55 PM Senator Wilson wondered whether the department had already implemented a one-day training course to gauge effectiveness of the program. Ms. Arians relayed that DNR was modelling its program after what was done in the state of Wisconsin, which was like the proposal in the bill and had proven successful in the state of Wisconsin. 1:32:13 PM Ms. Arians looked at slide 12, "Selling the lumber (special conditions)": • Mill owner/operator sells the lumber directly to the end user or to the contractor building the home • Lumber sale must include documentation that describes the 5 designations (grade, species, moisture content, surface condition, size) • Lumber sale must include a copy of the mill owner's certification with the Alaska Local Use Lumber program • Building inspector may refuse the lumber Ms. Arians said that builders would be encouraged to reach out to inspectors early in the process. Ms. Arians showed slide 13, "Thank you!": Jeremy Douse Northern Region Forester Alaska Division of Forestry And Fire Protection Alaska Department of Natural Resource 907.451.2670 jeremy.douse@alaska.gov http://forestry.alaska.gov/ https://forestrymaps-soa-dnr.hub.arcgis.com/ 1:33:29 PM Senator Kiehl asked how tall the residential units could be. Ms. Arians replied that she was not sure of the specific height. She offered to get back to the committee with the information. Senator Kiehl wondered about graders being limited to grading the products in their own mills and not that of other mills. Ms. Arians thought that the benefit of mill owners grading only their own wood gave them a deeper knowledge of the wood they were selling. She said that mill owners could pay for someone else to come in and grade their wood, but that grading their own wood offered integrity of product and saved money. Senator Bjorkman interjected that through the program was like other state programs in which people could sell the products they produced. He thought Alaska had the advantage of having less species of trees, which provided for less complexity. Further, the state had wood that was slow- growing and strong, despite not being hardwood. He cited that the spruce under discussion was most recently used in helicopter rotors. He said that when people attested to the quality of wood that they produced themselves it highlighted the quality of the product. 1:37:33 PM Co-Chair Olson asked what kind of money could be saved by using locally harvested wood. Senator Bjorkman thought that local production helped to eliminate transportation costs for materials. 1:38:59 PM Co-Chair Olson OPENED public testimony. 1:39:10 PM KELSEY SCHOBER, SENIOR POLICY ADVISOR, THE NATURE CONSERVANCY OF ALASKA, spoke in support of the bill. She testified that a critical component of community sustainability was a sustainable and regenerative economy. She noted a report by her organization from 2021, that explored economic opportunities for her region. She said that one of the opportunities identified by the report was a sustainable timber market. He said that the bill would ensure that lumber harvests from young growth timber would meet a certifiable standard and that the workforce would be available to create that certifiable standard. She stated that supporting the implementation of a lumber standard would help to move the industry forward. 1:41:40 PM RODNEY DIAL, MAYOR, KETCHIKAN GATEWAY BOROUGH, KETCHIKAN (via teleconference), testified in support of the bill. He stated that the borough was facing a housing crisis; affordability and availability were hindering economic growth. He believed that the proposed program was important to increase the availability of lumber, particularly when the supply chain was strained. He spoke of the recent high prices of lumber in Ketchikan. He noted the long history of lumber mills and sawmills in the area. He felt that the bill would facilitate local access to local lumber, support new housing, and create jobs. 1:43:47 PM JOE YOUNG, OWNER, YOUNG'S TIMBER INC., TOK (via teleconference), testified in support of the bill. He relayed that he had been in business since 1993, producing a wide range of value-added products. He said that currently, it was cost prohibitive to bring in a lumber grader. He asserted that SB 87 would create more jobs and would address the housing shortage in rural areas of the state. He noted that Alaska producers need a long-term and steady supply of timber for the program to be successful. 1:45:58 PM Senator Bishop asked Mr. Young whether he had done any estimates on potential increase in timber sales if the bill were to become law. Mr. Young estimated there would be a 10 percent to 15 percent increase initially. 1:46:52 PM Co-Chair Stedman asked Mr. Young about the size of his operation, including the number of employees and size of the sawmill. Mr. Young explained that his company bought timber from the Division of Forestry and harvested it with a mechanical harvesting side. Once the logs were brought to the mill, they were processed into saw logs. He had four different types of sawmills that produced various lengths of timber. 1:48:40 PM Co-Chair Olson CLOSED public testimony. 1:48:51 PM Ms. Achee thanked the committee for hearing the bill. She asserted that the bill allowed for greater use of Alaskas timber products for the use of construction and would be beneficial to the state. 1:49:34 PM Co-Chair Stedman asked whether the bill would allow for the timber to be cut and used for residences. Ms. Achee understood that if someone had a personal use harvest of lumber and was living in an area where graded lumber was required, they could work with a sawmill that was certified to grade lumber and use that lumber for construction. 1:50:50 PM Senator Bishop considered that it would be nice to have a stamp specific to Alaska. Ms. Arians thought the bill would be a first step in building a market for more lumber and suggested that once the market was built a stamp could be considered in the future. 1:52:19 PM Ms. Arians addressed FN 1 from the Department of Natural Resources. She explained that the Department would contract the implementation of a training program through the University of Alaska Fairbanks - Cooperative Extension Service through a Reimbursable Services Agreement. The University has the capacity to develop training, professional development, and outreach programs to natural resources-based industry. She stated that the expenditure would include $206,000 annually to fund the Cooperative Extension Service to train graders and mill workers. There would be $5,000 allocated for the lumber grading handbook and minimal travel. Co-Chair Olson set the bill aside. SB 87 was HEARD and HELD in committee for further consideration.