SB 87-LUMBER GRADING PROGRAM  4:14:46 PM late CO-CHAIR BISHOP announced the consideration of 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." 4:15:33 PM SENATOR JESSE BJORKMAN, District D, Alaska State Legislature, Juneau, Alaska, sponsor of SB 87, introduced the legislation by reading the following prepared statement: [Original punctuation provided.] I am pleased to introduce Senate Bill 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." I had several constituents approach me about the excellent qualities of our high strength local lumber and the need for a local lumber grading program. When I met with Department of Natural Resources, I learned that an effort was underway to develop such a program. Stakeholders including sawmill owners, home builders, housing authorities, economic development associations, vocational educators, and the Department of Natural Resources and the US Forest Service have all had a role in promoting and developing this concept. There are several things that have contributed to the need for this bill: • Lumber used in residential construction must be graded and stamped to meet building code and financing requirements. However, small Alaska sawmills do not produce enough dimensional lumber to justify the cost of hiring a grading agency to grade and stamp their lumber; • The cost of lumber and other construction materials has risen dramatically over the last several years, making it harder for Alaskans to address the housing shortages affecting most of our state; and • Regions off the road system experience even higher costs of construction as materials have to be flown or barged into areas that may already have abundant timber growing nearby. A local lumber grading program would allow sawmill operators to become certified to grade and sell the dimensional lumber they mill for residential construction to a homeowner or the homeowner's contractor. This will provide Alaskans the option to purchase a local product for use in the construction of their homes. And it will create economic opportunities that will result in permanent, stable, family-wage jobs in rural communities and villages, and with strengthen and diversify local economies. 4:20:12 PM SENATOR BJORKMAN continued the introduction of SB 87. In some parts of the state, there will be a substantial cost savings from locally produced dimensional lumber. According to information we have from 2022: • The average price of an 8' 2X4 in Fairbanks was $9.44; • The average total price of barging an 8' 2X4 to interior communities was $12.00; and • The average total price of air shipping an 8' 2x4 to interior communities was $21.00. The actual price could go as high as $30.44. The Kuskokwim Corporation has been working with the Alaska Cold Climate Research Center on a heat- efficient kit house that uses timber harvested in their region. Using locally produced and graded dimensional lumber would be significantly cheaper than shipping in dimensional lumber, and would help the Corporation meet more of the housing needs in this part of rural Alaska. Many of the villages in the Tanana Chiefs Conference also have small sawmills and may be able to take advantage of the local lumber grading program in the future to help build housing in their communities. In Southeast Alaska, a coalition of tribal, public sector, and private sector partners is interested in transitioning away from old growth timber to a sustainable industry manufacturing young growth wood products. This would provide economic opportunity and a local supply of wood products for consumers, but the limited opportunities for sales if sawmill operators are not able to grade their lumber is one of the hurdles for its implementation. A local lumber grading program would also 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. 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. The Department of Natural Resources Division of Forestry and Fire Protection would administer the program and ensure that the training necessary for certification is offered at least annually. Jeremy Douse, Northern Region Forester of the Department of Natural Resources Division of Forestry and Fire Protection is here to provide the Committee with a discussion of lumber grading, a deeper dive into the need for a local lumber grading program, and an overview of the program DNR would administer under this bill. 4:22:12 PM SENATOR BJORKMAN read the sectional analysis for SB 87: [Original punctuation provided.] 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 SENATOR CLAMAN mentioned the reference to selling the lumber directly to the builder. He asked whether the lumber could also be sold to a company like Spenard Builders Supply. SENATOR BJORKMAN said no. SENATOR CLAMAN asked why not. SENATOR BJORKMAN explained that the lumber grades for this program aren't the same as traditionally graded lumber and conflating the two grading systems would cause confusion. He deferred further explanation to Mr. Douse. 4:24:37 PM SENATOR KAUFMAN noted that the fiscal note designates the fund source as UGF. He asked if he'd considered having the program funded with DFG through a certification or inspection fee. SENATOR BJORKMAN said he'd support exploring that notion once the program has enough participants to support self-funding. 4:25:23 PM SENATOR KAWASAKI asked why this lumber wouldn't be certified for commercial construction. SENATOR BJORKMAN mentioned the intention to conform to the International Building Code standards, and deferred to Mr. Douse to speak to the question further. 4:26:10 PM At ease 4:26:59 PM CO-CHAIR BISHOP reconvened the meeting and invited Mr. Jeremy Douse to provide his testimony. 4:27:08 PM JEREMY DOUSE, Northern Region Forester, Division of Forestry and Fire Protection, Department of Natural Resources, Anchorage, Alaska, delivered a presentation on local lumber grading. He turned to slide 2, Grade Stamped Lumber, and spoke to the following: • 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 4:29:44 PM CO-CHAIR BISHOP asked if mechanical testing involves the use of a hydraulic press that breaks a 2X4 at a certain number of pounds per square inch. MR. DOUSE explained that dimensional lumber, such as 2X4s that are rated Number 2, are tested for tension, compression, and sheer strength and assigned a statistical design value. Ninety five percent of Number 2 2X4s of that species should equal that design value. In 2005, the Ketchikan Wood Technology Center and the Western Wood Products Association (WWPA) conducted that testing on four Alaska species: white spruce, Sitka spruce, western hemlock, and yellow cedar. The results of those tests were published and accepted by the American Lumber Standards Committee, which made the proposed grading program possible. 4:31:03 PM MR. DOUSE turned to slide 3 and discussed the average cost in Alaska to be a member of the grading agency. He spoke to the following: • 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 CO-CHAIR BISHOP commented on the difficulties associated with producing sufficient volumes to make membership economically feasible. 4:33:01 PM SENATOR CLAMAN asked, other than the Viking Lumber Company, how many small Alaska mills are operating under a grading program. MR. DOUSE responded that he was aware of three mills that are operating under a grading agency; Northland and Viking operate under WWPA and one mill operates under the Pacific Lumber Inspection Bureau, which is a transient grading agency. Those three mills produce sufficient volume to justify the cost, but multiple small mills don't have the volume. SENATOR CLAMAN asked if a number of mills were cutting and selling ungraded lumber. MR. DOUSE said yes; building with ungraded lumber is okay in areas that don't have building codes and if it's done out-of- pocket. Unstamped lumber can also be used in an area with building codes if it's for a small structure such as a shed or sauna. 4:34:58 PM MR. DOUSE advanced to slides 4-6 to discuss what constitutes a local-use/native lumber program. He spoke to the following: • 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 4:36:10 PM SENATOR WIELECHOWSKI asked, in those seven states that allow the use of ungraded lumber, whether there had been any problems associated with the quality of the wood. MR. DOUSE said he hadn't heard of any problems. People he spoke with in Wisconsin said that as a general rule, this lumber is high quality; the mill owners are proud of their product and want to see the program continue. MR. DOUSE continued to discuss what constitutes a local use/native 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 4:38:31 PM SENATOR WIELECHOWSKI asked if there were reports of increases in the cost of insurance or mortgage financing when unstamped lumber is used. MR. DOUSE said he hadn't heard of any such increases in the seven states that have local-use lumber programs. CO-CHAIR GIESSEL commented that the last point about building inspectors having the ability to inspect and reject the wood assumes that the building is in a coded area. MR. DOUSE said that's correct. 4:39:40 PM He advanced to slide 6 and continued to discuss what constitutes a local use/native 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 SENATOR CLAMAN asked why the lumber could only be sold to the end user and not a company like Spenard Builders Supply. MR. DOUSE answered that the lumber grades in the local use lumber program are simplified, whereas the lumber sold through a box store is a very specific product. He said he'd talk about this more later in the presentation. 4:42:23 PM MR. DOUSE advanced to slide 7 to discuss why the local use lumber program is needed in Alaska. He spoke to the following: • 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 4:44:56 PM MR. DOUSE directed attention to the graph on slide 8 that reflects US Forest Service mill surveys of capacity and production. These surveys are done every five years on mills located throughout the Tongass National Forest. It shows that both sawmill capacity and production has reduced significantly since 2000 when the estimated production was 87 million board feet. In 2020, production was only 15.5 million board feet. He opined that there was a lot of capacity for smaller mills. 4:45:51 PM MR. DOUSE said the chart on slide 7 addresses Senator Claman's question about why this lumber can't be sold to a retail outlet like Spenard Builders Supply. It shows the grading categories that somebody who is certified under the Western Wood Products Association would be trained to use. It illustrates that timber grading is complex and requires a lot of training to be a certified professional. The program that SB 87 proposes is an equivalent to the following use categories for dimensional lumber: Light Framing: Construction, Standard, Utility, Economy Stud: Stud, Economy Stud Structural Light Framing: Select Structural, No. 1, No. 2, No. 3, Economy Joists and Planks: Select Structural, No. 1, No. 2, No. 3, Economy The lumber in the proposed local use program would not be grade stamped, but the certification and a form that describes the wood would be handed to the end user. If this lumber were sold through a company like Spenard Builders Supply, it could be sold anywhere and for any application, which is not the intention of the program. The idea is that this lumber would go directly from the sawmill to the end user. 4:48:11 PM SENATOR BJORKMAN added that keeping the close connection between the buyer and the seller provides accountability for the lumber. If there is a building inspector, that person has the ability to inspect the lumber and reject it if there's a quality issue. 4:48:57 PM MR. DOUSE directed attention to the chart on slide 10 that shows the substitute equivalent Alaska grades and the descriptions of that lumber. Number 2 and Better: Substitute equivalent to Number 2 Grade of Structural Light Framing, Joists and Planks and Standard Grade of the Light Framing use categories Stud: Substitute equivalent to Stud Grade used in residential construction Number 3: Substitute equivalent to Number 3 Grade of Structural Light Framing, Joists and Planks and Utility Grade of the Light Framing use categories 4:49:35 PM MR. DOUSE described the training and certification proposed for the Alaska Local Use Lumber Program. He spoke to the following: • 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 SENATOR DUNBAR asked him to speak to the difference between air dried and kiln dried wood. He opined that it goes to Senator Bjorkman's point about the need for the seller to have a close relationship with the end user to ensure they know the appropriate use for the lumber. MR. DOUSE explained that air drying is used quite a bit in Alaska and there are best practices for stacking and testing the moisture content. If the lumber has a moisture content of more than 19 percent, it is considered green or partially air dried; when the moisture content is below 19 percent, the lumber is considered dry. Kiln dried means the lumber has been put into a controlled environment where heat is applied to draw moisture out of the wood. SENATOR DUNBAR offered his understanding that there was a difference in strength and quality depending on how the wood is dried, so the buyer needs to know what they're doing. MR. DOUSE agreed that an important part of the program was that the seller could look the buyer in the eye and say that the wood was green, partially air dried, or air dried to below 19 percent moisture content so the end user knows what they're buying. 4:53:15 PM SENATOR KAUFMAN spoke to the reasons to have dimensional lumber, and asked if there was any thought given to making the lumber in the home use program equivalent. MR. DOUSE answered that the surface condition is one of the five required designations in the form that's given to the end user. If the lumber is rough cut, planed, or planed on one side, that will be communicated on that form. SENATOR KAUFMAN mentioned hybrid solar drying and asked him to speak to additional methods of improving the quality of the wood by drying in a semi-controlled environment. CO-CHAIR BISHOP mentioned forests in the Interior that had burned more than four years ago and didn't have any beetle infestation. He asked if that lumber was kiln dried or air dried. MR. DOUSE replied that timber would be considered air dried because it was not in a controlled environment. 4:56:14 PM MR. DOUSE turned to slide 12 to discuss the special conditions for selling lumber in the proposed program. He spoke to the following: • 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 4:58:05 PM CO-CHAIR BISHOP held SB 87 in committee.