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TURNINGAPROFITONPUBLICFORESTS(FULL)
Autho r: Donald Leal (/staff/donald-leal) Jane Shaw (/staff/jane-shaw)
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byDonaldR.Leal JaneS.Shaw SeriesEditor

"Comparedwiththefederalgovernment, stateshaveshowngreateraggressivenessandimagination indevisingwaystoearnrevenuesfromtheirlands." RobertH.Nelson ProfessorofPublicAffairs UniversityofMaryland

Introduction Eachyear,atleastfiftynationalforestsmanagedbytheForestServicelosemoneyontheirtimbersaleprograms.Tosomecritics,theseprograms representanenvironmentaltravestyandaclassicexampleofcorporatewelfare. EnvironmentalgroupssuchastheSierraClubandTheWildernessSocietypointoutthatmanyofthemoneylosingforestsarelocatedinrugged,high altitudeareas,withdryorharshclimates.Intheirview,thefailureoftheForestServicetomakemoneyindicatesthattheseforestsareunsuitablefor logging,andthatloggingshouldstop. SomeenvironmentalistsalsocontendthattheForestServiceissubsidizingthetimberindustry.Thatis,theybelievethattheForestService'sinabilityto makemoneyindicatesthattheForestServiceisgivingawayournaturalresourcesbysellingtimberatclearancesaleprices. Untilnow,therehasbeenverylittleempiricalinvestigationofthereasonsforbelowcosttimberprograms.Asaresult,theclaimsofsubsidizedprograms havecarriedagreatdealofweightinpoliticalcircles.Butthereareotherpossiblereasonsforbelowcosttimberprograms.(1) PossibleReasonsforBelowCostTimberPrograms Whilecriticsclaimthatbelowcosttimberprogramsoccurbecauseloggingisnoteconomicallyfeasible,theymayoccurinsteadbecauseofagency inefficiencies.SincetheForestServiceisundernolegalobligationtomakeaprofit,ithaslittleincentivetokeepitscostslow.Indeed,budgetaryincentives currentlyinplacemayactuallyencourageexcessivespending. Second,overthelastdecade,risingenvironmentaldemandshaveledtomorereviews,studies,appeals,andlitigation.ThesehavecausedtheForest Servicetofallfarshortofitstimbersaletargets.Withlesstimbersold,thereislessrevenuetocoverthecosts. Finally,theclaimthattheForestServiceissubsidizingthetimberindustryisdoubtful.TheForestService,likeprivate,state,andcountytimberowners, sellsmostofitstimbertothehighestbidderincompetitiveauctions.Thus,thepricethattimbercompaniesarepayingissetinthemarketplace.Unlikethe federalgovernment'stargetpriceprogramforwheatandcorn,whichsubsidizesproductionbysettingaflooronprices,thegovernmentdoesnot manipulatethepriceoftimber. WhythendoestheForestServicelosemoneysellingtimberfromsomenationalforests?Thispaper,thefourthinPERC's1995PolicySeries,beginsto answerthisquestion.Itdoessobycomparingtheeconomicandenvironmentalperformanceofnationalforestswithadjacentforestsmanagedbythestate ofMontanaandbySt.LouisCounty,Minnesota.ThesecomparisonswillprovideinsightintothereasonswhytheForestServicelosesmoneyontimber operations.

CaseStudy:Montana ThetimbersaleprogramcarriedoutontheforestsofMontana'sstateschooltrustlands(2)providesanexcellentbenchmarkforevaluatingtheForest Service'stimbersaleprogramsonnationalforestsinMontana.Loggingsitesonschooltrustlandsareoftenlocatednexttoorevenwithinnationalforests. Theirclimate,topography,andvarietyoftreesarequitesimilar. Therearealsoimportantoperationalsimilarities.LiketheForestService,theDepartmentofStateLands(DSL),thestateagencychargedwithcareand managementoftrustlands,mustpreparetimbersales,administerharvests,carryoutenvironmentalassessments,respondtoenvironmentalappeals,and conductcompetitivebidsfortimber.LiketheForestService,theDSLrequiresroadconstruction,treestandimprovement,andreforestation.Itmustalso integrateitstimberactivitieswithotherusessuchaspublicrecreation,wildlifehabitat,livestockgrazing,andspecialuseleases. Wheretheseagenciesdiffermarkedlyisinthestatedpurposefortheuseoftheirlands.Stateforestsaremandatedbylawtogenerateincomefromtimber

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(andotheruses)forthefundingofpublicschools.Nationalforestshavenosuchmandate.Bylaw,nationalforestsaremanagedtoachievethe "combination[oflanduses]thatwillbestmeettheneedsoftheAmericanpeople...andnotnecessarilythecombinationofusesthatwillgivethegreatest dollarreturnorthegreatestunitoutput."(3) Underthesecircumstances,itisreasonabletoexpectthestateofMontana'stimberprogramtohavehighernetreturnsforagivenvolumeofharvestonits foreststhannearbynationalforests.Aswewillsee,thisisthecase. RegionsinMontana Tocomparenationalandstateforests,threedistinctgrowingregionsinwesternMontanawereselected.Eachregionhasbothnationalandstateforests withsimilartimbergrowingpotential(althoughmostnationalforestsactuallyhaveslightlyhigherestimatesofpotentialproductivity).Thereis,inother words,noevidencethatthepotentialforgrowingtreesishigherforthestateforeststhanforthenationalforestsineachregionalcomparison. Thenorthwestregionisthetoptimbergrowingregioninthestate.Stateforestsintheregion,whichaccountfor286,360acresofsuitabletimberland,(4) haveanaverageproductivepotentialofabout77ft3/acre/year(CollinsandConner1991).ThenearbyFlatheadandKootenainationalforests,which accountfor670,670acresand1,263,00acresofsuitabletimberland,respectively,haveslightlyhigheraverageproductivepotentialsofapproximately90 and111ft3/acre/year(USDAFlatheadForestPlanandKootenaiForestPlan). Thewesternregionisthestate'snextmostproductive.Stateforestsaccountfor155,852acresofsuitabletimberlandandhaveanaverageproductive potentialof64ft3/acre/year(ConnerandO'Brien1991).TheLoloandBitterrootnationalforestsareinthisregionandaccountfor1,258,033acresand 389,820acresofsuitabletimberland,respectively.LoloandBitterroothaveproductivepotentialsof80and60ft3/acre/year,respectively(USDALolo ForestPlanandBitterrootForestPlan). Thesouthwestcentralregionhasthelowesttimbergrowingpotentialofthethree.MostofthisregionislocatedeastoftheContinentalDivideandis morearid.Stateforestsintheregionaccountfor196,289acresofsuitabletimberlandandhaveanaverageproductivepotentialof48ft3/acre/year (ChojnackyandBrown1991).Sixnationalforestslieinthisregion.TheyaretheGallatin,Beaverhead,LewisandClark,Custer,Deerlodge,andHelena forests.Combined,theyaccountfor1,653,847acresofsuitabletimberlandandhaveanaverageproductivepotentialrangingfrom32ft3/acre/yearonthe Custerto54ft3/acre/yearontheGallatin.(5) ComparingEconomicPerformance Economically,thestateforesttrustlandsinMontanahavebeenfarmoresuccessfulthanthenationalforestsinMontana.Timbersalesfromstateforests generated$13.3millioninincomeoverthe19881992period,whilesalesfromMontana'stennationalforestsyieldedalossofnearly$42millionoverthe sameperiod,beforetheforestsmademandatorypaymentstothestate.Remarkably,stateforestsgeneratedthisincomebyharvestingonly8percentof thequantityharvestedbytheForestServiceinMontanaoverthisperiod(seeTable1). Table1 TotalRevenues,ExpendituresandHarvestVolume FY198892 Revenues Expenditures StateForests 10NationalForests $25,545,779 $173,410,305 $12,203,055 $215,291,127

HarvestVolume* 191.1 2,323.6

*Millionboardfeet Sources:MontanaOfficeofLegislativeAuditor(1992)andUSDA TimberSaleProgramAnnualReports(19881992).

Anotherwayofdescribingthiseconomicperformanceistosaythatstateforestsaveraged$2.16ingrossannualrevenuesforeverydollarinexpenditures, whilenineoftennationalforestsaveragedbetween$.09and$.73foreverydollarspentontimbersales(seeFigure1currentlyavailablebyFAXfrom PERC). OnlytheKootenai,locatedinthenorthwestregion,succeededinmakingmoneysellingtimber.Butitseconomicperformancewasstillmuchlessthanthat ofthestate($1.30versus$2.16).Thestate'sperformancerelativetotheKootenaiisallthemoreimpressiveconsideringthatKootenaiisinthemost productivetimberregioninMontana.Thestate's$2.16figurereflectssalesfrombothrelativelyhighproducingtimberareasneartheKootenaiandless productiveareasinthesouthwestcentralregion. Byfar,theworstperformersweretheCuster,Beaverhead,andGallatinnationalforests.Theseforests,locatedinsouthwestcentralMontana,averaged $.09,$.21,and$.24,respectively,foreverydollarinexpendituresoverthefiveyearperiod. Wecanlearnmorebylookingateachregion.Forthenorthwestregion,economicdatafromtheFlatheadandKootenainationalforestswerecomparedto datafromthestate'snorthwestforests.DatafromtheLoloandBitterrootnationalforestswerecomparedtodatafromthestate'swesternforests,and datafromGallatin,Beaverhead,Custer,Lewis&Clark,Deerlodge,andHelenanationalforestswerecomparedtodatafromthestate'ssouthwestcentral forests.Revenuesandcostswereaveragedoverthetotalvolumeoftimberharvestedoverthelastfiveyearsforeachregion.AsTable2indicates,the state'soverallsuperiorperformanceisduetobothlowercostsandhigherrevenues. Table2 RegionalComparisonsofRevenuesandCosts* (fiveyearaverages) AverageRevenues NorthwestRegion StateForests $156.31 $65.31

AverageCosts

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FlatheadNationalForest KootenaiNationalForest WesternRegion StateForests LoloNationalForest BitterrootNationalForest SouthwestCentralRegion StateForests GallatinNationalForest Lewis&ClarkNationalForest BeaverheadNationalForest CusterNationalForest DeerlodgeNationalForest HelenaNationalForest *Thousandboardfeetofharvest Source:SameasTable1. $85.21 $30.86 $44.81 $34.88 $14.55 $51.58 $51.42 $79.78 $132.56 $99.27 $168.79 $139.70 $110.66 $127.29 $102.97 $69.62 $85.73 $51.98 $91.85 $175.44 $79.27 $86.84 $106.26 $66.54

CostDifferences Letuslookfirstatsomewidediscrepanciesonthecostside.Inthenorthwestregion,Montanaspentanaverageof$65perthousandboardfeetofharvest toadministeritstimberprogram,whilenearbyFlatheadNationalForestspentanaverageof$106perthousandboardfeetofharvestonitsprogram.In thewesternregion,thestatespentanaverageof$52perthousandboardfeetofharvest,comparedwith$175onnearbyBitterrootNationalForest.In Montana'ssouthwestcentralregion,thestate'scostsaveraged$80perthousandboardfeetofharvestversus$133onGallatinNationalForest,$169on BeaverheadNationalForest,$140onCusterNationalForest,and$128onHelenaNationalForest. AlaborcomparisonoftheGallatinNationalForestandthestate'scentrallandofficeprovidesinsightintothecostdisparity(Table3).Gallatinwas examinedbecauseitisoneofthefourmostcostlynationalforestsinMontanaandbecausedataonlaborhourswereavailable.Basedon1992budget figures,Gallatin'saveragewagecostperhourwasonlyslightlyhigherthanthatofthestate.ButthenumberofGallatin'slaborhoursspenttoproducea givenvolumeofharvestwasovertwoandonehalftimesthatofthestate. Table3 LaborComparison FY1992 GallatinNationalForest StateCentralLandOffice AverageHourly WageCost $15.63 $15.30 Labor Hours* 11.6 4.5

*Perthousandboardfeetofharvest Source:Forstatedata,seeMontanaOfficeoftheLegislativeAuditor (1992,18718and41).LabordataforGallatinNational ForestprovidedbyDaleHoliday,BudgetOfficer,GallatinNationalForest.

AForestServicecoststudyissuedin1993shedsadditionallightonthecostdiscrepancy.Thereportnotes"agrowingimbalance"betweenthesizeofthe ForestServicesalepreparationorganizationandthesizeoftimbersales(USDA1993,545).Timberoutputhasfallendramaticallyoverthelastfiveyears whilestaffsizehasremainednearlythesame,andthishasledtoadramaticriseintimbersalecosts.OnFlatheadNationalForest,forexample,theaverage costofsalesrosefrom$60.17(perthousandboardfeet)in1998to$149.40(perthousandboardfeet)in1991duetolowertimberoutput.Thestudysays thatthedeclinereflectsdelaysandstoppagesduetoenvironmentallawsuitsandamassiveexpansioninlengthyenvironmentalanalyses. However,thedeclineintimberoutput,whilequitereal,isonlypartofthestory.TheevidenceindicatesthattheForestServiceisinherentlylessefficient thanthestateinpreparingtimbersalesandadministeringharvests. Acomparisonoftimbersalepreparationandharvestadministrationcostsperunitoftimberharvestedwasmadebetweenstatesalesfromthenorthwest regionandForestServicesalesfromnearbyFlatheadNationalForestoverthe19881991period.Thestate'sbestoutputyearinthatareawas1988.It harvested38millionboardfeet,andthecostofsalepreparationandharvestadministrationwas$16.17perthousandboardfeetofharvest.TheForest Service'sbestoutputyearintheFlatheadwasalso1988,ayearwhenitmetitstimberoutputtargetof122millionboardfeetofharvest.Yetthecostofsale preparationandharvestadministrationwas$60.17perthousandboardfeet,nearlyfourtimesgreaterthanthestate's(USDA1993).Thus,eveninahigh outputyeartheForestServicespendsmuchmoreperunitthanthestateconductingbasictimbersupportactivities. Thestatealsobuildslessexpensiveroads.Toconstructamileofroad,thestatespendsfrom$4,000to$8,000,whiletheForestServicespendsfrom $45,000to$50,000(USDA1993).Thereasonisthatmostofthestate'sconstructedroadsaretemporary.Theyarebuiltonlytoextracttimberfroma givenareaandwhenthatisfinishedtheroadisoftenreseededwithnaturalvegetation.Incontrast,theForestServicebuildsmanypermanentroads,which

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aremoreexpensive.TheForestServiceexplainsthattheroadsareforotherusesaswell,suchasmotorizedrecreation.Butsincerecreationusersdonot payfortheuseoftheroads,timberprogramsabsorbmostofthecost.ThiscrosssubsidizationisanotherreasonwhytheForestService'stimbersalecosts arehigher.Timberprogramdollarsaresubsidizingmotorizedrecreation. RevenueDifferences Nowlet'slookatrevenues.TheForestService'snationalforestsinMontanaconsistentlyreceivelessrevenueperthousandboardfeetoftimbersoldthan dothestateforests.Therecouldbeanumberofreasons.(6)Forexample,theGallatinNationalForestexperiencedanunusuallyhighnumberoftimber salvagesalesoverthe19881992period.(7)Salvagesalesinvolvesellingdiseasedorburnedtimber,whichfetchesamuchlowerpricethanhealthytimber. DavidH.Jackson(1987)offersacoupleofpossibleexplanationsforthelowerrevenues.HeanalyzedsamplesofstateandForestServicetimbersalesin Montanaoverthe19781983periodtodeterminewhystumpageprice,ameasurecloselyrelatedtoaveragerevenues,is,onaverage,higherforthe state.(8) JacksonfoundthattheForestServicedidmoreclearcuttingthanthestatedidduringthisperiod.Clearcuttinggeneratesaloweraveragestumpageprice whenstandscontainbothlowandhighqualitytimber.Withselectivecutting,foresterstakemostlyhighqualitytimber. Inaddition,ForestServicesalestypicallyinvolvedhighervolumesoftimber.ForestServicesalesaveraged2.9millionboardfeet,whilestatesales averaged1.1millionboardfeet.Moreimportantly,10outof40ofthenationalforestsalesweremuchlargerthaneitheroftheseaverages,rangingfrom6 to21millionboardfeet.Jacksondescribesthesetensalesasmassiveinitialdevelopmentsalesinremoteareasrequiringhighroadconstructioncostsand costlylogretrieval.Becauseofthesehighercosts,timberpurchasersbidlessforthisstumpagethanfortimbersoldthroughsmall,lesscomplexsales.The highvolumeoftheselarge,lowpricedsalesbroughtdowntheoverallaveragepriceofForestServicesales.Jacksonconcludesthat"moreprudentspatial development"bymanagerswouldresultin"higherpricesandlowerdevelopmentcosts.Toputitquitesimply,currentmanagementpracticesare wasteful"(Jackson1987,235). Someofthesemanagementpracticesmayalreadyhavechanged.MorerecentfiguresfromWarren(1994)indicatethat1993averagestumpagepricesfor timbersoldfromnationalforestsinMontanaandstateforestswerenearlyequal.WhetherthisisbecausetheForestServicedesigneditssaleswithlower developmentcostsandlessexpensiveloggingmethodsthaninthepastisnotknownatthistime.However,itdoesindicatethattheForestServicehasthe potentialtoapproachthestateinaveragestumpagepriceand,inturn,averagerevenue. ComparingEnvironmentalPerformance GiventhefactthattheForestService'scostsarehigher,onemightexpectenvironmentalqualitytobehigheronloggedsitesinnationalforeststhanon thoseofthestate.Afterall,theForestServicehasincurredincreasingcostsduetomoreanalysesanddocumentationdesignedtoreducetheimpactsof loggingonwatershedsandothernaturalresources.Empiricalevidence,however,indicatesotherwise. A1992studyof46sitesinMontanaharvestedwithinthepreviousthreeyearsconcludedthatthestatedidabetterjobofprotectingwatershedsfromthe impactsofloggingthantheForestServicedid.Thestudyconcludedthatstatelandshada"higherratingthanotherownership"inemployingforest practicesthatreducetheimpactofloggingonwatersheds(Schultz1992,4). Thestudy,requestedbytheMontanalegislature,hadasitsexpresspurposetheevaluationofenvironmentallyrelatedmanagementpracticesonstate, federal,andprivateforests.Thestudywascarriedoutbyanindependent,interdisciplinaryteamconsistingofindividualsfromenvironmentalgroups, stateforesters,theForestService,theBureauofLandManagement,thetimberindustry,andvariousconsultants.Thestaterankedhighestamongall forestlandowners,includingtheForestService. ManagingforTimberGrowth Onemeasureofgoodtimbermanagementistheactualgrowthrateofaforest.Thisreflectstheannualincreaseinthevolumeofstandingtimber,or timberproductivity.Aforestcomposedmostlyofmaturetreesgrowsveryslowlyandthereforeaddslittletotheinventoryeachyear.Awellplanned rotationofharvestsandreforestationensuresatimberbasewithareasonablyhighgrowthrate. Table4presentsactualannualgrowthratesforanumberofnationalforestsandregionalstateforestsinMontana.Amongnationalforests,Lolohadthe highestaverageannualgrowth,averaging46ft3/acreorabout58percentofitsproductivepotential.Nearbystateforestsinthewesternregionaveraged 42ft3ofgrowthperacreorabout66percentoftheirproductivepotential. Table4 MeasureAnnualNetTimberGrowth SouthwestCentralRegion State GallatinNationalForest Lewis&ClarkNationalForest NorthwestRegion State FlatheadNationalForest WesternRegion State LoloNationalForest Source:CollinsandConner(1991)ConnerandO'Brien(1991) 42ft3/acre 46ft3/acre 40ft3/acre 44ft3/acre 32ft3/acre 13ft3/acre 14ft3/acre

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ChojnackyandBrown(1991)O'BrienandCollins(1991)and USDAforestplansforFlathead,Gallatin,Lewis&Clark,andLolo.

Thegreatestdiscrepanciesexistinthestate'ssouthwestcentralregion.Gallatinaveragedanegative13ft3/acre,andLewis&Clarkaveraged14ft3/acreof annualgrowthor30percentofitsproductivepotential.Thecomparablestateforestsaveraged32ft3/acre,or67percentoftheirbiologicalpotential. NegativegrowthontheGallatinisexplainedbythefactthatmostofitssuitablecommercialtimberbaseisnowcomprisedofveryoldstandsoftrees. Theseoldertreeshavenegligibleannualgrowthandaresusceptibletoinsects,disease,andfire.Whileitisgoodtohavesomeoldgrowth,theamountof oldgrowthinthisforest'sinventoryappearsexcessive.(Thesefigures,ofcourse,excludeGallatin'swildernessareas.) Conclusion:MontanaForests Insum,thiscomparisonshowsthattheForestServicecouldmakemoneysellingtimberfromsomeofitsmoneylosingforestsifitoperatedasefficiently asthestateofMontana.Moreover,itcoulddosowithoutsacrificingenvironmentalquality.Thestate'senvironmentalprotectioniseverybitasgoodas theForestService's,asthe1992environmentalauditofMontanaforestsindicates.Inaddition,thestatedoesabetterjobofsustainingqualitytimber,that is,treesthatarealiveandfreeofdisease.

CaseStudy:NortheasternMinnesota AcomparisonoffederalandcountytimberprogramsinnortheasternMinnesotaprovidesanopportunitytoexamineperformanceintheGreatLakes region.Returnsfromtimbersalesbetween1990and1993werecomparedforSuperiorNationalForestandtheforestsmanagedbytheSt.LouisCounty LandDepartment.Theseforestsgrowbothhardwoods(e.g.,aspen)andsoftwoods(e.g.,balsamfir).Asthestatisticsbelowindicate,SuperiorandSt. LouisCountyforestshavesimilartimbergrowingpotential. SuperiorNationalForestcontainsover2.1millionacresoflandspreadthroughnorthernSt.LouisCounty,CookandLakeCounties.Abouttwelvepercent ofSuperiorNationalForestiswater,and645,000acresoflandaredeemedsuitablefortimberproductionbytheForestService.Theforestcontains 2,000lakes,amyriadofwetlands,andtheonemillionacreBoundaryWatersCanoeAreaWilderness.TheforestplanforSuperiorstatesthattheForest Service'sgoalinmanagingforestassetsistoprovide"thegreatestlongtermnetpublicbenefitsinanenvironmentallysoundmanner"(seeUSDASuperior ForestPlan,p.11). Table5 TimberBaseComparisons Suitabletimberland Standingtimber Hardwood/softwood mix Potentialproductivity Averagenet annualgrowth Hardwood/softwood St.Louis CountyLands 744,800acres 991ft3/acre 60:40 38.7ft3/acre/year 23.4ft3/acre/year 80:20 Superior NationalForest 645,025 1,083ft3/acre 50:50 37.9ft3/acre/year 24.6ft3/acre/year 67:33

Sources:Kingsley(1991,3,23,25,and40)andUSDA SuperiorForestPlan(p.39).

TheSt.LouisCountyLandDepartmentmanagescountylands"toprovideoptimumreturns"whilealsoaimingtoassuresustainedyieldsofrenewable resourcesandprovideprotectionforwildlife,watersheds,andrecreation(St.LouisCountyLandDept1981).Itoversees744,800acresfortimber productionscatteredthroughoutSt.LouisCounty(Kingsley1991,23).Inthenortherntwothirdsofthecounty,theLandDepartment'stimberlandsare interspersedwithstateandSuperiorNationalForesttimberlands. ComparingEconomicPerformance Overthe19901993period,theLandDepartmentharvested275millionboardfeetoftimberandgenerated$2,340,572inincomefromitstimber program,whiletheForestServiceharvested341millionboardfeetandlost$5,178,362fromitstimberprogram.Statedanotherway,theLand Departmentreturned,onaverage,$1.70ingrossrevenueforeverydollarspentonitstimberprogram,whiletheForestServicereturnedonly$0.55for everydollarspentonitsprogram.Figure2presentsthedataoverthe19901993period. Figure2 ReturnsPerDollarSpentOnTimberPrograms

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Source:St.LouisCountyLandDepartment(1994)andUSDA, TimberSaleProgramAnnualReports,19901993). Whysuchabigdifferenceineconomicperformance?Theanswerdoesnotlieinrevenues.AsTable6indicates,ForestServiceaveragerevenueswereonly slightlylowerthanaveragerevenuesoftheSt.LouisCountyLandDepartment. Table6 AverageRevenues PerThousandBoardFeetofHarvest (1993Dollars) 1990 1991 LandDept. Lands Superior NationalForest $15.42 $15.50 $18.05 $17.40

1992 $23.19 $18.35

1993 $26.34 $21.92

Average $20.75 $18.29

Source:SameasFigure2.

TheForestServicehasgenerallysoldahigherproportionofhigherpricedsoftwoodsthanthecountydoes,soitsaveragestumpagepricehasgenerally beenhigher(MinnesotaDepartmentofNaturalResources,19881993).However,higherstumpagepricesforSuperiorNationalForesthavenot translatedintohigheraveragerevenues.Thereasonmaybequitesimple.ItappearsthattheLandDepartmenthasashorterturnaroundtimebetween whenthetimberissoldandwhenitisharvested,andtheremainingproceedsfromthesalearecollected.Timberpriceswererisingoverthe19901993 periodandthecountymayhavemorequicklyexperiencedthebenefitsofrisingprices. TofigureoutwhytheForestServicehasdonesopoorlyincomparisonwithSt.LouisCounty,wemustlookatcosts.BoththeForestServiceandSt.Louis Countyspendmoneyontimbersalepreparation,environmentalandrecreationalplanningandmitigation,roadbuilding,harvestadministration, reforestation,andstandimprovement.Whenthesecostsaredividedbyannualtotalharvests,theresultistheaveragecost. AsTable7indicates,theLandDepartmenthasmuchloweraveragecosts.From1990to1993,theoverallaveragecostperthousandboardfeetwas$12.61 fortheLandDepartmentand$34.12fortheSuperiorNationalForest. Table7 AverageCost PerThousandBoardFeetofHarvest (1993Dollars) 1990 1991 LandDept. Lands Superior NationalForest $10.99 $40.20 $12.38 $36.30

1992 $14.51 $32.29

1993 $11.36 $27.59

Average $12.31 $34.12

Source:SameasFigure2.

TodeterminewhytheLandDepartment'saveragecostsaresomuchlower,severalcostcategorieswereexamined.Onewasharvestadministration.This includesactivitiessuchasperiodicinspectionsoftheharvestedareaandmonitoringofthetermsandconditionsofthesalescontract.AsTable8indicates, theForestService'scostsforharvestadministrationwerenearly30percenthigherthantheLandDepartment's. Intimbersalepreparation,theForestServiceandtheLandDepartmentdifferevenmoredramatically.TheForestServicehasformalproceduresfor carryingoutenvironmentalanalysis,producingreports,andconductingpubliccommentperiods,allofwhichcontributetotimbersalepreparationcosts. Salepreparationcostsalsoincludethecostsofdesign,appraisal,contractpreparation,andsaleandawardoftimbercontracts. TheLandDepartmenthastheusualsalepreparationcostssuchasdesign,appraisal,contractpreparation,andauctionandawardoftimbercontracts,but itsenvironmentalplanningprocessisfarlessstructuredthantheForestService's.Itcarriesoutenvironmentalplanningbutwithoutproducingformal environmentalassessmentreportsandenvironmentalimpactstatements. Table8 HarvestAdministrationCosts PerThousandBoardFeetofHarvest (1993Dollars)

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1990 LandDept. Lands Superior NationalForest $3.21 $4.41 1991 $3.08 $5.38 1992 $3.59 $4.36 1993 $2.97 $4.14 Average $3.21 $4.57

Source:LandDepartment'scostdataprovidedbyTomZeisler, ResourceDataSupervisor,St.LouisCounty,Minnesota.Superior's costdatafromUSDA(1993).

TheLandDepartment'scostsfortimbersalepreparationareabout46percentlower,onaverage,thanthoseoftheForestServiceonSuperiorNational Forest.Table9presentscostsfortimbersalepreparationforeachagencyoverthe19901993period.Thus,themostdramaticcostcontributionwould seemtobethedifferentapproachestoenvironmentalplanningadoptedbythesetwoagencies. Table9 TimberSalePreparationCosts PerThousandBoardFeetOffered (1993Dollars) LandDept. Lands Superior NationalForest 1990 $4.59 $7.76 1991 $4.65 $7.81 1992 $3.39 $7.88 1993 $3.84 $6.83 Average $4.12 $7.57

Source:SameasTable6

Wealsofindnoticeabledifferencesinexpendituresforreforestationandtimberstandimprovement.Althoughithasaslightlysmallersuitabletimber base,theForestServicedoesmuchmorereforestationandtimberstandimprovementthantheLandDepartment.Overthe19901993period,theForest Service'scombinedreforestationandtimberstandimprovementactivitiesencompassedsome31,096acres,whiletheLandDepartment'scombined reforestationandtimberstandimprovementactivitiesencompassedroughly4,000acres,oronly13percentoftheacreagetreatedbytheForestService. ThetotalcostofthisactivityfortheForestServiceoverthisperiodwas$2,214,000in1993dollars(ForestServiceCentralAccountingSystem).TheLand Department'scostforthisactivitywas$305,926in1993dollars,(9)or86percentlessthantheForestService.(10) WhydoestheForestServicechoosetodomorereforestationandstandimprovementthantheLandDepartment?Oneplausiblereasonisthat reforestationenhancestheabilityofthenationalforestmanagertoobtaincontroloversomeofthetimberrevenues.Themorereforestation,themore fundinggoestothenationalforestratherthansimplytotheU.S.Treasury.ThisreallocationisauthorizedundertheKnutsenVandenburg(KV)Act.(11) Interestingly,roadbuilding,whichisoftenviewedasexcessivelywasteful,didnotshowasignificantdifferencebetweenowners.Bothagenciesconstructed approximatelythesameamountofpermanentroadsayear10.4milesbytheLandDepartmentonitsforestacreageand9.3milesbytheForestService onSuperior.TheForestServicespent$986,000onroadconstructionoverthe19901993period,whiletheLandDepartmentspentapproximately $790,000.(12) Otherprogramactivitiesundoubtedlycontributetodifferencesintimberprogramcosts.BoththeForestServiceandtheLandDepartment,forexample, doforestwideplanning,conductperiodicforestinventory,performsilviculturalexaminationsandprescriptions,andcarryoutactivitiestomitigateand sometimesimproveconditionsforwildlifeandrecreation.Unfortunately,itwasnotpossibletosetupmeaningfulcomparisonsforthesecategories becausethecostswerenotseparablefromprogramcosts. Still,theevidenceisclear:Fortwotimberbasesclosetooneanotherandratedverysimilarintimbergrowingpotential,theForestServicecarriesouta timberprogramwhosecostsaresubstantiallyhigherthanthoseincurredbytheLandDepartment.Thesehighercostsresultinsubstantiallylowerreturns fromtimbersaleswhencomparedtoreturnsfromtimbersalesonlandsadministeredbytheSt.LouisCountyLandDepartment. ComparingEnvironmentalPerformance ArethehighercostsincurredbytheForestServiceonitstimberprogramforSuperiorNationalForestresultinginbetterprotectionoftheforest environment?Theempiricalevidenceindicatesthattheanswerisno.TheMinnesotaDivisionofForestryestablishedanannualfieldauditingprogramin 1991,designedtoevaluatehowwelllandownersprotectwaterqualityfromtheimpactsoflogging.Thereportonthe199293fieldauditconcludesthatthe rateofcompliancewashighestoncountylandsat90percent,whiletheForestService'srateofcompliancewasslightlylowerat87percent(Phillips, Rossman,andDahlman1994). TheMinnesotaauditincludedassessmentsof261recentlyharvestedsitesineasternMinnesotaandwaspatternedaftertheapproachusedinMontana. LiketheMontanaaudit,itwasconductedbyinterdisciplinaryteamsofexpertsinforestry,hydrology,soils,andbiology,andincludedrepresentatives fromlocalenvironmentalgroupssuchastheAudubonSocietyandtheSierraClub.Theseteamsevaluatedcompliancewith"bestmanagement"standards forprotectingwaterquality. TheDivisionofForestryreportoffersseveralobservationsonwhytheForestServicehadalowercompliancerate.Thereportnotesthatfederal contractingproceduresgivetheForestServicelessfreedomtoselectloggingcompaniesonthebasisofperformance.ItalsosuggeststhattheForest Servicehas"lessdirectoversightoffieldforesters"andhastoomanytaskstofulfill,reducingthetimeavailabletooverseecontractperformance.

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Conclusion

WhyistheForestService'sperformancesomuchpoorerthantheperformanceofthestateofMontanaandSt.LouisCounty? First,thestateandcountyhaveanoverridingrequirementtogenerateincomefromtimberandothergoodsandservicesmarketedfromtheirforestlands. Second,sincetheselandsmustgenerateincometofundpublicschoolsinMontanaandcountyservicesinSt.LouisCounty,Minnesota,schooldistrictsin MontanaandlocaltaxpayersinSt.LouisCountyhaveavestedinterestintheirperformance.Thesegroupsenjoylegalstandingwhenitcomestomaking surethattheseforestsgeneraterevenuesfromtimbersales.Whenthisdoesnotoccurwhen,forexample,stateandcountylandmanagersfailtomake timberpurchasershonortheirfinancialcommitmentsorwhentheybowtoenvironmentalists'pressuresandhaltatimbersalecourtsforthemostpart haveruledinfavorofthetrustbeneficiaries.Theyhavedeclaredthatlandmanagersmusthonortherequirementtomaximizereturns. Ironically,thisemphasisoneconomicreturnshashadanaestheticbenefitaswell.In1992,residentsnearBozeman,Montana,triedtogetthestatetohalt atimbersalebecausetheythoughtthatitwouldlookuglyfromtheirhomesit"threatened"theirviewshed.Thestatetookthepositionthatifthe residentswantedascenicviewshed,theyshouldbewillingtopayforit.Thestateofferedtosellaviewshedeasementtotheresidentsfor$430,000,the amountthatthepublicschoolswouldloseifthestatefailedtolog.Theresidentswereabouttobuytheeasementbutthendecidedthatacompromisewas moreattractive.Thestateagreedtoaselectiveharvestthatmimickednaturalopeningsinthearea. Followingtheharvest,localresidentsandenvironmentalistspraisedthestate'senvironmentallysensitiveapproachtothesale.Despitethelengthsto whichthestatewenttodesignasensitiveharvest,itstillmanagedtomakeasubstantialprofit.Proceedsweretwicethestate'scostsincarryingoutthesale (McMillion1992). Incontrasttostateandcountyforests,noonehasapersonalfinancialstakeintheincomegeneratedfromnationalforestassets.Moreover,theseforests arelegallyundernoobligationtogenerateincome.GrossreceiptsfromtimbersalesgototheU.S.Treasuryandtogeneraltimberactivityfunds,suchas roadbuildingandreforestation.Congressionalappropriationsareusedtooffsetlosses.Hence,thereislittle,ifany,incentivefortheForestServiceto keepitscostslow. Nationalforestshavenobottomline,andwithoutit,theForestServicelacksanobjectivemeasurefromwhichtoassessitsperformance.Instead,itis forcedtorelyon"pseudomeasurements,"suchasthenumberofenvironmentalassessmentreportsandforestplansproducedortheamountoftimber harvested.Asthisreportindicates,manyoftheseactivitieshaveaccomplishedlittleinthewayofenvironmentalqualityandmuchinthewayofincreased costs.Theevidenceindicatesthatfederaltimbersaleprogramscouldachievemuchbettereconomicperformancewithoutsacrificingenvironmental qualityiftheyoperatedwiththesameincomeincentiveasthestateofMontanaandtheSt.LouisCountyLandDepartment.

DonaldR.LealisaSeniorAssociateofPERC.Heistheauthorofnumerousscholarlyarticlesaswellasmanyinthepopularpressdealingwithnatural resourceissues.HeisthecoauthorwithTerryL.AndersonofFreeMarketEnvironmentalism.

Notes 1.Someenvironmentalistsusetheterm"belowcosttimbersales"todescribeforeststhatlosemoneyontheirtimberprograms.Thetermisnotquite right,however.Moneylosingsalescanoccurforavarietyofreasons(suchasgettingridofdiseasedtimber).Theissuethatweareaddressingisthe questionofwhyanationalforest'sentiretimberprogramfailstomakemoney. 2.StateschooltrustlandsarelandsthatweregrantedtothestateofMontanabythefederalgovernmentwhenMontanawasadmittedtotheUnion.The purposeistosupportcommonschools,stateuniversities,andotherinstitutions.Ofthetotaltrust,485,000acresareclassifiedascommerciallyoperable timberlands.Inthispaper,werefertotheseacresas"stateforests." 3.ThisquotationcomesfromtheMultipleUseSustainedYieldAct.See16U.S.C.531(a)(1988). 4.Suitabletimberlandislandcapableofgrowingatleastanadditional20ft3/acreoftimberayearthathasnotbeenremovedfromtimberproductionfor legislativeoradministrativereasons. 5.SeerelevantUSDAforestplans. 6.Revenuescandifferbecauseofdifferencesintimbermix,qualityoftimberbeingsold,yieldoftimberperacre,areadevelopmentcosts,silvicultural systemsemployed(forexample,selectivecutsorclearcuts),logretrievalsystems(suchastractorvs.helicopterlogging),andconstraintsimposedon loggers. 7.LetterfromDavidP.Garber,ForestSupervisorforGallatinNationalForest,May13,1993. 8.Stumpagepricesarethepricesofdeliveredlogsminusallthecostsoflogging,landdevelopment,andtransportationtothemills. 9.DataprovidedbyTomZeisler,ResourceDataSupervisor,St.LouisCountyLandDepartment,Duluth,MN. 10.DataprovidedbyUSDAForestServiceCentralAccountingSystem1995andTomZeisler(seeabove). 11.McKettaandWeiner(1994,23)provideadditionalempiricalevidenceofthisphenomenon. 12.DataprovidedbyForestServiceCentralAccountingSystem1995andTomZeisler(seeabove).

References

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Chojnacky,DavidC.,andSusanS.Brown.1991.ForestStatisticsforLandOutsideNationalForestsinSouthwesternMontana,1989.Ogden,UT: IntermountainResearchStation. Collins,DennisC.,andRogerC.Conner.1991.ForestStatisticsforLandOutsideNationalForestsinNorthwesternMontana,1989.Ogden,UT: IntermountainResearchStation. Conner,RogerC.,andReneeA.O'Brien.1991.ForestStatisticsforLandOutsideNationalForestsinWesternMontana,1989.Ogden,UT:Intermountain ResearchStation. Jackson,DavidH.1987.WhyStumpagePricesDifferBetweenOwnerships:AStatisticalExaminationofStateandForestServiceSalesinMontana.Forest EcologyandManagement.18:21936.Amsterdam,Netherlands:ElsevierSciencePublishers. Kingsley,NealP.1991.ForestStatisticsforMinnesota'sAspenBirchUnit.St.Paul,MN:NorthCentralForestExperimentStation. McKetta,Charles,andEricWeiner.1994.WallowaWhitmanNationalForestBelowCostTimberProgram:AretheCostsatFault?InSocioEconomic ImplicationsofaBelowCostTimberProgramontheWallowaWhitmanNationalForest.Moscow,ID:McKettaandAssociates. McMillion,Scott.1992.The'Nearly'InvisibleTimberSale.BozemanDailyChronicle,March20. MinnesotaDepartmentofNaturalResources.PublicStumpagePriceReview,FiscalYears19881993.St.Paul,MN:MinnesotaDivisionofForestry. MontanaOfficeofLegislativeAuditor.1992.ManagementofForestedTrustLand:DepartmentofStateLands.Helena,MT. O'Brien,ReneeA.,andDennisC.Collins.1991.ForestStatisticsforLandOutsideNationalForestsinWestCentralMontana,1989.Ogden,UT: IntermountainResearchStation. Phillips,MichaelJ.,RichardRossmanandRickDahlman,1994.BestManagementPracticesforWaterQuality.Duluth,MN:MinnesotaDepartmentof NaturalResourcesDivisionofForestry. Schultz,Bill.1992.ForestryBestManagementPracticesImplementationMonitoring.Missoula,MT:MontanaDepartmentofStateLands. St.LouisCountyLandDepartment.1981.StLouisCountyLandDepartmentPolicy.Duluth,MN:St.LouisCountyLandDepartment. .1994.AnnualTimberRevenuesandExpenses.Duluth,MN:St.LouisCountyLandDepartment. USDA.ForestService.n.d.BeaverheadForestPlan.Dillion,MT. .n.d.BitterrootForestPlan.Hamilton,MT. .n.d.DeerlodgeForestPlan.Butte,MT. .n.d.FlatheadForestPlan.Kalispell,MT. .n.d.GallatinForestPlan.Bozeman,MT. .n.d.HelenaForestPlan.Helena,MT. .n.d.KootenaiForestPlan.Libby,MT. .n.d.Lewis&ClarkForestPlan.GreatFalls,MT:USDA,ForestService. .n.d.LoloForestPlan.Missoula,MT. .n.d.SuperiorForestPlan.Duluth,MN. n.d.TimberSaleProgramAnnualReport,FiscalYear19881992.Washington,D.C. .CentralAccountingSystem(CAS).1993.TimberObligations/OutputsandUnitCosts.NewOrleans,LA:NationalFinanceCenter. .TimberCostEfficiencyTaskForce.1993.TimberCostEfficiencyStudy:FinalReport.Washington,D.C. Warren,DebraD.1994.Production,Prices,Employment,andTradeinNorthwestForestIndustries,FourthQuarter1993.Portland,OR:Pacific NorthwestResearchStation.

Typ e: Policy Series (/articles/types/policy-series)

DONALDLEAL(/STAFF/DONALD-LEAL) Leal'sresearchonnaturalresourcesandenvironmentalissuesspansnearly20years.Hiscurrentfocusisonpreventingoverharvestingofmarine resourcesandrestoringoceanfisheries.Lealisworkingtobuildsupportforindividualfishingquotas(IFQs)andfishingcooperativesasmoreeffective alternativestothecurrentregulatoryapproach... ReadMore>(/staff/donaldleal) MoreArticlesbyDonaldLeal>(/articles/author/4053)

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(/staff/donaldleal) JANESHAW(/STAFF/JANE-SHAW) BeforejoiningPERC,JaneShawwasajournalistwhohaddevelopedanuneasyfeelingthatmuchofthe commentaryaboutenvironmentalpolicythatshereadandevensomethatshewrotewastiltedinthewrong direction.Theusualsolutiontoanenvironmentalproblemwastoturnitovertothegovernment.Shehad becomeuncomfortablewiththis... ReadMore>(/staff/janeshaw) MoreArticlesbyJaneShaw>(/articles/author/4026) (/staff/janeshaw)

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