Segment 2 Of 2 Previous Hearing Segment(1)
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FISCAL ACCOUNTABILITY IN THE U.S. FOREST SERVICE
(The Timber Sale Program)
THURSDAY, JUNE 11, 1998
House of Representatives,
Committee on Agriculture,
Washington, DC.
The committee met, pursuant to notice, at 10:05 a.m., in room 1300, Longworth House Office Building, Hon. Robert F. (Bob) Smith (chairman of the committee) presiding.
Present: Representatives Combest, Doolittle, Pombo, Everett, Hostettler, Bryant, Thune, Jenkins, Stenholm, Condit, Peterson, Holden, Baldacci, McIntyre, Stabenow, Johnson, and Boswell.
Also present: Representative Taylor.
Staff present: Paul Unger, majority staff director, Dave Tenny, professional staff; Sharla Moffett, professional staff; Dwight Fielder, science fellow; Danelle Farmer, minority staff consultant, Callista Bisek and Wanda Worsham, clerks.
OPENING STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN. Good morning. This hearing will come to order.
This is the third in a series of hearings to investigate fiscal accountability within the United States Forest Service. Today, we will examine the Timber Sale Program. We will pay close attention to the cost and particularly to the overhead costs associated with administering this very important program.
We've heard from every quarter that the Forest Service is having great difficulty in delivering goods and services to the American taxpayer. Recreationalists, wildlife advocacy groups, environmentalists, and forest products companies have testified that the agency is achieving fewer outputs despite increases in their budget.
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We have more than just anecdotal information to suggest that less work is being done on the ground, and the agency is mismanaging its fiscal resources. The Inspector General gave the Forest Service a failing grade in its 1995 annual financial report saying that it could not certify that the data contained in the report was accurate. The Forest Service has failed to produce an acceptable financial statement since then.
A total of at least 10 separate General Accounting Office reports have been published documenting the mismanagement of taxpayer dollars by the Forest Service. At our last hearing, the General Accounting Office presented testimony that revealed an alarming trend in the agency's overhead costs related to off-budget funds. Over the past 5 years, overhead assessed to these accounts has increased 80 percent. Presently, 27 percent of these funds are spent on overhead.
We've also learned that 32 percent of the agency's road construction and reconstruction budget costs are in overhead. The agency actually plans to spend millions more in fiscal year 1999 on overhead than it will spend on road reconstruction despite claims that we are $10.5 billion in arrears in reconstruction funds.
Today, we will find that identical trends occur in the Federal Timber Sale Program. This hearing will explore trends in revenue, overall expenses, and overhead costs for the Timber Sale Program; a comparison of overhead and overall costs to manage Federal, State, and private forest lands; measuring States and private landowners take to reduce overhead and overall program costs, and the measures that the Forest Service takes to try to control its overhead costs, and the impact on our national forests or the Forest Service lack of attention to rising overhead.
I would like to draw the committee's attention to several charts that show recent trends in the Federal Timber Sale Program. The first chart—if you can see it there—illustrates decreases in revenues in the Forest Service Timber Sale Program. Between 1989 and 1996, revenues plummeted from $1.5 billion to $618 million, a 59 percent decrease.
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With such a dramatic decrease in revenues, a logical assumption would be that there would be a corresponding decrease in costs. The second chart shows this did not happen. During this same period, total costs have decreased by only 18 percent from $776 million to $633 million in 1995. Although costs did decrease, they clearly did not come close to tracking the nearly 60 percent drop in revenues.
The third chart shows what happens to the general administration or overhead. These are costs in the Timber Sale Program between 1992 and 1996. You will note a $70.4 million increase in overhead during this period; that's a 46 percent increase.
Chart 4 represents this trend in another way. In 1992, overhead accounted for 18 percent of total costs. Yet, in 1996, overhead accounted for 32 percent of total costs. This means that $1 in every $3 spent by the Forest Service on Timber Sale Programs is consumed by agency overhead, and is, therefore, unavailable to pay for on-the-ground forest management activities.
In short, rather than spending more money to deliver a quality product to the American taxpayers to meet the Nation's rising needs for wood products, the Forest Service is spending more money to line the pockets of bureaucrats.
In 1996, the financial report of the Forest Service Timber Sale Program registered a loss for the first time in history. Today, we will hear that the amount of that loss will total nearly $90 million. Most of this number comes from a novel accounting trick for measuring the cost of road construction. Yet the fact remains that a program that in 1992 netted over $250 million in net revenue has been driven to a deficit condition today. At the same time, the program has shown an increase in overhead of nearly 50 percent. It is becoming clear, at least to me, that the reason the Timber Program is failing is because the Forest Service bureaucracy is bleeding it dry.
Many have incorrectly argued that the solution to this problem is to eliminate the Timber Sale Program. I think this ignores rather than solves the problem. If we eliminate every Forest Service program plagued by excessive costs and skyrocketing overhead, then, in the end, we will be forced to eliminate all of them including recreation, fish and wildlife programs, watershed improvement, wildlife management research, wood products, and a host of others. And the big loser at the end of the day under this manner of thinking would be the taxpayers who are the constituents of our national forests.
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Congress' objective should be to discipline the agency not punish the taxpayer. This is why I'm announcing today a bill that I will introduce next week, the Forest Service Cost Reduction and Fiscal Accountability Act of 1998. This legislation will address the very problems we are seeing in this and other hearings. Rather than focusing on elimination of programs that are designed to serve people, it will require the Forest Service to become more responsible by reducing costs, limiting overhead, and becoming accountable to Congress and to the taxpayer. In the end, it will turn taxpayer investments into more on-the-ground results rather than a fatter bureaucracy.
The Forest Service Cost Reduction and Fiscal Accountability Act will be a simple bill. Specifically, it will accomplish five things: first, it will require the Forest Service to account annually for the costs associated with all of the programs it administers; second, it will require an immediate overcap on overhead charges to off-budget accounts; third, it will require the Forest Service in cooperation with the General Accounting Office and the USDA Office of Inspector General to develop a 5-year strategic plan for identifying and reducing overhead and unnecessary costs; fourth, it will require periodic GAO audits of the implementation of this strategic plan and the corresponding reports to Congress, and, finally, it will require the Forest Service to fully disclose in each year's budget request the amount of overhead implicit in each budget line item.
In the end, this bill will produce less waste, greater efficiency, and will free up more dollars for on-the-ground forest management. This ought to be a win for good forest management; it will be a win for the Forest Service, and, most importantly, it will be a win for millions of Americans who live and work and recreate in our national forests everyday.
Does the gentleman from Texas have an opening statement?
Mr. STENHOLM. No.
The CHAIRMAN. With that, I want to first of all welcome our colleagues and, first of all, Mr. Herger and Mr. Stupak, you're most welcome and we look forward to your testimony.
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Mr. Herger, my friend from California, we'd like to hear from you at this time.
STATEMENT OF HON. WALLY HERGER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. HERGER. Thank you very much, Mr. Chairman, and I appreciate this opportunity to testify about the Forest Service Timber Sale Program. My northern California district is home to all or parts of 11 national forests. This program is critically important to my district.
In 1992, you may recall the Clinton-Gore administration campaigned throughout the Pacific Northwest promising to assist the region's declining forest health and economic situation. Little did we know that what they planned was to run into the ground and bankrupt one of the most successful programs in the history of the Federal Government. Since taking office in 1993, the administration reversed this program from a $300 million profit to its first historic loss of $14.7 million in 1996. Now, we learn the Clinton-Gore administration increased that loss to $88.6 million in 1997. At the same time, however, the program's annual overhead, as you have pointed out, Mr. Chairman, increased 46 percent. Mr. Chairman, this trend clearly shows the Forest Service spends more and does less than at any other time in its history. Every dollar spent on overhead is a dollar that cannot be spent on forest health. I'm sorely disappointed that the Clinton-Gore administration would sacrifice the health of our national forests in an effort to reinvent big government.
This neglect has created an extremely dangerous situation for 40 million acres currently under a severe threat of destruction by catastrophic wildfire. The danger of this threat is particularly in western forests where unlike forests in other parts of the country, they suffer from unusually high incidence of fire. During hot, summer months these forests receive very little rainfall. Historically, western forests were filled with stands of large trees. The forests floors were less dense and were naturally and regularly thinned by lightening and intentional Native American-caused fires that cleaned out dense underbrush leaving big trees to grow bigger. However, because of decades of well-meaning but aggressive fire suppression, these forests have grown out of hand, creating an almost overwhelming threat of catastrophic fire.
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According to the Forest Service, our national forests are 82 percent denser than in 1928. Thick undergrowth combined with increasingly taller layers of trees has turned western forests into deadly time bombs. Now, when a fire starts, it quickly climbs the dense tree growth like a ladder until it tops out at the uppermost, or crown, of the forest and races out of control as a catastrophic fire. Because of their high speed and intense heat, crown fires are not like historic healthy fires but can leave an almost sterile environment in their wake with almost no vegetation, wildlife, or habitat left behind.
These dangerous conditions are not irreversible. Regrettably, however, the agency cannot seem to implement proactive forest policies because of mandates from its Washington offices and directives from the Clinton-Gore administration, the Forest Service suffers from a virtual paralysis where according to the GAO, the Forest Service is incapable of correcting this situation alone.
In a March 26, 1998 hearing, the GAO explained that although the GAO issued many reports identifying numerous opportunities for the Forest Service to correct this situation, few recommendations have been implemented, and many of the agency's processes and programs remain broken and in need of repair.
Mr. Chairman and members, I urge this committee to redirect the mission of the Forest Service on two important issues: first, this agency must move away from this extreme, radical, environmental agenda that for years has literally destroyed our national forests; second, we must demand a complete revamping of Forest Service financial accountability. Because the Forest Service cannot or will not on its own become financial responsible, I urge this committee to ensure the Forest Service fulfills the purpose of its creation by maintaining our forests in a healthier condition. Again, I thank you for this opportunity to testify on this issue.
The CHAIRMAN. I thank the gentleman for his excellent statement. We're pleased, as well, to have Mr. Stupak with us from the first district in Michigan, an area, I might say, with a very large national forest, several of them. Mr. Stupak, we'd like to hear from you.
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STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN
Mr. STUPAK. Thank you, Mr. Chairman, and thank you for the opportunity to testify again today. You are correct, we have three national forests in Michigan which either are in my district or abut my district: Ottawa, the Hiawatha, and the Huron-Manistee. And Representative Johnson, here, who's my neighbor to the south actually grew up in the Ottawa, so I'm sure Dave certainly understands the issues I'm going to bring forth.
In my district, forest products are my districts main industry, and they have a great financial, environmental, cultural, historical, and recreational impact on all of my constituents. We depend upon a strong and vibrant national forest, and we have been good stewards of our land and its natural resources. The forests depend upon nurturing and protection.
As a result of this mutual respect and dependency, the first ever national forest management plan was negotiated with the Hiawatha National Forest between the Forest Service, forest products industry, environmentalists, and national forest users in 1986 when it was signed. The forest plan was going to be a 5-decade plan with completion of the first decade in 1995. To my knowledge, it's the only plan in the Nation where participants agreed in advance not to sue during this 5-decade period.
Because of this wise forest management plan, the Hiawatha—if we use the words ''below cost''—went from a below cost forest to an above cost forest even though less timber has been available for sale. Under the Hiawatha forest management plan timber sales were to increase not decrease. Public and private foresters envisioned and negotiated a plan that would improve forest growth, economic vitality and recreational opportunities throughout northern Michigan.
The original plan called for an average sale of 70 million board feet per year in the first decade. Then, it was going to increase to 93 million board feet per year in the second decade and then to 117 and, finally, 131 million board feet in the fifth decade. However, the Forest Service has not kept its word and has not lived up to this agreement. From 1993 to 1997, there's actually been a 32 percent reduction in availability of timber sales in the Hiawatha National Forest. We have new timber consuming plants that have located in my district because and based upon this long-term contractual agreement between the Forest Service and the users of the forest that we knew would make timber available for the industry. Yet, we've had a 32 percent reduction in the lowest volume decade the first decade of this plan.
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This is a classic example when I go home and people say, ''You and the Federal Government gave us your word. Once again, you have broke your word, and you've gone back on your word. We have a 32 percent reduction. How are we supposed to continue? You expect us to live up to our obligations; when is the Federal Government going to live up to its obligation not just to the timber products industry but to recreationalists, environmentalists, and others?''
In 1986, the Hiawatha National Forests employed 70 professional foresters and forest technicians, because when we bring these problems up, they say, ''Well, it's our budget.'' So, I went back and I said ''When you signed this agreement, how many foresters did you have?'' We had 70 professional foresters and forestry technicians. By 1996, that number had fallen to just 48. At the same time, in this 10-year period, they had 157 employees from the Hiawatha in 1986. By 1996, they had 145. So, there's only a reduction of 12 people, but yet in the forest industry we lost 22 professional foresters. Is it any wonder, then, why the forest timber sales continue to go down?
Not only is the Forest Service reducing the number of employees and requiring them to perform more jobs, they are disproportionately reducing the number of forestry and forestry technicians. This trend questions the ability of the Forest Service to make timber available from the Hiawatha National Forest based upon a plan that everyone negotiated.
The decrease in timber sales cannot be blamed on budget cutbacks. In fact, I must question why the Government would want to cut back on the National Forest Management Program that is now above cost, is actually making money for the Federal Government. This is not to say that we must go ahead and cut more timber and to ravage our forests for purposes of economic gain. Specific actions must be taken not only to reforest land but protect wildlife, water quality, and educate landowners and others in our forestry community.
I believe there is a balance, and we can find it. We have proven we can do it in the Hiawatha. We have not endangered any environment or water supplies or anything. As we look at it, if the Forest Service is truly spending almost a third of its money on overhead, important programs such as endangered species, timber sales, and recreation are suffering.
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Mr. Chairman, in May of this year—and that's usually a wet month for me up in northern Michigan—we had a number of forest fires. We lost over 3,000 acres just in probably the last 3 weeks, and this is a wet month. As Mr. Herger said, wait until we get to July and August. What's going to happen then to our forests? We are not taking care of them.
Mr. Chairman, to give you some example of what it's like in the Hiawatha under this plan, the Hiawatha Forest Timber Program is above cost, as I said, starting in 1995. The Hiawatha Timber Program consumes less than 20 percent, less than 20 percent, of the forest's operating budget, but yet we give back to the timber sales over 90 percent of all forest revenues. So, we give them 90 percent based upon the sales in the Hiawatha, but yet when the budget comes out, we only take less than 20 percent for timber sales. So, those timber sales support not only the Timber Sales Program but puts us above costs. We pay for the things you mention: the fish and wildlife, the recreational, the boating, the water quality, the environment. We support all of that on timber sales but yet we get less than 20 percent of the budget.
I was going to make some suggestions and leave with this committee—and I think you have probably highlighted much in your legislation. I'm very interested in looking at your legislation and hope we can support it. But if I may leave this message with this committee: I would ask that we support the timber salvage law which protects and actually promotes forest health and the environment and cut down on these forest fires that we're going to see this year. I would hope that we would propose or support legislation to streamline the U.S. Forest Service planning process to increase efficiency and reduce costs. I would hope your legislation which allows your professional resource manager to manage with the minimal amount of interference once the planning process is completed like we had in the Hiawatha, and I would hope that there would be legislation which would limit the appeal process and protect the resources so we're going to be using more efficiently and more cost-effectively. I would hope that this committee would continue to demand that the U.S. Forest Service increase outputs to meet their commitments; to keep their word to the American people; to keep their word to the environmentalists, the recreationalists, and those of us who depend upon the forest industry, particularly when we had timber targets within stringent budgets—that's the least we can do—and continue to increase or demand increases in efficiencies. With that, Mr. Chairman, I'd be happy to answer any questions you may have.
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The CHAIRMAN. All right, thank you very much, Mr. Stupak for, as well, an excellent statement. Are there questions of our colleagues from any members? If not, gentlemen, thank you for your time. We appreciate your thoughts on this.
Mr. HERGER. Thank you.
Mr. STUPAK. Thank you.
The CHAIRMAN. I'd like, now, to invite our second panel to the table, please: the Honorable James Lyons, Under Secretary for Natural Resources and Environment, the U.S. Department of Agriculture; Mr. Donald Leal who is the senior associate for the Political Economy Research Center; Mr. Ray Craig is the assistant state forester for the Management Division at the Oregon Department of Forestry; Mr. Schley is the president of Pingree Associates, Inc., and Mr. Bruce Daucsavage is the vice president of the Ochoco Lumber Company.
Mr. Lyons, if you're ready, we'd be delighted to hear from you.
STATEMENT OF JAMES LYONS, UNDER SECRETARY, NATURAL RESOURCES AND ENVIRONMENT, U.S. DEPARTMENT OF AGRICULTURE
Mr. LYONS. Thank you very much, Mr. Chairman, Mr. Stenholm, and other members of the committee. I'm pleased to be here today to have the opportunity to discuss our Forest Management Program and Timber Sale Program in particular. I'm joined by Gloria Manning who is the Associate Deputy Chief for our national forest systems and some others of our staff who might be able to answer specific questions.
As you know, Mr. Chairman, the Chief and I have discussed with you in private as well as in previous hearings some of the goals that we've set for the Forest Service in managing the national forest system. I would broadly characterize those as the following: the first is restoring the health of the land; second, is ensuring accountability for land management, financial resources, business systems, and civil rights, and, finally, to promote collaborative stewardship, partnerships, and decisions based on sound science.
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As I see it, the purpose of this hearing is to examine the interaction between two of these goals: the financial costs of the Forest Management Program as they relate to restoring the health of the land. I believe we share a common objective of maximizing the public benefits of each public dollar spent to protect, restore, and manage forest resources, and I welcome suggestions from the committee about how to realize this goal.
The National Forest timber sales have always served multiple purposes. Today, Americans place a higher priority on sustainability and environmental protection, and the Forest Service's primary business is protecting and restoring the health of these resources. Unfortunately, Mr. Chairman, we can't measure the value the stewardship strictly in dollars and sense.
The Clinton administration clearly has shifted program emphasis away from commercial sales toward the use of timbering as a tool to achieve other resource management objectives. I don't think anyone would deny or doubt that. As I've stated many times during my tenure, our goal is to use timber sales as a means to an end, not simply as an end to themselves.
However, Mr. Chairman, I do not want to leave you with the impression that the overall costs of the Forest Management Program and its effects on timber purchasers or forest-dependent communities and taxpayers is not a concern. To the contrary, we have been working to identify cost-cutting measures and alternatives to the current approach towards timber sale preparation and harvest.
Many resource stewardship costs on the National Forests are borne by the Forest Management Program. This year's TSPIRS report shows that more than half of the Timber Sale Program was targeted for land stewardship objectives such as fuels reduction, stand structure improvements, and insect and disease control.
While people have different perspectives and opinions about how the Forest Service applies land stewardship on the ground, there's general support that there's a need to reduce wildfire impacts and the threat of wildfire; to restore old growth characteristics; to protect native species diversity, and manage pests as best we can. We are paying for these treatments from wildlife watershed or vegetative management funds, but, in many cases, this work is getting done by using timber sales. For example, we may use a timber sale to reduce wildfire in the steep slopes within a municipal watershed. While the sale may not pay for itself, the benefits associated with not having to pay millions of dollars for fighting catastrophic wildfires or building elaborate water quality treatment facilities may, in effect, offset any losses associated with the sale. User benefits that we all support are difficult to measure and, therefore, not reflected in the TSPIRS report. The cost of treatment is borne by the Timber Management Program.
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The TSPIRS report does not display the effectiveness of the Timber Sale Program, because it does not capture stewardship benefits of specific timber sales. You and I and the American people want to know whether the water is cleaner; whether wildlife is thriving; whether fires are within the normal range of historic variability, and whether our forests are healthier. These measures are part of what we should use to evaluate the effectiveness of the Timber Sale Program, not simply the volume produced or the profits generated by timber sales. That is not to say that fiber production is unimportant, only that it should be the result of meeting a broader range of multiple use goals.
To properly evaluate the impacts of the Forest Management Program, and, indeed, the effectiveness of all our activities in meeting forest planning objectives, it's essential to establish accountability standards based on resource conditions, and, in fact, this morning, Mr. Chairman, Chief Dombeck sent a directive through his Deputy Chiefs identifying some of the measures that we intend to use to improve our accountability and to better measure the impacts and the benefits associated with the Timber Sale Program. If I could, I'd like to submit that for the record.
The CHAIRMAN. Without objection, we'll submit that for the record, so ordered.
Mr. LYONS. Thank you, Mr. Chairman. While focusing on the Forest Management Program changes, again, I don't want to understate the importance of sound financial data. The Chief Operating Officer of the Forest Service, Francis Pandolfi, who appeared before the committee last week described the steps the Forest Service is taking to attempt to improve accountability particularly in the fiscal area. All of these steps will help generate more complete, timely, and useful information about cost and benefits including those associated with the Forest Management Program. In fact, we've already instituted some cost cutting measures, but we're counting on the prudence and financial management to help provide information needed to further reduce overhead costs. I think it's significant, Mr. Chairman, that Mr. Pandolfi was put in the position of Chief Operating Officer. The Forest Service has never had a COO nor have they ever elevated issues associated with business management and financial accounting to the level to which they exist today. In fact, setting up parallel structures and I hope will send a message within the organization that business practices and financial accountability are equal to our resource management goals and objectives.
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I fully recognize your interest, Mr. Chairman, in what appears to be rising overhead costs, and I, too, am concerned, and the Chief and his new Chief Operating Officer are addressing this situation. I'd like to give them the opportunity to develop and implement a plan, and we'll certainly look at the legislation that you intend to introduce to see if that will help us in achieving those goals.
Let me just briefly share some of the findings from the 1997 TSPIRS report. The staff of the committee was briefed yesterday, and I have a copy for you as well, Mr. Chairman that we can provide you this morning. Of the total volume harvested in fiscal year 1997, 52 percent was for timber commodity purposes; 40 percent was for forest stewardship, and 8 percent for personal use. That compares in fiscal year 1993 to 71 percent of the harvest volume for timber commodity purposes; 23 percent for forest stewardship, and 5 percent for personal use. So, you can see we're shifting the focus and emphasis of our Timber Sale Program towards these broader stewardship goals.
In the fiscal year 1997, National Management Program resulted in a financial accounting loss of $88.6 million. That figure reflects a timber commodity sale profit of $7.2 million—so, timber sales intended to generated a profit, in fact, do so—forest stewardship sale loss of $57.4 million where other benefits were achieved that were the primary objectives of the sales, and a loss in sales for personal use of $38.4 million. This year's account shows an increase in loss from 1996 of $73.9 million of which $51.4 million is due to the new accounting standards for roadbed construction which you alluded to.
I'd offer this explanation of the need for, in fact, the directive for the change in how we account for the roadbed. In previous years, the cost of roads were permanently capitalized as material assets on the land. For example, the basic roadbed, sometimes called the road prism, was considered a capital improvement since it would theoretically remain available in perpetuity. The Federal Accounting Standards Advisory Board established new standards requiring that these road values be assessed as costs. Because this change in TSPIRS which will standard procedure in future reports, one cannot make a direct comparison between the 1996 and 1997 reports. However, the fiscal year 1997 figures adjusted to the old standards would reflect a program loss of about $37.2 million. So, in fact, there is a big impact in how those road costs are treated in terms of financial accounting system.
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Let me summarize, Mr. Chairman, by saying that, as you know, TSPIRS has been a source of controversy ever since its inception. While we make every effort to run an efficient and sustainable Forest Management Program, a strict cost revenue analysis fails to recognize the many other benefits provided through our Forest Management Program. The losses displayed in the fiscal year 1997 TSPIRS should not be characterized simply as subsidy nor inefficiency. Rather, the financial figures reflect the investment needed to carry out a multiple use mission but certainly fail to display all of the benefits. The true measure of the forest management programs is not simply the volume of timber taken from the land but also the health of the forest left behind. Therefore, a strict profit-loss statement is not a true reflection of the value of the Timber Sale Program. I know the committee understands this, and I certainly welcome the opportunity to engage in a dialogue with you and others who have an interest in this issue to see how we might improve the efficiency and effectiveness of our operations to reduce overhead costs and, first and foremost, ensure that we protect the forest resources that we're entrusted to manage both for the short and long term. Thank you, Mr. Chairman.
[The statement of Mr. Lyons appears at the conclusion of the hearing.]
The CHAIRMAN. Thank you, Mr. Lyons.
Now, we'll be pleased to hear from Mr. Schley who is the president of the Pingree Associates Inc., and please identify yourself, Mr. Schley, and tell us about Pingree.
STATEMENT OF STEPHEN W. SCHLEY, PRESIDENT, PINGREE ASSOCIATES, INC.
Mr. SCHLEY. Thank you, Mr. Chairman and members of the committee. My name is Steve Schley. I'm a resident of rural Maine. I work for and represent our 158-year old private family ownership of timberland in Maine. That ownership is the world's largest, private, independently certified as sustainable forest. We have surpassed environmentally internationally established standards for forest-based sustainability of wood products while also taking care of ecological health and socioeconomic support for local populations.
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My invitation to provide testimony today requested that I comment on the Forest Timber Sales Program and share our efforts to efficiently and cost-effectively manage our forest management operations. U.S. Forest Service harvesting was dramatically curtailed when special interest groups used the Spotted owl and other species as surrogates for their desire to stop harvesting on public land. In 1986, we experienced a similar but legitimate and voluntary 50 percent decline in annual softwood harvest on our land when a catastrophic insect infestation abated, and we abandoned the forest harvesting salvage efforts.
Unlike the Forest Service, however, we did not continue to build staff and overhead. Instead, we offered early retirement to 15 percent of our work force, refocused our organization; increased the utility of our computerized forest resource inventory technology, and channeled pursuits of alternate market and resource utilization opportunities.
We manage almost 1 million acres of forest land for the full range of values and attributes identified in last year's Forest Health Science Panel report. We accomplished all of our objectives with the full-time equivalent of 34 people. I appreciate the opportunity today to encourage Congress to demand and enable the U.S. Forest Service the same efficiency of management, financial return, and cost-effectiveness by the U.S. Forest Service.
Our general administration non-timber sale related expenses as defined by the TSPIRS report approximate 18 percent of our total budget. I can't be certain, quite frankly, whether I'm comparing apples to apples in the administration cost arena because the TSPIRS language is so veiled in bureaucratese. Upon reading the reports, however, I can focus on total Timber Program expenses as a percent of total timber revenue. In 1992, total Forest Service timber expenses amounted to 62 of timber revenue. In 1996, expenses jumped over 90 percent of revenue. Our current total timber expenses amount to about 25 percent of revenue. However, I recognize that we could not accomplish any of our results if we were forced to operate under the same rules that the Forest Service does.
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I toured a New Hampshire national forest a couple of years ago and listened to a harvest site manager detail a process that they went through to conduct a harvest. After he had been talking about 15 minutes and described eight high-priced consultants they had hired to conduct certain studies, I interrupted and noted that he had yet to mention a forester in the list of ''ologists'' working on the layout and conduct of the harvest. It's no wonder that that job came in below cost. We could have accomplished all of the same results with a fraction of the personnel and subsequent costs.
The Forest Service must have the mandate and the flexibility to respond to local forests and forest economy attributes. Regulatory and management decisions should take place as close to the standing timber as possible. Congress should set broad goals for our Federal forests and allow local managers to determine how best to reach those goals. This country has some of the most productive, well-managed forest land in the world, but public policy is squandering the resource. We are setting aside more and more acres from good stewardship and management, inevitably driving production of necessary commodities to poorly managed forests elsewhere. The public demand for forest products has not decreased. We've simply shifted the burden to less enlightened management regimes.
Do not believe the naysayers like the U.S. Forest Service who will tell you that commodity-based forest management cannot meet the goals spelled out for true integrated forest management. Our Maine forest management is proof that the job can be done and done profitably. Our forests can be all things to all people under an all-inclusive management regime. There is no need for huge set-asides, new national forests restrictions or national parks.
We've proven that the U.S. Forest Service assertion on commodity-based management is wrong, and Congress needs to the hold the Forest Service to our higher standards, but first you need to lift the yolk of all the frivolous lawsuits Federal land managers are forced to suffer; allow intelligent management decisions to be made at the local level so long as management plans are accomplishing congressionally determined goals for our national forests.
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Thank you for the opportunity to address the committee today. I am pleased that you're taking this effort to make an in-depth look at Federal forest management. I look forward to working with you to ensure our forests remain one of this country's greatest assets and would be happy to try and answer any questions later.
[The statement of Mr. Schley appears at the conclusion of the hearing.]
The CHAIRMAN. I thank you for that excellent statement.
Mr. Donald Leal, who is a senior associate for the Political Economy Research Center. Mr. Leal, welcome.
STATEMENT OF DONALD R. LEAL, SENIOR ASSOCIATE, POLITICAL ECONOMY RESEARCH CENTER
Mr. LEAL. Thank you. Mr. Chairman, thank you for the opportunity, today, to discuss the Forest Service's Timber Sale Program in relation to State Timber Sale Programs.
In fiscal year 1996, the Forest Service reported that its Timber Program lost money for the first time in history. This has led critics of the program to charge that the timber sales on national forests are not economically feasible and should be ended immediately.
Studies I have carried out comparing State and Forest Service timber sales on western forests tell a much different story, however. These studies indicate that the Forest Service's Timber Sale Program could be profitable if and only if the agency ran its program with the same operating efficiencies as State foresters. Moreover, emerging evidence reveals that the agency could do so without sacrificing environmental quality.
One study I carried out a few years back compared timber sale returns from State and nearby national forests in Montana. Comparisons were made for three distinct growing regions in the State where Forest Service surveys rated State and nearby national forests as having similar timber growing potential and similar terrain. In addition, Montana State foresters and the Forest Service carry out many of the same duties to protect the forest environment from the impacts of logging. State foresters are required to prepare environmental assessments and impact statements prior to carrying out timber sales under the Montana Environmental Protection Act. Despite similar timber growing potential and similar duties, Montana State foresters make money selling timber from State forests while the Forest Service loses money selling timber for national forests in the State.
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For the 1988 through 1992 periods, State foresters generated $2.19 for every dollar spent on its Timber Sale Program while the Forest Service generated 84 cents for every dollar spent on its Timber Program for the State. Stated another way, State foresters generated $13.3 million in net income over the period while the Forest Service lost nearly $42 million on 10 of the national forests in Montana before making the mandatory payments to counties.
Similar results hold for Idaho and Washington and Oregon. In 1996, Idaho State foresters generated $9.77 for every dollar spent on their program while the Forest Service generated only $1.10 for every dollar spent on its program for the State. In Washington, State foresters generated $7.61 for every dollar spent on its program for the State.
Now why the dramatic difference? One reason, and an important reason, is that State foresters spend a whole lot less on their Timber Sale Program than what the Forest Service spends. On a unit cost basis, the States are spending anywhere from one-quarter to three-quarters than the Forest Service.
Cheaper roads and higher labor productivities contribute the lower State costs. In Montana, for example, State foresters build mostly single-purpose logging roads—they are temporary—while the Forest Service builds many multi-purpose, permanent roads for recreationists that are much more expensive. State forest roads in Montana average $5,000 per mile to build while the Forest Service roads average nearly $70,000 per mile to build. State foresters also have much higher labor productivities. For example, in 1995, timber output per employee for Washington State foresters was over 10 times higher than the Forest Service's ratio for the State. In Oregon and Montana, State ratios were 3 times and 2.5 times, respectively, than the Forest Service ratios for the State.
One may be inclined to attribute the Forest Service's higher costs to greater environmental protection, but field evidence from Montana and other States does not support this conclusion. In 1992 and 1993 independent audits, State foresters in Montana ranked much higher than Forest Service in protecting watersheds from the impacts of logging. These performance audits are conducted periodically by independent teams of experts in hydrology, forestry, soil, and biology, and includes several representatives from environmental groups.
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Why are State foresters so much more efficient than the Forest Service? The answer lies in the fact that State foresters are required to make money for public schools while the Forest Service has no such requirement. If the Forest Service loses money on timber sales, it is merely offset with congressional appropriations. Hence, there is no incentive for the Forest Service to keep costs down.
In conclusion, Mr. Chairman, comparisons with State-managed timber sales indicate that the Forest Service could, indeed, make money from its timber sales if the agency were motivated to operate with the same efficiencies as the State. I want to thank the members of the committee for the opportunity to speak here on this important issue.
[The statement of Mr. Leal appears at the conclusion of the hearing.]
The CHAIRMAN. I thank the gentleman for an excellent statement.
Now, we're going to hear from Mr. Ray Craig who is an assistant State forester for the Management Division at Oregon Department of Forestry, and we'll hear directly, Mr. Leal, from a State forester about the management of State forestry in Oregon. Welcome, Mr. Craig.
STATEMENT OF RAY CRAIG, ASSISTANT STATE FORESTER, MANAGEMENT DIVISION, OREGON DEPARTMENT OF FORESTRY
Mr. CRAIG. Mr. Chairman, members of the committee, thank you so much. My name is Ray Craig, assistant State forester for the Department of Forestry. I'd like to just summarize quickly for you the land that the State owns in Oregon and then summarize a recent study that we conducted on some things of financial interest.
The Oregon Department of Forestry manages roughly 790,000 acres in Oregon. That's about 3 percent of the State's forest land base. These are managed under two separate classifications: the Board of Forestry, itself—and, by the way, I might just quickly summarize that the Board of Forestry is a seven member citizens board appointed by the Governor to manage the policy body for the Department of Forestry. These seven members, only three of which may have a significant portion of their income earned from the forest industry. At any rate, the Board of Forestry does own some 657,000 acres in Oregon. These lands were at one point in time privately owned, and then for various reasons including either burned over or cut over or abandoned by the private landowners reverted to the counties for taxes. This was a major problem throughout the West, particularly in Oregon. These lands were then deeded to the State in expectation for future revenues. The revenue distribution from these lands is set in statute, and 63.75 percent is returned to the counties; 36.25 percent is returned to the Department of Forestry for all of its management activities, and the Department is statutorily required to manage these lands so as to secure the greatest permanent value to the State. Recently, the Department just went through a 3-year administrative rule making process which further declines this greatest permanent value and defines management processes.
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The other type of land that's owned and managed by the State are owned actually by the State Land Board which is a constitutional body of the Governor and the Secretary of State and the State Treasurer. These were granted at statehood by the Federal Government to support public schools, and, constitutionally, the State Land Board's required to manage and protect these lands for the maximum long-term benefit of public schools consistent with sound stewardship, conservation, and business management principles, and the Department of Forestry manages these lands through a contract with the State Land Board.
The State forests in Oregon are a very valuable asset worth billions of dollars, and the Department of Forestry is obligated contractually, judicially, and statutorily to manage and protect this asset, and the Department is committed to a continuous improvement in this management, and so some examples of things that happen in Oregon to help the Department continuously improve are such things as audits, scientific review, research investment, benchmarking with other organizations, and biennial and fiscal budgeting.
And I'd like to just quickly summarize for you an example of a continuous program review that we just recently went through with Duck Creeks and Associates, particularly, Dr. John Beuter, and we independently contracted with him for evaluation of State forest management, and we asked, basically, John Beuter two questions: Are State forests being managed in a cost efficient and effective manner considering the legal, contractual, and political framework that we work within? And the second question was: How can the Department of Forestry improve efficiency and effectiveness of its management of State forest lands?
John found that in general Oregon's forests are well-managed and management is efficient and effective; that the Department has adapted well to new management challenges; that there are definitely opportunities to define the Department's fiduciary responsibilities, and that there are other possible improvements if the Department of Forestry thinks them relevant and significant.
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The Department, then, took these recommendations and findings and we developed an action plan that implements the key changes recommended, and some of these are to continue with the cooperative relationships that we have particularly with other State agencies and Federal agencies, the U.S. Fish and Wildlife and the National Marine Fishery Service to be precise; enhance economic analysis; develop comprehensive road inventory and assessment; and develop and asset management plan, and, finally, to enhance cost-benefit analysis for intensive management investments.
The Department presented the consultants findings and action plan to the Board of Forestry in a public forum. The action plan is underway, and we expect to complete that in 2 years. The Department program was accountable to the Department's executive staff, the governing bodies, such as the Board of Forestry and State Land Board, the executive branch, the legislative branch, and the citizens of Oregon to, in a fiduciary responsibility that we demonstrate in many ways, cost-effective decision-making and budgetary action.
As examples of cost-effectiveness, statutory and constitutional language define that the greatest permanent value over the long term and provide mission and vision for the future that the program management reflects and short term investments to achieve the greatest permanent value for the least cost over the long term, and examples of these are commitment to a public involvement, Department of Justice legal consultation in public and policy work; adequate and effective technology; research in monitoring; training in career development for our employees; recreation, education, and interpretation.
So, in closing, we think that the Department of Forestry manage these lands cost-effectively and efficiently. We did contract to have an independent review. We are moving to implement to make our management even more cost-effective and efficient. Thank you, Mr. Chairman, for the opportunity to speak with you today.
[The statement of Mr. Craig follows appears at the conclusion of the hearing.]
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The CHAIRMAN. Thank you, Mr. Craig. As noted, with all the whistles and bells, we are called to a vote on the floor, so we will recess. If the panel will remain, we'll hear from Mr. Daucsavage and then open the panel to questions. So, we will return shortly. We're in recess.
[Recess.]
The CHAIRMAN. I apologize for the delay. We had a series of votes which delayed us more than I anticipated. Thank you for your patience. We'd like to continue the hearing, and, at this point, I'd like to recognize Mr. Daucsavage. He's the vice president of Ochoco Lumber Company, a family-owned company in the little town of Prineville, OR, next to God's country. God's country is Burns, OR; Prineville is second. Mr. Daucsavage, welcome.
STATEMENT OF BRUCE DAUCSAVAGE, VICE PRESIDENT, OCHOCO LUMBER COMPANY
Mr. DAUCSAVAGE. Thank you, Mr. Chairman. And as you had indicated, I am the vice president and chief financial officer at Ochoco Lumber in Prineville, OR. I'm also the chairman this year of the Northwest Forestry Association. I chair the Economic Services Committee of the Western Wood Products Association and the treasurer of the Oregon Forest Industries Council.
Ochoco Timber Company was established in 1923 and Ochoco Lumber in 1937. We currently operate three sawmills: one in Grant County and two in Crook County employing about 250 individuals. We produce a wide variety of products including industrial lumber used in the manufacturing of windows, doors, furniture, framing lumber in the use of construction of new homes. The company currently owns 68,000 acres of timber land which is surrounded by Forest Service land. Over the last 60 years we've been a major purchaser of Forest Service timber in central and eastern Oregon.
I'm here today not as an expert on the Forest Service Timber Sale Program information reporting system but as a businessman responsible for running a lumber company that is accountable to our owners, our customers, employees, and our communities. Ochoco Lumber Company has been deeply affected by the dramatic reductions in the Forest Service's Timber Sale Program. Just 5 years ago, we were 50 percent dependent of the Forest Service timber sales from the surrounding six national forests for our raw material supply. Today, only 20 percent of our production is dependent on the timber from the Federal forests. This phenomena is not a result of the change in Ochoco Lumber Company's business plan or strategy but a direct result of the Forest Service's inability to sell timber.
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Historically, we have purchased logs for our three sawmills from an area which includes the Deschutes, the Malheur, the Ochoco, the Umatilla, Wallowa-Whitman and the Winema National Forests. These six national forests annual Timber Sales Programs during the eighties were an average of 900 million board feet. With the completion of the NFMA Forest Plan, the Annual Sale Program declined by 45 percent to an average of 500 million board feet from 1990 to 1992. In 1993, the Forest Service implemented interim guidelines referred to as the Eastside Screens in response to several legal challenges of its Timber Sale Program. These interim screens are still in place, and the average annual Timber Sale Program for 1993 through 1997 on the six national forests has been 130 million board feet, a reduction of 74 percent from the forest plan levels. Not only has the volume declined but so has the size and the quality of the timber being offered for bid. To meet these changes, we retooled our mills and changed some of the products that we produce. This is not unique to these 6 national forests with the reduction but is a situation occurring region-wide.
With the collapse of the Federal Timber Sale Program, Ochoco Lumber was forced to take drastic measures to reduce our costs in order to remain a viable business. In 1993, 1994, we reduced our overhead costs by about 15 percent. We had to eliminate employees; we reduced wages, and we froze the benefits of these employees. What makes our decisions all the more painful is the fact that we have not seen the Forest Service undergo any significant belt tightening to reduce their costs of doing business. While some of the agencies most experienced resource professionals have been given opportunities for early retirement, we have not seen the kinds of cuts that one would expect given the dramatic reductions in the Timber Sale Program.
Attached to this testimony is a chart which shows for the national forests in Oregon and Washington the Timber Sale Program in the fiscal year budget. The chart clearly shows the agency's failure to trim its expenditures. While Ochoco Lumber Company has made the hard decision at the expense of people's livelihoods, we see the Forest Service's cost of selling a million board feet double with much of the increase being in an indirect cost or overhead assessments.
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Some increase in direct costs can be justified. As I mentioned earlier, we have seen a change in the size and the quality of the timber being sold. This, in part, is a result of the agency's meager attempt to treat the forest health crisis facing the Federal forests in the West. With lower board foot volumes but more trees per acre being considered for harvest than traditional green timber sales, these forests health treatments are expensive to prepare and administer. In some cases, this results in timber sales having costs greater than their revenues.
What is unacceptable are situations where poor agency management has resulted in timber sale planning and preparation work being done several times. The best example of this is the efforts to salvage the 1996 Summit Fire that burned 28,000 acres, killing at least 200 million board feet of usable timber on the Malheur National Forest. A final Environmental Impact Statement was completed in the fall of 1997 and was to salvage 108 million board feet of fire-killed timber. The agency withdrew that decision and just released a final EIS that proposes to salvage only 50 million board feet. Ochoco Lumber foresters estimate that the actual volume will probably be about half that amount. Millions of dollars have been wasted in the Summit Fire environmental analysis because the agency mismanaged this catastrophic loss. The Forest Service estimates that supplemental environmental analysis costs $21,000 per day in lost timber values or $4 million since December of 1997. Nearly 2 years after the fire started not one timber sale has been offered for sale. More timber volume has rotted on the stump in the last 2 years than will ever be salvaged.
Returning to the issue where costs may exceed revenues, below cost timber sales are a better alternative than using appropriated funds to have service contracts treat overstocked, dead, and dying forests. Ochoco Lumber is willing to bid on such sales assuming there is an opportunity to make a return on our efforts. When we purchase Forest Service timber sales, we are converting this timber into useful products while at the same time providing family wage jobs; purchasing services and supplies from local businesses and paying our fair share of local, State, and Federal taxes.
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As I mentioned earlier, I am not an expert on the TSPIRS, but I understand that beginning with the 1997 report, due to new Federal accounting standards, the Forest Service will be expensing the entire cost of its road construction in the year incurred. Furthermore, in previous years, the agency was allowed to amortize a portion of those costs over several years, but those amortized costs will now be expensed in the 1997 TSPIRS report. As a private forest land owner, Ochoco Lumber has constructed roads to provide access for management activities including stream enhancement projects, forest health treatments, and salvage logging.
The Internal Service Revenue Code in generally accepted accounting procedures has specific rules on how road costs are to be amortized and expensed. When a long-term asset such as a forest road is constructed, it has a useful life much longer than 1 year, and for that reason we are prohibited from expensing those costs in the year they incur. After all, these roads will be used by the general public and forest managers for many years to come. Therefore, not only does the 1997 TSPIRS report use unconventional accounting methods but it's loaded with previous year's expenditures.
In closing, Ochoco Lumber, other private land owners, and State governments all have a proven record of being able to make a reasonable return for the management of our forests. The question is not whether the Forest Service can return a net revenue to the Federal Treasury but whether the agency can control its escalating costs? In my opinion, it is a function of the Forest Service mismanagement of the public's trust let alone a valuable, renewable resource compounded by inappropriate accounting methods that did not properly match revenues and expenses.
This concludes my prepared remarks. I would be happy to answer any questions you might have. Thank you.
[The statement of Mr. Daucsavage appears at the conclusion of the hearing.]
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The CHAIRMAN. Thank you, Mr. Daucsavage. Just for the sake in putting this context, let's take the Summit Fire for a moment. Two hundred million board feet were burned. Most of that would have been salvageable I assume. So, we're talking about 200 million board feet of saleable timber had it been done in a correct fashion. Is that correct?
Mr. DAUCSAVAGE. Yes, sir.
The CHAIRMAN. Four hundred dollars would probably not be out of line as a price somewhere between $300 and $400, if you got in there early?
Mr. DAUCSAVAGE. If there was no blue stain? If there were not bug holes in the wood——
The CHAIRMAN. Right.
Mr. DAUCSAVAGE [continuing]. But there is now.
The CHAIRMAN. Roughly $400. That's $80 million gross. That's $60 million to the Forest Service that we've wasted. I wanted to put those numbers in context, because just to point out that the failure to place that dead and dying sale before the public cost the American taxpayers and the Forest Service $60 million. Does that follow to you?
Mr. DAUCSAVAGE. Yes, it does, Mr. Chairman.
The CHAIRMAN. Yes, thank you.
Mr. Leal and Mr. Craig, both of you have testified that the States are doing a more efficient job it appears in managing their forest resource when you compare overhead to total volume of sales. I want to ask both of you why is that? And given the economy size argument—and I'm going to ask Mr. Lyons later to talk about this—but given the economy of size difference, I'm assuming that the States have the same responsibilities to recreation; to wildlife; to endangered species; to all of the other management areas that the Forest Service has obligations to. I'm assuming that. If not, tell me, Mr. Leal, please.
Mr. LEAL. Yes. In answer to your question, I know the Montana State forests have more than one output. Besides timber, they have recreation, wildlife habitat, grazing, minerals, et cetera. It's the same multiple-use concept that is on the national forests. The key difference in terms of answering your question, why are the operating efficiencies for the State much lower than the Forest Service, harkens back to what I noted is that the State has to make money for public schools. If the State's costs are escalating and they're getting a lower rate of return from the timber sales, the State school system has a direct interest in knowing why that's the case. In addition, the States funding mechanism is such that they can't raise their operating budget without at least defending the increase in their budget in the context of saying, ''Look, we're going to increase the harvest. We're going to need a few more people, or full-time equivalents, if you will, and the reason we're doing that is that we believe we're going to get a higher rate of return by doing so.'' You don't see that in the Forest Service. You basically see——
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The CHAIRMAN. But, Mr. Leal, and quickly, I would respond as the environmentalist would respond by saying, ''Oh, well, sorry, when you start talking about making money you've violated the environment, and that's what we're trying to get away—we're trying to get away from this idea of making money, because that's the impetus to go in and harvest trees, and that's the impetus to clear-cut; that's the impetus to do away with all the old growth.'' You've heard those arguments. How do you answer that?
Mr. LEAL. I would say that if you really think about it, that the Forest Service is probably more prone to damage the environment under the current paradigm that they implement which is basically targets, timber targets, being set without any regard to market prices. The State says, ''Hey, we may not cut as much timber as you, but we're going to cut more high-quality timber. We're looking for a rate of return based on the quality of timber and not necessarily the volume at times.'' You can see that in a State forest in that they do more selective cutting than the Forest Service does. The Forest Service does mostly clear-cuts, and when you do clear-cuts, you basically take the garbage with the quality timber, and you tend to get a lower return per board feet on your bids, whereas the State gets higher bids because they're not only cutting selectively the timber that they want to sell, they also grow the timber of a higher quality timber. They put more of an emphasis on that; higher yielding trees and this kind of thing. So, I say you're going to leave less of a footprint with the profit or making money incentive than you will with a directive, say, from the bureaucracy of Washington DC that says ''You will cut so much timber.''
The CHAIRMAN. Interesting. Mr. Craig, should we turn over the public forests to the States?
Mr. CRAIG. Mr. Chairman, to answer your first question about the efficiency and the effectiveness that you asked both of us to respond to, I'd point out that the State lands are quite different than the Federal lands, and they have different mandates. In the case of the State of Oregon, there's a clear mandate for the common school lands to maximize revenues over the long run, and in the case of the lands owned by the Board of Forestry it's to achieve the greatest permanent value to the State.
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The CHAIRMAN. Well, now, wait a minute, Mr. Craig. But answer this question: Do you do that by violating your responsibility to the environment; to the watershed; to endangered species in those forests? Is your only motive to make money for the common school fund?
Mr. CRAIG. No, it is not, Mr. Chairman, and, if I could, on the greatest permanent value rule, I'd like to just, if I could, just take a second to read to you. I think it would be insightful to what we're getting at. ''The greatest permanent value''—this is by Oregon administrative rule which is adopted by the Board of Forestry as provided in the ORS reference—''The greatest permanent reference means healthy, productive, and sustainable forest ecosystems that over time and across the landscape provide a full range of social, economic, and environmental benefits to the people of Oregon.'' And then it goes on to list these benefits, and then, perhaps, the most important part, ''To secure this greatest permanent value of these lands to the State, the State forester shall maintain these lands as forest lands and actively manage them in a sound environmental manner to provide sustainable timber harvest and revenues to the State, counties, and local taxing districts.'' So, it's that underlying process to actively manage them and produce revenues, but, certainly, we very proud of our environmental management of these lands and don't feel that the environmental values are degraded through our management.
The CHAIRMAN. I apologize to members. I'll get to you in just a moment. I think it would be proper to ask Mr. Lyons to respond to the charge I have made and the answers that these two gentlemen have given.
Mr. LYONS. Well, Mr. Chairman, I think with regard to issues associated with management of State lands, et cetera, I would point to the TSPIRS report, and we, of course, are concerned about costs both in terms of the Timber Sale Program and overhead, and we have been evaluating costs as well as looking at analyses to give us some sense of where we might institute some cost-cutting measures.
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On page 55 of the TSPIRS report, there's reference to two elements that help to explain, I think, some of the higher costs that we incur in operating our Federal lands. First, is reference to the General Accounting Office analysis, comparing Timber Sale Programs through the Forest Service and BLM in the Pacific Northwest to the States of Oregon and Washington, and in that report it was noted, quote, ''Federal agencies have a much longer and more complex planning process that involves the public at every stage of the process for timber sales. In addition, State agencies do not provide for administrative appeals whereas the Federal agencies do.'' Those are certainly some of the elements that add to our costs.
In addition, also cited is a report of a study done by Charles Keegan entitled ''Timber Management Costs: A Comparison Among Major Land Owners in Idaho and Montana.'' In that report, Mr. Keegan noted, quote, ''Where organizational goals are complex emphasizing non-commercial values as well as commercial harvests, then the costs of timber management increase. Even more important, are the mandates and methods affecting various timber management operations. Agencies that operate within explicit legal and or administrative directives and undertake formal environmental review and monitoring find these activities add substantial costs to their programs for managing timber resources.''
In short, Mr. Chairman, we do have many other processes; some of those a function of legal requirements; some of those a function of administrative direction; some of those a response a history in recent years of extensive litigation and case law that causes us to dot the I's and cross the T's much more than other land ownerships, and that certainly drives costs up. That's not an excuse but I think a way of illustrating some of the differences that exist in dealing with private land owners and State land owners as opposed to Federal land.
The CHAIRMAN. All right. We'll get back to that point.
Mr. Thune.
Mr. THUNE. Thank you, Mr. Chairman.
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Mr. Lyons, just an observation and then a question maybe. Aside from the legal requirement of whether or not the national forests are legally required to make quota profit, I would just remind the committee that there are, as you've noted, other public management entities that can and do pay their own way. We have an example in our State in Custer State Park which has an outstanding recreation, wildlife, and scenery dimension to it, but Custer State Park is required to operate within their revenues and they do, and my own belief is that such attention to the bottom line has forced them to avoid making poor decisions, and, in the contrary, it's enabled them to focus on developing a lean and carefully directed and efficient organization operation.
What I'd like to ask is if you have ever considered or would consider establishing a working test on a national forest, or part of a national forest, to explore how this concept could work in a national forest system and how Congress might enable that kind of management approach?
Mr. LYONS. The answer to your question, Congressman, is that we have not considered a test that focuses on profitable as a measure of performance. Certainly, we're interested in mechanisms that improve operating efficiency, and several years ago, I asked the timber staff to explore any and all means to modify the way we prepare and offer timber for sale as a mechanism for, hopefully, reducing costs and also addressing some of the environmental challenges that we faced.
We do not have a legal mandate to generate profit. In fact, we have a mandate quite the opposite, and if I could just make mention of the statute that basically guides us, the Multi-Use Sustain Yield Act, which was passed in 1960 states explicitly that we are to manage resources without impairment of the productivity of the land with consideration being given to the relevant values of the various resources and not necessarily the combination of uses that will give the greatest dollar return or the greatest unit output. That doesn't mean we shouldn't be concerned about efficiency and cost-effectiveness and applying business management practices. We seek to do that, but it recognizes the fact that profitability is not the sole measure we should use to determine the efficiency and effectiveness of our programs, and we recognize that.
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Mr. THUNE. In the report that's done, are there any intrinsic values of timber sales represented anywhere in that report? And, by that, I mean the fact that regenerating forests provides beauty which is encouraging recreation; providing, hiding cover for wildlife, and that thinning reduces fire hazards which in turn reduces the need for resources to fight fires, and it also allows for increased forage for livestock and wildlife. Are those things reflected?
Mr. LYONS. No, TSPIRS was not designed to generate that information, and, in fact, that's one of the issues I emphasized in my testimony is the fact that TSPIRS is an accounting of, in essence, the profit and loss associated with the Timber Sale Program. While we have some measures of improvements and habitat value to other resources, they're not captured in a dollars and cents way.
We all know, as I mentioned in my testimony, the extensive costs associated with fighting wildfires, for examples. Those aren't measured and any way offset in the TSPIRS report. The costs simply associated with sales, say, to reduce fuel loads are incorporated in our balance sheet, if you will, under TSPIRS. We do need to capture and realize those benefits.
In, perhaps, contrast to some of my fellow panelists, the focus of commercial fuel reduction is on producing volume that's going to generate revenue which means probably saw timber where possible of higher quality than what we're generating. We're moving our program in a different direction. We're not moving towards what I would characterize as the most commercially viable approach to management. We're moving towards stewardship. We're using sales to reduce fuel loads; to deal with insect and disease problems; to try and improve resource conditions overall. Those are not the most profitable sales, and that's spelled out very clearly in the report.
Mr. THUNE. In following up to that, though, and you mentioned and your mission statement is not bottom line oriented, so to speak, but at the same time, you also noted that efficiency is something that you're going to strive for, and that brings up the point about this whole issue of overhead and the way that it's skyrocketing within as a percentage of your total cost and how you address that, and I think that's something that, obviously, members of this committee are very concerned and interested in and, secondly, something that the taxpayers are very interested in, and I'm just wondering how do you account for or explain a third of your operation attributable to overhead?
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Mr. LYONS. Well, I'd make two points: first of all, of course, the committee last week held a hearing and addressed the issues associated with overhead, and I believe at that point in time, Francis Pandolfi, the Chief Operating Officer, made a commitment to the committee to nail down both the categories of expenses that would be included in overhead and try and generate a better idea of what our overhead costs are overall. I think that's critical, and I would readily admit that our focus on the fiscal and accounting issues in the agency has not been as strong as our focus has been in other areas of accountability, and we're trying to address that issue now. That's the reason that Chief Dombeck named Mr. Pandolfi as Chief Operating Officer just a short while ago.
The other point I would make—the chairman alluded to this—that as the cost efficiencies of our program have declined as the amount of volume we offer for sale has declined, those overhead costs, those fixed costs, then become an increasing proportion of the overall cost of the program. So, it would naturally follow then that those overhead costs are going to appear to be a larger part of the program. That doesn't mean we shouldn't attempt to reduce them in any way, shape, or form, but it may not be an accurate representation that to say that because the overhead costs are increasing as a percentage that it's a measure of growing inefficiency in the program.
Mr. THUNE. Well, but some of those costs are not just increasing as a percentage. Some of them are skyrocketing, and the question, I guess, I would have is what would you characterize as a reasonable number for overhead. I mean, a third to most of us here sounds extremely unreasonable. Is 15 percent, 20 percent—I mean, what is the goal, what's the mark that makes sense in terms of overhead?
Mr. LYONS. I would hesitate to give you a specific answer on that, and that's one of the things that Francis is, Mr. Pandolfi, is looking at now. I want to point out, though, that the—you said that the costs are skyrocketing—again, as a percentage of the operating costs or the total expenses as displayed here, the percentages are increasing, but if you look at our efforts, for example, to try and reduce or control the costs associated with timber sale preparation, I think we're doing a fairly effective job in trying to hold those costs down as much as we can—and, unfortunately, I don't have additional copies of this; maybe I could submit it for the record—but we've done an analysis of costs associated with the harvest administration; timber sale analysis and documentation; some of environmental work; transportation planning; TSI sale preparation, appeals and litigation, and what you would see is that since about 1995, we've held them relatively stable. So, where we've focused on some of these costs issues related to activities on the ground, we're seeing improvements in efficiency. The overhead issue is something that we clearly need to focus on and capture. Maybe, I could submit this, Mr. Chairman.
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The CHAIRMAN. Without objection, so ordered.
Mr. LYONS. Thank you very much, sir.
Mr. THUNE. I could go on, Mr. Chairman, but my time is expired, so I yield.
The CHAIRMAN. I thank the gentleman. We're pleased to have a very knowledgeable member from the State of North Carolina, Mr. Charles Taylor, join us, and at this point I'd like to call on Mr. Taylor to make a statement, ask questions, anything he desires. Mr. Taylor, we're very pleased to have you here.
STATEMENT OF HON. CHARLES H. TAYLOR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA
Mr. TAYLOR. Mr. Chairman, thank you very much. I am disappointed that once again we have to listen to the big lie which is perpetuated each year about timber sales costing more. It does not take a rocket scientist to know that if you have a base cost of less than $20 per acre in your Forest Service land, you would be bound to have a profit on anything that you took from it if you subtracted just the cost of harvest, of marking and roads and so forth.
Unfortunately, the Forest Service uses costs that would not be accepted in any private arrangement where the IRS is involved in any public business. In fact, I cannot see how they can come here with a straight face after the GAO has testified, before our subcommittee and others, that the Forest Service accounting practices are so ill-managed, they don't know what to do as far as accounting and coming forward with real costs.
But, Mr. Chairman, what I wanted to point out is the danger to the p.c. pandering of this administration, and it's being directed by the Vice President, and it would be hilarious; it would be like seeing Elvis at the drive-in if it wasn't such pandering for votes. What it's doing, of course, is going to kill the very thing that the know-nothing groups say they're trying to protect and that is the forest, because most of these groups that give me these letters that come out—the Western Action Forest Campaign or something—you hear about them, and you read all the propaganda, yet you'll get plenty of those every month, and I never get any facts, and I never hear from them again. There will be another group that will multiply.
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But I would call the committee's attention and would compliment the chairman, that over a year ago you had testimony—in fact, we had it in the Resources and the Agriculture Committees as well as in the Appropriations Committee—a panel of scientists that several of us asked to come forward and who spent over a year analyzing the health of the forest. They published a report. They went back and asked for several months for their fellow scientists to critique that report, and they got general suggestions, but there was no basic criticism of the whole report or its theme. And it said—and we saw it and the Forest Service has copies and so forth—that the need for timber harvest is essential to the health of the forest. Emergency Salvage, which this administration stopped earlier against the law, for that matter of fact, even though the Congress passed it by an almost two-thirds vote, is needed. The last speaker just pointed out the need for fire control which is part of a harvest, and disease control, which is part of a harvest. All this is being ignored by the politically correct part of this administration.
Now, if we talk about efficiency, it's an absolute joke. I mean, we have this administration—I remember Ronald Reagan telling a joke about the Agriculture Department, I think, and there was a gentleman crying at his desk, and someone asked him what his problem was, and he said his farmer died. We've got a bureaucracy in the top part of the Forest Service here, and most of them are being put in from the collections of these know-nothing organizations, and we're managing the forests into the ground. What you're finding here, and we ought to be looking at—in fact, I would urge this committee and our committee in Appropriations to look carefully at an enormous reduction of Forest Service personnel and having the Department of Agriculture in Washington reduced, and, in fact, right through the parts around the country where the bureaucracy is inflating to be reduced. We need instead to look to the district ranger and the local forester unit which is where we find the health of the forest being determined, and give them the resources and the freedom and the science to manage their forests, because the forests, of course, across the country have different needs and the general ''Thou shall have no cutting'' which is being dictated by the Sierra Club through this administration is not based on science and should not be followed.
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I would—in closing, I would say in today's Times, here is a cartoon and an article, and I'd like to submit it for the record.
The CHAIRMAN. Without objection, so ordered.
Mr. TAYLOR. It shows the Vice President. It's called Kyoto's Fabricated Fantasies, and it has Mr. Gore saying, ''More evidence of global warming. We're all going to die.'' And this young girl is sitting there, and she's got a bowl with the steam coming out of it, and she said, ''All I said was, to the waitress, my soup's too hot.''
Well, that seems like it's ridiculous, and, yet, what we've done in the last 20 years following this kind of madness is put nuclear power off-base to the point that in England and in France, they get 80 percent of their power from nuclear power; we get 20. They reprocess 97 percent of their nuclear waste; we're probably 70. We're looking at spending $2 billion studying where we're going to put our waste, and they store their waste in an area less than the size of this building. We're light years behind in that area to the continent, and when you take wildlife issues, if you listen to the same people that are pondering this sort of thing, we'll never have any timber harvest, either, Of course, I read Bambi when I was little, and became sympathetic to Bambi's probable loss of life, and I might question hunting, but then in my own forest I watched the herds multiply and starve to death and become diseased because they were overcrowded, and I saw that was a much harsher way to die and recognized that managed wildlife harvest is the essence of kindness in trying to manage populations and herds both to bring back species as well as control those species.
With timber, it is much the same. Without the management in modern-day science and without using our best science, we're going to rue the day that we followed this administration and its policies. It will take more than this administration to destroy this forest, but it will take a long time to get it back, and that's what's wrong with this big lie, and I am somewhat saddened that this is my eighth year to hear it as a Member of this Congress. Thank you, Mr. Chairman.
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The CHAIRMAN. I thank the gentleman for his excellent statement. Mr. Pombo.
Mr. POMBO. Thank you, Mr. Chairman.
Mr. Schley, I read your testimony, and I found it quite interesting. You heard, a few minutes ago, Mr. Lyons respond to a question from Mr. Thune. I'd like to have your take, at least from your experience—and I understand from your testimony that you manage about 1 million acres?
Mr. SCHLEY. Yes, sir.
Mr. POMBO. On the commercial viability of the resource that you manage, could you respond to that?
Mr. SCHLEY. Quite frankly, I heard a bunch of statements that horrified me, both as a taxpayer and as a professional land manager. To suggest, for example, that the stewardship ethic of the U.S. Forest Service and the desire to manage a forest for the long-term, maintaining current values makes it impossible to make a profit, I simply know that that's absolutely not true. Our forest managers are currently focused on essentially acting as a gardener in their garden; weeding the forest; taking out the lowest quality material wherever possible; thinning the forest wherever possible; keeping the wildlife attributes as high and as plentiful as possible. Those are our current focuses, and our objective is to further enhance the value of our property over the long term all the while we are continuing to make a very substantial return on our investment for our owners.
As a taxpayer, to hear the Forest Service suggest that they have no mandate to make a profit and, therefore, to be as cost-ineffective as they want doesn't matter? I'm irate. I cannot believe I heard that statement; that cost-effectiveness is no issue for the Forest Service. They are using my money. They better be using it wisely, and if they're not, they need to stop.
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To suggest, for example, that only today the Director issued a directive to tell his field people that they need to look at this cost side of the equation and consider that, well, maybe things have gone awry when they've got a chart over there that's been going on for 6 years, and they haven't addressed it yet? All of that is just absolutely mind boggling to me that these sorts of issues haven't been addressed heretofore.
I didn't come here today to berate the U.S. Forest Service. They operate under a different norm; a different regime than I do. I'm very fortunate to be working in the private sector with clear goals, clear objectives which include all of the wildlife considerations, all of the recreational management considerations. One hundred percent of our land is open and available to all forms of public use. All of those components of management can be included in a commodity-based forest management system. To suggest otherwise, simply, is not true, and I think that somebody needs to be held accountable to forest management realities, wildlife management realities, water quality management realities in the overall scheme of forest management.
Mr. POMBO. Let me ask you about something you just said about your land being open to public use. The land that you manage, can people go out there?
Mr. SCHLEY. Absolutely. They can hunt; they can fish. The greatest use of the so-called unorganized territory in Maine is what we call leaf-peepers—non-consumptive users who go out and simply go for the scenery. They go for the scenery in an active, aggressively managed forest that's been under active management for 150 years. It's still scenic.
Mr. POMBO. So, people actually want to go into this area and camp and hunt and fish?
Mr. SCHLEY. Oh, yes, sir.
Mr. POMBO. Even though you're cutting down trees?
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Mr. SCHLEY. Yes, sir. They recognize that a lot of the forest management that we're doing is promoting the wildlife that they're going to see. They recognize that the forest management that we're doing is paying for the road system that enables them to go in and use the property essentially free of charge. They recognize that the road system——
Mr. POMBO. Wait a minute. Go back. The timber harvesting pays for the road system that allows access into the forest that the people use free of charge?
Mr. SCHLEY. Yes, sir. That's right. Way up in northern Maine, there's a system called North Maine Woods that manages—it's a non-profit association—manages the public recreational aspect of the big woods, as we call it, and people pay a day-use fee in order to go in and have a campsite that they can go to; fire-safe fire ring; picnic tables, those sorts of things, but they are not paying any road access fees, whatsoever. Those roads were built for timber purposes, and are allowed for public recreation.
Mr. POMBO. Who maintains those roads?
Mr. SCHLEY. We do, sir.
Mr. POMBO. And how do you pay for that?
Mr. SCHLEY. With timber revenue.
Mr. POMBO. And you maintain the roads for public access.
Mr. SCHLEY. We don't maintain them necessarily, specifically, for public access, but they remain open for public access, and because we have a system of reentering our managed lands approximately every 15 years, those roads are under a periodic maintenance and upgrade process anyway, and, therefore, remain in a condition that is suitable for public access and use anyway, all without any special fee, any special allocation of funds or resources specifically to recreational use.
Mr. POMBO. With the chairman's indulgence, you have to abide the Federal Clean Water Act.
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Mr. SCHLEY. Yes, sir. And our State Forest Practices Act and all the Endangered Species Act, all of those things; yes, sir.
Mr. POMBO. So, you are not exempt from endangered species, clean water?
Mr. SCHLEY. No, sir.
Mr. POMBO. And you provide public access, public recreation. What about wildlife? You must not have much wildlife in there with you constantly cutting trees.
Mr. SCHLEY. Our lands are overrun with wildlife. We've got moose out our ears. We're not sure what to do with all of them. The deer population—the way we manage our lands, as a matter of fact, is so conducive to deer habitat in the State of Maine that we have three times the State average of designated deer management zones on our property as opposed to the statewide average. This is after 160 years of active forest management. We have some of the best—Maine is part of the flyaway for neo-tropical bird migration, and we have had privately conducted studies to conclude that in fact we are maintaining and enhancing the neo-tropical bird migration patterns through the State of Maine with our forest management. So, yes, sir, we're addressing all the wildlife issues as well.
Mr. POMBO. We're told out West—what you're testifying to intrigues me—we're told out West that we have to lock up our forests; that we can't allow timber harvesting in our forests. We have to lock up our—literally, put gates across our access roads because of wildlife that are on the property and how people damage wildlife. We are in the process of locking up our forests and not allowing public access either for recreation or for timber sales in order to save our wildlife, and, yet, you come before the committee today and testify that you allow public access and cut trees, and you have wildlife.
Mr. SCHLEY. Yes, sir. I don't know how different our wildlife is from yours. We don't have grizzly bears, for example, but there's no reason why all of those things—in my testimony, everything can be accomplished on an all-inclusive, all-acreage, management regime. There's no need to preclude anything. In fact, in our forests, sir, the only place where access restrictions are going in place is where the State inland fisheries and wildlife people are coming to us and saying ''There's too much public use of your private resource. We think you ought to start limiting a little bit here and here and here.''
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Mr. POMBO. Now, who told you that?
Mr. SCHLEY. The State Department of Inland Fisheries and Wildlife. They're primarily concerned about fishing pressure through our private lands to the public waters.
Mr. POMBO. They think people are catching too many fish?
Mr. SCHLEY. Yes, sir.
Mr. POMBO. Thank you, Mr. Chairman.
The CHAIRMAN. They are better fisherman than you are, Mr. Pombo. [Laughter.]
Mr. Hostettler.
Mr. HOSTETTLER. Thank you, Mr. Chairman, and I'm just flabbergasted Mr. Schley. You manage about 1 million acres of forests in Maine?
Mr. SCHLEY. Yes, sir.
Mr. HOSTETTLER. And have for 158 years, according to your testimony?
Mr. SCHLEY. Correct.
Mr. HOSTETTLER. You allow public use for free. What makes your forests so different than, say, those forests in the U.S. Forest Service?
Mr. SCHLEY. I know that the U.S. Forest Service has substantial acreage in New England. They don't have much in Maine, and most of their acreage in New England would be very, very similar to ours. So, in terms of the New England forests, there really would be no substantial difference except for the way it's managed.
Mr. HOSTETTLER. What would be different, maybe, with regard to the nature of the forest and the terrain and things like that? What would be different from your forests with regard to the forests in the West?
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Mr. SCHLEY. The species are dramatically different. The terrain is dramatically different. Ours is essentially a gently sloping, rolling kind of a forest. We don't have the steep mountains and, subsequently, the steep mountain issues that exist out in the West, and our forest is dramatically more diverse and more complex than the western forest is. We have 20 or 30 different commercial species that we manage on a daily basis just of trees much less all of the wildlife and the plants and everything else that we work with, as compared to, perhaps, only three or four, as I understand it, species in some of the major western forests and large tracts in the western forests of essentially contiguous, almost natural monocultures as compared to what ours are.
Mr. HOSTETTLER. I see. Have you ever looked at working in the West—and the reason I'm using the West is because it seems like it's so much more different than what——
Mr. SCHLEY. I've flown over it; yes, sir. And I've seen a few of the private ownerships out there.
Mr. HOSTETTLER. They have very difficult problems managing their private forests as opposed to you?
Mr. SCHLEY. They are operating under a different system. We could not manage the ground that we manage with the same systems in the West that we use in the East.
Mr. HOSTETTLER. All right.
Mr. SCHLEY. In the East, we use natural regeneration systems. In 160 years, we've never planted a tree. We don't need to. We never need to. Our foresters spend more time managing shade than they do managing trees, because shade is how we control the kind of regeneration that we get back. Therefore, we never engage in the clear-cut, prep, plant, and regrow regime. On a million acres, we'll clear-cut less than 100 acres a year, and so clear-cutting is not an essential part of our management system as I understand it is to effectively and efficiently grow, for example, Douglas fir. I don't have any experience with doing that. But all of the water quality protection issues are the same. They have a more difficult problem because the ground is steeper. It makes road building and road stability more difficult, and, at the same time, they have much, much better road building material than we do. Gravel comes very dear in the State of Maine.
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Mr. HOSTETTLER. I have a question for Secretary Lyons. The issue of overhead has been significant lately with regards to the efficiency of the Forest Service, and the TSPIRS report has highlighted that. According to your testimony—and I'll just read it real quickly; I apologize not being here for it—''The Clinton administration has shifted program emphasis away from commercial timber sales toward the use of timbering as a tool to achieve other resource management objectives.'' And, so, you highlighted in a response earlier to one of the members that those overhead costs are up, and you would be looking into reducing those overhead costs. Now, those are as a result of fixed costs dealing with the timber sales themselves, wouldn't that probably be fact?
Mr. LYONS. These are the costs of doing business that aren't necessarily directly associated with the Timber Sale Program. They're personnel costs; they're travel costs; they're rent, and associated costs.
Mr. HOSTETTLER. But if the approach has changed from commercial timber sales to other resource management objectives, then if you were to reduce overhead costs, then you would reduce those overhead costs where the focus is shifted away from, wouldn't you?
Mr. LYONS. I think we have an obligation to try and reduce overhead costs across the board. So, that would benefit every program if I understand your question.
Mr. HOSTETTLER. I'm saying that you would not—if your focus has changed from commercial timber sales to other resource management objectives, then you would not cut across the board, you would reduce funding in commercial timber sales. Is that not right?
Mr. LYONS. Well, what we've done is we've shifted the focus of our timber sales taking the resources we've gotten and the appropriations we've gotten for timber sales, and instead of investing in commercial sales as Mr. Schley does, we've invested in sales that in all likelihood we know aren't going to generate a profit. In fact, as an example, on average, the revenue for what we call our commodity sales—the sales that do generate a profit—is on average $212 per 1,000 board feet. That was in the 1997 report. The return, that is the revenue, on the stewardship sales, salvage sales, TSI, and the like was about $161 per 1,000. So, you can see there's about a $50 to $60 per 1,000 difference. You contrast that with the costs of preparing these sales, the costs are basically the same. You still have to go out and do the survey; you have to prepare the environmental analysis; you have to mark boundaries; you have to lay in roads. So, the costs, on average—well, the difference is $208 per 1,000 for commodity sales and $205 for stewardship sales. So, you can see, we know we're going to get less revenue when we invest in these other sales. We do our best to reduce the costs, but the costs could be basically the same.
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Mr. HOSTETTLER. But wouldn't your focus—and I hate to keep belaboring the point—but what I'm afraid is that we are causing what's going to happen. I mean, as a result of your actions, you're going to cause less timber sales off of the forest which may result in the reduction in the health of the forests as a result of these other——
Mr. LYONS. No, I hope not. What we've found—we've stabilized our sale program at about 4 billion board feet a year. It's the mix of sales that have changed. It's the kind of product we generate. Now, if it were 4 billion board foot of commercially viable timer, we'd generate a profit. And, by the way, if we were operating in the main woods as opposed to the national forests—I'm sorry you didn't ask me a forester question; I was interested in Mr. Schley's forestry answers—I think you'd see that our cost differences are substantial, and he acknowledged that: road construction costs, the site index, the productivity of the lands on the White Mountain National Forest are dramatically less than in the main woods. Those factors impact profitability and our bottom line.
Mr. HOSTETTLER. Which has a better return to the taxpayer, the commercial sales or the other?
Mr. LYONS. Commercial sales do, and certainly sales on higher site index lands will which is mainly what private lands are. You got to remember, the national forests were—the term coined to characterized the eastern forests in particular were the lands nobody wanted. They were tax-loss lands. They were lands that commercial interests had no interests in, so we acquired them. They tend to be higher elevation. They tend to be more rocks than soil in many instances; that's a gross generalization, but they tend to have steeper slopes; more difficult access; higher road costs are associated with. So, I wanted to make sure the committee doesn't draw the conclusion that there's an apples to apples comparison here because there's not.
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Mr. HOSTETTLER. Thank you very much. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Lyons, in your attempted explanation to the question of overhead, I think that you mentioned that lawsuits and environmental requirements and process were a part of the increased costs, and, of course, by the manner in which you keep your accounting, that is not included in overhead.
Mr. LYONS. No, and if I indicated that, Mr. Chairman, I apologize. Those costs are broken out in our sale preparation costs.
The CHAIRMAN. Yes, thank you for that correction. I guess I want to ask you this question: You state in your testimony you have changed the focus and the mandate of the Forest Service. I don't recall Congress changing the mandate. Who changed it?
Mr. LYONS. No, I didn't say that, Mr. Chairman, and I'll restate what I said. We've changed the focus of the Timber Sale Program consistent with the mandate of the Forest Service, and you know the mission statement better than I do: it's caring the for the land and serving people.
The CHAIRMAN. Yes, but who told the Forest Service to do that?
Mr. LYONS. Well, our role is to be responsive to the public, Mr. Chairman, and in many respects we hear from all sources.
The CHAIRMAN. Your boss is whom?
Mr. LYONS. The American taxpayer.
The CHAIRMAN. Your boss is the Secretary of Agriculture.
Mr. LYONS. Ultimately.
The CHAIRMAN. And the Secretary of Agriculture's boss is Mr. Clinton, I assume. So, you're saying that didn't get direction from your boss to change the direction of the Forest Service emphasis?
Mr. LYONS. Mr. Chairman, I want to tell you that these changes have been underway for some time. If you go back to Dale Robertson who served during the Bush administration as Chief, Dale initiated policy under the Bush administration to reduce the use clear-cutting of the national forests, and, in fact, we're down to about 10 percent of our acreage in clear-cutting.
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The CHAIRMAN. Now, let's be accurate. I was here with Mr. Dale Robertson as you were, and we're not addressing the question of clear-cut. We're addressing the overall question of who told the Forest Service to emphasize one area of responsibility over another or to change? The question of whether you have forest management intensively or do you intensify anther portion of your responsibility?
Mr. LYONS. Well, I guess I would respond to that to say, in part, Mr. Chairman, I took responsibility for providing policy and program direction, working with the leadership of the Forest Service, and dating back to 1993 when I took office a significant concern that the Congress faced and the Nation faced was the health of forest lands. You and I've talked many times about forest health issues. So, one of the areas we shifted our program focus to with regard to timber sales was—and we call them stewardship sales—was in reducing fuel loads and thinning and salvage work. In fact, the Congress, as you know very well, passed legislation which basically directed us to speed up the salvage process.
The CHAIRMAN. The health of the forests has deteriorated ever since 1992, you and I agree, and, beyond that, the forest health bill that I sponsored, the Forest Service recommended that the President veto it. So, how can we say we're for forest health and then ask for a veto for the forest health bill which I thought tracked exactly what you and I believe in?
Mr. LYONS. Well, I think there were certain issues in how the program would be implemented under that bill that lead to that threat, Mr. Chairman, but we do agree about the need to improve forest health. We do agree that the need is greater than the resources that currently exist, and, as indicated by our numbers, since these are sales that don't pay for themselves, it's going to require an investment on the part of the taxpayer to get the job done.
The CHAIRMAN. That's correct. I do recognize that as you well know——
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Mr. LYONS. Yes, sir.
The CHAIRMAN [continuing]. And added money to the investment opportunity.
Mr. Craig, you heard Mr. Thune and others discuss this question of overhead. What's the overhead factor in Oregon for the Oregon State forests, and what would be a reasonable goal in controlling overhead as a percentage?
Mr. CRAIG. Mr. Chairman, State lands in Oregon are self-supporting based on the revenues that are generated, so there's not an Oregon general fund appropriation, per se. So, in the case of the lands that are owned by the common school fund, the department submits a budget which does include overhead on the front end to both our Board of Forestry and the State Land Board which is then subsequently approved by the legislature, and those total costs run about 30 percent. In the case of the lands owned by the Board of Forestry, that revenue distribution is set in statute, and it's approximately 63 percent that's returned to the local taxing districts and the counties, and the remainder is returned to the Department of Forestry for investment and other expenditures.
Another feature under State law in Oregon is that there's no deficit spending at all in any State agency, so all of the revenues, even though in the case of us we may have more revenues or even less revenues, we're not allowed—we're constrained by the revenues and the deficit spending.
And, then, finally, I would that in Oregon the overhead costs are determined upfront, and they are prorated to our district managers and our area managers and the Salem staff and so forth, and then those costs are debated, agreed upon, and presented to the legislature as overhead costs, and, so there's a budgetary constraint.
And, then, my last point is that we do have an open, very open, budgeting process where we actually invite people to participate with us in the budget process and explain what our budgets are upfront.
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The CHAIRMAN. Did I understand you to say your overhead is 30 percent?
Mr. CRAIG. Our total expenditures, or the total management, is 30 percent, and that would include all of our investments that we make in reforestation——
The CHAIRMAN. Have you analyzed the overhead depiction by the U.S. Forest Service, and can you compare that to the State; give me a number?
Mr. CRAIG. I have not analyzed that to the Federal Government, and no, I could not give you a number.
The CHAIRMAN. Mr. Leal, let me ask you that same question. I'm trying to get at this point that seems to evade us. In your studies, have you identified a reasonable overhead cost or a target that might be used as a general statement?
Mr. LEAL. The State benchmark in Montana and Idaho, Montana is 15 percent. I did that by looking at their indirect costs associated with a capital office or the Timber Management Program as it's run by the people in the capital of Montana, Helena. There's 77 people, total, in the Timber Management Program; about 10 are actually doing the same kind of G & A work that you would associate with the Forest Service in their regional and their headquarters in Washington. Same thing with Idaho. I'd say the State's probably running at about 15 percent.
The CHAIRMAN. All right. Mr. Schley, your private experience in management, what does your overhead run in comparison to these numbers that we've heard.
Mr. SCHLEY. We tried to do as best as could a comparison of the general administration that we have versus the U.S. Forest Service numbers in the TSPIRS reports that we were given, and ours is approximately 18 percent using the same allocations. That is in large part, sir, because we make an effort—85 percent of the trees on our ground that are harvested on an annual basis are individually hand-picked and marked by a forester as compared to somebody sitting in a desk, looking at a map, saying ''This is an appropriate area for harvest; why don't you go out there?''
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The CHAIRMAN. That's heavy overhead. That's heavy responsibility.
Mr. SCHLEY. That's very heavy overhead, but it goes to the level of detail and attention that we pay to every single acre, every single tree, as a matter of fact, on our ownership, and, therefore, our general administration and the costs of maintaining a system as detail-oriented as that are slightly higher than they probably should be or would be, perhaps, than the rest of the private sector.
The CHAIRMAN. Mr. Daucsavage, what's your experience here?
Mr. DAUCSAVAGE. Well, since my position as vice president is considered to be an overhead item, I get the opportunity of doing what I'm doing today which is also considered an overhead item. I make absolutely certain that I have enough margin to take care of those overhead costs. Our cost structure is slightly different. As a percentage of manufacturing costs, our overhead is about 5 percent. I think you'll find in the timber industry, the manufacturing industry side of things, you'll see that's quite reasonable. That is with the cost of the raw thrown in. The manufacturing costs were about 15 percent.
The issue here, though, on overhead is how do you truly create enough margin to take care of your overhead, and when you define and classify overhead expenses as expenses for the future, investments in the future, I think you're making a big mistake, and I believe the accounting system, the way it's set up, does not recognize the investment for the future, nor does it recognize the cost structure of doing other things other than preparing timber sales where you can get the return to create a margin to take care of your overhead. The 33 percent overhead, I don't have a clue what business could operate under an overhead of that high of a cost.
The CHAIRMAN. All right, thank you all. Are there other questions from members? Mr. Pombo.
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Mr. POMBO. Thank you, Mr. Chairman. I just wanted to follow up on a question you were asking Mr. Lyons about the change from a commercial resource to other resource issues. You testified that you listen to the public, and you accept that mandate. What exactly was that change? Who made that change in going from a commercial base to other management issues, other resource issues. It's my understanding that the way this is supposed to work is that Congress will pass the law and set the parameters, and the executive branch is responsible for carrying that out, and each and every one of us is directly responsible to the public every 2 years, and I'm just wondering who made that decisions and why, because I don't remember that ever coming through? I serve on both Agriculture and Resources Committees, I don't remember that ever coming through either of those two committees, and I believe those are the two committees that would have jurisdiction over forest issues. I do remember the timber salvage bill. I also remember the response the administration had to the timber salvage bill after they signed it in saying that they wouldn't enforce it, and the many of the people out in the general public believe that it was never enforced. What made that change?
Mr. LYONS. First of all, Mr. Pombo, let me make clear that we are operating within statutory authorities and the legal direction we have. Our job in the executive branch is to execute the laws and we do. So, there was no legal change; no change other than to say we are continuing to comply with the direction we have to manage for multi-use and to protect the resources in the national forests. That's the reasons the national forests were established.
As indicators of change and direction, I think the salvage rider is a good example, and contrary to your characterization, I would suggest not only did we comply with the law, we exceeded the commitment we made to the Congress and Secretary Glickman made to Speaker Gingrich in terms of the board foot goal that was set. But, you know, that directive had nothing to do with profits. It had nothing to do with generating revenue. In fact, I'd suggest that those sales were not profit-making sales in any way, shape, or form, but it was consistent with the goal to address forest health concerns. We had come off a very serious fire season. We had another one after that indicative of the fact that we have to address these issues.
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So, what I'm suggesting is we are focusing in on those areas where we've heard a clear message. I'm sure in the last 5 years I've participated probably close to 100 hearings in which we've addressed these issues in various ways, and there's a clear message that we need to address the health of forest resources; that we have to get on top of concerns related to the fuel loads, and we have to deal with insect and disease concerns, and we are seeking to address that with the limited resources we have.
So, I'm not telling you that there was a change in legal mandate. I'm telling you that we're operating consistently with the laws and the messages that we've heard through hearings; through public forums; through other venues that the public would like to see us invest in the health in the forest resource. I know all the members of the committee would as well, and we're trying to do that through a focus on stewardship and resource improvement through one tool, in this case, the Timber Management Program.
Mr. POMBO. You've also testified that those kinds of sales cost money; that they are expensive sales, and, yet, commercial sales generate revenue. Why would we not offset the cost of the salvage sales with the increased commercial sales?
Mr. LYONS. Well, we've tried to strike a balance. We still have as our mandate and are committed to producing commercially viable timber, and so while the amount of stewardship volume has increased, we still have a commercial base. We have looked at this in terms of how we offset the balance sheet. We've tried to look at the resource and tried to focus those situations where forests supervisors and people on the ground determine there's a need for an investment. Those are the investments we've made.
Mr. POMBO. What percentage of the sales of the 4 billion board feet are salvage sales and what percentage are commercially viable sales?
Mr. LYONS. Hold on one second, I'll provide you with that information from my testimony. It's about 40 percent are stewardship.
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Mr. POMBO. Forty percent are salvage sales and——
Mr. LYONS. Stewardship sales in general. I wouldn't—salvage has a very specific connotation, but in general.
Mr. POMBO. And what—if you increased it somewhat—and maybe this is something that you can answer for the record—but if you increased the commercially viable sales by a billion board feet, could you not increase the stewardships, as you say, the stewardship sales by the revenue that's created and do a better job of treating more acres for fire and other forest health issues?
Mr. LYONS. Well, the straightforward answer that it's a function of the appropriations we get. Surely, the revenues we generate go to the Treasury, and so the $7 million we made on commercial timber sales were redirected to the Treasury. The other sales, stewardship sales require an investment. So, in the larger picture of things, the more commercially viable sales generated revenue in terms of the Treasury, the more offset there is for any investments that we make in stewardship sales.
Mr. POMBO. Why don't you request more commercially viable sales, and show the Appropriations Committee that it's a net return to the Federal Government and that money can be used for forest health issues? Why don't you request more commercially viable sales?
Mr. LYONS. Well, we request a certain amount of appropriations, and we've been fairly successful in obtaining that, and then we make a judgment—we have our forest supervisors make a judgment on the ground as to how they're going to adjust the sale program. We have not stipulated that profitability is a primary goal. As I testified earlier, that is not our legal mandate. Efficiency is clearly an objective that we're trying to achieve.
Mr. POMBO. But if one of the goals if forest health and you could generate more money with commercially viable sales to take care of the stewardship sales that you talk about, it would seem to make sense for the Department to ask for increased funding for commercially viable sales to offset the increased costs of your salvage sales or your stewardship as you talk about.
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Mr. LYONS. Well, we don't realize the return on that investment back to the Forest Service or an individual forest; it goes to the Treasury. The Congress, ultimately, will decide how much money we get for that purpose.
Mr. POMBO. But you don't request it.
Mr. LYONS. No, we request appropriations for our Timber Sale Program, and then we try and implement a program that's going to responsive to a broad range of resource needs. So, what you're saying is, in essence, if we requested additional funds, why couldn't we use that to offset costs? We don't have that control. In other words, the revenues that are generated from commercial sales are part of what are returned to the Treasury; they're part of what forms the basis for 25 percent payments. We have slightly different situation in the Recreation Program where we actually have authority to charge fees and then that money goes back to the resource.
Mr. POMBO. What I am saying is that you testified to this and, yet, when the appropriations request is made, the argument is not made to the appropriators through your budget that this would increase funding to the Federal Government, therefore, it justifies the increased funding to the Forest Service for these sales.
Mr. LYONS. Well, I think when we try and make the argument, we're going to make the most efficient use of the Timber Sale Program we have, and in some instances that's going help the balance sheet; in others, it's not. Our focus, I would admit, is more on trying to deal with sustainability and resource health than it is on generating revenues for the purposes that you've identified. I understand the logic of your point. Unfortunately, the system doesn't work that way.
Mr. POMBO. What is the sustainable yield of the national forests? Do you any idea, how many million board feet a year?
Mr. LYONS. That would be set on a forest by forest basis. So, I couldn't give you that answer.
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Mr. POMBO. You have no idea nationally what it is?
Mr. LYONS. Not off the top of my head, I don't, Congressman. We could provide you some estimate, but in each forest plan, there's an allowable sale quantity that's determined.
Mr. POMBO. We've had testimony in the past that it would be 20 billion board feet.
Mr. LYONS. That sound like something I heard a couple of decades ago from one of my predecessors.
Mr. POMBO. Thank you, Mr. Chairman.
The CHAIRMAN. Well, I think this hearing's been very helpful. To the representatives from the State forestry departments, I thank you very much. I think it's obvious that you've testified here that your overhead is half of that of the Forest Service and that you have the same responsibilities, basically, in your mission and within the States, as does the Federal Government, and certainly from the private side, Mr. Schley and Mr. Daucsavage, while it could be argued, I suppose, and has been that you do not have the same responsibilities to the land, you've been practicing that on your private land, so, therefore, have exemplified, I think, a great public service to the general public who do not have to—you don't owe a dime to, but you've allowed them to benefit from your operations, and, therefore, you do have the same kind of responsibility as does the Forest Service, because you've accepted it, and your overhead charges are much lower, obviously, than we've been hearing from the Forest Service. In fact, if the Forest Service would cut its overhead in half, there would be $70 million more money, Mr. Pombo, to go to stewardship and other practices which cost money which would improve the forest health and which would bring us back into some semblance of order and of responsibility. We've held hearing after hearing recognizing that forest health is the essential part of what our responsibility is as a committee and certainly the responsibilities of private, State, and Federal forest managers, and, yet, the forest health in our forests, in our public forests, Federal forests, is deteriorating.
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I'm going to reiterate again, Mr. Dombeck's the Chief of the Forest Service. Forty million acres are in jeopardy of catastrophic fire, 40 million acres, by this intense management—tongue and cheek—we're treating 1 million acres a year. Thirty-nine years later, after they've all burned, we'll be back to manage them again, I suppose, but it's tragic to me that we spend $1 billion to fight fires, and we're spending peanuts, in fact, about $50 million to treat the land and to improve forest health on the land. That's a tragedy.
If these hearings can be of any benefit at all, they can be, I suppose, a direction to the Forest Service that with this kind of management, with the public knowing for the first time in the history of the Forest Service that the agency's losing money—in fact, to the tune of almost $90 million—that there may come a time that there won't be a need for a Forest Service. You know, the only friends the Forest Service ever had in this whole philosophical discussion between environmentalists who say never touch it, and those of us who say you must manage it, the only friends the Forest Service ever had were those of us who said, ''Look, you're going in the wrong direction, but we want to help you. We want to help you in your effort to manage our timber resource.'' Now, you're losing that group, so you have nothing left, and without anything left in a support system, you are going to be questioned continually about your role, and probably your role is going to be reduced over the year, because all we can point to is disaster. Now, we're facing another fire season. We're going to continue these hearings, and we're going to continue putting pressure on the Forest Service in your budgeting process and to revisit priorities, because the resource of America is at stake here. So, I thank you for coming.
Mr. Schley, you had something to say.
Mr. SCHLEY. Yes, sir. Mr. Chairman, I hope I'm not out of line, but as I've listened this afternoon, I'd like to offer an insight from a forest management perspective. When I looked at the TSPIRS report and noted that the Washington office, for example, generates zero dollars in revenues and yet costs $29 million in expense, I thought—and it was confirmed by the comments today—the managers don't know what the sustained yield volume is from the current forest. It is clear to me that they are taking an appropriation and applying it to the ground. What they should be doing is having everything bubble up from the ground. The ground should determine—the forest should determine what needs to happen there. The district foresters should know, and that should come back through the Washington office and go to appropriations in a logical manner.
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The CHAIRMAN. Well, Mr. Schley, you have exactly identified what has occurred in my opinion and the opinion, I think, of my colleagues in the management of the Forest Service. There was always the idea that the man on the ground, the forester on the ground, had a better idea of the management—following guidelines—but the management of that forest than anybody else, and the recommendations always came from him upstairs to, finally, the bureaucracy in Washington. Today, it's reversed as has been indicated. The directions are coming from the top down to the man on the ground, and he has to take those directions resulting in—if you've talked to foresters, as we all have—resulting in huge personnel problems in the Forest Service. Dedicated Forest Service people are getting out. They can't stand it; they don't like it; they can't stand it. They're retiring early; they're getting away from it, and as they do, very critical of this top-down idea which means if you elect a President and a Vice President and somebody as an activist, suddenly you direct Forest Service policy. That's backwards, and that's what we're all upset about, and that's what we're concerned about.
Mr. POMBO. Mr. Chairman, would you yield on that point?
The CHAIRMAN. I yield to the gentleman.
Mr. POMBO. I've had, as I'm sure you've had, a number of on-the-ground foresters that have come to me over the years that have been very critical of current laws. They've been very critical of court decisions which have made them manage in a way that they felt was detrimental to the health of the forest and have come to me privately and discussed this with me. And, yet, in the 5 1/2 years I've been in Congress, I have yet to see any suggestion or testimony or anything from the Forest Service suggesting that we change these laws, and even if we take the suggestions that have come from the on-the-ground people to change these laws, we get veto threats and threats of non-support for that legislation when it moves through the House. So, even if we take the ideas that are coming from those on-the-ground managers and try to put that into a legislative form, we end up with a veto threat, and we're not able to move it, but thank you.
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The CHAIRMAN. Mr. Doolittle, do you want to join in on this late discussion?
Mr. DOOLITTLE I'm sorry, Mr. Chairman, I've missed, essentially, the entire hearing. It was an important hearing and the issues you raise in these committee hearings on the huge increase in overhead costs; the precipitous—I was just looking at this excellent chart the staff prepared showing what the Timber Program used to produce in terms of revenues as recently as 1989 versus today where it appears to be roughly half that, and, yet, you turn to the next chart and you look at the timber sale expenses which are way up there; the general administration overhead which is the highest ever, it seems like the Forest Service has become incompetent, and I'm very concerned for the health of our forests. It's the worst it's ever been. We brought this up before, and I'll keep bringing it up until we get a satisfactory answer. I don't see how we can grow four or five times each year of what we harvest on our forests and think we're going to have a healthy forest. They're going to die. In fact, I believe there's more dead trees each year now than ones that are taken by harvest, and I see no end to that in sight, but the 40 million acres the Forest Service has identified as needing to be treated, they're going to do that at 1 million a year, I seem to recall. So, we're looking at 40 years for that. What do we do with 40 years where we're having 4 or 5 times as much growth a harvest? It will be absolutely impossible, and I'm going to submit, Mr. Chairman, as part of the last hearing, where the records still open questions asking for the Forest Service to address specifically these issues that I'm raising, but I appreciate your bringing these vital issues to the forefront, and I hope that the Forest Service will pull itself together. Otherwise, we may not need them.
The CHAIRMAN. I thank the gentleman, and those questions will be submitted to the Forest Service.
I thank you all for coming. Some of you traveled a long way. It's a delight to see you always, and thank you for your contribution, and this hearing is adjourned.
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[Whereupon, at 1:18 p.m., the committee adjourned subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of Hon. Wally Herger
Mr. Chairman, members of the committee, thank you for the opportunity to testify regarding the way the U.S. Forest Service uses its off-budget trust fund accounts. I am particularly concerned that the Forest Service is diverting funds from these accounts to pay for administrative overhead instead of using the trust funds for their intended purpose of funding on-the-ground projects that improve the health of our national forests.
In a May 6, 1998 report, the U.S. General Accounting Office reviewed five trust fund accounts to determine how much of the trust funds were spent on administrative overhead. The five accounts reviewed were (1) the Brush Disposal Fund, (2) The Cooperative Work Fund, (3) the Knutson-Vandenberg Trust Fund, (4) The Reforestation Trust Fund, and (5) The Salvage Sale Fund. Each fund was created to finance programs that play an integral role in improving the health of our national forests.
According to the GAO, the Forest Service spends close to 30 percent of these trust funds on administrative functions. In comparison, in 1993 the Forest Service spent only 16 percent of these accounts on administration, and, in its fiscal year 1999 budget request, the Forest Service earmarked just 8 percent of its General Appropriations for administrative overhead on all other programs. This creates an extremely dangerous situation for the more than 40 million acres of our national forests currently under a severe threat of destruction by catastrophic wildfire.
The danger of this threat is particularly strong in forests in the western United States. Unlike other forests in other parts of the country, forests in the West suffer from unusually high incidents of fire. During hot summer months these forests receive very little rainfall. Historically, Western forests were filled with stands of large trees. The forest floors were less dense and were naturally and regularly thinned by lightening and native caused fires that would clean out dense underbrush leaving the big trees to grow bigger. However, because of decades of well-meaning but aggressive fire suppression practices, these forests have grown out of hand, creating an almost overwhelming threat of catastrophic fire.
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According to U.S. Forest Service estimates, our national forests are 82 percent denser than they were in 1928. Thick undergrowth, combined with increasingly taller layers of intermediate trees has turned western forests into deadly fire time bombs. Now when a fire starts, it quickly climbs up the dense tree growth like a ladder until it tops out at the uppermost, or crown, level of the forest and races out of control as a catastrophic fire. Because of their high speed and intense heat, crown fires are nothing like the healthy fires of the past but have the capability of leaving an almost sterile environment in their wake with almost no vegetation, wildlife, or habitat left behind.
These dangerous conditions, however, are not irreversible. The forest service can proactively improve forest health. Regrettably, however, proactive policies are not being implemented. Because of mandates from the Forest Service's Washington offices and directives from the Clinton/Gore administration, the forest service suffers from a virtual paralysis. Evidence of this paralysis can be found in the way the forest service increasingly uses its trust funds to pay for administration instead of funding on-the-ground forest health projects.
Mr. Chairman, I would once again urge this committee to redirect the mission of the forest service on two important issues. First this agency must move away from its current extreme environmental agenda that, for years, has literally destroyed our national forests, and require the Service to implement more proactive, on-the-ground programs to restore forest health. Second, we must demand a complete revamping of forest service financial accountability. Because the Forest Service cannot, on its own, limit the administrative overhead for its trust fund accounts, I urge this committee to do it for them and ensure these trust funds fulfill the purpose of their creation and are used to improve the health of our national forests. Again, thank you for this opportunity to testify on this critically important issue.
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Statement of Jim Lyons
Thank you for the opportunity to discuss the Forest Service Timber Sale Program Information Reporting System (TSPIRS). I am Jim Lyons, Under Secretary for Natural Resources and the Environment in the U.S. Department of Agriculture.
I appreciate the opportunity to appear before the committee to discuss our forest management program. As the Chief and I have discussed in previous hearings, we have focused Forest Service resources on three broad goals:
(1) Restore the health of the land
(2) Ensure accountability for land management, financial resources, business systems and civil rights.
(3) Promote collaborative stewardship, partnerships, and decisions based on the best science
The purpose of this hearing, it seems to me, is to examine the interaction between two of these key goals: financial costs of the forest management program as they relate to restoring the health of the land. This hearing is a good opportunity to share with you how the Administration views the program and how we account for the costs and benefits associated with it. We share the common objective of maximizing the public benefits for each public dollar spent to protect, restore and manage forest resources, and I welcome suggestions from the Committee about how to realize this goal.
While TSPIRS, as a tool to measure the financial costs of the forest management program, has been somewhat effective, I would suggest that its status as an independent report will be changing as the agency moves into implementation of the natural resource agenda, new Federal Government accounting standards, and a new financial accounting system.
Goals of Timber Management
National Forest timber sales have always served multiple purposes. Timber sales helped build homes and railroads for a young growing nation and helped pay for forest rangers who were taking care of vast remote stretches of forest and rangelands.
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Today Americans place a higher priority on sustainability and environmental protection. The Forest Service's primary business is protecting and restoring the health of the land. You can't measure the value of stewardship strictly in dollars and sense.
The Clinton Administration has shifted program emphasis away from commercial timber sales toward the use of timbering as a tool to achieve other resource management objectives. As I've stated many times during my tenure, our goal is to use timber sales as a means to an end, not simply as an end unto itself.
However, Mr. Chairman, I do not want to leave you with the impression, that the overall costs of the forest management program, and its effects on timber purchasers, forest-dependent communities, and taxpayers are not a concern. To the contrary, we have been working to identify cost cutting measures and alternatives to the current approach towards timber sale preparation and harvest.
Resource stewardship costs on the national forests are borne by the forest management program. This year's TSPIRS report shows that more than half of the timber sale program was targeted for land stewardship objectives such as fuels reduction, stand structure improvements, and insect and disease control. While people have different perspectives and opinions about how the Forest Service applies land stewardship on the ground, there is general support to reduce wildfire impacts, restore old growth characteristics, protect native species diversity, and manage pests as best we can. We are paying for these treatments from wildlife, watershed, or vegetation management funds, but, in many cases, this work is getting done by using timber sales.
For example, we may use a timber sale to reduce wildfire risk on steep slopes within municipal watersheds. While the sale may not pay for itself, the benefits associated with not having to pay millions of dollars for fighting catastrophic wildfires or building elaborate water quality treatment facilities may, in fact, offset any losses associated with the sale. These are benefits that we all support, but that are difficult to measure and, therefore, not reflected in the TSPIRS report. The cost of the treatment is borne by the timber management program.
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Alternative harvest and treatment techniques such as those proposed in the Granite Watershed Project in northern California, which would be authorized by H.R. 2886, are being explored by the Chief and me.
Accountability in the Forest Management Program
The TSPIRS report does not display the effectiveness of the timber sale program because it does not capture the stewardship benefits of specific timber sales. You and I, and the American people want to know whether the water is cleaner, whether wildlife is thriving, whether the fires are within a normal range of historic variability and whether our forests are healthier. These should be measures we use to evaluate the timber sale program. That is not to say that fiber production is unimportant, only that it should be a result of meeting other multiple use objectives.
To properly evaluate the impacts of the forest management program or, indeed, the effectiveness of all our activities in meeting forest plan objectives, it is essential to establish accountability standards based on resource conditions. This will be an important source of information for you, me and the American people to use to determine whether the Forest Service program is providing us with sufficient public benefits to justify the cost of the program. Our goal is to develop a direct link between program costs and benefits for the specific resource goals. The new accountability measures will likely include such items as:
(1) Threatened and endangered species habitat restored or enhanced, (2) Reduction of siltation in streams, and (3) Acres of forest with reduced wildfire hazard.
In addition, the public will have the information that TSPIRS already generates such as the total volume offered, sold and harvested as well as the economic impacts of the forest management program on timber dependent communities.
While focusing on forest management program changes, I do not want to understate the importance of sound financial data. The Chief Operating Officer of the Forest Service, Francis Pandolfi, appeared before this Committee last week to describe steps the Forest Service is taking to improve its financial management. All of these steps will help generate more complete, timely, and useful information about costs and benefits, including those associated with the forest management program. We have already instituted some cost-cutting measures in the field, but we are counting on the improvements in financial management to help provide the information needed to further reduce overhead and to control costs.
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TSPIRS has been useful as a program management and decision-making tool, but not all managers have used it to its fullest advantage. The Forest Service has controlled unit costs for sale preparation, harvest administration, timber stand improvement, reforestation, and silvicultural examinations but costs for environmental analysis and documentation and general administration have risen. In addition, multiple use management to produce multiple benefits must consider the costs to produce all benefits. To the extent that reforestation and timber management is directed to achieve more than timber production goals, costs will rise. This is reasonable, since benefits are also increased.
I fully recognize your interest, Mr. Chairman and Mr. Stenholm, in what appears to be rising overhead costs. I, too, am concerned, and the Chief and his new Chief Operating Officer are addressing the situation. I would like to give them the opportunity to develop and implement a plan to properly assess these costs and to get them under control so that more funds are flowing to the ground for resource management activities.
The 1997 Forest Management Program
In light of our approach to the forest management program, and the new approach we are implementing to provide accountability in the program, let me share with you some of the findings of the fiscal year 1997 TSPIRS that will shortly be reported this year in the traditional format. This information has been provided to your staff and will be made available on the world wide web today. I also have the report on disk for the Committee record.
In fiscal year 1997, 4 billion board feet (BBF) of national forest timber was offered, 3.7 BBF was sold, and 3.3 BBF was harvested. These offered, sold, cut volumes are similar to the 1996 program. Of the total volume harvested in fiscal year 1997, 52 percent was for timber commodity purposes, 40 percent for forest stewardship, and 8 percent for personal use. In fiscal year 1993, when TSPIRS first began to recognize the different categories of sales, 71 percent of harvest volume was for timber commodity purposes, 23 percent for forest stewardship, and 5 percent for personal use. These numbers reflect changing trends in the timber sale program that I described earlier.
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The principal economic benefits of the national forest management program, as measured by TSPIRS, included 55,535 related jobs, $2 billion in employment income, $309 million in Federal income tax receipts, and $220 million returned to the States and counties to benefit local schools and roads. The Forest Service also calculates the value of the long-term economic benefits associated with the forest management program, and in fiscal year 1997 those benefits were $345 million.
The fiscal year 1997 national forest management program resulted in a financial account loss of $88.6 million. That figure reflects a timber commodity sale profit of $7.2 million, forest stewardship sale loss of $57.4 million, and personal use sale loss of $38.4 million. This year's account shows an increase in loss from 1996 of $73.9 million, of which $51.4 million is due to a new accounting standard for costs related to roadbed construction (road prism costs).
I need to explain this issue further.
In previous years, the cost of the roads were permanently capitalized as material assets on the land. For example, the basic road bed—sometimes called the road prism—was considered a capital improvement since it would theoretically remain available in perpetuity. The Federal Accounting Standards Advisory Board established new standards requiring that these road values be assessed as costs. Because of this change in TSPIRS, which will be standard procedure in future reports, one cannot make a direct comparison between the fiscal year 1996 report and the fiscal year 1997 report. The fiscal year 1997 figures, adjusted to the old standard, would reflect a program loss of $37.2 million, rather than $88.6 million. Other factors contributing to the increase in losses include the continued shift to stewardship sales and revenue decline due to reduced commodity sale harvest.
Summary
TSPIRS has been a source of controversy ever since its inception in the late 1980's. Media and critics focus on the cost to the Forest Service of selling a tree. We do not want to waste taxpayers money selling trees improperly or inefficiently. While we make every effort to run an efficient and sustainable forest management program, the strict cost-revenue analysis fails to recognize the many other benefits provided through the forest management program. The losses displayed in the fiscal year 1997 TSPIRS report should not be characterized simply as subsidy nor inefficiency. Rather, the financial figures reflect the investment needed to carry out our multiple use mission but fail to display all of its benefits.
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The Forest Service forest management program restores forested ecosystems, restore watersheds, reduces fuel loading, provide a sustainable supply of timber to rural communities, and carries out other aspects of the public land management mission. The true measure of the forest management program is not simply the volume of timber taken from the land, but also the health of the forests left behind. Therefore, a strict/profit loss statement is not a true reflection of the value of the timber sale program. I know the Committee understands this and I welcome critics of the timber sale program to engage with us in a dialogue that focuses on how we can most efficiently and effectively restore and protect forest resources for the short and long term.
Testimony of Ray Craig
Mr. Chairman, thank you for the opportunity to testify before this committee. You have invited the Oregon Department of Forestry to testify today on the results of a recent independent evaluation on the costs and revenues associated with programs administered by the Oregon Department of Forestry, particularly the management of State timber resources, and the Department's actions to keep program costs to a minimum. Before I summarize this information, I will provide you a brief background and history of State forests in Oregon.
Oregon's State Forests, Background, History, and Purpose of the Lands
State forest lands in Oregon are primarily second growth forests, concentrated in five major State forests, with a number of small tracts scattered across the State. The majority of State forest lands are located on Oregon's west side, with Douglas-fir as the dominant species and smaller amounts of other conifers.
The Oregon Department of Forestry manages two types of forest lands that produce revenues for counties, schools, and local taxing districts. These two ownerships total approximately 789,000 acres, and represent about three percent of Oregon's forest land base.
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The first type of ownership the Department of Forestry manages are forest lands owned by the Oregon Board of Forestry (657,000 acres) that were acquired from the counties, primarily during the 1940's. These lands were primarily in private ownership, largely cut-over or burned-over, and then abandoned or reverted to counties because of tax delinquency. The counties were unable to make the investments necessary to restore these lands to production status, and transferred the deeds to the State to manage (rehabilitate and reforest), with a share of the revenues from harvest of forest products returning to the counties and a share being retained by the State for management of the lands. (This revenue distribution formula is currently fixed in statute at 63.75 percent returned to the counties; 36.25 percent to the State's Forest Development Fund.) By statute, the State is required to manage the lands ''so as to secure the greatest permanent value of such lands to the State . . . .''. In the early 1980's, as a result of a proposed land exchange that was not supported by the counties, the Oregon Supreme Court held that the State could not make unilateral decisions regarding these lands and that the counties had a protected right to the revenues derived from the lands. Recently, the Department and Board of Forestry completed a 3-year process to further clarify, through administrative rulemaking, the greatest permanent value of State forest lands. This rule also further defines the administrative processes the Department and Board will use when managing the lands.
The second type of ownership the Department manages is approximately 132,000 acres owned by the State Land Board (a Board created by the State Constitution comprised of the Governor, Secretary of State, and State Treasurer) that were granted to the State by the Federal Government at the time of statehood specifically to support the State's public schools. Constitutionally, the State Land Board, as a trustee for these lands, is obligated to manage and protect these lands for the maximum, long-term benefit of the public schools, consistent with sound stewardship, conservation, and business management principles. The Department of Forestry manages these lands through a contract with the State Land Board, with direct and indirect costs for land management billed to the Common School Fund.
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In summary, constitutional and statutory language, court decisions, and administrative rules provide the Department with a purpose for State forest lands, and enables us to manage effectively and efficiently.
State Forests Program Reviews
State Forests are a valuable asset worth billions of dollars. The Oregon Department of Forestry has an obligation through a contract with the State Land Board, and direction provided by courts, statute, and administrative rule to manage and protect that asset. As part of this obligation, the Department is committed to continuous improvement, and, initiates and participates in different activities to contribute to that commitment—Secretary of State audits, scientific reviews, research investments, benchmarking, and budgeting processes—both internal and legislative.
As an example of the Department's commitment to continuous program review, in 1996 the State Forests Program contracted with an independent consultant—John Beuter, Duck Creek Associates—to conduct an evaluation of the management of State forest lands. This evaluation was conducted to provide objective information to be used for the continuous improvement of State forest management. Duck Creek Associates was asked to address two questions: 1) Are State forests being managed in a cost efficient and effective manner considering the legal, contractual, and political framework? 2) How can the Department improve the efficiency and effectiveness of its management of State forest lands?
Evaluation of the Management of State-Owned Forest Land in Oregon
Findings and Recommendations.
The independent evaluation found that, in general, Oregon's State forests are well-managed, and the Department has adapted well to new management challenges stemming from concerns about water quality, fish, wildlife, and other amenities, cooperating with others to craft innovative solutions to challenges such as balancing environmental values with income production.
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There are opportunities to further define the Department's fiduciary responsibilities, which would contribute to the ability to evaluate efficiency and effectiveness, specifically in issues of balancing revenue-generating and non-revenue generating activities.
The Department's management of the State forests is generally efficient and effective—a reasonable balance between costs and benefits, and demonstrated competence and commitment in implementing policies and plans to achieve objectives and obligations.
There may be opportunities and areas for possible improvements, after further consideration by the Department to determine relevance and significance.
Duck Creek Associates recommended that the Department use the report as a beginning to identify issues and define a better way to do business, with priority in the short-run to review management expenditures, developing a road accounting system, and secure the flexibility to use funds where they are most needed to enhance State forest value. In the long term, the Department may want to consider organizational changes in structure and staffing, and developing more responsibility and accountability for cost-effective management at the district level. (A copy of the executive summary from the Duck Creek Associates' report is provided as an attachment to this testimony.)
Department Analysis/Response/Action Plan
Following completion of Duck Creek's analysis, the Department evaluated the report and developed an action plan to implement key changes.
Continue cooperative working relationship with Division of State Lands, the Council of Forest Trust Land Counties, and key stakeholders.
Enhance economic analysis of management options for planning documents (forest management and habitat conservation plans).
Develop a comprehensive road inventory and assessment and a cost a ccounting/tracking system for the Department's road network.
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Develop an asset management plan that includes benchmarking with other organizations, improving the fiscal budgeting process, improvements in policies governing timber marketing, and infrastructure investment strategies.
Enhance the Department's ability to conduct cost/benefit analysis for silvicultural treatments, including improved analytical tools, and develop standards and criteria for intensive management investments.
The Department presented both the consultant's findings and the Department's action plan to the Board of Forestry during a public meeting, and will also present the same information to the State Land Board at their next regularly-scheduled meeting. The action plan is already being implemented and will be completed over a 2-year time period.
The Department and the State Forests Program proactively sought and has benefited significantly from this independent evaluation. The conclusions provided reinforcement that certain activities, like our emphasis on collaborative approaches to solving complex forestry/wildlife issues, are effective and should be continued. This report has also generated significant discussion and debate in the program about areas of potential improvement and has provided the emphasis needed to initiate prescriptive changes that will continue to promote improvement.
Fiduciary Responsibility
The State Forests Program has clear fiduciary responsibilities and is accountable on many levels—to the Department, the governing bodies, the Executive Branch, the Legislative Branch, the counties with forest trust lands, and the people of the State of Oregon. The program's commitment to fiduciary responsibility is demonstrated and achieved in many ways, including cost-effective decision-making and thoughtful, considered budgetary action to generate revenues and manage expenditures.
Cost Effectiveness
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The statutory and constitutional guidance governing the Oregon Department of Forestry's management of both Board of Forestry and Common School Fund lands also provides the State Forests Program with a clear direction relating to cost effective decision-making. Language in both the statute and the Constitution that describes ''. . . greatest permanent value. . . .'' and ''. . . over the long term . . . .'' provides the State Forests Program with a mission and a vision for the future, and management of the program reflects that. The program makes significant short-term investments to achieve the greatest value for the least cost over the long term. Examples of investments up front to secure rewards at a later date include the program's commitment to public involvement; Department of Justice legal consultation/advice throughout the processes involved in policy development; adequate and effective technology; investments in research and monitoring; human resources—hiring the most qualified employees we are able to hire and then continuing that investment through training and career development opportunities; and—a relatively new facet of our operation—recreation, education, and interpretation. We are running a credible operation; maintaining and enhancing that credibility is an essential investment, both immediately and in the future. As the political and legal landscape in forestry practices has changed over time, our investments have significantly contributed to our ability to be on the ''cutting edge'' of policy and forest management, and enabled the effective, efficient operation of our program.
Budgets—Biennial and Fiscal
Biennial Budgeting. Oregon's Constitution does not allow for State agencies to expend more than revenues received—this provides the Department with a clear mandate and environment to control costs. As an agency, the Oregon Department of Forestry participates in the regular state agency biennial (legislative) budgeting process, with initial budget requests submitted to the Governor's Office and then the Oregon Legislature for review/approval. The Department advises and involves the Board of Forestry and State Land Board throughout the biennial budgeting process—from the concept stage through Legislative authorization. State Forests Program budget requests are developed based on program objectives, previous budgetary allocations and revenue projections for future biennia. No funds are actually allocated by the Oregon Legislature for the operation of the State Forests Program, since the program is self-supporting through the revenues received from the harvest of forest products. The Legislature does, however, set the expenditure limitation for the next biennium for the revenues received.
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Fiscal budgeting
In addition to the regular agency biennial budget process, the State Forests Program also has an extensive internal fiscal budgeting process. Each district submits a fiscal budget request in advance of each fiscal year (July through June) that is reviewed at their Area level and then in central administrative offices. District fiscal budgets include program objectives and standards, in addition to assumptions and specifics regarding proposed expenditures. Fiscal budgets are then compiled and readjusted as necessary to accomplish the objectives of the program as a whole. Revenue and expenditure tracking and monitoring occur throughout fiscal years to assure that fiscal budgets are adhered to and, ultimately, that legislatively-approved budgets are not exceeded. Fiscal budgeting processes are one of the most effective means the program uses to project, set, determine, and control costs, and identify opportunities for investment that will meet the program's objectives.
The Oregon Department of Forestry manages about three-quarters of a million acres of forest land with clear purpose. In the case of the Common School Lands, the purpose is to ''manage and protect these lands for the maximum, long-term benefit of the public schools, consistent with sound stewardship, conservation, and business management principles.'' For the lands owned by the Board of Forestry, the Department must achieve ''. . . the greatest permanent value . . . .''. These mandates for managing State forests in Oregon are clearly different than those of other public and private landowners.
The Department makes investment decisions to achieve the purpose of the lands and does economic analyses to determine the most cost-effective investment alternatives. The program is funded entirely by revenues from the sale of timber. The Legislature determines biennial budget spending authority for the program; the program allocates spending authority to operating units. These allocations are determined in large part by available revenues and the cost-effectiveness of investment opportunities across the program.
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During the past year, the Department contracted with an outside consultant to evaluate the efficiency and effectiveness of State forest management and recommend areas for improvement. The Department prepared an action plan identifying responsible parties and timelines to implement the consultant's recommendations. The Department and the consultant reported on the findings and recommendations, and on the Department's action plan to the Board of Forestry during one of their public meetings. The Oregon Department of Forestry is implementing this action plan as one of many ongoing efforts to ensure its management of State forest lands achieves the purpose of the lands effectively and efficiently.
On behalf of the Oregon Department of Forestry, thank you for the opportunity to testify before your committee. I would be happy to respond to any questions.
Testimony of Bruce Daucsavage
Mr. Chairman, for the record my name is Bruce Daucsavage. I am the vice president and chief financial officer at Ochoco Lumber Company of Prineville, OR. I am also the chairman of the Northwest Forestry Association, chair of the Economic Services Committee of the Western Wood Products Association, and Treasurer of the Oregon Forest Industries Council. Ochoco Timber Company was established in 1923 and Ochoco Lumber Company in 1937. We currently operate three sawmills, one in Grant County and two in Crook County, employing 250 individuals. We produce a variety of wood products including industrial lumber used in the manufacturing of windows, doors and furniture and framing lumber used in the construction of new homes. The company currently owns 68,000 acres of timber land. Over the last 60 years, we have been a major purchaser of Forest Service timber in central and eastern Oregon.
I am here today, not as an expert on the Forest Service's Timber Sale Program Information Reporting System, but as a businessman responsible for running a lumber company that is accountable to our owners, customers, employees and communities.
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Ochoco Lumber Company has been deeply affected by the dramatic reductions in the Forest Service's timber sale program. Just 5 years ago, we were 50 percent dependent on Forest Service timber sales from the surrounding six national forests for our raw material supply. Today only 20 percent of our production is dependent on timber from Federal forests. This phenomena is not a result of a change in Ochoco Lumber Company's business plan or strategy, but a direct result of the Forest Service's inability to sell timber sales.
Historically we have purchased logs for our three sawmills from an area which includes the Deschutes, Malheur, Ochoco, Umatilla, Wallowa-Whitman and Winema National Forests. These six national forests' annual timber sale programs during the 1980's were an average of 900 million board feet. With the completion of NFMA Forest Plans, the annual sale program declined 45 percent to an average of 500 million board feet from 1990 to 1992. In 1993, the Forest Service implemented interim guidelines, referred to as the Eastside Screens, in response to several legal challenges of its timber sales program. These interim screens are still in place and the average annual timber sale program for 1993 thru 1997 on the six national forests has been 130 million board feet, a reduction of 74 percent from forest plan levels. Not only has the volume declined, but so has the size and quality of the timber being offered for bid. To meet these changes, we retooled our sawmills and changed some of the products we produce. This is not unique to these six national forests, but is a situation occurring region-wide.
With the collapse of the Federal timber sale program, Ochoco Lumber was forced to take drastic measures to reduce costs in order to remain a viable business. In 1993–1994 we reduced our overhead costs by 15 percent, eliminated employees, reduced wages and froze benefits. What makes our decisions all the more painful is the fact that we have not seen the Forest Service under go any significant belt tightening to reduce their cost of doing business. While some of the agency's most experienced resource professionals have been given opportunities for early retirement, we have not seen the kinds of cuts that one would expect given the dramatic reductions in the timber sale program. Attached to this testimony is a chart which shows for the national forests in Oregon and Washington, the timber sale program and the fiscal year budget. The chart clearly shows the agency's failure to trim its expenditures. While Ochoco Lumber Company has made the hard decision at the expense of people's livelihoods, we see the Forest Service's cost of selling a million board feet double, with much of the increase being in indirect costs or overhead assessments.
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Some increase in direct costs can be justified. As I mentioned earlier, we have seen a change in the size and quality of the timber being sold. This in part is a result of the agency's meager attempt to treat the forest health crisis facing Federal forests in the west. With lower board foot volumes, but more trees per acre being considered for harvest than traditional green timber sales, these forest health treatments are expensive to prepare and administer. In some cases this results in timber sales having costs greater than their revenues.
What is unacceptable are situations where poor agency management has resulted in timber sale planning and preparation work being done several times. The best example of this is the efforts to salvage the 1996 Summit Fire that burned 28,000 acres, killing at least 200 million board feet of timber on the Malheur National Forest. A Final Environmental Impact Statement was completed in the fall of 1997, and was to salvage 108 million board feet of fire killed timber. The agency withdrew that decision and just released a Final Supplemental EIS that proposes to salvage only 50 million board feet. Ochoco Lumber's foresters estimate that the actual volume will be about half that amount. Millions of dollars have been wasted in the Summit Fire environmental analyses because of agency mismanagement. The Forest Service estimates that the supplemental environmental analysis cost $21,000 per day in lost timber values or $4 million since December 1997. Nearly 2 years after the fire started, not one timber sale has been offered for sale. More timber volume has rotted on the stump in the last 2 years than will be ever salvaged.
Returning to the issue of where costs may exceed revenues—below cost timber sales are a better alternative than using appropriated funds to have service contracts treat overstocked, dead and dying forests. Ochoco Lumber is willing to bid on such sales assuming that there is an opportunity to make a return on our efforts. When we purchase Forest Service timber sales, we are converting this timber into useful products while at the same time providing family wage jobs, purchasing services and supplies from local businesses, and paying our fair share of local, State and Federal taxes.
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As I mentioned earlier, I am not an expert on TSPIRS, but I understand that beginning with the 1997 TSPIRS Report, due to new Federal accounting standards, the Forest Service will be expensing the entire cost of its road construction in the year it occurred. Furthermore, in previous years the agency was allowed to amortize a portion of those costs over several years, but those amortized costs will now be expensed in the 1997 TSPIRS Report. As a private forest land owner, Ochoco Lumber has constructed roads to provide access for management activities including stream enhance projects, forest health treatments and salvage logging. The Internal Revenue Service code and generally accepted accounting procedures have specific rules on how road costs are to be amortized and expensed. When a long term asset such as a forest road is constructed, it has a useful life much longer than 1 year and for that reason we are prohibited from expensing those costs in the year they incur. After all, these roads will be used by the general public and forest managers for many years to come. Therefore, not only does the 1997 TSPIRS Report use unconventional accounting methods, but it is loaded with previous years expenditures.
In closing, Ochoco Lumber Company, other private land owners, and State governments all have a proven record of being able to make a reasonable return from the management of forests. The question is not whether the Forest Service can return a net revenue to the Federal Treasury, but whether the agency can control its escalating costs. In my opinion, it is a function of the Forest Service's mismanagement of the public's trust, let alone a valuable renewable resource, compounded by inappropriate accounting methods that do not properly match revenues and expenses.
This concludes my prepared remarks. I would be happy to answer any questions you might have. Thank you.
Testimony of Donald R. Leal
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Mr. Chairman, thank you for the opportunity to be here today to discuss the Forest Service's Timber Sale Program and the potential for returning it to profitability. In fiscal year 1996, the Forest Service reported that its timber sale program lost money for the first time in history. This has led critics of the program to charge that timber sales on national forests are a waste of taxpayer dollars and should be ended immediately. Studies I have carried out comparing State and Forest Service timber sales on western forests tell a much different story, however.
These studies indicate that Forest Service's timber sale program could be one of the more profitable ventures on our national forests if and only if the agency ran its program with the same operating efficiencies as State foresters. Moreover, emerging evidence reveals that the agency could do so without sacrificing environmental quality.
One study I carried out a few years back compared timber sale returns from State and nearby national forests in Montana. Comparisons were made for three distinct growing regions in western Montana where Forest Service surveys rated State and nearby national forests as having similar timber growing potential. In addition, Montana's State foresters and the Forest Service were found to carry out many of the same duties to protect the forest environment from the impacts of logging. In addition to preparing environmental assessments and impact statements, State foresters, like the Forest Service, had to integrate timber harvests with other outputs such as public recreation, livestock grazing, and wildlife habitat.
Despite similar timber growing potential and similar environmental requirements, Montana State forests achieved much higher timber sale returns than nearby national forests did over a 5-year period. For the productive northwest region of Montana, State foresters generated $2.39 for every dollar spent managing timber sales, while the Forest Service failed to breakeven on nearby Flathead National Forest, returning only 75 cents for every dollar spent on timber sales. Even for the less productive central region of Montana, State foresters managed to make money, generating $1.07 for every dollar spent on managing timber sales in the region. Meanwhile, the Forest Service returned less than half of the money it spent managing timber sales on all seven national forests in the region.
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Similar results hold for Idaho, Washington, and Oregon. In Idaho, State foresters generated $9.77 in revenue for every dollar spent managing timber sales in 1996, while the Forest Service generated $1.10 in revenue for every dollar spent managing timber sales on nearby national forests. In Washington, State foresters generated $7.61 in revenue for every dollar spent managing timber sales in 1996, while the Forest Service lost money, returning 48 cents for every dollar spent managing timber sales on nearby national forests. Similarly, in Oregon State foresters generated $5 in revenue for every dollar spent managing timber sales, while the Forest Service managed to generate only $1.04 for every dollar spent managing timber sales on nearby national forests.
Why the dramatic difference? One reason is that on a unit cost basis State foresters spend a whole lot less on their timber sale programs than what the Forest Service spends, spending anywhere from one-quarter to three-quarters less. In Montana, for example, State foresters build mostly single-purpose, temporary roads, while the Forest Service builds mostly multi-pupose, permanent roads that are much more expensive. State forest roads in Montana average $5,000 per mile to build, while Forest Servcie roads avearge nearly $70,000 per mile to build.
State foresters have much higher labor productivity ratios, which contributes to lower unit costs as well. For example, in 1995 timber output per employee for Washington State foresters was over ten times higher than the Forest Service's ratio for the State. In Oregon and Montana, State ratios were three times and two-and-a-half times higher, respectively, than Forest Service ratios for the states.
One may be inclined to attribute the Forest Service's higher unit costs to greater environmental protection on national forests. But field evidence from Montana does not support this conclusion. In 1992 and 1993 independent audits, for example, State foresters in Montana ranked much higher than the Forest Service in protecting watersheds from the impacts of logging. These performace audits are conducted periodically by independent teams of Federal, State, and private experts in hydrology, forestry, soil, and biology, and include several representatives from environmental groups.
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Why are State foresters so much more efficient than the Forest Service? The answer lies in the fact that State foresters are required to make money, while the Forest Service has no such requirement. Losing money on timber sales is merely offset with congressional appropriations. Hence, there is very little incentive for the Forest Service to keep costs down. In addition, State foresters are not inundated with the high number of appeals and litigation that the Forest Service experiences as government studies reveal. This has contributed to the agency's declining outputs. In conclusion, Mr. Chairman, comparisons with State managed timber sales indicate that the Forest Service could indeed make money from its timber sales if the agency were motivated to operate with same efficiencies as the States.
I want to thank the members of the House Committee on Agriculture for the opportunity to speak here today on this important issue.
"The Official Committee record contains additional material here."