[Federal Register Volume 81, Number 187 (Tuesday, September 27, 2016)]
[Proposed Rules]
[Pages 66199-66221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22861]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 121
RIN 3245-AG69
Small Business Timber Set-Aside Program
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA or Agency) seeks
comments on a proposed amendment to its regulations governing the small
business timber set-aside program (hereafter referred to as the
``timber program'') so that appraisals on small business set-aside
sales be made to the nearest small business mill. Timber sale
appraisals are performed for small business qualifying set-aside and
non-set-aside sales. When the U.S. Department of Agriculture's (USDA)
Forest Service (FS) offers timber for sale, it appraises its potential
market value and sets the minimum bid that it will accept based on that
appraisal. Currently, appraisals in small business set-aside timber
sales take into account the haul costs to the nearest mill regardless
of that mill's size. Since set-aside timber sales require the use of
small business mills, SBA proposes that the appraisal on set-aside
timber sales
[[Page 66200]]
be made to the nearest small business mill in order to accurately
reflect the estimated cost to an eligible bidder. SBA is also
requesting comment on a possible policy alternative that would use a
weighted approach to appraising.
DATES: Comments must be received on or before November 28, 2016.
ADDRESSES: You may submit comments, identified by RIN: 3245-AG69, by
any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
For mail, paper, disk, or CD/ROM submissions: Brenda J.
Fernandez, Procurement Analyst, U.S. Small Business Administration,
Office of Policy, Planning and Liaison, 409 Third Street SW., 8th
Floor, Washington, DC 20416.
Hand Delivery/Courier: Brenda J. Fernandez, Procurement
Analyst, U.S. Small Business Administration, Office of Policy, Planning
and Liaison, 409 Third Street SW., 8th Floor, Washington, DC 20416.
SBA will post all comments on www.regulations.gov. If you wish to
submit confidential business information (CBI) as defined in the User
Notice at www.regulations.gov, please submit the information to: Brenda
J. Fernandez, Procurement Analyst, U.S. Small Business Administration,
Office of Policy, Planning and Liaison, 409 Third Street SW., 8th
Floor, Washington, DC 20416, or send an email to
[email protected]. Highlight the information that you consider
to be CBI and explain why you believe SBA should hold this information
as confidential. SBA will review the information and make the final
determination on whether it will publish the information.
FOR FURTHER INFORMATION CONTACT: Brenda J. Fernandez, Procurement
Analyst, U.S. Small Business Administration, Office of Policy, Planning
and Liaison, 409 Third Street SW., 8th Floor, Washington, DC 20416;
(202) 205-7337; [email protected].
SUPPLEMENTARY INFORMATION:
Background and Rationale for Proposed Rule
In cooperation with SBA, the FS manages the timber program. The
timber program was designed for small businesses whose product needs
are timber. Throughout the country, the FS offers timber sales that are
composed of multi-products for which the purchaser pays different rates
for each product. Multi-product sales may be composed of sawlogs, pulp
logs, biomass, or other products not generally processed into sawlogs.
Timber sales that have substantial sawlog volume are targeted for the
set-aside program. Small independent loggers, often called gypos, are
identified as small non-manufacturers, and are eligible to purchase the
set-aside timber sale and have to adhere to the contract rules of where
the timber can be milled. The volume purchased by these non-
manufacturers is credited, under the set-aside program, to the small
business market share.
Section 15(a) of the Small Business Act authorizes small businesses
to receive any contract which would ``assur[e] that a fair proportion
of the total purchases and contracts for property and services for the
Government in each industry category are placed with small-business
concerns'' and which would ``assur[e] that a fair proportion of the
total sales of Government property be made to small-business
concerns.'' 15 U.S.C. 644(a). Contracts for the sale of government
owned timber are, therefore, required to be set aside for small
businesses in order to assure that small businesses receive a fair
proportion of such sales. While the Small Business Act does not define
``fair proportion,'' SBA interpreted ``fair proportion'' in adopting
the market share system used today and detailed below. The D.C.
District Court upheld this interpretation in 1974 in Duke City Lumber
Co. v. Butz, 382 F. Supp. 362 (D.D.C., 1974), aff'd, 539 F.2d 220 (D.C.
Cir., 1976).
Congress further decreed in section 2 of the Small Business Act
that the ``economic well-being [and] security of this Nation . . .
cannot be realized unless the actual and potential capacity of small
business is encouraged and developed.'' 15 U.S.C. 631. To that end,
Congress directed all ends of the Government to ``maintain and
strengthen the overall economy of the Nation'' by assuring that small
businesses receive a fair proportion of total government contracts and
total government sales. Through sections 2 and 15 of the Small Business
Act, SBA is entrusted with keeping Federal government agencies
accountable on their collective obligation to deliver a fair proportion
of contracts and sales to small businesses. SBA's regulations, however,
currently do not address how SBA calculates ``fair proportion'' in the
context of government-owned timber sales. SBA's regulations also do not
address how goods-for-services stewardship timber sales should be
treated in the context of the small business fair proportion or market
share calculation.
Establishing Hauling Cost Appraisals That Are Accurate
SBA proposes to amend its regulations to include instructions on
how hauling costs are to be estimated in developing the appraised price
for small business set-aside sales under the timber program. SBA's
current regulations provide that on a set-aside sale the small business
may not resell more than 30% of the advertised sawtimber volume to a
large business concern in all FS regions outside of Alaska. As such, at
least 70% of the advertised sawtimber volume must be processed at a
small mill. This provision is known as the ``30/70 rule.'' When the FS
offers a timber program sale as a set-aside, it appraises its potential
market value and sets the minimum bid that it will accept based on that
appraisal. One factor in the appraisal is the haul cost that the
purchaser (small or large) will have to absorb to bring the timber to a
manufacturing facility. Currently, appraisals are made to the nearest
mill regardless of that mill's size. Because of the locations and
sparse number of remaining small sawmills, the current appraisal points
used for calculating hauling costs may have prevented small mills from
bidding on set-aside sales, since fuel and non-fuel costs for
transporting the timber from the forest to the processing location may
negate the bidder's profit margin of the purchase when the 30/70 rule
is also applied.
In order to provide small businesses an ability to meet the
requirements of the law as required under set-aside provisions, and to
encourage small business competition, SBA is proposing that small
business set-aside timber sales be appraised to the nearest small
business mill to accurately reflect the haul costs to eligible bidders.
As an alternative, SBA is also requesting comments on whether the
requirement to appraise the set-aside timber sales to the nearest small
mill should have some reasonable distance or haul cost limitation, such
as 60 miles (from the sale area to the nearest mill), because it may
not be economically feasible to haul timber over large distances. In
addition, SBA is also requesting comments on whether all 100% of the
hauling costs should be appraised to the nearest small business mill,
or, when the nearest mill is a large business, whether 70% of the
hauling costs should be appraised to the nearest small mill and
remaining 30% appraised to the nearest large mill in accordance
[[Page 66201]]
with the 70/30 ratio under the set-aside rule.
The proposed regulatory amendment would affect the FS timber
program only. As noted below, FS and the Department of Interior's (DOI)
Bureau of Land Management (BLM) are the primary timber ``sales
agencies.'' However, BLM's small business set-aside sales, which are
limited to eight markets in Oregon (FS Region 6), are made in
accordance with the terms of a separate Memorandum of Understanding
(MOU) between SBA and BLM. Rather than setting forth considerations for
small business market share computation methods, SBA's MOU with BLM
affords SBA the opportunity to review BLM's annual timber sale plans
prior to publication and to request set-aside sales under the authority
of the Small Business Act. When BLM agrees to set-aside certain timber
sales for small businesses, BLM consults with SBA concerning financial
and other performance qualifications to be included in the conditions
of sale. Accordingly, the proposed amendment to the timber program
would have no impact on BLM's timber sale program since BLM's current
policy is to appraise the hauling costs on its set-aside sales to the
closest mill that qualifies as a small business under SBA's
regulations. While SBA is also considering an amendment stewardship
contracting to include the stewardship sawtimber volume in the small
business market share calculation, this possible policy change would
not impact BLM's use of stewardship sales since BLM already credits/
counts the stewardship sawtimber volume in administering its set-aside
program.
SBA invites comments on all aspects of this proposed rule, the
timber program, and other policy changes currently under consideration.
In particular, SBA requests comments on the proposed change to
appraising the haul costs to the small business set-aside sales and the
alternative weighted approach to appraising the haul costs using the
30/70 rule. SBA is also interested in comments on whether there should
be a reasonableness test for distance from the sale area to the nearest
qualifying small business mill and how this test should be applied. In
addition, SBA invites comments on impacts of the potential inclusion of
the stewardship sawtimber volume in the small business ``fair
proportion'' calculation that SBA is currently considering but not
proposing in this rule.
The federal government regularly sells timber and non-timber
products from the federal forests managed by the USDA's FS, the DOI's
BLM, the DOI's Fish and Wildlife Service, the U.S. Department of
Defense, the U.S. Department of Energy, and the Tennessee Valley
Authority. Collectively, these agencies are referred to as the ``sales
agencies'' with FS and BLM being the primary sales agencies.
This proposed rule intends to amend SBA's regulations governing the
timber program. As mandated by the Small Business Act, SBA and the
sales agencies jointly set-aside timber program sales for exclusive
bidding by small business concerns when market conditions demonstrate
that small businesses are not receiving their fair share of timber
volume under full-and-open competition or unrestricted sales. When the
small business share of the timber market falls below a certain level,
a small business set-aside sale is triggered.
In order to determine the small business market share that triggers
a set-aside sale, FS calculates the current small business market share
based on small business purchases of sawtimber volume sold under the
timber program over a five-year period. This percentage, based upon
historical purchases of sawtimber in the market area, sets the
framework for what constitutes small businesses' fair proportion of the
total sales volume. If at any time, the small business market share
falls below this percentage, subsequent timber program sales would be
set-aside for preferential bidding by small businesses. Set-aside sales
in the timber program will continue until such time that the small
business market share rises above the triggering percentage.
Currently, only the advertised sawtimber volume sold under the
timber program is used to calculate the small business market share,
which establishes whether or not a timber sale should be set-aside for
preferential bidding by small business. Sawtimber volume sold under
stewardship contracting is not presently considered in this
calculation. SBA is considering a change to the calculation of the
small business market share using the volume of sawtimber sold under
both the timber program and stewardship contracting. By counting all
sawtimber volume, regardless of which way it's sold, the triggers for
set-aside procedures under the timber program could more accurately
reflect the small business market for FS timber. However, SBA
recognizes that including sawtimber volume sold through stewardship
contracting in the small business market share calculation could, under
some circumstances, result in there not being a set-aside sale where
there otherwise would have been a set-aside had stewardship sawtimber
not been included in the calculation and vice versa. SBA requests
comment on the possible impacts to small businesses should SBA propose
to include the stewardship sawtimber volume in the calculation of small
business fair proportion. The Agency further requests comment on the
need for transparency in the timber market as well as additional data
in order to help SBA further analyze the impacts of including
stewardship sawtimber volume in determining the small business fair
proportion of the market used in triggering set-aside sales under the
timber program.
It is also important to note that under this potential policy
change, although the volume of sawtimber sold through the timber
program and stewardship contracting would be used in the calculation of
the size of the small business market share that triggers a set-aside
sale, set-aside sales would only continue to occur under the timber
program. Since set-aside sales are not provided for under stewardship
contracting, such a policy change would not affect the FS's
implementation of the stewardship process.
The following is an illustration of how including stewardship
sawtimber may result in a more accurate depiction of the market that
small businesses are operating in:
Example A. The target market share for small business is 47%. A
timber program sale is conducted through full-and-open procedures. A
small business wins the award which contains 1,000 CCF (one hundred
cubic feet) of sawtimber. Since small business has attained 80% of the
sawtimber market share (large business is allotted 20% of the offered
timber program sale volume per FS regulations), unless that share drops
below 37% (trigger occurs when small business market share is 10
percentage points or more below the established baseline market share)
through subsequent timber sales, there will be no trigger for set-aside
sales and future timber program sales will continue under full-and-open
competition.
Example B. In the same market area, there have also been four (4)
stewardship sawtimber sales. These are always conducted as full-and-
open competition sales, because set-asides for small business are not
provided for in implementing stewardship contracting projects. These
four (4) awards have all gone to large businesses, each for 1,000 CCF.
The next timber program sawtimber sale is for another 1,000 CCF, but
because stewardship sawtimber volume is not counted, the attained
[[Page 66202]]
small business market share, from example A, is still reflected as 80%.
As a result, the next timber program sawtimber sale will be advertised
as a full-and-open sale. Had the previous stewardship sawtimber volume
been counted, the attained small business market share would have been
reflected as only 20% (1,000 out of 5,000 CCF sold) and this next
timber program sawtimber sale would have triggered a small business
set-aside since the 20% small business attainment is more than 10
percentage points below the minimum established for the market share of
47% in that market area.
Example C. Even if two (2) of the stewardship sawtimber sales in
example B had been previously won by small businesses the trigger for a
set-aside of the next timber program sawtimber sale would not have
occurred as small business would have been shown to have purchased a
total market share of 60% (3,000 out of 5,000 CCF) which is better than
the minimum established 47% share for that market area.
The FS received authority to implement pilot stewardship
contracting projects in section 347 of the FY1999 Omnibus
Appropriations Act (Pub. L. 105-277, sec. 347). Similarly, BLM was
authorized to use stewardship contracting in 2003 (Pub. L. 108-7, 16
U.S.C. 2104). The purpose of stewardship contracting was to help
achieve land management goals in National Forests and in the public
lands managed by BLM, in addition to helping meet the needs of local
and rural communities. Initially, stewardship contracting was scheduled
to expire in 2003 and then again in 2013. The Agricultural Act of 2014
established stewardship contracting as a permanent authority (Pub. L.
113-79, sec. 8205).
Stewardship contracting is a goods-for-services arrangement that
requires timber companies who cut trees on federal (FS and BLM) lands
to perform other service work in exchange for the timber volume.
Stewardship contracts fall into two general categories, Integrated
Resource Timber Contract (IRTC) formats, which were developed for
exclusive use in implementing stewardship contracting projects when the
value of goods exceeds the value of services and Integrated Resource
Service Contract (IRSC) formats, which were developed for exclusive use
in implementing stewardship contracting projects when the value of
services exceeds the value of the goods.
Developments in the Timber Industry
The entire wood products industry in the U.S. has undergone
dramatic changes in the past three decades. The sale of timber from the
National Forest System (NFS) has decreased from an annual timber volume
of approximately 10 billion board feet in 1990 to approximately 2.9
billion board feet in 2015. While the reasons for this decline are not
relevant to this proposed rule, the significance of this decline shows
that all mills, both small and large, and the communities that they
support have struggled to cope with the diminished supply of timber to
sustain their operations. Coupled with other economic factors, such as
the recession of 2008-2009 which saw a reduction in finished product
markets, particularly the new single family home construction market,
the decline in the timber industry has resulted in the closure of a
significant number of small and large mills. The segment of the U.S.
timber industry that derives its timber from the NFS does not operate
in a vacuum but in the overall market for timber. In the United States,
in the late 1990s, over 90% of the timber harvest volume came from
private lands and only about 5% came from USFS sales. During the
recession, the drop in new residential construction from 1.7 million
units annually to 450,000 and a decline in home remodeling as
residential mortgages tightened and home sales dropped combined to
impact wood manufacturing. From 2005 to 2009, over 1,000 sawmills
closed, comprising nearly 19% of all domestic mills in the forest
sector. Many other mills operated at limited capacity. All mills, both
large and small, have been forced to adapt and retool in response to
these changes, including mills of all sizes that do not rely on timber
supplied from NFS lands. Competition from overseas markets for private
timber also complicates the ability for U.S. markets to compete. Thus,
the importance of timber supply from FS lands may have increased,
however the impacts to businesses may be attributed to a combination of
supply, demand and global market changes. The closure of small mills of
all sizes has had and continues to have an adverse effect on employment
and the overall economy in rural timber communities where the timber
industry is the leading provider of employment and income. Small mills
depend on the SBA Timber Set-Aside Program to purchase their fair share
of timber offered for sale by the FS.
SBA conducted annual field visits in different regions of the
country and from interviews with small businesses in the logging,
sawmill and other wood manufacturing industries has learned they have
suffered immensely due to a diminished supply of timber. Based on the
data from the U.S. Census Bureau's County (CBP) Business Patterns
Reports available at www.census.gov/econ/cbp/, from 1997 to 2012, the
number of small businesses (i.e., fewer than 500 employees) in the
logging industry, classified under North American Industry
Classification System (NAICS) code 113310 (Logging), decreased 40%.
Similarly, based on the data from U.S. Bureau's Economic Censuses
available at www.census.gov/econ/census/, the number of small
businesses (i.e., fewer than 500 employees) in the sawmills industry,
NAICS 321113, decreased 34% in the same period. The number of employees
of small businesses fell by 40% for the logging industry and by 39% for
the sawmills industry. The majority of remaining industries in NAICS
Subsector 321 (Wood Product Manufacturing) also saw significant
reductions in numbers of small businesses and workers employed by them.
The data also confirms that the number of large business firms
(i.e., with more than 500 employees) and number of people employed by
them in those industries also decreased. For example, from 1997 to
2012, the number of larger firms decreased 44% in the logging industry
and 42% in the sawmills industry. The number of employees hired by
large businesses decreased 48% and 52%, respectively. Many other wood
product manufacturing industries also saw similar decreases in number
of firms and employment.
While total employment fell across both small and large firms in
those industries, the proportion of employees that is employed by small
businesses increased from 1997 to 2012. For example, as a percentage of
total industry's employment, employment by small logging firms
increased from 94% to 95%. Likewise, employment by small sawmills
increased from 67% of total industry's employment in 1997 to 72% of
total industry employment in 2012. This increase in the proportion of
workers employed by small businesses has coincided with the significant
decrease in the number of small businesses. This indicates that, even
if they have decreased in number, small businesses are increasingly
responsible for supporting employment in those industries.
As demonstrated in Tables 1, 2, and 3 below, stewardship timber
volume (i.e., sawtimber plus non-saw timber) accounted for a steadily
increasing percentage of FS's total timber sales from 2004 to 2013.
These tables provide data on total and stewardship timber sales for
each of the nine FS regions,
[[Page 66203]]
numbered Region 1 (R-1) through Region 10 (R-10). Region 7 was
eliminated in 1965 when the current Eastern Region was created from the
former Eastern and North Central Regions. The nine FS regions that
exist today are as follows:
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Region 1 (Northern)............... Montana, North Dakota, NW corner
South Dakota, and Idaho Panhandle.
Region 2 (Rocky Mountain)......... Colorado, Wyoming, South Dakota,
Nebraska, and Kansas.
Region 3 (Southwestern)........... Arizona and New Mexico.
Region 4 (Intermountain).......... Utah, Nevada, Western Wyoming,
Southern Idaho, and a small portion
of California.
Region 5 (Pacific Southwest)...... California.
Region 6 (Pacific Northwest)...... Oregon and Washington.
Region 8 (Southern)............... Virginia, North Carolina, South
Carolina, Georgia, Florida,
Kentucky, Tennessee, Alabama,
Mississippi, Louisiana, Texas,
Oklahoma, and Arkansas.
Region 9 (Eastern)................ Minnesota, Wisconsin, Iowa,
Missouri, Illinois, Indiana,
Michigan, Ohio, West Virginia,
Maryland, Delaware, Pennsylvania,
New Jersey, New York, Rhode Island,
Connecticut, Massachusetts,
Vermont, New Hampshire, Maine.
Region 10......................... Alaska.
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In Fiscal Year 2013, stewardship timber sales accounted for 31% of
all timber volume (timber plus non-timber) sold by the FS, up from only
5% a decade earlier. It should be noted that stewardship sawtimber
volume is different from the total stewardship timber volume, and that
all tables/references are based using the timber volume data only.
Table 1--Total Timber Volumes Sold by Each of the 9 FS Regions * (R-1 to R-10) FY 2004-FY 2013
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Year (FY) R-1 R-2 R-3 R-4 R-5 R-6 R-8 R-9 R-10 All FS
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All Sales, Sawtimber + Non-sawtimber (Volumes in Millions of Board Feet (MMbf))
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2004...................................... 159 163 49 107 208 434 359 319 85 1,883
2005...................................... 243 132 72 49 386 392 414 364 54 2,105
2006...................................... 189 165 69 68 228 470 858 381 83 2,511
2007...................................... 135 198 57 69 272 489 501 352 29 2,101
2008...................................... 186 201 43 70 109 525 539 349 4 2,026
2009...................................... 216 199 21 41 236 498 476 319 6 2,011
2010...................................... 180 196 46 60 252 424 540 358 45 2,100
2011...................................... 149 159 54 46 212 464 556 379 37 2,056
2012...................................... 144 196 32 53 219 512 521 419 41 2,137
2013...................................... 115 210 129 71 229 527 475 393 13 2,162
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* Region 7 (R-7) was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Data Company; November 19, 2013.
Table 2--Stewardship Timber Volume Sold by Each of the 9 FS Regions * (R-1 to R-10), FY 2004-FY 2013
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Year (FY) R-1 R-2 R-3 R-4 R-5 R-6 R-8 R-9 R-10 All FS
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Stewardship Timber/Service Sales (Volumes in Millions of Board Feet (MMbf))
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2004...................................... 7 9 25 12 23 19 0 0 0 96
2005...................................... 12 9 17 7 23 30 4 2 1 105
2006...................................... 48 16 18 15 24 64 42 4 0 231
2007...................................... 44 16 28 9 62 91 34 23 1 308
2008...................................... 64 35 21 12 14 100 28 10 1 284
2009...................................... 45 38 15 11 54 96 62 22 0 343
2010...................................... 56 70 26 38 75 120 50 50 0 486
2011...................................... 43 33 31 21 47 105 62 50 33 427
2012...................................... 41 35 19 22 102 175 92 67 40 592
2013...................................... 36 39 107 51 75 202 90 61 0 661
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* Region 7 (R-7) was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Data Company; November 19, 2013.
Table 3--Stewardship Timber Sales as a Percentage of Total Timber Sold by Region, FY 2004-FY 2013
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Year (FY) R-1 R-2 R-3 R-4 R-5 R-6 R-8 R-9 R-10 All FS
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% Stewardship
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2004...................................... 4 5 51 12 11 4 0 0 0 5
2005...................................... 5 7 23 13 6 8 1 1 1 5
2006...................................... 25 10 26 22 11 14 5 1 0 9
2007...................................... 33 8 49 14 23 19 7 6 2 15
2008...................................... 35 17 49 17 13 19 5 3 27 14
2009...................................... 21 19 72 27 23 19 13 7 0 17
2010...................................... 31 36 56 64 30 28 9 14 0 23
2011...................................... 29 21 59 47 22 23 11 13 9 21
[[Page 66204]]
2012...................................... 28 18 58 42 47 34 18 16 96 28
2013...................................... 32 19 83 72 33 38 19 16 0 31
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* Region 7 (R-7) was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Data Company; November 19, 2013.
According to historical sales data, the average number of bidders
is 1.02 for stewardship timber sales and 1.97 for timber program sales;
a statistically significant difference. This suggests that stewardship
timber contracting may have fewer competitors. On average, stewardship
timber sales are substantially larger than timber program sales,
especially those awarded to small businesses. According to the analyses
of both timber program and stewardship sales data provided by FS, as
shown below in Table 4, compared to timber program volume, small
businesses acquired a larger percentage of stewardship timber volume in
Region 2 (100%), Region 4 (100%), Region 8 (94%), and Region 9 (87%)
where stewardship timber volumes are quite minimal relative to total
volumes sold. However, small businesses received a lower percentage of
stewardship timber sales in Region 1 (70%), Region 5 (49%), and Region
6 (56%) where stewardship timber sales are generally fairly large
relative to total sales. While small businesses received a larger
percentage of stewardship timber volume in five regions individually,
in aggregate (i.e. when all regions combined) the small business share
was substantially lower at about 62% under stewardship contracting, as
compared to nearly 71% under the timber sales program. Thus, based on
these data, SBA is concerned that small businesses may be less
successful in getting their fair share of government timber sales under
stewardship contracting projects than under the timber program in
certain FS regions and markets and that this situation may get worse
over time as more and more FS timber is sold through stewardship
contracting, as indicated by recent trends shown above in Table 2.
Accordingly, to address this issue, SBA is considering a policy change
to include the stewardship timber volume in the calculation of small
business market shares. SBA seeks comments on the potential impacts of
this change in the methodology, and how any impacts to small businesses
may vary across regions or across market areas within the region.
Table 4--Total Timber Volumes Sold Under Timber Program and Stewardship Sales and Shares of Timber Sold to Small Businesses by Region *
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Total timber volume sold (1,000 CCF) Share of timber sold to small businesses
------------------------------------------------------------------ (%)
Region Timber Stewardship Total timber sales --------------------------------------------
------------------------------------------------------------------
Total Small Total Small Total Small Timber Stewardship Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Region 1................................. 1,949 1,454 304 213 2,253 1,667 74.6 70.0 74.0
Region 2................................. 2,471 1,910 121 120 2,591 2,031 77.3 100.0 78.4
Region 3................................. 615 615 62 62 677 677 100.0 100.0 100.0
Region 4................................. 859 588 29 29 888 618 68.5 100.0 69.6
Region 5................................. 2,484 1,261 230 113 2,715 1,373 50.7 48.9 50.6
Region 6................................. 8,206 5,369 2,067 1,152 10,273 6,520 65.4 55.7 63.5
Region 8................................. 4,434 3,546 139 131 4,572 3,677 80.0 94.4 80.4
Region 9................................. 1,614 1,533 59 51 1,673 1,584 94.9 86.6 94.7
All Regions.............................. 22,632 16,275 3,011 1,871 25,643 18,146 71.9 62.2 70.8
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* Region 7 was eliminated in 1965 as part of redesignation of FS regions. Region 10 was not included in FS calculations.
Source: FS calculations based on the Timber Data Company data for FY 2002-2010 for Regions 2 through 5, 8 and 9, and FY 2002-2015 for Regions 1 and 6.
Still, SBA faces data challenges in analyzing the impact on small
businesses from a potential policy change to include the stewardship
sawtimber in the calculation of small business fair proportion or
market share used to establish a set-aside sale within the timber
program. The FS conducted an analysis with FY 2002-2010 data for
Regions 2 through 5, 8 and 9 and with FY 2002-2015 data for Regions 1
and 6. To bridge these gaps in the data, SBA evaluated the percentages
of timber program and stewardship sales awarded to small businesses
using the data from the SBA's Timber Sales System (TSS) for FY 2004-
2014. These results, as shown below in Table 5, also showed fairly
similar patterns as in the FS analysis in Table 4, with small
businesses generally acquiring a relatively larger percentage of
stewardship timber in most regions where stewardship contracting is
limited and a smaller percentage in regions where stewardship timber
sales are substantial relative to total sales, such as Regions 1, 5 and
6.
[[Page 66205]]
Table 5--Share (%) of Total Timber Volume Sold to Small Businesses by Type of Sale--Timber Program (T) and Stewardship (S)--by FS Region, FY 2004-2014 *
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Region
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Year Region 1 Region 2 Region 3
--------------------------------------------------------------------------------------------------
T S Total T S Total T S Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004................................................. 70.2 ......... 70.2 57.3 ......... 57.3 100.0 ......... 100.0
2005................................................. 81.9 100.0 82.2 73.5 100.0 75.2 100.0 100.0 100.0
2006................................................. 81.3 89.4 83.5 82.1 54.5 79.6 100.0 100.0 100.0
2007................................................. 84.9 94.0 87.8 75.6 100.0 77.8 100.0 100.0 100.0
2008................................................. 89.3 85.5 88.0 100.0 100.0 100.0 100.0 100.0 100.0
2009................................................. 60.4 64.3 61.0 100.0 100.0 100.0 90.9 100.0 96.4
2010................................................. 86.6 38.5 66.9 100.0 100.0 100.0 100.0 100.0 100.0
2011................................................. 68.8 50.6 63.7 96.1 100.0 97.0 100.0 100.0 100.0
2012................................................. 90.8 15.2 69.8 93.6 100.0 94.8 100.0 100.0 100.0
2013................................................. 41.2 34.8 39.4 88.2 100.0 89.6 100.0 100.0 100.0
2014................................................. 48.5 100.0 54.1 44.4 100.0 53.4 100.0 100.0 100.0
All years............................................ 74.9 55.4 69.9 83.0 97.7 85.4 99.8 100.0 99.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Region
--------------------------------------------------------------------------------------------------
Year Region 4 Region 5 Region 6
--------------------------------------------------------------------------------------------------
T S Total T S Total T S Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004................................................. 66.5 ......... 66.5 78.3 ......... 77.7 71.2 ......... 71.2
2005................................................. 94.2 100.0 94.6 28.6 17.6 28.0 54.3 15.2 50.8
2006................................................. 77.1 81.5 78.0 28.1 57.4 30.8 57.8 67.7 59.3
2007................................................. 74.6 88.9 76.5 58.8 45.6 55.8 62.4 41.3 58.7
2008................................................. 76.9 91.3 79.3 86.6 95.7 87.4 63.7 59.5 62.9
2009................................................. 79.7 100.0 85.2 71.4 74.7 72.1 75.4 59.5 72.0
2010................................................. 100.0 66.7 79.8 62.8 56.4 60.5 64.7 61.2 63.7
2011................................................. 100.0 44.3 68.5 54.4 87.9 62.6 66.4 60.3 65.0
2012................................................. 96.8 100.0 98.1 79.2 40.6 62.7 64.6 57.6 62.1
2013................................................. 95.0 100.0 98.4 68.5 55.6 64.1 65.8 72.8 68.6
2014................................................. 100.0 42.4 65.1 37.6 86.0 44.6 70.5 70.1 70.3
All years............................................ 82.0 75.5 79.9 56.3 57.8 56.6 65.1 61.6 64.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Region
--------------------------------------------------------------------------------------------------
Year Region 8 Region 9 Region 10
--------------------------------------------------------------------------------------------------
T S Total T S Total T S Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
2004................................................. 89.3 ......... 89.3 78.8 ......... 78.8 100.0 ......... 100.0
2005................................................. 86.9 100.0 87.0 79.3 100.0 79.4 100.0 100.0 100.0
2006................................................. 74.1 100.0 75.3 92.7 100.0 92.7 100.0 ......... 100.0
2007................................................. 80.1 100.0 81.3 85.3 74.3 84.6 100.0 ......... 100.0
2008................................................. 85.3 97.9 86.0 89.4 100.0 89.6 100.0 100.0 100.0
2009................................................. 93.2 94.6 93.3 92.2 100.0 92.8 100.0 ......... 100.0
2010................................................. 85.4 95.7 86.4 87.8 95.7 88.8 100.0 ......... 100.0
2011................................................. 86.8 96.7 88.1 85.7 89.9 86.3 100.0 100.0 100.0
2012................................................. 91.3 78.8 89.1 88.4 98.2 90.0 100.0 100.0 100.0
2013................................................. 91.6 100.0 93.1 90.4 90.9 90.5 100.0 ......... 100.0
2014................................................. 77.2 89.9 80.4 84.3 80.2 83.6 100.0 100.0 100.0
All years............................................ 84.7 92.9 85.5 86.8 90.6 87.1 100.0 100.0 100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 7 was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Sales System.
As shown below in Table 6, the data further indicates that, during
FY 2004--2014, more than two-thirds of businesses (68% of all
businesses and 67% of small businesses) that receive stewardship timber
contracts also acquired timber through the timber program. Likewise,
87% of stewardship timber volumes sold to all firms and 83% of
stewardship timber volumes sold to small firms was acquired by
businesses that purchase timber through both stewardship and timber
program sales (see Table 7 below). Except for Region 4 with respect to
the number of firms and Region 3 with respect to timber volume (in both
cases the percentages are less than 50%), the results are more or less
similar across regions. The majority of stewardship timber purchasers
successfully compete in both markets.
[[Page 66206]]
Table 6--Number of Firms Getting Timber Program (T), Stewardship (S), and Both (T & S) Types of Timber Sales by
Region, FY 2004-2014
----------------------------------------------------------------------------------------------------------------
(T&S)/total S
Region * T only S only Both (T & S) Total S (%)
----------------------------------------------------------------------------------------------------------------
Number of All Firms
----------------------------------------------------------------------------------------------------------------
1............................... 558 10 34 44 77.3
2............................... 432 14 30 44 68.2
3............................... 272 17 17 34 50.0
4............................... 313 24 20 44 45.5
5............................... 540 11 44 55 80.0
6............................... 464 28 54 82 65.9
8............................... 918 18 56 74 75.7
9............................... 692 37 85 122 69.7
10.............................. 99 1 6 7 85.7
-------------------------------------------------------------------------------
Total....................... 4,288 160 346 506 68.4
----------------------------------------------------------------------------------------------------------------
Number of Small Firms
----------------------------------------------------------------------------------------------------------------
1............................... 546 9 28 37 75.7
2............................... 407 14 28 42 66.7
3............................... 268 17 16 33 48.5
4............................... 300 21 17 38 44.7
5............................... 516 9 38 47 80.9
6............................... 447 26 40 66 60.6
8............................... 861 17 49 66 74.2
9............................... 645 34 78 112 69.6
10.............................. 97 1 6 7 85.7
-------------------------------------------------------------------------------
Total....................... 4,087 148 300 448 67.0
----------------------------------------------------------------------------------------------------------------
* Region 7 was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Sales System.
Table 7--Volume of Timber Sold to Firms Getting Timber Program (T), Stewardship (S), and Both (C & S) Types of Sales by Region, FY 2004-2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
Both (T & S) S Under both/
Region * (1) T only (2) S only (3) -------------------------------- Total S (6 = total S (\5/
T (4) S (5) (3 + 5)) 6\) (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Timber Acquired by All Firms (in 1,000 CCF)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................................... 1,193 156 2,370 1,045 1,201 87.0
2....................................................... 2,675 56 1,642 769 825 93.2
3....................................................... 297 212 499 186 397 46.7
4....................................................... 605 179 604 310 489 63.4
5....................................................... 1,241 40 4,843 1,235 1,276 96.8
6....................................................... 2,610 188 6,247 2,489 2,677 93.0
8....................................................... 6,069 257 4,434 967 1,224 79.0
9....................................................... 3,400 107 3,415 583 690 84.5
10...................................................... 491 6 456 375 381 98.5
-----------------------------------------------------------------------------------------------
Total............................................... 18,580 1,201 24,510 7,959 9,160 86.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Timber Acquired by Small Firms (in 1,000 CCF)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................................... 1,114 152 1,311 531 683 77.8
2....................................................... 2,177 56 1,337 649 704 92.1
3....................................................... 289 212 417 127 338 37.4
4....................................................... 497 115 476 206 321 64.2
5....................................................... 1,045 26 2,097 592 618 95.7
6....................................................... 2,179 139 4,148 1,345 1,483 90.7
8....................................................... 4,927 253 4,004 800 1,053 76.0
9....................................................... 2,727 97 2,957 419 516 81.2
10...................................................... 251 6 832 375 381 98.5
-----------------------------------------------------------------------------------------------
Total............................................... 15,207 1,055 17,580 5,043 6,097 82.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 7 was eliminated in 1965 as part of re-designation of FS regions.
Source: Timber Sales System.
[[Page 66207]]
The Timber Program
The FS sells logs in accordance with the National Forest Management
Act, which describes the process for buying, paying for, harvesting,
and removing wood from NFS lands. Pursuant to the Small Business Act
(15 U.S.C. 644(a)), SBA established the timber program in 1958. At that
time, the timber program was a mechanism for the USDA to set aside
timber sales. In 1971, SBA and USDA signed a Memorandum of
Understanding (MOU) which established the guidelines for determining
``fair proportion,'' created a five-year re-computation period for
determining the base average shares of timber purchases, and
established a ``trigger'' mechanism for initiating set-aside timber
sales. Currently, FS has 9 Regions comprised of 140 market areas, of
which 139 are active as shown in Table 11. See http://www.fs.fed.us/.
The FS sells timber through both the timber program and stewardship
contracting. With respect to timber program sales, each FS market area
has a distinct small business market share. This percentage, based upon
historical sawtimber volume acquired by small businesses, sets the
framework for what constitutes small businesses' fair proportion of the
total timber program sawtimber sales volume. Whenever the small
businesses market share drops 10 percentage points or more below the
established small business market share for a market area, a set-aside
sale is ``triggered'' and FS is required to offer set-aside sales to
increase the small business market share. If small businesses do not
submit bids, the set-aside sale is converted to a full-and-open sale in
which other-than-small businesses can also compete.
Currently, FS does not consider the sawtimber volume from IRTC and
IRSC stewardship contracting in calculating the small business market
share. The omission of the stewardship sawtimber volume in the
calculation may affect small business market shares in either direction
relative to the current policy. For example, FS' Mt. Hood market area
(located in Region 6) has an established small business market share of
80% (as calculated during the 2010 re-computation of small business
market shares). Because 20% of FS' timber program sales must be
competed as full and open in order to ensure that large businesses also
have the opportunity to compete, 80% is the maximum allowable small
business share and indicates a robust small business timber purchase
market. Over the period from November 2010 through March 2015, twenty-
six (26) timber sales were offered in the Mt. Hood market area. Of
those 26 sales, sixteen (16) were stewardship timber contracts which
included timber volume. Twelve (12) of these were awarded to small
businesses under full and open conditions. Ten (10) of the 26 sales
were timber program sales. Eight (8) were awarded as full-and-open
sales, and two (2) were small business set-aside sales.
This data suggests that small businesses have been successfully
obtaining timber volume in this market area, but because stewardship
sawtimber volume is not included in determining what the correct small
business market share calculation should be, the small business fair
market share has dropped from 80% to 72%. This is one example of how
not counting stewardship sawtimber volume in the calculation can
influence what the small business established fair share should be.
Based on the limited data available, as it appears, it is also possible
that including the stewardship sawtimber volume in the calculation of
fair proportion could have the reverse effect in some regions,
increasing the five-year fair market share relevant to the current
policy.
Public Comments in Response to SBA's Advance Notice of Proposed
Rulemaking
In response to requests from timber industry stakeholders, SBA
published an Advance Notice of Proposed Rulemaking (ANPRM) in the
Federal Register on March 25, 2015 (80 FR 15697) inviting the public to
submit comments on or before May 26, 2015. Specifically, the ANPRM
requested detailed comments addressing the possible inclusion of the
stewardship contracting sawtimber volume in the small business market
share calculations and the possible appraisal of small business set-
aside sales to the nearest qualifying small business mill. SBA received
responses from 842 commenters. The summary of comments is provided in
the following sections.
Comments on the State of the Timber Industry
The ANPRM presumed that the U.S. timber industry has undergone
dramatic changes in the past decades. As stated in the ANPRM, the
supply of timber from the FS timber program decreased significantly
over the past three decades impacting both large and small businesses.
Comments to the ANPRM provided more insights into the state of the
timber industry. For example, according to comments from a trade group
representing small timber products companies, Timber Products
Manufacturers Association (TPMA), since stewardship contracting was
first piloted, small sawmills' share of Federal timber has declined by
71%. For example, in 1993, 146 small sawmills shared access to the FS
timber in the Western regions; in 2014, that number had decreased to 43
firms. According to comments, remaining small business sawmills have
made changes in their processes and the way they do business to remain
competitive and stay in business.
TPMA also commented that, as the number of small businesses
declines, large firms are increasingly able to raise costs through
anti-competitive means. That is, as the number of potential buyers for
timber gets smaller, dominant firms are enabled to set the price. TPMA
pointed to a study published by the SBA's Office of Advocacy.
Innovation & Information Consultants, Inc., 2008, Analyzing the Impacts
of Antitrust Laws and Enforcement on Small Business, prepared for the
U.S. Small Business Administration, Office of Advocacy under contract
no. SBAHQ-06-M-0476, available at www.sba.gov. The study found evidence
of harmful anti-competitive behavior in the timber industry; however
industry-wide trends indicated macroeconomic factors were equally
important in the decline of small businesses. Specifically, the study
indicated that a particular global forest products company made efforts
to monopolize the red alder timber market in the Pacific Northwest by
employing anti-competitive strategies. Still, antitrust litigation in
the Northwest did not deter new entry into the market during this time.
Thirty-one Washington and Oregon hardwood mills closed between 1980 and
2001, when the large company was suspected of anti-competitive behavior
in those states.
In response to the ANPRM, other-than-small industry participants
submitted data showing that, as the FS reduced its timber harvest by
over 90%, the majority of sawmills in the western United States that
existed in 1971 have now closed. According to a regional trade
association representing large business operations, the Public Timber
Purchasers Group (PTPG), between 1990 and 2010, 207 mills closed in
Oregon (a decrease of 66%) causing a loss of 21,000 jobs. PTPG asserted
that these economic forces have caused small sawmills to merge or be
purchased. As a result, according to PTPG, there is only one operating
small business sawmill capable of purchasing federal timber in some FS
areas--and in some other areas, there are no longer small business
purchasers at all. Additionally, a union representing manufacturing
[[Page 66208]]
workers observed that, in Oregon, virtually all organized labor in the
lumber manufacturing sector is found in mills with consolidated
ownership.
Commenters also provided localized observations and data. In Bonner
County, Idaho, according to the Bonner County Board of Commissioners,
800 logging and sawmill jobs have been lost and only one small sawmill
remains. According to a commenter from Coos Bay, Oregon, one of the
largest mill sites has been converted to a casino. An executive from a
small lumber products company in Clarkston, Washington, spoke at a May
7, 2015 regulatory fairness hearing in Spokane about closing the
company's Clarkston mill in 2009 because of the recession. However,
partly because of small business set-aside timber sales from the
Umatilla National Forest, the company has been able to reopen the
Clarkston mill and support 80 jobs. It now operates two sawmills and
employs 240 workers. Conversely, two small business sawmills in Montana
initiated layoffs of between one-third and one-half of their workers.
Comments on the Current Timber Set-Aside Program
In response to SBA's invitation for comments on the current
Program, 221 commenters expressed general support for the current
Program. Commenters generally asserted that small mills depend on the
Program to purchase their fair share of timber offered for sale by the
FS. By contrast, large business mills appear to make greater use of
private land as a reserve for harvesting timber.
TPMA commented that in addition to supporting small firms and their
surrounding communities, small business set-asides do not significantly
reduce federal revenues. The group's comment pointed to a government
analysis showing that set-aside sales take in only two percent less
than open sales. A study published in 2013 found that set-asides reduce
FS revenue by 5%, and the effect of reducing competition by excluding
large businesses is partially offset by increased small business
participation. Athey, Susan, Dominic Coey, and Jonathan Levin. 2013.
``Set-Asides and Subsidies in Auctions.'' American Economic Journal:
Microeconomics, 5(1): 1-27, available at www.aeaweb.org. The commenter
also posited that if small sawmills are pushed from the market, large
firms would be able to drive down federal revenues from timber sales.
The commenter pointed to revenue data from the Panhandle National
Forest to assert that market competition from small businesses
stabilize prices for government timber sales. TPMA asserted that
because stewardship contracting is not part of the fair proportion
calculation in the small business set-aside Program, small timber
product manufacturing companies have sustained a market decline of 71%
since the stewardship contracting was launched. The small business
trade group observed that, in 2014, one-third of the timber volume
offered by FS was distributed through stewardship contracting,
including 38% in the western United States. In some regions,
stewardship contracting exceeds 70% of FS timber volume transactions.
According to the commenter, failure to include the volume of timber
associated with stewardship contracting lowers the market share for
small business set-aside sales.
SBA also received comments from a variety of local legislators who
described how the timber set-aside program operates in their areas.
According to the comments, in Klamath County, Oregon, the only
operating sawmill is an other-than-small business, so instituting set-
asides would impact the county's budget. By contrast, a legislator from
Marion County, Oregon, commented that smaller mills that rely on set-
asides support much of the county's employment. Fifteen years ago, the
milling industry supported 63.5% of the employment in the North Santiam
Canyon communities; because of the downturn in the industry, the
industry now supports 41% of employment.
The Commissioners of Powell County, Montana, noted that the trend
toward increasing stewardship contracts in three national forests--
Beaverhead-Deerlodge, Helena and Lolo National Forests--has reduced the
potential amount of funding to the county because stewardship
contracting does not feature revenue sharing as timber program sales
do. From 2001 to 2013, the percentage of stewardship contracting on the
Beaverhead-Deerlodge and Lolo National Forests accounted for over 23%
of the sawlog volume sold during that period.
A commenter from Salem, Oregon, responded that the local community
has suffered a devastating impact because of the reduction in revenues
from timber sales. According to the commenter, declining timber
revenues has meant fewer jobs, less revenue for county services, and
less revenue to support families.
Several private business commenters remarked that failure to
include the volume of timber associated with stewardship contracting
lowers the market share for small business set-aside sales. A lumber
company in Lyons, Oregon, that employs 430 people commented that 38% of
its federal timber was bought on a small business set-aside basis. The
commenter expressed concern that half of the sales volume available to
it is being distributed through stewardship contracting, which limits
the volume available through timber program open and set-aside timber
sales. A 93-year-old lumber company in southwest Oregon stated that
100% of its federal timber under contract was purchased through small
business set-asides. The commenters worried that, without the small
business set-aside program in place, large businesses would starve
small businesses out of public timber.
Another small business lumber company in north central Idaho
remarked that the small business set-aside program is non-existent in
Nez Perce-Clearwater National Forest because in excess of 80% of the
forest's timber volume is sold through stewardship contracts. The
commenter stated that, because the stewardship program is not subject
to set-asides, its business could not avoid bidding against large
businesses.
From Montana, a family-owned sawmill and forest management company
commented that 15 million board feet of logs from the Flathead National
Forest has been made available through stewardship contracting, rather
than through the timber sales program. The commenter observed that this
volume would be enough to run its mill for nearly six months.
Comments With Requests for Government Action
A substantial number of commenters asserted that agency action is
required to avoid irreparable harm to the competitive timber market in
the United States, leading to the closure of many small timber
manufacturers. Many commenters from small business mills are the
primary employers in their rural communities, and they believe that the
lack of action will result in thousands of jobs lost and the
destruction of many of these communities. The small business industry
group commented specifically that failing to include stewardship
contracts in the small business timber set-aside program has decimated
small timber manufacturers.
Several commenters also noted that large multinational companies
have begun to aggressively pursue both timber program full-and-open and
stewardship sales in an attempt to drive small businesses from the
playing field. For example, a third-generation small
[[Page 66209]]
business logging operation in Washington and Oregon found that
stewardship contracting is replacing the timber sale program. The
commenter purchases most of its federal timber from the Mt. Hood and
Gifford Pinchot National Forests, but has seen a 90% reduction in
available timber volume since 1990. The commenter observed that there
are very few small business set-aside sales because of the predominance
of stewardship sales, and speculated that large forest products
companies have worked to drive small family-owned companies out of
business in order to consolidate the market share.
A small business lumber company from Deer Lodge, Montana, operating
in an area where the FS owns over 60% of timber lands, commented that
it is dependent on the small business timber set-aside program. The
commenter stated that it initially supported stewardship contracting,
but did not expect that it would be a major part of FS's timber
offerings. As the percentage of stewardship offerings has become a
third of the overall timber program volume, the commenter predicted
that it would only be able to continue operations if it has an
opportunity to bid on a fair share of federal timber sales without
interference from large businesses. The Mayor and City Council of Deer
Lodge, Montana, also support the set-aside program, stating that the
sawmill industry made up the cultural and economic basis for the
community.
A small sawmill in Kamiah, Idaho, commented that it had been shut
down during the 2008 recession, but started up again with 65 employees
after it was auctioned off. The commenter responded that it has found
predatory bidding in non-set-aside sales and, as a result, has not been
able to purchase public logs in two years. The commenter stated that it
is surviving only on private landowner logs, and it believes that its
sawmill will fail and 65 jobs will be lost if the set-aside program is
not amended. The Mayor of Kamiah commented that the city has one of the
highest unemployment rates in Idaho. The Mayor wrote that losing the
local sawmill industry would devastate the area economically.
A substantial number of commenters from across the western United
States commented that their communities and families relied on the
local sawmills. One commenter from Colville, Washington, responded that
he has been on unemployment twice in the past three years because of
timber shortages. An individual commenter from St. Regis, Montana,
added that small family-owned forest product companies need the SBA
set-aside program to ensure stable access to government timber.
Similarly, an individual from Lyons, Oregon, commented that the set-
aside program supported a stable environment for small-town families. A
commenter from Weippe, Idaho, remarked that the sawmill that was
founded there in 1947 has relied on set-aside sales to compete with
large sawmills.
A union group commented that it opposes any government action and
believes that agencies should craft a solution that does not
disproportionately punish organized labor.
Several commenters pointed to Congressional efforts to force agency
action. Congress has urged the Administration to address this issue
through multiple bills and correspondence. In 2014, Congress included
the following report language in the Joint Explanatory Statement
accompanying Public Law 113-235, the Consolidated and Further
Continuing Appropriations Act, 2015 (160 Cong. Rec. H9768, Daily ed.
Dec. 11, 2014):
The Forest Service is strongly encouraged to expeditiously
prepare and publish draft rulemaking to establish a small business
set[hyphen]aside program for timber contracts undertaken using
stewardship contracting authority that is consistent with previous
commitments made by the Service and the Department of Agriculture on
this matter.
Similar language on the need for either SBA or the FS to address
the issue through regulation is included in the FY2016 appropriations
bills or in Congressional correspondence to the agencies.
Comments on Including Stewardship Contracting Sawtimber Volume in Small
Business Market Share Calculations
Over 300 commenters urged SBA to include stewardship sawtimber
volume in the small business market share calculation, while 15
commenters opposed it. Based on SBA's analysis of both the available
data and comments received in response to the ANPRM, SBA is considering
including the stewardship sawtimber volume in the calculation of small
business market shares. SBA's ANPRM requested comments on how the
inclusion of stewardship sawtimber might impact future market share
calculations, stumpage prices, land management activities, retained
receipts, and sale values. SBA also requested comments on whether an
increase in the utilization of stewardship contracts in a market area
might result in a lower representation of small businesses successfully
bidding for timber sales in that market area and whether this should
lead to lowering the market share for small business set-aside sales in
that market area when the FS and SBA compute small business
participation. Commenters provided a wide range of views on these
topics.
Of the 842 commenters, 327 suggested that stewardship sawtimber
sales should be included in the calculation of set-aside trigger
points. Further, 14 commenters urged SBA and FS to include the
stewardship sawtimber volume in the upcoming (now recent) five-year re-
computation of small business shares to ensure accurate representation
of small business participation. TPMA, the small business trade group,
commented that increasing use of stewardship contracting, in particular
IRTCs, creates a ``loophole'' in the small business market share
calculation. According to TPMA, as IRTC contracting becomes more
prevalent, the calculated small business market shares become distorted
because they are only computed based on a handful of sales. This is
because one-third of the market volume is being transacted through
stewardship contracts and is currently excluded from the small business
market share calculation. TPMA asserted that the omission of
stewardship contracts understates the volume of timber being transacted
and thus results in the inflation of the calculation of the small
business market share. TPMA pointed to the Payette market area, where
there were only two standard timber sales contracts. TPMA asserted that
excluding stewardship volumes from the calculation prevents small
businesses from achieving a representative re-computation that is
consistent with the Small Business Act.
Fifteen commenters stated that stewardship timber volume should not
be included in the calculation. The PTPG commented that the goal of the
stewardship program is to accomplish forest health, watershed
improvement and similar projects with the sold timber offsetting some
or all of the costs. Because the selection of stewardship contractors
is a subjective process that uses a ``best-value'' process, PTPG
asserted that stewardship contracting should be excluded because re-
computations of market shares for set-aside sales should be based upon
objective timber sale data. Also, PTPG commented that, if stewardship
sales were included in the set-aside timber sale program, the number of
potential contractors would be significantly limited for any
stewardship sale designated as a set-aside.
[[Page 66210]]
Thirty-nine commenters expressed that failure to include the
stewardship sawtimber volume in the small business market share
calculation will adversely affect the small businesses which rely on
the federal timber supply. These commenters suggested that the trend
towards stewardship contracting negates the positive impacts of the
small business timber set-aside program. In particular, a small
business sawmill in Deer Lodge, Montana, and the largest private
employer in Deer Lodge, commented that stewardship contracting has been
increasing in use, both in terms of number of sales and sawlog volume.
Although the business has promoted stewardship contracting as a
positive method of resolving resource conflicts on National Forest
Land, it supports including the stewardship sawtimber volume in the SBA
set-aside calculations.
Similarly, a trade group in Idaho representing logging and wood
hauling contracting businesses supported including stewardship
contracting sawtimber in the calculation of shares of timber program
sales acquired by small businesses. The trade group observed that, in
some Idaho forests, the stewardship timber volume has exceeded over 80%
of total timber sales in four of the last five years.
The comments from a small business trade group emphasized that
adding the stewardship sawtimber would add transparency and diligence
to the recordkeeping process. These commenters observed that, even
within the timber program, the volume in transactions with small
businesses is inaccurate because the calculations are based on volumes
advertised and awarded, and does not include volumes added through
contract modifications.
SBA's ANPRM requested comments as to how the stewardship sawtimber
volume should be accounted for in calculating the small business market
share. Six commenters suggested that FS simply use existing timber
program sale rules and norms to count sawtimber volume from stewardship
projects. TPMA asserted that adding stewardship sawtimber volumes to
the calculation would not be difficult. According to TPMA, FS develops
an appraisal for each stewardship opportunity to decide the value of
the timber available to be exchanged for services. These volumes and
values could be tracked and used to adjust proportions used in the
Program. Additionally, TPMA commented that FS provides upon the
requests of the Timber Data Company with Reports of Timber Sales (FS
2400-17) which contain timber volume data for all timber sale
contracts.
Three commenters asserted that, depending on the market area,
inclusion of the stewardship timber volume may increase small business
participation in both stewardship contracting and the timber program.
Five commenters felt that increased competition from the inclusion of
stewardship sales would increase stumpage rates. The same number of
commenters stated that inclusion of the stewardship sawtimber volume
would reduce the number of bidders and decrease stumpage rates.
Six commenters felt that any financial impact on sales value is
less important than the socioeconomic benefits. These commenters also
suggested that while timber prices may increase with the inclusion of
stewardship sawtimber volume in the small business market share
calculation, it would have no impact to the treasury. Conversely, four
commenters stated that inclusion of the stewardship sawtimber volume
would reduce treasury revenue and the value of public timber.
Seven commenters felt that the impact on small market shares of
including the stewardship sawtimber volume in the calculation would
vary by market area. One commenter expressed that inclusion of the
stewardship sawtimber volume would have a beneficial impact on future
market shares.
Eleven commenters suggested that if stumpage rates were decreased,
restoration activities, retained receipts and local employment would be
negatively impacted. A small, second-generation, family-owned lumber
manufacturing business in Eugene, Oregon, supported including
stewardship sawtimber volume to prevent circumvention of the set-aside
program.
Nineteen commenters went so far as to state SBA and FS have a legal
obligation to include the stewardship contracting sawtimber volume in
the small business market share calculation to ensure small businesses
purchase a fair proportion of sawtimber volume. Under section 15(a) of
the Small Business Act, SBA bears the responsibility of ensuring that
small businesses receive a fair proportion of ``total sales'' of
Government property. SBA believes that sawtimber transacted through
stewardship contracting should be properly included as an element of
``total sales'' under the Small Business Act, because much of
stewardship contracting is done through IRTC contracts where FS
receives cash from the transaction.
While several commenters believed that the small business market
share is overstated, overall small business base market share may
actually be understated because small business' high share of the
stewardship contracting sawtimber volume is not included in the base
market share calculation. As noted above, stewardship sales account for
approximately one-third of total timber sold by the FS. In the majority
of FS regions, small businesses purchase the majority of the
stewardship contracting timber volume. However, large businesses
capture the majority of the stewardship contracting timber volume in
some market areas. For example, according to comments, large businesses
captured 75% of the stewardship volume in the St. Joe Market Area,
presenting a challenge to two small sawmills in the area.
SBA's is considering a potential policy change to include
stewardship contracting sawtimber volume in the calculation of small
business market shares. SBA's analysis shows that failure to include
stewardship contracting sawtimber volume may either favorably,
unfavorably, or negligibly skew the base small business market shares
used to determine when FS must set aside timber program sales in some
market areas. Inclusion of stewardship contracting sawtimber volume in
the small business market share calculation could also more accurately
capture small business participation and ensure transparency of the
Program, another justification under consideration.
SBA welcomes additional comments on the possibility of including
the stewardship sawtimber volume in the calculation of base small
business market shares. Specifically, SBA requests additional comments
and data related to the calculation methodology and analysis set forth
in this rule. SBA requests comments as to whether those regions or
market areas where small businesses purchase a large percentage of
sawtimber through stewardship contracting should receive different
treatment in the computation of small business market shares and, if
so, what that alternative treatment should be. Likewise, SBA requests
comments as to whether those market areas where the stewardship
contracting represents a large percentage of overall sawtimber volume
should receive different treatment. Additionally, SBA seeks comments as
to whether the inclusion of the stewardship sawtimber volume should be
subject to any caps or other special considerations. SBA also seeks
comment on its authority under section 15(a) of the Small Business Act
to treat all stewardship sawtimber sales as an element of ``total
sales'' and whether there are alternative treatments--
[[Page 66211]]
including whether to consider some or all stewardship contracts as an
element of ``total purchases and contracts'' under section 15(a). In
order to have the most robust picture possible, SBA is further
requesting additional data regarding the potential impact of including
the stewardship sawtimber volume in the small business market share
calculation. SBA is particularly interested in any data suggesting
potential impacts on future market shares and stumpage rates.
Comments on Changing Appraisal Point in Calculating Minimum Acceptable
Bid for Set-Aside Timber Sales
SBA's ANPRM requested comments on several issues related to the
appraisal methodology FS uses to appraise set-aside timber sales under
the timber program: How to best reflect the actual haul costs to
eligible small business timber set-aside purchasers; whether there
should be special considerations in those market areas that do not have
mills that would qualify as ``small'' under the SBA's criteria; how to
account for the ``30/70 rule'' in the appraisal process; and whether
trust funds would be impacted by changing the appraisal point in set-
aside sales.
Regarding the appropriate appraisal point, 28 commenters stated
that appraisal of haul costs should be made to the nearest small mill
in set-aside sales while 12 commenters expressed that the appraisal
should be made to the nearest mill regardless of size. Those in support
of changing the appraisal point in set-aside sales to the nearest small
mill believed that such an approach would more accurately reflect the
realities faced by small businesses. Several commenters observed that,
for its set-aside sales, the BLM appraises haul costs to the nearest
small business facility capable of handling the timber volume in BLM's
eight markets in Oregon. A small business commenter responded that the
current process of appraising set-aside timber sales to a large
business defeats the purpose of the set-aside program. The small
business trade group commented that the appraisal of a set-aside sale
should include a haul-cost adjustment to account for the actual cost of
hauling. The same commenter pointed to the FS Timber Sale Preparation
Handbook, Chapter 40, section 45.11 (FSH 2409.18), available to the
public at http://www.fs.fed.us/cgi-bin/Directives/get_dirs/fsh?2409.18,
which provides that the FS chooses an appraisal point where the
manufacturing facility ``is capable of'' processing the end product
being appraised.'' Because of the 30/70 rule, applying the Handbook
approach should result in the FS appraising for haul costs to a small
manufacturer, rather than the closest large business facility. SBA
agrees that appraisal to a small business mill more accurately captures
the cost to eligible bidders. As such, SBA is proposing to appraise
haul costs to the nearest qualifying small mill in set-aside sales.
Ten commenters felt that a change in the appraisal process would
require haul cost subsidies and lead to reduced revenue and
reinvestment opportunities. The PTPG, for example, commented that
changing the appraisal point would cause the FS to divert stewardship
funds to subsidize long hauls to distant mills. Some set-aside sales
could result in negative appraised value, according to the PTPG
comments. Another commenter responded that a change to the appraisal
point would divert federal timber away from union workers and would
reduce federal timber receipt-sharing for rural communities.
Four commenters stated that a change in the appraisal point will
not impact trust fund collections, while three commenters believed that
trust fund deposits would be reduced. The large business trade group in
particular commented that, if the appraisals resulted in below-cost
timber sales, rural communities would be harmed by the reduction in
federal timber payments. The same commenter responded that a change in
the appraisal point would cause inefficiency by allowing distant mills
to purchase set-aside logs.
Thirteen commenters felt that FS and SBA should take greater steps
to enforce the 30/70 rule in set-aside sales. Fifteen commenters felt
that appraisal should be made to the nearest small mill only if it is
located within a reasonable distance from the sale. These commenters
believed that FS should suspend the set-aside or waive the 30/70 rule
if no small mills are located within a reasonable distance of the sale.
Seven commenters expressed that the 30/70 rule should either be
eliminated altogether or waived for non-manufacturers when no small
mill is present. Eleven commenters felt that inclusion of the 30/70
rule in appraisal point calculations would unnecessarily complicate the
process, increase risks, and reduce stumpage rates and revenue.
Although commenters to the ANPRM proposed various alternatives as
to how haul costs should be appraised in small business set-aside
sales, none of the commenters provided any data that would adequately
support one alternative over the other. As such, SBA requests
additional comments regarding the other alternatives identified in
comments to the ANPRM. Specifically, SBA requests comments as to
whether haul cost adjustments should be made for non-manufacturers.
Further, as noted above, several commenters recommended appraisal to
the nearest small mill only if it is a ``reasonable distance'' from the
sale. SBA requests comments as to what constitutes a reasonable
distance. SBA also requests examples of market areas where the
recommended reasonable distance would make a significant difference in
the appraisal price. Understanding that any sale price accepted by the
government must be ``fair and reasonable,'' SBA requests comments as to
why an increased appraisal cost to the nearest small mill would still
support such a finding.
SBA is also aware that certain market areas do not have small mills
located within their geographic boundaries. Accordingly, SBA requests
additional comments regarding potential geographic exceptions for
market areas with no small mills.
Finally, with respect to appraising haul costs with respect to the
30/70 rule, SBA requests comments as to whether SBA should consider,
when the nearest mill is a large business, appraising 70% of the haul
costs to the nearest small mill and 30% of the haul costs to the
nearest large mill. SBA specifically requests comments as to whether
such an approach is or is not favorable, given that it may accurately
reflect the true costs to haul the timber, but may unnecessarily
complicate the process.
SBA notes that a number of commenters interpreted SBA's ANPRM to
propose a change of the appraisal point in all timber program sales.
This is not SBA's intent. As noted above, SBA is proposing that the
appraisal be made to the nearest small mill only in the case of set-
aside sales.
Comments on Other Issues
SBA notes that a number of commenters interpreted SBA's ANPRM as a
proposal to subject stewardship contracting to the procedures of the
small business timber set-aside program. For example, a large business
trade group stated that, if stewardship sales were included in the set-
aside timber sale program, the number of potential contractors would be
significantly limited for any stewardship sale designated as set-aside.
The same commenter remarked that stewardship set-aside sales would
complicate the application of the 30/70 rule. The commenter also noted
that if a stewardship sale is designated by the
[[Page 66212]]
SBA as set-aside and there are no local small business mills, local
labor would not be involved in the processing of those logs. Another
industry commenter predicted that fewer acres of at-risk forest would
be restored if stewardship contracts were subject to the set-aside
requirement, and this would be contrary to congressional authorization
of local preference and best-value contracting. A union commenter
responded that the inclusion of stewardship contracts in the set-aside
program would circumvent an award to the most local and economic mill
in favor of a small business that could potentially be hundreds of
miles away. Six commenters felt that small businesses already purchase
a substantial share of the federal sawtimber. Conversely, the small
business trade group stated that stewardship sales should be set aside,
and the result would be preservation of competition for government
sales.
It is not the intent of this proposed rule, however, to apply the
set-aside rules to stewardship contracting. The intent of this rule is
only to define, under authority of section 15(a) of the Small Business
Act, what procedures SBA should use to calculate the proportion of
``total sales'' of timber flowing to small businesses. SBA is
considering whether to include the stewardship sawtimber volume
purchased by small businesses in the calculation of small business base
market shares used in triggering timber program sale set-asides, but
SBA is seeking comments and data before moving forward with such a
policy change.
Approximately 45 commenters urged SBA and FS to conduct a
comprehensive review of small business timber sale set-aside program
procedures before implementing any changes. These commenters observed
that SBA and FS rules for the set-aside timber sale program have not
been updated to reflect the changing industry infrastructure or federal
timber supply. Other commenters disagreed, urging SBA to make these
changes prior to the October 1, 2015 re-computation. These commenters
also emphasized that they have been seeking these changes for many
years and saw further reviews or studies merely as another delaying
tactic.
An additional five commenters felt that the re-computation period
should be shortened to ensure continued accurate representation of
market shares. Three commenters suggested that the structural re-
computation method should be eliminated altogether. One commenter
suggested carrying forward market area deficits into the next five-year
period. SBA believes these issues are more appropriately addressed
through negotiations between SBA and FS.
Potential Changes to the Timber Program Currently Under Consideration
As discussed in detail above, SBA is considering including the
volume of sawtimber sold through stewardship contracting in developing
the 5-year re-computation of small business market shares which are
used to determine when timber program sales must be set aside for small
businesses in the FS regions. SBA recognizes that in some regions,
small businesses are successfully competing for full-and-open sales
under the stewardship contracts. This possible policy would not likely
alter that fact. SBA also recognizes that in some regions, small
business may be successfully winning under timber program sales without
set-asides. Again, this policy would not be intended to alter that
fact. In some regions, counting the stewardship sawtimber volume may
result in triggering a set-aside opportunity that might not otherwise
occur without this new policy in place. In others, counting the
stewardship sawtimber volume may result in removing a set-aside
opportunity where one previously existed. In still other regions,
including the stewardship sawtimber may have no impact relative to the
status quo. Regardless, this policy under consideration would establish
a transparent process across all FS regions.
Compliance With Executive Orders 12866, 13563, 12988, 13132, the
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5.U.S.C. 601-612) Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
proposed rule is a significant regulatory action for purposes of
Executive Order 12866. Accordingly, the SBA's Regulatory Impact
Analysis can be found below. This is not a major rule, however, under
the Congressional Review Act, 5 U.S.C. 80, et seq.
Regulatory Impact Analysis
1. Is there a need for this regulatory action?
The proposed rule furthers statutory intent that small business
concerns receive a fair proportion of the total sales of Government
property. See Section 2(a) of the Small Business Act (15 U.S.C.
631(a)); Section 15(a) of the Small Business Act (15 U.S.C. 644(a)).
Because of the locations and sparse number of the remaining
sawmills, current appraisal points used for assessing hauling costs may
have prevented many small sawmills from bidding on set-aside timber
sales, since fuel costs for transporting the timber from the forest to
the processing location may negate the profit margin of the purchase.
As such, the proposal to appraise set-aside haul costs to the nearest
small business mill is necessary to accurately reflect the costs to
eligible bidders.
As noted above, SBA is also considering a potential policy change,
but not proposing in this rule, to include the stewardship sawtimber
volume (from both the IRTC and IRSC contracts) for the calculation of
the small business fair proportion market share of timber program
sales. To assess the trends on timber program l and stewardship timber
sales and impacts to small businesses from such a policy change, SBA
conducted multiple analyses with the limited data available. The
results showed that timber program set-aside sales have declined since
stewardship contracting began and that each FS region has steadily
increased the availability of stewardship contracting during the period
from 2004 through 2014. In addition, in several FS regions, especially
those where timber sold through stewardship contracting is large
relative to total timber sold, and in aggregate (i.e., all regions
combined) the percentage of timber purchased by small businesses is
lower under the stewardship program than under the timber program.
Thus, the failure to include the volume of sawtimber sold through
stewardship contracting could overstate or understate the small
business market share for set-aside sales under the timber program. The
available data indicates that, with the omission of the stewardship
sawtimber, small business market shares could be understated for
regions where small mills dominate the stewardship market and
overstated for regions where large businesses dominate that market.
Further, including the stewardship sawtimber volume could more
accurately reflect small business participation rates for purposes of
calculating the set-aside trigger point in the timber program,
regardless of the direction of the impact on small businesses. While
SBA is not proposing in this rule to include the stewardship sawtimber
volume in the small business fair proportion or market share
calculation, the Agency is seeking
[[Page 66213]]
public comment on impacts of this potential policy change in the
future.
2. What are the potential benefits and costs of this regulatory action?
SBA's proposal to appraise small business set-aside timber sales to
the nearest small business mill would enable small businesses to comply
with existing laws affecting set-aside timber sales while promoting an
atmosphere more conducive for them to participate in the overall FS
timber market. Using the appraisal data received from FS, SBA estimated
total sales to be about 2,900 for FY 2009-2014, of which 86% were sales
to small businesses. Using the same data, excluding special salvage
timber set-aside sales, SBA identified 156 small business set-aside
sales (or 5.3% of all sales and 6.2% of all small business sales) that
were appraised to a large business mill. A regional breakdown of these
data is provided below in Table 9, below. Based on the data obtained
from SBA's Timber Sales System (TSS), SBA estimated total average
receipts FS received for FY 2002-2014 for all Regions to estimate the
cost (i.e., receipt loss) to FS from the SBA's proposed change.
The FS conducted an econometric study to assess the impacts of
SBA's proposal to appraise hauling costs of all set-aside timber sales
to the nearest small mill and potential policy change to include the
stewardship sawtimber volume in the small business fair proportion or
market share calculation. Specifically, FS estimated a stumpage
equation for each FS region outside of Region 10 (Alaska) with a bid
premium (i.e., difference between bid price paid and reserve/minimum
bid price set by FS) as a function of a number of variables, including
the number of bidders, total haul miles, logging costs, total volume
harvested, time trend, and a series of dummy variables indicating
whether the sale was a small business set-aside sale, a salvage sale,
or a stewardship sale. These results are provided in Table 8, below.
As can be seen from the results in Table 8, the estimated equations
explained about 35% of total variation in bid premiums for Regions 1,
3, and 5, followed by 16% for Region 6 and less than 10% for remaining
affected FS regions. Thus, the results suggest that several other
relevant factors may have been needed to explain the variation in bid
premiums.
Table 8--Stumpage Price Equations Estimated for Regions 1 to 9 by Forest Service Dependent Variable
[Bid premium, a difference in the winning stumpage price minus the reserve price ($/CCF)]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Regions Region 1 Region 2 Region 3 Region 4 Region 5 Region 6 Region 8 Region 9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Independent Variables......................................... Parameter Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Intercept..................................................... * -15.41 100.19 -0.02 -28.19 ** -15.74 ** -30.67 -78.19 807.06
Lumber Price Index............................................ ** 0.07 -0.14 0.00 0.17 * 0.02 0.06 ......... ...........
Hardwood Price Index.......................................... ......... ......... ......... ......... ......... ......... 0.09 -4.22
Softwood Price Index.......................................... ......... ......... ......... ......... ......... ......... 0.24 -1.7
Number of Bidders............................................. ** 8.54 6.6 ** 4.66 ** 12.97 ** 10.67 ** 9.79 ** 18.99 * 70.01
Total Volume Harvested (1,000 CCF)............................ -0.58 -0.65 -0.20 ** -1.59 0.15 ** -0.58 ** -5.7 ** -117.93
Logging Costs ($/CCF)......................................... ......... -0.59 0.00 * -0.16 ......... * 0.06 ** 0.21 -4.55
Contract Costs ($/CCF)........................................ 0.19 0.29 0.06 0.02 ......... -0.08 ** -2.18 -0.56
Distance to the Nearest Mill (miles).......................... -0.02 0.35 0.004 -0.01 ** -0.04 ** -0.06 -0.02 ...........
Hauling Costs ($/CCF)......................................... ......... ......... ......... ......... ......... ......... ......... 2.89
Logging Index................................................. * -2.38 ......... ......... ......... ......... ......... ......... ...........
Sealed Bid Dummy (0, 1)....................................... 0.84 29.59 -2.58 -12.43 ** 5.35 ** 7.52 * 28.44 ** 153.32
Set-Aside Dummy (0, 1)........................................ ** -7.88 -5.87 ......... -12.84 -1.04 * -4.77 ** -12.29 ** -131.51
Salvage Sale Dummy (0,1)...................................... 0.75 1.77 0.11 7.94 ** 6.48 ** 6.26 ** -25.66 * 175.88
Stewardship Dummy (0,1)....................................... -1.38 -2.75 * -3.05 -14.97 * 5.75 * 5.44 8.96 90.06
Time Trend.................................................... -0.31 -5.32 -0.01 2.011 -0.42 0.46 1.73 14.38
R2............................................................ 0.38 0.04 0.37 0.06 0.36 0.17 0.09 0.03
R2-Adjusted................................................... 0.37 0.01 0.34 0.03 0.35 0.16 0.08 0.02
Mean of Dependent Variable.................................... 29.85 20.16 3.70 23.55 16.83 22.62 34.92 168.38
No. of Observations........................................... 554 627 245 487 973 2,117 2,627 1,883
No. of Observations Used...................................... 544 480 210 364 727 1,731 2,273 1,628
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: USDA Forest Service Econometric Study.
* Significant at the 5% level.
** Significant at the 1% level.
Note: The significance levels are based on the Heteroscedasticity consistent standard errors. The USDA/FS results didn't include Region 10 (Alaska).
Region 7 was eliminated in 1965 as part of re-designation of FS regions.
Impact of SBA's Proposal To Appraise Any Small Business Set Aside
Timber Sale to the Nearest Small Business Mill
To assess the impact of changing the appraisal point for the small
business set-aside sales to the nearest small business mill, SBA
analyzed the appraisal data provided by FS and timber sales data from
TSS. Specifically, SBA received eight different tables from FS with
appraisal data for Regions 1 through 9 (the data did not include Region
10). Each table included the appraisal point for each sale during
fiscal years 2009-2015, by region. SBA merged the eight tables into
one, and then cleaned and reformatted several variables. For example,
the numerical value for distance to the nearest small mill was cleaned
by taking out the character values (e.g. ``mi.'' = miles). Likewise,
the number and size of bidders were separated or reformatted as
characters (type of the bidder such as small non-manufacturer, small
manufacturer, etc.) or number of bidders, as appropriate. For example,
if the original variable included 1-SN and 4-SM in one cell, then one
variable was created for SN (small non-manufacturer) and another
variable for SM (small manufacturer) and 1 was assigned to the former
and 4 to the latter. The cleaned data were then filtered to identify
all small business set-aside sales (i.e., set aside = Yes) that were
appraised to a large mill (i.e., appraisal point = LM (LM = Large mill/
manufacturer)), because these are the cases that will be
[[Page 66214]]
impacted by the SBA's proposal. When compared with the TSS data, the FS
appraisal data for fiscal year 2015 were found to be incomplete and was
not included in the analysis.
As shown in Table 9 (below), the results from the FS appraisal data
indicate that the SBA's proposal to appraise the small business set-
aside sales to the nearest small business mill would impact 5.3% of all
sales and 6.2%of all small business sales. On an annual basis, the
proposed change would benefit approximately 65-70 small businesses that
participate in set-aside timber sales.
Table 9--Count of Total and Set-Aside Sales and Average Number of Bidders Participating in Set-Aside Sales Appraised to a Large Mill, FY 2009-2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total number of sales Set-asides appraised to a large mill
----------------------------------------------------------------------------------------------
Average
FS Region * historical
All sales ** Sales to small Count of sales Share of all participation/
businesses sales (%) number of bidders
affected
--------------------------------------------------------------------------------------------------------------------------------------------------------
1........................................................ 159 129 12 7.5 4.8
2........................................................ 256 238 2 0.8 0.3
3........................................................ 42 42 0 0.0 0
4........................................................ 112 110 1 0.9 1
5........................................................ 195 146 32 16.4 10.7
6........................................................ 397 292 41 10.3 18
8........................................................ 858 772 41 4.8 16
9........................................................ 897 787 27 3.0 17.2
----------------------------------------------------------------------------------------------
Total................................................ 2,916 2,516 156 5.3 68.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 10 (Alaska) was not included in the FS appraisal data and Region 7 was eliminated in 1965 as part of re-designation of FS regions.
** Includes sales for which size/type of the purchaser was missing but excludes sales for which region was not specified. Salvage timber sales were also
excluded.
Source: FS appraisal data and SBA calculations.
Using the FS appraisal data, SBA was also able to estimate distance
to the nearest small mill from the nearest large mill for each set
aside sale that was appraised to a large mill and some key summary
statistics for the same. These results are provided in Table 10, below.
The median distance to the nearest small mill is about 62 miles and the
mean distance about 66 miles. This analysis does not reflect the more
appropriate analysis of the distance from the sale to the nearest mill
and small mill, for which data were not readily available.
Table 10--Summary Statistics of Distance Between the Nearest Small Mills and the Current Large Mill Appraisal Points (in miles), FY 2009-2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
First Third
Region * quartile Median quartile Mean Standard Minimum Maximum Number of
(25%) (50%) (75%) deviation observations
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................... 37.0 42.0 65.0 52.8 29.1 22 108 12
2....................................... 132.0 132.0 132.0 132.0 0.0 132 132 2
---------------------------------------------------------------------------------------------------------------
3....................................... (no Region 3 set-aside sales appraised to a large mill)
---------------------------------------------------------------------------------------------------------------
4....................................... 6.0 6.0 6.0 6.0 0.0 6 6 1
5....................................... 89.0 101.0 136.0 108.6 54.0 1 195 32
6....................................... 30.0 65.0 90.0 66.5 44.6 0 163 41
8....................................... 30.0 97.0 97.0 63.9 34.8 10 97 41
9....................................... 10.0 15.0 25.0 22.2 18.3 5 70 27
Overall................................. 23.5 62.2 97.0 66.2 48.2 0 195 156
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 10 was not included in the FS appraisal data and Region 7 was eliminated in 1965 as part of re-designation of FS regions.
Source: FS appraisal data and SBA calculations.
With respect to the impacts of the proposed change on bid/stumpage
price and on FS receipts from timber sales, FS econometric/stumpage
equations included two variables related to hauling costs, namely
distance to the nearest mill (for Regions 1 through 8) and total
hauling costs ( for Region 9) (see Table 8). While FS, based on its
conceptual analysis of relationships among reserve price, bid price,
bid premium and hauling costs, expected these variables to have a
negative impact on bid premium, the results were rather mixed.
Specifically, the estimated coefficients associated with distance to
the nearest mill were negative for Regions 1, 4, 5, 6, and 8, and
positive for Regions 2 and 3. The estimated coefficient for hauling
costs was also positive for Region 9. Among the regions with a negative
coefficient for distance to the nearest mill, the coefficient was
significant only for Regions 5 and 6.
Amid these results, FS concluded that, conceptually, both FS
receipts and money flowing into the trust funds from timber receipts
will decrease under the SBA's proposal to appraise the set-aside timber
sales to the nearest small mill, but without information on the number
of set-aside sales that would be affected and additional hauling costs
incurred in each affected sale, it is not possible to
[[Page 66215]]
quantify the financial impacts. However, SBA was able to fill these
gaps in the FS analysis by estimating cost (receipts loss) to FS from
the SBA's proposal to change the appraisal point for set-aside sales to
the nearest mill by combining the results from the FS appraisal data
(i.e., number of set-aside sales affected and distance from the current
appraisal point to the nearest small business mill for those sales), FS
econometric results (i.e., the estimated coefficients associated with
distance to the nearest mill and hauling costs), and TSS timber sales
data. This analysis is done only for Regions 5 and 6 because these are
the only two regions where the estimated coefficient for the distance
to the nearest mill was significant and had the FS expected negative
sign.
Accordingly, SBA estimates cost or receipt loss to FS due to the
proposed change to use the nearest small business mill to appraise the
set aside sales as follows:
Receipt loss = regression coefficient for distance to the
nearest mill (Table 8) x median distance to the nearest small mill
(in miles) (Table 10) x number of set-asides appraised to a large
mill (Table 9) x average volume of set-aside sale (CCF) from TSS.
The average volume of set-aside sales was based on the FY 2009-2014
data from TSS. Accordingly, receipt loss for Region 6 is estimated to
be about $1.07 million (-0.057 x 65 x 41 x 6,979 = -1,066,439), which
is about 0.9 percent of total FS timber receipts for Region 6,
estimated at about $124 million (i.e., total volume times average bid
price) for FY 2009-2014. Similarly, for Region 5, receipt loss is
estimated at about $0.91 million (-0.045 x 101 x 32 x 6,261 = -
908,634), which is about 2.4 percent of total FS timber receipts for
Region 5, estimated at about 38 million (i.e., total volume times
average bid price) for FY 2009-2014. These receipts losses to the FS
are benefits to small businesses in the form of lowered hauling costs
to transport their set-aside timber purchases to a small mill. With
lower hauling costs to small businesses, they are likely to bid more
for the set-aside timber sales, which would offset some of the receipts
losses to the FS due to the proposed change.
FS expressed concerns that by limiting the receipt impact
assessment to only Regions 5 and 6, SBA's regulatory impact analysis of
the proposed change is incomplete. FS argued that the two regions
examined are not representative of all regions and the results cannot
be generalized across the country. As shown in Table 8 (above), the FS
econometric results do not support a similar analysis for all affected
FS regions. For example, the estimated coefficients for distance to the
nearest mill (Regions 2 and 3) and hauling costs (Region 9) were
positive, although not significant. Additionally, there were no set-
aside sales in Region 3 that were appraised to a large mill. Thus, the
proposed change would have no impact in Region 3. Using a positive
coefficient for Region 2 would yield a counter-intuitive result of
positive receipt impact to FS from the SBA's proposal to appraise the
hauling costs for set-aside sales to the nearest small mill, which
would make no sense. The same is also true for Region 9. Additionally,
SBA has no data to convert the mileage to hauling costs to estimate the
impact in Region 9. Similarly, the relationships between bid premiums
and the mileage to the nearest mill were not significant for Regions 1,
4 and 8, although they had expected negative signs. The impact
estimates based on these results would not mean much on a statistical
sense. Given the lack of alternative data to assess the FS receipt
impacts from the SBA's proposal for regions for which estimated
relationships between bid premium and the distance or hauling costs and
were either not significant or had opposite signs, SBA's regulatory
impact analysis is limited to Regions 5 and 6 only.
While SBA agrees with FS that every region is different, but
because Regions 5 and 6 together account for nearly half (47%) of all
set-aside sales and two-thirds (67%) of timber volume appraised to a
large mill in all FS regions (excluding unaffected Region 3), the
results based on these two regions provide fairly robust indications on
the magnitude of impacts the proposed change might have across other
regions, as well as the overall FS market.
With respect to benefits to small businesses from the proposed
change, as shown in Table 9 (above), based on the historical data,
about 65-70 firms (68 to be exact) would benefit from the SBA's
proposal to appraise all set-aside timber sales to the nearest small
mill. This figure is likely to be higher because some previous set-
aside sales that received no bids from small businesses and were
subsequently re-offered as full and open sales may become economically
attractive for small businesses to bid when they are appraised to the
nearest small mill. The SBA's proposal would benefit small businesses
by lowering costs in hauling the set-aside timber purchases to the
nearest mill
SBA believes that these positive impacts to small businesses
justify some losses to FS receipts (0.9% in Region 6 and 2.4% in Region
5) under the proposed change. SBA notes that it did not evaluate the
impacts reductions in receipts may have on the Forest Service's forest
management and restoration goals or on payments made to counties for
schools, roads, community wildfire protection planning or other
purposes as authorized.
The main purpose of the SBA's proposal to appraise the set-aside
sale to the nearest small business mill is to more accurately reflect
the hauling cost to eligible small business bidders. Based on the
historical data, up to 65-70 small business bidders will benefit from
this proposed change. As discussed above, SBA expects more small
businesses to participate in the timber set-aside program under the
proposed change as some small firms that do not bid for set-aside sales
appraised to a large business mill currently may decide to participate.
SBA believes that the number of set-aside sales that receive no bid
from small businesses and become full and open sales will decrease,
thereby increasing the number of sales to small businesses. These all
will help small businesses keep their business economically viable and
to support or create jobs in their communities. Small business
employees receive and spend wages within the communities and taxes they
pay to local and state governments. These effects, although difficult
to quantify, will further offset the impacts of decreases in flows of
money to trust funds due to declines in FS timber receipts.
Overall, the proposed change to appraise the small business set-
aside timber sales to the nearest small mill is consistent with SBA's
statutory mandate to assist small businesses.
Impacts of A Potential Policy Change Under Consideration To Include the
Stewardship Sawtimber Volume in the Calculation of the Small Business
``Fair Proportion'' To Establish Small Business Set-Aside Sales Under
the Timber Program
A possible regulatory action to include the stewardship sawtimber
volume in the calculation of small business fair market share could
provide transparency to the process of determining whether or not small
businesses are receiving the statutorily mandated fair proportion of
timber sale contracts offered by FS. It could provide a market share
that would more accurately reflect the small business participation in
the government owned timber market and provide the public with more
accurate information on functioning of the market. However, at this
time, based on the currently available data, SBA's analysis indicates
[[Page 66216]]
this policy option could have disparate impacts to small timber
businesses both within and across regions. Based on the data and cross-
tabulations provided by the FS, stewardship sales account for
approximately one-third of total timber sold by the FS. As shown in
Table 4 (earlier), the FS analysis suggests that, compared to timber
program volumes, small businesses acquired a larger percentage of
stewardship timber volume in Regions 2, 4, 8 and 9, where stewardship
volumes are quite minimal relative to total timber volumes sold.
However, small businesses received a lower percentage of stewardship
timber sales in Regions 1, 5, and 6 where stewardship sales are
generally fairly large relative to total sales. As discussed above,
when all regions are combined, the small business share was
substantially lower at about 62% under stewardship contracting, as
compared to nearly 72% under the timber program.
In addition, in considering the possibility of including the
stewardship sawtimber volume in the calculation of small business fair
proportion used for determining small business set-aside sales within
the timber program market, SBA also re-computed the latest five-year
small business market share used to trigger a small business set aside
sale by including the stewardship sawtimber volume. (Every five years
base small business market shares are re-computed by including the
timber sales data for the previous five years and remain valid until
the next re-computation.) The re-computation results are shown in Table
11. As can be seen from the table, the inclusion of the stewardship
sawtimber in calculation would result in an increase to the recomputed
small market share in eight (12) market areas, a decrease in eleven
(14) market areas, and no change in the remaining 113 market areas. The
increase in the small business share would range from 1% to 39% and
decrease from -1% to -22%. If the recent trend continues, it is
possible that with the inclusion of the stewardship sawtimber volume
the future small business market shares could be lower or higher in
those or more market areas.
Region 10 (Alaska) has an agreement with SBA that small businesses
will have a market share of at least 50%. The current market share was
determined, via the 5-year re-computation process in agreement with
SBA, to be 50% of the planned sale volume for the Region. Over the
previous five-year period 100% of both timber and stewardship sales
went to small businesses in Region 10. As shown in Table 11, with the
inclusion of the stewardship timber volume, an 80% market share would
be achievable in Region 10. The Region would have to consult with
interested parties, provide notice, and revise the existing agreement
with SBA to allow for inclusion of 80% of the Region's planned sale
volume in the market (see FSH 2409.18, 91.21.). All re-computed shares
reflect the limitations on share movement for the five-year period,
except Regions 8 & 9 which do not have limitations on share movement.
All shares are limited in movement to no lower than one-half the
original base share. Eighty percent is the maximum small business share
utilized on any market area, meaning that at least 20% of timber sales
have to go to large businesses.
Table 11--Five-Year Small Business Market Share Comparisons 2010-2015, Impacted Market Areas With and Without Stewardship Timber
--------------------------------------------------------------------------------------------------------------------------------------------------------
Recomputed Recomputed Change in market share if stewardship included
Current five share (most share -----------------------------------------------
Region Market area year share (%) recent years) stewardship
(%) included (%) No change (%) Increase (%) Decrease (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1................................. Beaverhead-Deerlodge 49 41 41 0 .............. ..............
Bitterroot.......... 80 80 80 0 .............. ..............
Clearwater.......... 74 80 67 .............. .............. -13
Custer.............. 62 62 56 .............. .............. -6
Flathead............ 60 64 63 .............. .............. -1
Gallatin............ 44 34 34 0 .............. ..............
Helena.............. 56 50 50 0 .............. ..............
Kootenai............ 55 60 60 0 .............. ..............
Lewis and Clark..... 56 50 50 0 .............. ..............
Lolo................ 56 62 62 0 .............. ..............
Nez Perce........... 40 31 30 .............. .............. -1
Coeur D Alene....... 14 13 13 0
Kaniksu............. 13 14 12 .............. .............. -2
St. Joe............. 51 46 46 0 .............. ..............
2................................. Arapaho Roosevelt... 80 80 80 0 .............. ..............
Bighorn............. 72 65 65 0 .............. ..............
Black Hills......... 80 80 80 0 .............. ..............
GM UNC GUNN......... 80 80 80 0 .............. ..............
Medicine Bow........ 80 80 80 0 .............. ..............
Pike San Isabel..... 80 80 80 0 .............. ..............
Rio Grande.......... 80 80 80 0 .............. ..............
Routt............... 80 80 80 0 .............. ..............
San Juan............ 80 72 80 .............. 8 ..............
Shoshone*........... 29 31 31 0 .............. ..............
White River......... 80 80 80 0 .............. ..............
3................................. Apache.............. 80 80 80 0 .............. ..............
Carson.............. 80 80 80 0 .............. ..............
Cibola.............. 73 80 80 0 .............. ..............
Coconino............ 80 80 80 0 .............. ..............
Coronado **......... 71 71 71 0 .............. ..............
Gila................ 55 61 61 0 .............. ..............
Kaibab North........ 56 62 62 0 .............. ..............
Kaibab South........ 80 80 80 0 .............. ..............
Lincoln............. 80 80 80 0 .............. ..............
Prescott............ 80 80 80 0 .............. ..............
Santa Fe............ 56 62 62 0 .............. ..............
Sitgreaves.......... 80 80 80 0 .............. ..............
Tonto............... 70 77 77 0 .............. ..............
4................................. Ashley.............. 80 80 80 0 .............. ..............
[[Page 66217]]
Boise............... 55 61 58 .............. .............. -3
Bridger Teton....... 56 62 62 0 .............. ..............
Caribou............. 80 80 80 0 .............. ..............
Dixie............... 80 80 80 0 .............. ..............
Fishlake............ 80 80 80 0 .............. ..............
Manti La Sal........ 80 80 80 0 .............. ..............
Payette............. 63 69 67 .............. .............. -2
Salmon Challis...... 72 79 79 0 .............. ..............
Sawtooth............ 63 69 69 0 .............. ..............
Targhee **.......... 57 57 57 0 .............. ..............
Toiyabe **.......... 58 58 58 0 .............. ..............
Uinta............... 80 80 80 0 .............. ..............
Wasatch Cache....... 80 80 80 0 .............. ..............
5................................. Eldorado............ 60 54 54 0 .............. ..............
Inyo **............. 66 66 66 0 .............. ..............
Klamath............. 49 39 42 .............. 3 ..............
Lassen.............. 29 39 39 0 .............. ..............
Mendocino........... 48 38 48 .............. 10 ..............
Modoc............... 80 72 72 0 .............. ..............
Plumas.............. 20 18 18 0 .............. ..............
Sequoia............. 80 80 80 0 .............. ..............
Shasta.............. 30 30 31 .............. 1 ..............
Trinity............. 67 74 74 0 .............. ..............
Sierra.............. 80 80 80 0 .............. ..............
Gasquet............. 80 80 80 0 .............. ..............
Six Rivers Other.... 67 60 60 0 .............. ..............
Stanislaus.......... 20 10 10 0 .............. ..............
Tahoe............... 22 20 20 0 .............. ..............
6................................. Colville............ 70 77 77 0 .............. ..............
Deschutes........... 23 33 33 0 .............. ..............
Fremont Klamath..... 34 44 24 .............. .............. -20
Gifford Pinchot 62 60 64 .............. 4 ..............
North.
Gifford Pinchot 72 79 79 0 .............. ..............
South.
Malheur............. 80 80 80 0 .............. ..............
Mt Hood............. 80 72 72 0 .............. ..............
Ochoco Prineville... 67 69 71 .............. 2 ..............
Okanogan............ 51 46 46 0 .............. ..............
Puget Sound......... 57 51 51 0 .............. ..............
Rogue River......... 34 31 31 0 .............. ..............
Siskiyou East....... 55 49 49 0 .............. ..............
Siskiyou West....... 80 73 73 0 .............. ..............
Siuslaw............. 40 50 50 0 .............. ..............
Umatilla North...... 47 37 37 0 .............. ..............
Umatilla South...... 56 62 62 0 .............. ..............
Umpqua North........ 63 69 69 0 .............. ..............
Umpqua South........ 45 40 40 0 .............. ..............
Wallowa Whitman..... 59 53 53 0 .............. ..............
Wenatchee........... 45 55 55 0 .............. ..............
Willamette Middle... 72 79 79 0 .............. ..............
Willamette North.... 71 78 78 0 .............. ..............
Willamette South.... 80 79 79 0 .............. ..............
Winema.............. 40 31 31 0 .............. ..............
8................................. Alabama North....... 80 80 80 0 .............. ..............
Alabama South....... 80 80 80 0 .............. ..............
Andrew Pickens...... 77 65 43 .............. .............. -22
Bienville........... 80 80 80 0 .............. ..............
Chattahoochee....... 74 63 66 .............. 3 ..............
Croatan............. 80 80 80 0 .............. ..............
Davy Crockett....... 80 25 64 .............. 39 ..............
Delta............... 80 80 80 0 .............. ..............
Desoto.............. 64 68 71 .............. .............. ..............
Enoree.............. 59 57 55 .............. .............. -2
Florida Forests..... 79 80 80 0 .............. ..............
Francis Marion *.... 26 39 39 0 .............. ..............
George Washington... 80 80 80 0 .............. ..............
Holly Springs....... 80 80 80 0 .............. ..............
Homochitto.......... 80 80 80 0 .............. ..............
Jefferson *......... 80 61 61 0 .............. ..............
Kisatchie........... 40 41 38 .............. .............. -3
Kentucky North...... 80 80 80 0 .............. ..............
Kentucky South...... 80 80 80 0 .............. ..............
Land Between the 80 80 80 0 .............. ..............
Lakes.
Long Cane........... 80 80 80 0 .............. ..............
Nantahala........... 80 80 80 0 .............. ..............
Oconee.............. 80 80 80 0 .............. ..............
Ouachita............ 62 47 43 .............. .............. -4
[[Page 66218]]
Ozark............... 65 69 70 .............. 1 ..............
Pisgah.............. 80 80 80 0 .............. ..............
Sam Houston......... 80 80 80 0 .............. ..............
Saint Francis....... 80 80 80 0 .............. ..............
Tennessee North..... 80 80 80 0 .............. ..............
Tennessee South..... 71 80 80 0 .............. ..............
Tombigbee........... 80 80 80 0 .............. ..............
Texas East Side..... 49 27 47 .............. 20 ..............
Uwharrie............ 80 80 80 0 .............. ..............
9................................. Alleghany........... 80 80 80 0 .............. ..............
Chequamegon......... 80 80 80 0 .............. ..............
Chippewa............ 80 80 80 0 .............. ..............
Green Mountain...... 80 80 80 0 .............. ..............
Hiawatha............ 80 80 80 0 .............. ..............
Huron Manistee...... 80 80 80 0 .............. ..............
Mark Twain.......... 80 80 80 0 .............. ..............
Monongahela......... 66 76 55 .............. .............. -21
Nicolet............. 80 80 80 0 .............. ..............
Ottawa.............. 80 80 80 0 .............. ..............
Shawnee............. 37 80 80 0 .............. ..............
Superior............ 75 69 68 .............. .............. -1
Wayne Hoosier....... 77 80 80 0 .............. ..............
White Mountain...... 80 80 80 0 .............. ..............
10................................ Tongass............. 50 50 80 .............. 30 ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Indicates market areas with no stewardship sales and ** denotes market areas with no SBA's timber program or stewardship sales.
Region 7 was eliminated in 1965 as part of re-designation of FS regions.
The table doesn't include the Chugach Market Area in Region 10 (Alaska).
The FS econometric results showed a significant positive
relationship between stewardship sales and bid premiums in Regions 5
and 6, a significant negative relationship in Region 3, and those
relationships were not significant in other regions. Based on these
results, FS argued that in Regions 5 and 6 where bid premiums are
significantly higher for stewardship sales than for timber program
sales, stewardship contracting will have a positive impact on retained
receipts, land management activities and receipts to the treasury.
Similarly, in Region 3 where the results showed a significant negative
relationship between stewardship sales and bid premiums, FS believed
that stewardship contracting will have a negative impact on retained
receipts, land management activities and receipts to the treasury.
Since SBA is not currently considering to subject stewardship contracts
to set-aside sales for small business nor to reduce stewardship
contracting as a result of any change in the small business market
share by including the stewardship sawtimber in the calculation, SBA
expects very little or no impact on FS receipts because of this
possible change under consideration. The current analysis indicates
including the stewardship sawtimber volume could either benefit small
businesses by triggering additional set-aside sales within the timber
program when the overall small business market share falls below the
certain level or could lead to fewer small business set-aside sales
than under the current policy of calculating fair proportion based only
on the timber program volume. Due to the lack of data, it is difficult
to estimate the number of additional or reduced set-aside sales that
would be triggered or disappear, or the number of small businesses that
would benefit or be harmed from this possible policy change.
In its response to the ANPRM questions and impacts of the SBA's
proposed changes, FS noted that although historical shares of timber
awarded to small businesses under the timber sales program and total
sales including stewardship sales are similar, this could change if
stewardship sales increase significantly as a proportion of total
timber sales. Independent of small business impacts, the inclusion of
the stewardship sawtimber, which accounts for one-third of the total
timber sales, could provide a more accurate representation of what
proportion of FS timber is acquired by small businesses. This could not
only provide more transparency of the FS timber program, but also more
accurate assessment of if small businesses are getting a statutorily
mandated fair proportion of Government timber sales.
3. What are the alternatives to this proposed rule?
Besides the proposal to change the appraisal of the hauling costs
on set-aside timber sales, SBA is also requesting comment on various
alternatives to this proposal, as discussed in this proposed rule. SBA
invites comments on these alternatives as well as suggestions for other
alternatives to this proposed change.
Regarding appraising haul costs for set-aside sales, SBA considered
imposing haul cost adjustments for non-manufacturers. Because both
manufacturers and non-manufacturers must agree to manufacture at least
70% of the sawtimber purchased through a set-aside sale at a small
mill, SBA does not believe additional adjustments for non-manufacturers
are warranted.
SBA also considered waiving the 30/70 rule if no small mills are
located within a reasonable distance of a set-aside sale. Such an
alternative would allow small businesses to participate in the set-
aside timber sales without requiring them to look for and use small
mills. Although this approach would not increase hauling costs (and
hence decrease receipts to the FS), since small businesses would not
have to seek out and use small mills located further away, it could
lead to inconsistent results. What might not be considered a
``reasonable distance'' for one sale might be so considered for
another.
[[Page 66219]]
Instead of appraising 100% of the hauling to the nearest small
business mill, SBA also considered appraising, when the nearest mill is
a large business, 70% of the haul costs to the nearest small mill and
30% of the haul costs to the nearest large mill. The FS also suggested
this as an alternative to SBA's proposal to avoid overstating the haul
costs when the purchaser sells 30% of the sawtimber to the nearest
largest mill. This alternative may accurately reflect the true costs to
haul the timber if every winning bidder always sells 30% of sawtimber
to the nearest large mill and 70% to the nearest small mill. However,
SBA's reviews of all set-aside sales as well as those appraised to the
nearest large mill do not support this. Majority of small manufacturers
that purchase timber under the FS set-aside sales either use 100% of
the purchase themselves or sell 100% to another small mill. More
importantly, even a large proportion of non-manufacturer purchasers
(i.e., loggers) also sell 100% of set-aside to the nearest mill. For
example, of 156 set-aside sales that were appraised to the nearest
large mill during FY 2009-2014, 95 were acquired by small non-
manufacturers of which 38 (or 40%) sold 100% of timber to a small mill.
Unless the FS is certain that the purchaser is going to sell 30% of
sawtimber to the nearest large mill and 70% to the nearest small mill,
the application of the 30/70 appraisal alternative will always lead to
understatement of the hauling costs to the eligible bidders. This
approach will also be complicated to implement.
SBA also considered appraising to the nearest small mill only when
that mill is located no more than 60 miles from the large mill which
would be used as the appraisal point under the current rules. Data
suggests that 62 miles is the median distance between a small mill and
the large mill NFS used to appraise the historical set-aside sales (see
Table 10, above). Historical sales data suggests that appraising to the
nearest small mill only when that mill is located no more than 60 miles
from the current appraisal point would affect 2.7% of set-aside sales
and benefit approximately 35 small businesses annually (see Table 12).
The estimated revenue losses to NFS will be reduced to about $0.53
million (or 0.4% of total) in Region 6 and $0.15 million (0.4% of
total) in Region 5 if the appraisal is done to the nearest mill that is
within 60 miles.
Table 12--Count of Sales and Average Number of Bidders Participating in Set-Aside Sales Where a Small Mill (SM) Is Located Within Sixty Miles of the
Large Mill Appraisal Point (AP), FY 2009-2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
Set-asides appraised to a large mill
--------------------------------------------------------------------------
FS region * Total count of sales Average historical
included Count of sales where a Share of total sales participation/number of
SM is <60 miles from AP (%) bidders affected
---------------------------------------------------------------------------------------------------------------------------------
1............................ 159 8 5.0 2.3
2............................ 256 0 0.0 0
3............................ 42 0 0.0 0
4............................ 112 1 0.9 0.7
5............................ 195 6 3.1 1.8
6............................ 397 18 4.5 7.2
8............................ 858 20 2.3 7.7
9............................ 897 24 2.7 15.3
--------------------------------------------------------------------------------------------------------------------------
Total.................... 2,916 77 2.6 35.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Region 7 was eliminated in 1965 as part of re-designation of FS regions and Region 10 was not included in the FS appraisal data.
Source: FS appraisal data and SBA calculations.
SBA did not propose this approach in the proposed regulatory text
as the required step of determining whether a small mill is located
within 60 miles of the nearest large mill could unnecessarily
complicate the process. This approach would impact fewer set-aside
sales, but it would also benefit fewer small businesses. Overall, the
proposed change to appraise the hauling costs for the set-aside timber
sales to the nearest small mill is consistent with SBA's statutory
mandate to assist small businesses.
With respect to a potential policy amendment to include the
stewardship sawtimber volume in the small business market share
calculation, SBA considered including stewardship sawtimber only in
those market areas where small businesses are particularly likely to be
underrepresented if the stewardship sawtimber volume is excluded.
Specifically, SBA is considering including the stewardship sawtimber
volume only in market areas where small businesses purchase a large
percentage of stewardship timber volume or where the stewardship timber
volume represents a high percentage of Overall timber volume. However,
the purpose of such a possible regulatory amendment is to more
transparently and accurately reflect small business participation for
purposes of calculating small business market share for set-aside
triggers. SBA believes that it is necessary for fairness across the
country to have a consistent policy that is not subject to
interpretation. While SBA cannot estimate with certainty the actual
outcome of the gains and losses among small and large businesses, it
can identify several probable impacts. The historical data shows that
the inclusion of IRTC and IRSC stewardship sawtimber volume could have
a substantial negative or positive impact in the computation of small
business market share in many of the 139 active market areas. SBA
invites comments and data on how such a policy change would impact
small businesses, the stumpage prices, number of set-aside sales, and
FS receipts. SBA also welcomes comments on any potential impacts of
reduced receipts to county payment programs or other areas affecting
small business economic development.
Executive Order 13563
SBA has conducted significant outreach to the affected public for
many years. Between 1996 and 2002, SBA visited a number of small mills
throughout the country to discuss the impact of stewardship contracting
on the timber program and their ongoing operations. During this time
period, SBA was also contacted by a small business timber association
regarding the impact of stewardship contracting
[[Page 66220]]
on small mills located in Western states. During the 2000 and 2005 re-
computations, SBA and FS discussed the impacts of the stewardship
program on small business market shares and the possibility of
including the stewardship sawtimber volume in the five-year re-
computation of the small business fair proportion. In 2006, FS issued a
proposed policy directive to include stewardship contracting sawtimber
volume in the calculation of small business market shares. At the 2010
re-computation, SBA and FS again discussed the topic of including
stewardship sawtimber volume in the calculation. SBA continued to meet
with small mills regarding the impact of stewardship contracting
between 2005 and 2012. In 2010, SBA held a ``town hall meeting'' with
small mills to discuss the impacts of stewardship contracting. In 2012,
small business timber groups submitted complaints to SBA's Ombudsman
and Office of Advocacy regarding FS' failure to finalize the proposed
policy directive to include stewardship sawtimber volume in the small
business market share calculations. In 2013, SBA began discussions with
FS regarding the current proposed rulemaking which resulted in the 2014
publication of the ANPRM. SBA received 842 comments in response to the
ANPRM. During the comment review process, SBA again met with industry
stakeholders regarding ongoing impacts of stewardship contracting and
the current method of appraising small business set-aside sales.
Executive Order 12988
For purposes of Executive Order 12988, SBA has drafted this
proposed rule, to the extent practicable, in accordance with the
standards set forth in sections 3(a) and 3(b)(2) of that Executive
Order, to minimize litigation, eliminate ambiguity, and reduce burden.
This rule has no preemptive or retroactive effect.
Executive Order 13132
For the purpose of Executive Order 13132, SBA has determined that
this proposed rule will not have substantial direct effects on the
States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government. Therefore, SBA has determined that this
proposed rule has no federalism implications warranting preparation of
a federalism assessment.
Paperwork Reduction Act
For purposes of the Paperwork Reduction Act, 44 U.S.C. Chapter 35,
SBA has determined that this proposed rule would not impose new
reporting requirements. Stewardship sales will be tracked and recorded
using the same method currently set forth in the Forest Service Manual
(FSM 2400)--Commercial Timber Sales Manual (FSM 2430) and the Forest
Service Handbook (FSH)--Timber Sale Preparation Handbook (FSH 2409.18).
FS does not currently make any collections related to tracking this
data and no additional information will be collected. The difference
would be that the stewardship sawtimber volume would be included in the
calculation. The appraisal point calculation performed by the FS will
also be conducted using the same methodology with the exception of the
mill location used in set-aside sales.
Regulatory Flexibility Act, 5 U.S.C. 601-612
According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601,
when an agency issues a rulemaking, it must prepare a regulatory
flexibility analysis to address the impact of the rule on small
entities. In accordance with this requirement, SBA has prepared this
Initial Regulatory Flexibility Analysis addressing the impact of this
proposed rule and alternatives, including a possible policy change
under consideration.
1. What is the need for and objective of this proposed rule?
The proposal to appraise set-aside haul costs to the nearest small
mill is necessary to accurately reflect the costs to eligible bidders.
2. What is the legal basis for this proposed rule?
Section 2(a) of the Small Business Act (15 U.S.C. 631(a)) provides
that it is the declared policy of the Congress that the Government
should aid, counsel, assist, and protect the interests of small
business concerns in order to ensure that a fair proportion of the
total sales of Government property be made to such enterprises. Section
15(a) of the Small Business Act (15 U.S.C. 644(a)) further provides
that small business concerns shall receive any contract for the sale of
Government property where it is in the interest of ensuring that a fair
proportion of the total sales of Government property be made to small
business concerns.
3. What is SBA's description and estimate of the number of small
entities to which the rule will apply?
SBA estimates there are approximately 362 small business firms that
may benefit from this rule. SBA estimates these firms will benefit to
the extent small business timber sale set-aside bid prices are
calculated using the actual hauling costs the bidders will incur.
Approximately 5.3% of sales would be impacted, benefiting 65-70 small
businesses. No large business would be impacted as they are not
eligible to participate in small business set-aside timber sales.
4. What are the projected reporting, recordkeeping, Paperwork Reduction
Act, and other compliance requirements?
SBA has determined that this rule does not impose additional
reporting or recordkeeping requirements. Stewardship sales will be
tracked and recorded using the same method currently set forth in the
Forest Service Manual (FSM 2400)--Commercial Timber Sales Manual (FSM
2430) and the Forest Service Handbook (FSH)--Timber Sale Preparation
Handbook (FSH 2409.18). FS does not currently make any collections
related to tracking this data and no additional information will be
collected. The appraisal point calculation performed by the FS will be
conducted using the same methodology with the exception of the mill
location used in set-aside sales.
5. What relevant federal rules may duplicate, overlap, or conflict with
this rule?
We are not aware of any rules that duplicate, overlap or conflict
with this rule. The FS Timber Sale Preparation Handbook would conflict
with the proposed rule, if adopted as proposed. Concomitant with the
SBA's rule, the FS would revise its directives, including FSH 2409.18.
6. What significant alternatives did SBA consider that accomplish the
stated objectives and minimize significant economic impact on small
entities?
Regarding appraising haul costs, SBA considered imposing haul cost
adjustments for non-manufacturers. Because both manufacturers and non-
manufacturers must agree to manufacture at least 70% of the sawtimber
purchased through a set-aside sale at a small mill, SBA does not
believe additional adjustments for non-manufacturers are warranted. SBA
also considered waiving the 30/70 rule if no small mills are located
within a reasonable distance of the sale. Such an
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alternative would allow small businesses to participate in set-aside
timber sales without requiring them to look for and use small mills.
Although this approach would not increase hauling costs (and hence not
increase the cost to the Government), since small businesses would not
have to seek out and use small mills located further away, it could
lead to inconsistent results. What might not be considered a
``reasonable distance'' for one sale might be so considered for another
sale. Moreover, without specific data as to what hauling distance leads
to a sales price that is not fair and reasonable to the Government,
this approach could be challenged as being arbitrary.
In addition, with respect to the 30/70 rule, instead of appraising
100% of the hauling to the nearest small mill, SBA also considered
appraising, when the nearest mill is a large business, 70% of the haul
costs to small mills and 30% of the haul costs to large mills. Although
this approach may accurately reflect the true costs to haul the timber,
SBA felt that it could unnecessarily complicate the process.
SBA also considered appraising to the nearest small mill only when
that mill is located no more than 60 miles from the large mill which
would be used as the appraisal point under the current rules. The
median distance between a small mill and the large mill FS used to
appraise historical set-aside sales is about 62 miles (see Table 10).
Historical sales data suggests that appraising to the nearest small
mill only when that mill is located no more than 60 miles from the
current appraisal point would affect 2.7% of set-aside sales and
benefit approximately 35 small businesses annually (see Table 10). SBA
did not adopt this approach in the proposed regulatory text as the
required step of determining whether a small mill is located within 60
miles of the nearest large mill could unnecessarily complicate the
process. This approach would impact fewer set-aside sales, but it would
also benefit fewer small businesses. Overall, the proposed change tis
consistent with SBA's statutory mandate to assist small businesses.
As an alternative to a potential policy change, although not
included in this proposed rule, to include the stewardship sawtimber
volume in the small business market share calculation, SBA also is also
considering to include the stewardship sawtimber volume in that
calculation only in those market areas where small business
participation is particularly likely to be underrepresented if
stewardship sawtimber volume is excluded. Specifically, SBA is
considering whether to include the stewardship sawtimber volume only in
market areas where small businesses purchase a large percentage of
stewardship contracting timber volume or where stewardship contracting
timber volume represents a high percentage of overall timber volume.
However, the purpose of such a regulatory amendment is to more
accurately reflect small business participation rates for purposes of
calculating the set-aside trigger point.
List of Subjects in 13 CFR Part 121
Administrative practice and procedure, Reporting and recordkeeping
requirements, Small businesses.
For the reasons stated in the preamble, SBA proposes to amend part
121 of title 13 of the Code of Federal Regulations as follows:
PART 121--SMALL BUSINESS SIZE REGULATIONS
0
1. The authority citation for part 121 continues to read as follows:
Authority: 15 U.S.C. 632, 634(b)(6), 662, and 694a(9).
0
2. Amend Sec. 121.506 by redesignating paragraphs (a) through (e), as
paragraphs (b) through (f) respectively, adding new paragraph (a), and
adding paragraphs (g), and (h).
The additions read as follows:
Sec. 121.506 What definitions are important for sales or leases of
Government-owned timber?
(a) Computation of market share is the small business market share,
expressed as a percentage for a small business timber sale market area
based on the purchase by small business in the timber sale program
market over the preceding 5-year period. The computation is done every
five years by the U.S. Forest Service in collaboration with the SBA.
* * * * *
(g) Small business market share is the calculated share of
sawtimber that small businesses are expected to purchase within a
market area, expressed as a whole percent.
(h) Small business timber sale market areas are physical locations
throughout the United States including National Forests used in the
administration of the Timber Sale Set-Aside program.
0
3. Amend Sec. 121.507 by adding paragraph (d) to read as follows:
Sec. 121.507 What are the size standards and other requirements for
the purchase of Government-owned timber (other than Special Salvage
Timber)?
* * * * *
(d) In setting minimum bids for small business timber sale set-
asides, the appraisal point to calculate the cost of transportation and
hauling shall be the nearest small business manufacturing facility
where the raw materials may be legally processed as determined by the
U.S. Forest Service.
Dated: September 14, 2016.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-22861 Filed 9-26-16; 8:45 am]
BILLING CODE 8025-01-P