Natural Resources: Status of Merchantable Material Contracting	 
Pilot Program Authorized by the Secure Rural Schools and	 
Community Self-Determination Act of 2000 (09-MAY-03,		 
GAO-03-596R).							 
                                                                 
The Secure Rural Schools and Community Self-Determination Act of 
2000, enacted October 30, 2000, mandated that we assess a	 
merchantable material contracting pilot program authorized by the
act and report on our assessment by September 30, 2003. The pilot
program encompasses certain forest-related projects undertaken as
a result of the act and mandates the use of separate contracts	 
for the harvesting or collection of merchantable material, such  
as timber, and the sale of that material rather than a single	 
contract for both activities.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-596R					        
    ACCNO:   A06833						        
  TITLE:     Natural Resources: Status of Merchantable Material       
Contracting Pilot Program Authorized by the Secure Rural Schools 
and Community Self-Determination Act of 2000			 
     DATE:   05/09/2003 
  SUBJECT:   Contract administration				 
	     Federal/state relations				 
	     Land management					 
	     Locally administered programs			 
	     Program evaluation 				 

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GAO-03-596R

Page 1 GAO- 03- 596R Merchantable Material Contracting Pilot Program

May 9, 2003 Congressional Committees Subject: Natural Resources: Status of
Merchantable Material Contracting Pilot Program Authorized by the Secure
Rural Schools and Community Self- Determination Act of 2000 The Secure
Rural Schools and Community Self- Determination Act of 2000,

enacted October 30, 2000, 1 mandated that we assess a merchantable
material contracting pilot program authorized by the act and report on our
assessment by September 30, 2003. The pilot program encompasses certain
forest- related projects undertaken as a result of the act and mandates
the use of separate contracts for the harvesting or collection of
merchantable material, such as timber, and the sale of that material
rather than a single contract for both activities.

In summary, based on our preliminary work, of the approximately 1,300
forest- related projects approved at the time of our review, only 13 are
expected to generate merchantable material and, thus, be eligible for the
pilot program. Only 6 of these 13 are expected to be conducted within the
pilot program* and none of the 6 has yet been implemented. Given the
preliminary nature of the pilot program and the small number of projects,
a full- scale assessment by September 30, 2003, would provide very limited
information. We briefed your offices on these findings and reached
agreement that no further assessment of the pilot program will be
conducted at this time. Also as agreed, we are providing this letter
summarizing program activity to date.

Since the early 20th century, counties containing federal lands have been
compensated for the tax- exempt status of federal lands within their
boundaries. This compensation generally represents a percentage of the
receipts generated on federal lands through the sale or use of natural
resources* such as timber, minerals, recreation, or grazing permits.
Localities generally are required to use these funds for roads, schools,
or other services and facilities. However, the steep decline in federal
timber

1 Pub. L. No. 106- 393, 114 Stat. 1607 (2000).

United States General Accounting Office Washington, DC 20548

Background

Page 2 GAO- 03- 596R Merchantable Material Contracting Pilot Program

sales during the 1990s resulted in a significant decrease in federal
payments to counties that historically depended on timber receipts.

The Secure Rural Schools and Community Self- Determination Act of 2000 was
enacted, in part, to address the decline in federal payments by
stabilizing payments to counties that depended on revenues from timber
sales on Forest Service and certain Bureau of Land Management (BLM) lands.
2 Under the act, each county may continue to receive a portion of the
revenues generated from these lands or can choose instead to receive
annual payments equal to the average of the three highest annual revenue

payments to the county from fiscal year 1986 through fiscal year 1999.
Counties electing the second option generally must use 80 to 85 percent of
the payments on certain county services such as maintaining roads and
schools. 3 The remainder can be (1) reserved by the county for special
projects that benefit federal lands, known as Title II projects; (2)
reserved by the county for county projects related to federal lands (such
as search- and- rescue work on federal lands), known as Title III
projects; or (3) returned to the Treasury. The merchantable material
contracting pilot program applies only to Title II projects.

Title II projects are to be proposed by local resource advisory committees
and must be approved by Forest Service or BLM; these agencies then carry
out approved projects using the reserved Title II funds. Projects are to

improve maintenance of existing infrastructure, enhance forest ecosystems,
and restore and improve land health and water quality. The act requires
that a certain percentage of Title II projects nationwide that are
expected to generate merchantable material must be implemented under the
pilot program, using separate contracts for harvesting or collecting the
material and selling it. 4 The authority to initiate Title II projects
under the act expires September 30, 2006.

2 The act covers all National Forest System lands as well as certain BLM
lands in Oregon. 3 Counties receiving less than $100,000 annually from
National Forest System lands may spend up to 100 percent of the payment on
these county services. 4 In fiscal year 2001, 15 percent of Title II
projects generating merchantable material were to be conducted under the
pilot program; in fiscal years 2002 and 2003, 25 percent of projects;

and in fiscal years 2004- 2006, 50 percent.

Page 3 GAO- 03- 596R Merchantable Material Contracting Pilot Program

According to our analysis, as of February and March 2003, the Forest
Service or BLM had approved 1,268 Title II projects. Of these, 13 projects
are expected to generate merchantable material: 1 began in fiscal year
2002 and is ongoing, 9 are expected to begin in fiscal year 2003, and the
remainder to begin in fiscal year 2004 or later. 5 Of the 10 projects
underway or expected to begin in fiscal year 2003, 6 are expected to be
included in the pilot program using separate contracts for harvesting and
selling merchantable material. All six pilot program projects are in
Oregon, and all involve removing small- diameter trees. As of March 2003,
no harvesting or collection of merchantable material had begun on any of
the six projects. Table 1 shows the projects* locations and anticipated
start dates.

Table 1: Title II Projects to Be Conducted Under the Merchantable Material
Contracting Pilot Program Project name Project location

(county and state) Title II funds reserved Estimated start

date Managing agency

Boaz Forest Health and Small Diameter Utilization Jackson (OR) $108,362
Spring 2003 BLM Density Reduction* Chetco Curry (OR) 75,000 Spring 2003
Forest Service Small Tree Treatment Project* Illinois Valley Josephine
(OR) 67,500 Summer 2003 Forest Service Waters Creek Fuel Reduction
Josephine (OR) 146,250 Spring 2003 Forest Service

Westside Small Tree* Chetco Curry (OR) 75,000 Summer 2003 Forest Service
Westside Small Tree* Gold Beach Curry (OR) 68,550 Summer 2003 Forest
Service Source: Forest Service and BLM. Because of the small number of
approved projects expected to be

conducted within the merchantable material contracting pilot program,
further assessment of the program by September 30, 2003, would provide
limited useful information. As agreed with your offices, we are providing
this letter summarizing program activity to date and plan no further
assessment of the pilot program at this time.

5 No Title II projects involving merchantable material were approved or
undertaken in fiscal year 2001. Few Pilot Projects

Have Been Approved, and None Have Yet Been Implemented

Page 4 GAO- 03- 596R Merchantable Material Contracting Pilot Program

To determine the number of Title II projects, including the number of
projects expected to generate merchantable material and the number to be
conducted in the pilot program, we reviewed Forest Service and BLM
documents including lists and descriptions of projects; interviewed
officials in all nine Forest Service regions and BLM*s Oregon State
Office; and interviewed cognizant headquarters officials in Forest Service
and BLM. We conducted our work from January through March 2003 in

accordance with generally accepted government auditing standards. We
requested comments on a draft of this letter from the Secretaries of
Agriculture and of the Interior. In response, we received oral comments
from the Forest Service*s Director of Policy Analysis and BLM*s Acting
Group Manager for the Forest and Woodland Management Group, who generally
concurred with the information presented in our letter. The BLM official
also provided some technical corrections, which we incorporated as
appropriate.

We are sending copies of this letter to the Secretary of Agriculture and
the Secretary of the Interior. The letter also is available on GAO*s home
page at http:// www. gao. gov/.

If you have questions about this letter or need further information,
please contact me at (202) 512- 3841, or David P. Bixler, Assistant
Director, at (202) 512- 7201. You may also reach us by email at hillbt@
gao. gov or bixlerd@ gao. gov. Other key contributors to this assignment
were James Espinoza, Steve Gaty, and Diane Lund.

Barry T. Hill Director, Natural Resources

and Environment Scope and

Methodology Agency Comments

Page 5 GAO- 03- 596R Merchantable Material Contracting Pilot Program

List of Congressional Committees The Honorable Thad Cochran Chairman The
Honorable Tom Harkin Ranking Minority Member Committee on Agriculture,
Nutrition, and Forestry United States Senate

The Honorable Pete V. Domenici Chairman The Honorable Jeff Bingaman
Ranking Minority Member Committee on Energy and Natural Resources United
States Senate

The Honorable Bob Goodlatte Chairman The Honorable Charles W. Stenholm
Ranking Minority Member Committee on Agriculture House of Representatives

The Honorable Richard W. Pombo Chairman The Honorable Nick J. Rahall, II
Ranking Minority Member Committee on Resources House of Representative

(360296)

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