Tongass Timber Reform Act: Implementation of the Act's Contract
Modification Requirements (Chapter Report, 01/31/95, GAO/RCED-95-2).
Pursuant to a congressional request, GAO reviewed the Forest Service's
implementation of certain unilateral modifications to long-term
contracts in Alaska and other requirements of the Tongass Timber Reform
Act, focusing on whether: (1) road credits are used consistently between
long-term contracts and short-term contracts; (2) buffers of standing
timber have been left along designated streams as required; and (3) the
Forest Service is requiring full documentation of environmental effects
whenever changes are made to timber harvest area boundaries.
GAO found that: (1) the Forest Service believes it treats road credits
consistently across all contracts, since unused road credits are
cancelled at the end of all timber sales contracts; (2) the long-term
contractors' ability to carry unused road credits forward for longer
periods than short-term contractors gives them an unfair competitive
advantage; (3) some streamside buffers did not meet the 100-foot minimum
width during the first years immediately following the act's passage,
but the Forest Service has since taken steps to enforce this
requirement; (4) in 1994, the Forest Service issued guidance and
initiated a new monitoring program to ensure the buffers' effectiveness;
(5) the Forest Service often does not document the environmental effects
of timber harvest boundary changes; (6) in some instances, the forest
supervisor has inappropriately delegated his documenting authority to
district rangers and waived documentation where he believed boundary
changes were insignificant; and (7) the forest supervisor has since
withdrawn the authority delegation and established a detailed process
for assessing boundary changes.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-95-2
TITLE: Tongass Timber Reform Act: Implementation of the Act's
Contract Modification Requirements
DATE: 01/31/95
SUBJECT: Forest management
Timber sales
National forests
Forest conservation
Contract modifications
Environmental impact statements
Environment evaluation
Compliance
Environmental law
Unfair competition
IDENTIFIER: Alaska
Tongass National Forest (AK)
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Cover
================================================================ COVER
Report to the Ranking Minority Member, Committee on Resources, House
of Representatives
January 1995
TONGASS TIMBER REFORM ACT -
IMPLEMENTATION OF THE ACT'S
CONTRACT MODIFICATION REQUIREMENTS
GAO/RCED-95-2
Tongass Timber Reform Act
Abbreviations
=============================================================== ABBREV
APC - Alaska Pulp Corporation
EIS - environmental impact statement
GAO - General Accounting Office
KPC - Ketchikan Pulp Company
Letter
=============================================================== LETTER
B-253175
January 31, 1995
The Honorable George Miller
Ranking Minority Member
Committee on Resources
House of Representatives
Dear Mr. Miller:
In response to your request, we are reporting on the Forest Service's
implementation of certain unilateral modifications to long-term
timber sale contracts in Alaska and other requirements of the Tongass
Timber Reform Act. Our report contains a matter for congressional
consideration and a recommendation to the Secretary of Agriculture
designed to enhance the Forest Service's implementation of the act.
As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter. At that time, we will
send copies to the appropriate congressional committees; the Acting
Secretary of Agriculture; the Chief, Forest Service; and the
Director, Office of Management and Budget. We will also make copies
available to others upon request. Please call me at (202) 512-7756
if you or your staff have any questions. Major contributors to this
report are listed in appendix II.
Sincerely yours,
James Duffus III
Director, Natural Resources
Management Issues
EXECUTIVE SUMMARY
============================================================ Chapter 0
PURPOSE
---------------------------------------------------------- Chapter 0:1
In Alaska's Tongass National Forest, two companies--the Ketchikan
Pulp Company and the Alaska Pulp Corporation--have held long-term
(50-year) contracts to harvest timber. In response to congressional
direction in the Tongass Timber Reform Act of 1990, the U.S. Forest
Service made a number of changes to these contracts. These changes
were designed to address perceived competitive advantages that the
two companies had over timber harvesters with short-term (3- to
5-year) timber contracts. The act also added certain requirements
aimed at mitigating the environmental damage stemming from timber
harvests.
The Ranking Minority Member of the House Committee on Resources asked
GAO to determine how the Forest Service had implemented certain
contract modifications and related requirements of the Tongass Timber
Reform Act. Specifically, GAO determined
whether road credits that timber harvesters receive for building
harvest-related roads are used consistently between long-term
contracts and short-term contracts and
whether buffers of standing timber have been left along designated
streams as the act requires, and how the Forest Service monitors the
buffers' effectiveness.
In addition, as agreed, GAO examined whether the Forest Service is
following its policy of requiring full documentation of environmental
effects whenever changes are made to the boundaries of timber harvest
areas.
In September 1993, Alaska Pulp closed its pulp mill, charging that it
was losing money because the price of timber was too high as a result
of the long-term contract modifications. The Forest Service
terminated Alaska Pulp's contract in April 1994 on the grounds that
the mill's closure constituted a breach of contract. Consequently,
this report focuses mainly on Ketchikan Pulp's contract, although the
findings also relate to Alaska Pulp's contract.
BACKGROUND
---------------------------------------------------------- Chapter 0:2
Road credits and stream buffers were two of several issues addressed
in the Tongass Timber Reform Act. Within certain limits, timber
harvesters can pay for timber by building harvest-related roads. The
reform act called for modifying long-term contracts to create
consistency between long-term and short-term contract holders in how
these road credits are handled. Long-term contracts are divided into
separate timber "offerings," each of which lasts for several years;
under the Forest Service's policy, long-term contractors could carry
forward certain unused road credits (called "ineffective" credits)
from one offering to the next. By contrast, if harvesters operating
under short-term contracts could not use these "ineffective" road
credits by the end of their 3- to 5-year contracts, the credits were
canceled and could not be carried forward to another short-term
contract. To protect fish and wildlife habitat, such as spawning
ground for salmon, the reform act also directed the Forest Service to
ensure that buffers of standing timber were left between designated
streams and the timber harvest areas. These buffers were to be at
least 100 feet wide.
Changes to timber harvest boundaries are sometimes needed after the
environmental effects of the proposed harvest have been assessed.
For example, upon closer review the area might be found to contain
less harvestable timber than expected, requiring an expansion of the
boundaries to meet projected harvest amounts; the Forest Service's
policy requires that if such changes are made, the forest supervisor
must determine and document whether the changes are environmentally
significant enough to require additional environmental analysis.
GAO has reported on implementation of the reform act before. Four
months after the act was passed, and in response to one of the act's
requirements, GAO issued a report analyzing the Forest Service's
actions.\1 GAO concluded that except for insufficient action on road
credits, the changes complied with the act's requirements but that
more time would be needed to determine how successfully the changes
had been carried out.
--------------------
\1 Tongass National Forest: Contractual Modification Requirements of
the Tongass Timber Reform Act (GAO/RCED-91-133, Mar. 28, 1991).
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3
The Forest Service maintains that its existing policy provides
consistent treatment of road credits in long-term and short-term
contracts. GAO continues to disagree and believes that the policy
continues to give Ketchikan Pulp a competitive advantage by allowing
the company to apply "ineffective" road credits for a much longer
period than timber harvesters who must use short-term contracts.
Through the end of fiscal year 1993, Ketchikan Pulp had used road
credits to pay for 73 percent of the timber harvested.
Checks of streamside buffers in the years immediately following the
reform act showed that some buffers did not meet the 100-foot
minimum. The Forest Service has since taken steps to ensure that
this requirement will be met. In fiscal year 1994, the Forest
Service also began a new program for assessing the effectiveness of
such buffers. This program should help the Forest Service determine
if the buffers are working as intended.
The Forest Service often is not following its policy of documenting
the environmental effects of changes made to planned boundaries of
timber harvests. In more than 90 percent of the cases GAO examined
in which such changes had been made to Ketchikan Pulp's harvest
areas, evidence that the changes' environmental effects had been
assessed was incomplete or missing altogether. Not complying with
the policy lessens the assurance that such changes are
environmentally sound.
PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4
FOREST SERVICE HAS NOT
CHANGED ROAD CREDIT POLICY
-------------------------------------------------------- Chapter 0:4.1
The Forest Service maintains that no change is needed in the
Ketchikan Pulp's long-term contract in order to meet the reform act's
provision that road credits be handled consistently between long-term
and short-term contracts. It believes that the current policy meets
this requirement, in that "ineffective" road credits are canceled at
the end of all timber sale contracts, whether short-term or
long-term. GAO continues to disagree; the current policy does not
address the concern that led the Congress to require a change to
provide consistent use of road credits for long- and short-term
contracts. Ketchikan Pulp's continued ability to carry these credits
forward from one timber offering to the next provides a competitive
advantage over short-term contractors because the company has a much
longer period to fully use such credits to pay for harvested timber.
If the Forest Service's position is not satisfactory to the Congress,
additional direction from the Congress would appear necessary.
COMPLIANCE WITH STREAM
BUFFER REQUIREMENTS HAS
IMPROVED
-------------------------------------------------------- Chapter 0:4.2
Spot-checks by the Forest Service and the state of Alaska during the
first several years after the act was passed disclosed many instances
where, at some point along their length, the buffers were less than
the required 100 feet wide. The Forest Service has since taken steps
to guard against future problems, and GAO believes these steps are
sufficient.
The Tongass National Forest's management plan and an agreement
between the Forest Service and Alaska for managing water quality both
call for the Forest Service to monitor how effectively these buffers
protect habitat. Before 1994, this monitoring program was limited
and inconsistent, in part because specific guidance was lacking from
the Forest Service's Alaska Regional Office. Guidance was issued and
a new monitoring program was developed in 1994. The new program
contains additional elements that should strengthen the evaluation
process.
CHANGES TO BOUNDARIES OF
TIMBER HARVEST UNITS NOT
ADEQUATELY DOCUMENTED
-------------------------------------------------------- Chapter 0:4.3
Contrary to the Forest Service's policy, forest supervisors had not
in all cases documented the environmental significance of changes to
harvest unit boundaries or the need for additional environmental
analysis--particularly for Ketchikan Pulp. This inadequate
documentation occurred primarily because the forest supervisor
inappropriately delegated his authority for documenting boundary
changes to district rangers and did not require documentation if it
was determined that the boundary changes were not significant. GAO
examined 41 instances in which boundary changes had occurred in areas
harvested by Ketchikan Pulp and found that in 39 instances the
documentation was not adequate. In 17 instances, there was no
documentation at all; in 22 instances, the documentation had not been
reviewed according to the Forest Service's policy. GAO also examined
19 instances in which boundary changes had occurred in areas
harvested by Alaska Pulp and found that adequate documentation was
present in 18 of them. The forest supervisor has since withdrawn the
delegation of authority and has established a detailed process for
assessing boundary changes. The process requires that the forest
supervisor document the environmental significance of any changes to
harvest unit boundaries and the need for any additional environmental
analysis.
RECOMMENDATION TO THE SECRETARY
OF AGRICULTURE
---------------------------------------------------------- Chapter 0:5
GAO recommends that the Secretary of Agriculture direct the Chief of
the Forest Service to require Alaska Regional Office officials to
periodically check to ensure that forest supervisors are properly
documenting the environmental significance of boundary changes to
timber harvest units made after environmental impact statements have
been issued.
MATTER FOR CONGRESSIONAL
CONSIDERATION
---------------------------------------------------------- Chapter 0:6
In light of the Forest Service's position that it needs to take no
action to comply with the Tongass Timber Reform Act's provision on
road credits, the Congress may wish to consider directing the
Secretary of Agriculture to modify the Ketchikan Pulp contract so
that "ineffective" road credits generated during a timber offering
would be canceled after the timber offering is completed.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:7
As requested, GAO did not obtain written agency comments on a draft
of this report. However, the information on which the report's
findings are based was discussed with officials responsible for
timber management activities, including the Director, Timber
Management Staff, at Forest Service headquarters and at the Alaska
Region. Forest Service officials have continued to maintain that the
agency's current policy on road credits complies with the act and
that they intend to take no action. GAO believes that the act's
language and legislative history make it clear that the Congress
intended the Forest Service to make changes to remove the competitive
advantage afforded the holders of long-term contracts in connection
with the use of road credits. In other areas covered by the report,
the officials indicated general agreement with the accuracy of the
information.
INTRODUCTION
============================================================ Chapter 1
The Tongass National Forest covers about 16.8 million acres in
southeast Alaska and is the largest national forest in the United
States, equal to an area about the size of West Virginia. The U.S.
Department of Agriculture's Forest Service manages the Tongass for
multiple uses, such as timber production, outdoor recreation, and
fish and wildlife. The Forest Service's Alaska Region, headquartered
in Juneau, Alaska, carries out the management responsibilities.
Because of its magnitude, the Tongass is divided into three
administrative areas--Chatham, Stikine, and Ketchikan--each having an
area office headed by a forest supervisor. Each area office has
between two and four ranger districts, headed by a district ranger,
to carry out daily operations.
In the 1950s, the Forest Service awarded 50-year (long-term)
contracts to the Ketchikan Pulp Company (KPC)--now a wholly owned
subsidiary of the Louisiana Pacific Corporation--and the Alaska Pulp
Corporation (APC)--a Japanese-owned firm--to harvest Tongass timber.
As stipulated in their contracts, each company built a pulp mill to
process the harvested timber--KPC near Ketchikan and APC in Sitka.
In return, the Forest Service guaranteed a 50-year timber supply
totaling about 13.3 billion board feet for both contracts. KPC's
contract expires in 2004. APC's contract was to expire in 2011, but
the Forest Service terminated it for breach of contract on April 14,
1994, because APC shut down its pulp mill in September 1993.
The Forest Service also sells Tongass timber to companies other than
APC and KPC. These companies, referred to as independent short-term
contractors, purchase timber under contracts usually lasting 3 to 5
years. Since 1980, about 30 percent of all Tongass timber sales have
been made under independent short-term contracts. Although some of
these short-term contracts have been awarded to APC and KPC, most
have been awarded to other contractors.
Since the early 1980s, the Congress has expressed concern about the
adverse impacts of the long-term contracts on competition for timber
in southeast Alaska and on the Forest Service's ability to
effectively manage the Tongass. Part of the concern centered on the
perceived competitive advantages to APC and KPC that resulted from
differences between certain provisions of the long-term and
short-term independent contracts. Another part of the concern
centered on the relationship of the long-term contracts to the
overall management of the Tongass National Forest and, more
specifically, to issues related to other forest resources such as
fish and wildlife.
The Tongass Timber Reform Act (P.L. 101-626), enacted on November
28, 1990, addressed these concerns. The act states,
". . . it is in the national interest to modify the contracts
in order to assure that valuable public resources in the Tongass
National Forest are protected and wisely managed. Modification
of the long-term timber sale contracts will enhance the balanced
use of resources on the forest and promote fair competition
within the southeast Alaska timber industry."
Among other things, the act directed the Secretary of Agriculture to
unilaterally revise the long-term contracts in order to reflect nine
specific modifications (see app. I for a complete list). A number
of these modifications called for making long-term contracts
consistent with short-term contracts in such respects as timber sale
planning, environmental assessment, and the administration of road
credits.\1 Other provisions of the act added new environmental
requirements, such as leaving timber buffers at least 100 feet in
width along designated streams.\2
Four months after the act was passed, and pursuant to one of the
act's requirements, we issued a report to the Senate Committee on
Energy and Natural Resources and the House Committee on Interior and
Insular Affairs.\3 That report described the Forest Service's
revisions to the long-term contracts for each of the nine
modifications and discussed whether the changes reflected the
modifications specified in section 301(c) of the act. We concluded
that, with the exception of dealing with the administration of road
credits, the contract changes complied with the act's requirements.
We also concluded that more time would be needed to determine how
these changes were actually carried out.
--------------------
\1 Road credits, referred to as "purchaser road credits" by the
Forest Service, are earned by a timber purchaser for building roads
that provide access to the timber to be harvested. Within guidelines
set by the Forest Service, such credits can be used instead of cash
to pay for harvested timber.
\2 Timber in the buffers provides a source of woody debris that
enters streams over time to provide nutrients and enhance the aquatic
habitat. Buffers also serve other purposes, such as enhancing water
quality by limiting the runoff of silt entering streams from
harvested areas.
\3 Tongass National Forest: Contractual Modification Requirements of
the Tongass Timber Reform Act (GAO/RCED-91-133, Mar. 28, 1991).
OBJECTIVES, SCOPE, AND
METHODOLOGY
---------------------------------------------------------- Chapter 1:1
You requested that we review the Forest Service's implementation of
certain contract modifications and other provisions of the Tongass
Timber Reform Act. As agreed with your office, we focused this
report mainly on two issues--road credits and timber buffers. More
specifically, we determined
whether credits that timber harvesters receive for building
harvest-related roads are used consistently between long-term and
short-term timber sale contracts and
whether buffers of standing timber have been left along designated
streams as the act requires, and how the Forest Service monitors the
buffers' effectiveness.
During our review, we also noted inconsistencies in the Forest
Service's documentation of the environmental significance of changes
to timber harvest unit\4 boundaries after environmental impact
statements had been prepared. As agreed with your office, we
included an analysis of this issue in this report.
To address the first objective, we analyzed the use of road credits
by short-term contractors in fiscal years 1990-93 and compared this
usage with road credits used by long-term contractors. Using Forest
Service accounting data, we also determined the extent to which the
long-term contractors had applied road credits against the cost of
purchasing Tongass timber since the inception of the long-term
contracts through the end of fiscal year 1993.
To address the second objective, we reviewed and analyzed the results
of buffer monitoring conducted in 1992 and 1993 by the Forest Service
and the Alaska Department of Fish and Game, reviewed the monitoring
reports for 1991-93 from the Forest Service's Alaska Region and
visited the Craig and Thorne Bay Ranger Districts within the Tongass
National Forest to observe stream buffers. We also reviewed changes
made in buffer-related policies and procedures by the Forest
Service's Alaska Region in 1993-94.
To address the third objective, we reviewed and compared the planned
harvest unit boundary maps included in the environmental impact
statements with maps of the actual harvest boundaries.\5 On the basis
of discussions with the Forest Service, the state of Alaska's
Department of Environmental Conservation, and a private conservation
group, we selected 19 APC timber harvest units and 41 KPC harvest
units where the boundary changes may have been significant enough to
require further environmental analyses. Our sample constituted about
33 percent of the APC units and 18 percent of the KPC units in which
harvests had occurred outside the original boundaries. To determine
the adequacy of documentation, we reviewed and analyzed harvest unit
files. More specifically, we determined whether the files contained
evidence that the forest supervisor had determined that the proposed
boundary changes would not significantly change the effects discussed
in the environmental impact statement or that the change was
significant and would require a supplement to the environmental
impact statement.
In conducting our work, we also obtained additional information and
comments from the Forest Service, the state of Alaska, timber
industry officials, and representatives of conservation groups.
Within the Forest Service, we performed work at the headquarters in
Washington, D.C.; the Alaska Regional Office in Juneau, Alaska; the
Ketchikan Area Office in Ketchikan, Alaska; and the Thorne Bay Ranger
District in Thorne Bay, Alaska and the Craig Ranger District in Craig
Alaska. Our work with Forest Service officials was focused on the
timber management and wildlife and fisheries staffs.
In September 1993, while our review was under way, APC closed its
pulp mill, charging that it was losing money because the prices it
paid for timber as a result of the long-term contract modifications
were too high. The Forest Service responded that closure of the pulp
mill constituted a breach of contract, and in April 1994 the Forest
Service terminated APC's long-term contract. Although the APC
contract is not active, we elected to retain certain data on APC in
this report for illustrative purposes, and also because the courts
have not yet ruled on the Forest Service's action in terminating the
contract.
We conducted our review between September 1992 and October 1994 in
accordance with generally accepted government auditing standards. As
requested, we did not obtain official agency comments on a draft of
this report. However, the information in this report was discussed
with timber management officials, including the Director, Timber
Management Staff, at Forest Service headquarters, the Director's
counterpart in the Alaska Region, and officials in the Department of
Agriculture's Office of General Counsel. As chapter 2 will discuss,
these officials disagreed with our conclusions about purchaser road
credits. In other respects, however, they agreed that the
information presented was accurate. We have incorporated their
suggested changes where appropriate.
--------------------
\4 A timber harvest unit is an area within which the Forest Service
specifies the harvest of all or part of the timber.
\5 For KPC, our analysis covered a single environmental impact
statement that pertained to the entire 1989-94 operating period. For
APC, our analysis covered multiple environmental impact statements
for timber offerings in 1990-93.
PURCHASER ROAD CREDIT REQUIREMENT
OF THE ACT NOT IMPLEMENTED
============================================================ Chapter 2
Purchasers of timber in the Tongass National Forest often pay for
part of the timber they purchase with credits they have received for
building harvest-related roads. The Tongass Timber Reform Act
required modifications to KPC's and APC's long-term contracts to
ensure that credits KPC and APC received for building such roads
would be provided in a manner consistent with procedures used in
providing road credits to short-term contractors. This provision was
aimed at eliminating KPC's and APC's competitive advantage of being
able to maintain certain road credits for much longer periods of time
than short-term contractors.
As we pointed out in our March 1991 report, the Forest Service did
not modify the APC and KPC contracts to address this provision of the
act. Forest Service officials continue to believe this contract
modification is not required. They maintain that consistency already
exists because road credits are canceled at the end of all timber
sale contracts, whether long-term or short-term. However, this
approach leaves the long-term contractors' competitive advantage
intact and is not consistent with congressional direction that the
contracts be modified.
ROAD CREDITS MAY BE USED TO PAY
FOR HARVESTED TIMBER
---------------------------------------------------------- Chapter 2:1
Harvesting timber often requires that the company harvesting the
timber build roads to move logging equipment in and out of the
harvest area and transport harvested logs. As compensation to the
timber purchaser, the Forest Service gives road credits\6 equal to
the estimated cost of building the roads. Timber purchasers can use
these credits instead of cash to pay for timber.
Certain limitations apply to road credits used to pay for harvested
timber. When the Forest Service prepares a timber sale, it
establishes a base value\7 for the timber. This base value must be
paid in cash. For example, if a timber sale has a base value of
$400,000 and is sold under competitive bid for $900,000, the
purchaser must pay the base value ($400,000) in cash. The remaining
$500,000 can be paid in whole or in part with road credits.
Because timber purchasers cannot use road credits to pay the entire
cost of the timber, situations may arise in which they cannot use all
the road credits they have earned. To continue the example above, if
the purchaser earned road credits worth $700,000, the purchaser could
apply only $500,000 in credits against the cost of the timber,
because the difference between the purchase price and the base value
is only $500,000. Those road credits that can be applied against the
cost of timber are called "effective"; those road credits left over
are called "ineffective." In this example, the timber purchaser has
$500,000 of effective credits and $200,000 of ineffective credits.
Under Forest Service contracts, a timber purchaser retains
ineffective road credits until the expiration of the timber sale
contract in which the credits are earned. Although such credits may
appear valueless, for long-term contractors they can become
effective--and therefore acquire value--if the timber's purchase
price is adjusted upwards to reflect higher current market values for
timber.\8 Again using the earlier example, a subsequent adjustment in
the purchase price from the original $900,000 to $1 million would
also mean that $100,000 of ineffective road credits would be made
effective. This additional amount could be used to offset the
increased purchase price.
APC and KPC have made extensive use of road credits as a means of
paying for timber. Each used road credits to pay for about
three-fourths of the value of timber harvested under its long-term
contract. Through the end of fiscal year 1993, the value of timber
sold to the two companies since the inception of the long-term
contracts has been about $268 million (in constant 1993 dollars).
The two companies used road credits to pay for 75 percent, or $201
million, of the total price of timber. KPC used road credits to pay
for 73 percent of its timber; APC used road credits to pay for 79
percent. (See table 2.1.)
Table 2.1
Type of Payment Used for Harvested
Timber on KPC's and APC's Long-Term
Contracts Through Fiscal Year 1993
(Dollars in millions (constant 1993
dollars))
Road
Purchaser credits Cash Total
-------------------------------- ---------- ------ ------
KPC $131 $48 $179
APC $70 $19 $89
Both contracts $201 $67 $268
------------------------------------------------------------
--------------------
\6 The official name for these credits is "purchaser road credits."
\7 The base value represents the minimum amount for which the Forest
Service will sell the timber. It is generally expressed as a "base
rate" per thousand board feet of timber.
\8 Under the provisions of the long-term contracts, the Forest
Service can initiate a redetermination of the price paid by long-term
contractors if the market value of the timber rises substantially.
CONTRACTS NOT MODIFIED TO
COMPLY WITH ROAD CREDIT
REQUIREMENT
---------------------------------------------------------- Chapter 2:2
The Forest Service did not revise the provision on the use of road
credits in its long-term contracts to make them similar to the
provision in its short-term contracts, as required by the reform act.
Because this modification was not made, APC and KPC have been able to
use ineffective road credits from timber offering to timber offering
throughout the remaining life of their long-term contracts. By
contrast, ineffective road credits for short-term contracts are
canceled at the end of the contracts. We pointed out this
inconsistency in our March 1991 report and recommended that action be
taken. The Forest Service, however, has not acted on our
recommendation. The Forest Service maintained--and continues to do
so--that for ineffective road credits, no modification was needed to
make the treatment of road credits consistent between long-term and
short-term contracts. The Forest Service believes that the treatment
is consistent, in that ineffective road credits are terminated at the
end of either type of contract. It maintains that the amount of time
the long-term contractors could hold the credits is not relevant.
Our concern about the Forest Service's argument is that although
ineffective credits are canceled at the end of both types of
contracts, long-term contractors continue to hold a competitive
advantage. Short-term contractors can use ineffective road credits
only during the length of their contracts, which are considerably
shorter than the 50-year long-term contracts--short-term contracts
usually last 3 to 5 years. The long-term contractors are able to
keep these credits available for possible use over a longer period by
transferring them from timber offering to timber offering. Their
competitive advantage is that they have greater ability to retain and
use ineffective credits to offset timber payments if the price of
timber rises during the life of their contracts. In our view, the
language of the Tongass Timber Reform Act, as well as its legislative
history, makes it clear that the Congress intended the Forest Service
to make changes in road credits so that they would be treated
substantially the same under both long- and short-term contracts.
Comparisons between the two types of contracts show that this
competitive advantage can be substantial. For example, as of March
1993, APC and KPC held $5.4 million in ineffective road credits; four
short-term contractors held $3 million in ineffective road credits.
The contracts held by the short-term contractors are scheduled to
expire in 1995 and 1996, at which time any remaining ineffective
credits will be canceled. By contrast, KPC retains the ability to
convert or transfer its ineffective credits between offerings until
the year 2004. APC would have been able to carry forward its
ineffective credits to 2011 had its contract not been terminated.
The following are more specific illustrations of how KPC has been
able to use ineffective road credits in ways that short-term timber
contract holders cannot:
In March 1992, KPC transferred $7,510,248 in road credits it had
received from five previous timber offerings back to the long-term
contract's main account for use in subsequent offerings. Of this
amount, only $26,086 was effective road credits. Had the credits
been treated consistently with those of short-term contracts, KPC
would not have been able to transfer the $7,484,162 in ineffective
credits.
In January 1993, KPC paid cash in the amount of $407,747 instead of
using road credits for timber that it had harvested. Had this been a
short-term contract, the financial transaction would have been closed
and the credits could not have been used. However, because it was
under a long-term contract, KPC was able to transfer ineffective road
credits from other offerings to this one, replace the cash with
ineffective credits, and thus receive a refund of the cash it paid
above the base rate.
CONCLUSIONS
---------------------------------------------------------- Chapter 2:3
In our March 1991 report, we noted that the Forest Service did not
modify the long-term timber sales contracts to comply with the
requirements of the reform act that road credits be treated
substantially the same under both long- and short-term contracts. We
pointed out that the language of the Tongass Timber Reform Act, as
well as its legislative history, makes it clear that the Congress
intended the Forest Service to make changes in road credits so that
they would be treated substantially the same under both long- and
short-term contracts. In that report, we recommended that the Forest
Service revise the contracts accordingly. We continue to believe
that ineffective road credits resulting from each timber offering
should be canceled under KPC's long-term contract after each timber
offering is completed. Unless the Forest Service revises KPC's
long-term contract to bring this change about, KPC will continue to
have a competitive advantage over short-term timber contract holders.
Our conclusions would also be applicable to APC if the Forest Service
had not terminated APC's long-term contract or if for some reason
APC's contract is reinstated in the future.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 2:4
In its response to our earlier report and in its discussions on a
draft of this report, the Forest Service has continued to maintain
that its current policy complies with the act and intends to take no
action to modify the provision for road credits in long-term
contracts. The Forest Service maintains that the treatment of road
credits is consistent, in that ineffective road credits are
terminated at the end of either type of contract. They maintain that
the length of time that the long-term contractors can hold the road
credits is not relevant.
Our concern about the Forest Service's argument is that although
ineffective credits are canceled at the end of both types of
contracts, long-term contractors continue to hold a competitive
advantage. Their competitive advantage is that they have greater
ability to retain and use ineffective credits to offset timber
payments if the price of timber rises during the life of their
contracts. In our view, the language of the Tongass Timber Reform
Act, as well as its legislative history, makes it clear that the
Congress intended the Forest Service to make changes in road credits
so that they would be treated substantially the same under both long-
and short-term contracts.
MATTER FOR CONGRESSIONAL
CONSIDERATION
---------------------------------------------------------- Chapter 2:5
In light of the Forest Service's position that it needs to take no
action to comply with the Tongass Timber Reform Act's provision on
road credits, the Congress may wish to consider directing the
Secretary of Agriculture to modify the Ketchikan Pulp contract so
that ineffective road credits generated during a timber offering
would be canceled after the timber offering is completed.
COMPLIANCE WITH STREAM BUFFER
REQUIREMENTS HAS IMPROVED
============================================================ Chapter 3
The Tongass Timber Reform Act directs the Forest Service to protect
fish and wildlife habitat in streamside, or "riparian," areas of
harvest units by designating 100-foot buffers of timber to be left
standing along the sides of many streams in timber harvest areas.
During inspections of these buffers in 1992 and 1993, however, both
the Forest Service and the state of Alaska found buffers that, at
some point along their length, did not meet the minimum 100-foot
width requirement. The Forest Service has since taken sufficient
steps to ensure greater compliance with this requirement.
The Forest Service's management plan for the Tongass National Forest,
as well as its agreement with the state of Alaska for managing water
quality, calls for monitoring the effectiveness of buffers. We found
that before 1994, the Forest Service's monitoring efforts had been
limited in scope and often did not include measurements against
important criteria that could help determine how effectively buffers
were working. This situation was partly the result of the lack of
specific monitoring guidance from the Alaska Regional Office. In
fiscal year 1994, the Forest Service implemented a new program to
monitor buffers' effectiveness that, among other things, provides
clearer direction for the types of information to be gathered.
REFORM ACT REQUIRES 100-FOOT
BUFFERS ALONG CERTAIN STREAMS
---------------------------------------------------------- Chapter 3:1
The reform act requires that timber harvesters leave 100-foot buffers
of standing timber along two classes of streams in the Tongass
National Forest--class I streams and class II streams that flow
directly into class I streams:
Class I streams are perennial or intermittent streams that (1) are
direct sources of domestic-use water; (2) provide spawning, rearing,
or migration habitat for migratory and resident fish; or (3) have a
major effect on the water quality of another class I stream.
Class II streams that flow directly into a class I stream are
perennial or intermittent streams that (1) provide spawning and
rearing habitat for resident fish or (2) have moderate influence on
the water quality of other class I or class II streams.
Such buffers are designed to protect riparian areas, which are
important in such ways as providing fish and wildlife habitat,
protecting stream channels and stream banks, and stabilizing
floodplains. Whenever the stream lies within the harvest area, the
act requires a 100-foot buffer on each side. Whenever the stream
forms a boundary of the harvest area, the buffer must be at least 100
feet wide on the side where timber is to be harvested. The act
required buffers for those timber harvest units from which timber was
either sold or released for harvest on or after March 1, 1990.
The Forest Service took two main steps to implement this provision of
the act. First, it modified APC's and KPC's long-term contracts to
require that buffers of at least 100 feet\1 be established along
class I and class II streams. Second, the Forest Service modified
its regional Soil and Water Conservation Handbook in February 1991 to
incorporate changes resulting from the act. The handbook now
identifies the management practices needed to maintain and protect
water quality and fisheries habitat and to minimize adverse effects
on riparian areas from logging and other land-disturbing management
activities. The handbook's changes reinforce the importance of the
buffers by calling for special attention to land and vegetation for
100 feet from the edges of all streams, lakes, and other bodies of
water.
--------------------
\1 Subsequent review has indicated that wider buffers, at least in
some locations, may be needed. A joint study issued in May 1993 by
the Forest Service and the Bureau of Land Management examined stream
buffers in Alaska, Washington, Oregon, Idaho, and California and
concluded that buffers with a minimum width of 300 feet may be needed
to protect fish-bearing streams and lakes.
SOME BUFFER WIDTHS LESS THAN
REQUIRED BY THE ACT, BUT THE
FOREST SERVICE HAS TAKEN STEPS
TO IMPROVE COMPLIANCE
---------------------------------------------------------- Chapter 3:2
Under an agreement with the Alaska Department of Environmental
Conservation, the Forest Service is to monitor how well the buffers
have been implemented. Among other things, the Forest Service is to
determine whether established buffers comply with applicable
standards and guidelines, including checking whether the buffers are
at least 100 feet wide. In addition to the Forest Service's
monitoring, the Alaska Departments of Fish and Game and Environmental
Conservation monitor buffer widths.
On-site monitoring inspections during 1992 and 1993 by the Forest
Service and the Department of Fish and Game of portions of KPC's and
APC's buffers showed instances in which the 100-foot minimum
requirement was not met. More specifically:
In September 1992, the Department of Fish and Game reported that
during an inspection of harvest units on northern Prince of Wales
Island, at least 16 of the 20 buffer measurements taken did not meet
the 100-foot requirement. The narrowest portions of the buffers
measured were about 50 feet wide, and portions of 11 buffers were
less than 75 feet wide.
In October 1992, Thorne Bay Ranger District staff made 132 buffer
measurements and found that portions of 38 buffers--almost 29
percent--were less than 100 feet wide; most were narrower by 10 to 20
feet.
In July 1993, an interdisciplinary team from the Sitka Ranger
District reviewed more than 120 timber harvest units and found that
portions of the buffers in more than 100 of the units were less than
100 feet wide. However, these buffers were usually only narrower by
a few feet.
The inspectors noted that such factors as uneven terrain, dense
vegetation, and meandering, multichannel stream courses can lead to
errors in designating buffers and adhering to minimum widths across
the many miles of riparian areas affected by timber harvests.
Changes have been made to address the problems identified in the
inspections of buffer widths by the Forest Service and the Alaska
Department of Fish and Game. Each of the three area offices of the
Tongass National Forest--Ketchikan, Stikine, and Chatham--recognized
the need to take corrective action to attain a higher degree of
conformity with the requirement and have taken actions to ensure
greater compliance.
The Ketchikan area office, where the greatest concentration of
buffers exists, provides an example. In March 1993, in response to a
December 1992 directive from the area office, the area's three
district rangers reported that corrective actions had either been
taken or would be taken in the near future. For example, the rangers
said that
a certification statement on buffer widths had been added to the
planning documents for all harvest units,
cloth tapes and laser guns were being used to provide precise
measurements of buffer widths, and
district personnel received training on buffer measurements and other
aspects of harvest unit layout. Similar steps have been taken or are
under way in the Stikine and Chatham areas. We believe the steps
taken at the area and district levels will help ensure that buffers
with the appropriate widths are established.
MONITORING OF BUFFERS'
EFFECTIVENESS HAS BEEN LIMITED,
BUT IMPROVEMENTS HAVE BEEN MADE
---------------------------------------------------------- Chapter 3:3
The Tongass Land Management Plan and the Forest Service's agreement
with the Alaska Department of Environmental Conservation specify that
the Forest Service is to monitor the effectiveness of its projects,
activities, and practices. As part of its monitoring effort, the
Forest Service is to determine if buffers have been effective in
minimizing the adverse effects that logging and other land-disturbing
activities could have on riparian areas.
We found that before 1994, the Forest Service did not have a regional
program to monitor the buffers' effectiveness. Each of the area
offices had its own monitoring procedures. However, these procedures
to monitor buffer effectiveness were limited in scope and often did
not include measurements against important criteria (such as water
quality\2 ) needed to determine how effectively buffers were working.
For example, within the Stikine area, monitoring of the buffers'
effectiveness consisted of visual observations of the extent to which
the buffers contained timber that had been blown down by wind. While
these observations yielded insights into the relative lack of
effectiveness of buffers with blown-down timber,\3 the focus on this
single characteristic left many questions about effectiveness
unaddressed. Similarly, the Ketchikan area limited its monitoring
efforts to steep, deeply cut drainages. Again, the efforts yielded
useful information, but the effectiveness of buffers that did not
fall into this one limited category went largely unaddressed.
According to Stikine area officials, the lack of sufficient funds,
staff, and monitoring objectives were the primary reasons why
monitoring buffers' effectiveness has been limited. In addition,
Ketchikan area officials told us that more specific direction was
needed from the Alaska Regional Office identifying the kinds of
information needed to monitor buffers' effectiveness.
Alaska Regional Office officials said that they initiated a
monitoring project in 1992 that would lead to establishing a
regionwide program to monitor buffers' effectiveness. The project
reviewed the condition of buffers, evaluated their effectiveness at
maintaining riparian habitat and water quality, and recommended
improvements to buffers' design. The project identified six types of
information for use in assessing buffers' effectiveness, including
measuring the volume of large woody debris in a stream and
determining the stability of stream banks.
According to the regional office monitoring coordinator, the project
was tested at eight sites in the Chatham area in 1993. For example,
in June 1993 the Forest Service and the Alaska Department of
Environmental Conservation jointly monitored the effectiveness of two
buffers along a class II stream. The environmental specialist with
the Alaska Department of Environmental Conservation told us
preliminary indications showed that the two buffers were meeting
expectations in being able to protect riparian areas. The regional
office monitoring coordinator also told us that the 1994 buffer
monitoring plans for each of the area offices included the types of
information identified as contributing to the evaluation of buffers'
effectiveness in the eight-site project. Currently, each of the
three areas is also participating in a multiyear, forestwide study of
the stability and effectiveness of stream buffers. According to the
regional monitoring coordinator, the interim results of the study
will be available in the spring of 1995.
--------------------
\2 One goal of buffers is to lower the amount of silt running into
the stream as the result of a timber harvest. Excessive silt can
make it difficult for fish to draw oxygen from the water and can also
cover gravel beds used by salmon as spawning grounds.
\3 The area office concluded that buffers with blown-down timber are
not fully effective. Blown-down trees exposed more of the stream to
the sun, raising water temperatures above levels that were suitable
for fish. They also cause stream banks to erode and increased the
amount of large woody debris in the stream. A certain amount of
woody debris is important as a source of nutrients and enhanced
habitat, but too much of it has adverse consequences.
CONCLUSIONS
---------------------------------------------------------- Chapter 3:4
The Forest Service has taken steps to improve both monitoring the
width of buffers and evaluating their effectiveness. These steps
should help ensure that buffers more consistently meet minimum width
requirements and that their overall effectiveness is assessed more
systematically. Because the buffer requirement is relatively new and
because the effectiveness of buffers has been studied only to a
limited degree, more time will be needed to determine how well they
are working to help protect fish and wildlife habitat in timber
harvest areas.
CHANGES TO BOUNDARIES OF TIMBER
HARVEST UNITS NOT ADEQUATELY
DOCUMENTED
============================================================ Chapter 4
If the boundary of a timber harvest unit is changed after the
environmental impact statement (EIS) for the area has already been
prepared, the Forest Service's policy requires that forest
supervisors determine and document whether the changes are
environmentally significant enough to require additional
environmental study.
Forest supervisors were not, in all cases, documenting the
environmental significance of the harvest units' boundary changes or
the need for additional analysis beyond what had been described in
the existing EIS. This was particularly the case for KPC's harvest
units. We examined 41 instances in which boundary changes had
occurred in areas harvested by KPC and found that in 39 instances the
documentation was not adequate. In 17 instances, there was no
documentation at all, and in 22 instances the documentation had not
been reviewed according to the Forest Service's policy. We also
examined 19 instances in which boundary changes had occurred in areas
harvested by APC and found that adequate documentation was present in
18 of them. As a result, the Forest Service had no assurance that
the environmental consequences of the boundary changes were analyzed.
During our review, in October 1993 the current forest supervisor
responsible for KPC's harvest units sent instructions to district
rangers detailing a process for assessing boundary changes and
specifically stated that he would document the environmental
significance of any changes and the need for any additional
environmental analysis.
FOREST SERVICE'S POLICY
REQUIRES DOCUMENTATION OF
BOUNDARY CHANGES TO TIMBER
HARVEST UNITS
---------------------------------------------------------- Chapter 4:1
Under the Forest Service's policy and in compliance with the National
Environmental Policy Act, the Forest Service is required to assess
the environmental impacts of proposed timber harvests and prepare an
EIS. Among other things, an EIS documents the location and design of
the planned timber harvest units within the area covered by the
timber offering and identifies the volume of timber to be cut.
For a number of reasons, the boundaries of timber harvest units
analyzed in the EIS may subsequently be revised. At the time the EIS
is developed, precise information about the volume of economically
harvestable timber, unique habitat for endangered species, or other
specific characteristics of the land may not be known with complete
accuracy. For example, more detailed on-site review could show that
the planned boundaries contain less harvestable timber than
originally projected or that additional eagle nesting areas or
streams requiring buffer protection might be found. To deal with
such circumstances and still provide the needed volume of harvestable
timber, boundary adjustments may be needed. However, by this time
the EIS may have been developed, made available for comment, and
approved.
The Forest Service's policy contains several requirements for
assessing and documenting the environmental effects of boundary
changes made after environmental review has already been completed.
The EIS specifies that for any proposed action (such as a boundary
change) that deviates from a planned activity, the forest supervisor
is to document the environmental significance of the proposed action.
In doing so, if the forest supervisor determines that the impacts of
the change do not deviate significantly from the impacts discussed in
the EIS, the timber sale can proceed without further environmental
study. However, if the forest supervisor determines that the change
is significant, a supplemental EIS must be prepared.
IMPACTS OF CHANGES TO
BOUNDARIES OF HARVEST UNITS NOT
DOCUMENTED
---------------------------------------------------------- Chapter 4:2
Contrary to the Forest Service's policy, forest supervisors had not
in all cases documented the environmental significance of changes to
harvest unit boundaries or the need for additional environmental
analysis--particularly for KPC's harvest units. This situation
occurred primarily because the forest supervisor inappropriately
delegated his authority to district rangers to determine if boundary
changes were signifcant and did not require the district rangers to
provide documentation if they determined that the change was not
significant. The Forest Service's policy does not allow this
authority to be delegated to district rangers and in all cases
requires documentation of the environmental significance. We
reviewed the files for 60 harvest units--19 for APC and 41 for
KPC--that had boundary changes after the EIS had been prepared.
These units represented about 33 percent of APC's units and 18
percent of KPC's units in which harvests had occurred outside the
original boundaries. Adequate documentation was present in 18 of the
19 files for APC's units but in only 2 of the 41 files for KPC's
units. More specifically, for KPC's units,
16 units had no documentation at all of the environmental
significance of the boundary changes,
1 unit had adequate documentation of the environmental significance
of one boundary change but no documentation for a second boundary
change, and
22 units had documentation prepared by someone other than the forest
supervisor--such as a district ranger--with no indication that the
forest supervisor had reviewed the results. Guidance from the region
places the responsibility for such determinations with the forest
supervisor.
Documentation of environmental impacts is important because it
clearly demonstrates that the impacts were considered. However, the
lack of documentation goes beyond simply being out of compliance with
the Forest Service's policy. When no documentation was present in
the file, the Forest Service had no assurance that the environmental
significance of the boundary changes had actually been analyzed.
While the absence of a forest supervisor's review of documentation
may seem of less concern than the absence of documentation
altogether, the absence of review has been a concern that the Forest
Service has tried to correct for some time. In a November 1990
review, personnel in the Alaska Region noted that the forest
supervisor responsible for KPC's harvest units at that time had
inappropriately delegated to others the authority to make
determinations about the environmental significance of boundary
changes. Contrary to the Forest Service's policy, the delegation of
authority did not require documentation if it was determined that the
boundary change was not significant. The Alaska Region personnel
recommended that the delegation of authority be withdrawn. When
those personnel followed up in February 1992, they noted that the
practice had apparently stopped since the forest supervisor had
verbally withdrawn his delegation of authority. However, 9 of the 22
instances we examined in which the forest supervisor's review was
lacking occurred after February 1992. We discussed our findings with
the current forest supervisor and he agreed that there was a need for
better documentation of boundary changes and their significance. In
October 1993, the forest supervisor sent a letter to district rangers
setting forth a detailed five-step process for assessing boundary
changes and specifically stating that the forest supervisor will
determine the significance of any changes and the action necessary.
CONCLUSIONS
---------------------------------------------------------- Chapter 4:3
The Forest Service needs to ensure that the problems of missing or
inadequate documentation of the environmental significance of
boundary changes to timber harvest units are addressed. In recent
years, although the problem has been noted, progress in correcting it
has been slow. Improved compliance is important in providing
assurance that environmental concerns associated with timber
harvesting activities under long-term contracts have been fully
addressed. Accordingly, we believe the Alaska Regional Office needs
to continue its oversight of forest supervisors' compliance with the
documentation requirements for changes to harvest unit boundaries
that are made after the EIS have been issued.
RECOMMENDATION
---------------------------------------------------------- Chapter 4:4
To ensure full consideration and disclosure of the environmental
impacts of boundary changes to harvest units, we recommend that the
Secretary of Agriculture direct the Chief of the Forest Service to
require Alaska Regional Office officials to periodially check to
ensure that forest supervisors are properly documenting the
environmental significance of boundary changes to timber harvest
units made after EIS's have been issued in the Tongass National
Forest.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 4:5
We discussed the facts and our conclusions with the Forest Service
officials responsible for timber management activities at
headquarters and the Alaska Regional Office. These officials
generally agreed with our facts and conclusions concerning
documenting changes to timber harvest units and provided some
technical clarifications that we incorporated, as appropriate.
MODIFICATIONS TO THE LONG-TERM
CONTRACTS REQUIRED BY THE TONGASS
TIMBER REFORM ACT
=========================================================== Appendix I
The Tongass Timber Reform Act (P.L. 101-626), dated November 28,
1990, directed the Secretary of Agriculture to make the following
revisions to the two long-term contracts to reflect the modifications
required by section 301(c) of the act.
Section of
Modification Act
------------------------------------------------------------------ ------------
Assure that all timber sale planning, management requirements, and 301(c)(1)
environmental assessment procedures regarding the long-term
contracts are consistent with procedures for independent timber
sales.
Eliminate the practice of long-term contract holders harvesting a 301(c)(2)
disproportionate amount of old-growth timber.
Assure that long-term contract holders substantially harvest 301(c)(3)
timber offered for harvest within 3 years before the Secretary
offers additional timber to the companies.
Assure that the Forest Service determines the precise stands of 301(c)(4)
timber to be harvested and when harvests will occur.
Allow the long-term contract holders to reject timber offered, 301(c)(5)
which, if rejected and subsequently sold within 12 months, will
be deducted from the amount of timber required to be made
available under the contract.
Assure that the long-term contract holders count utility logs 301(c)(6)
against the total volume of timber required to be made available
to harvest under the contracts.
Assure that the long-term contracts are provided with purchaser 301(c)(7)
road credits in a manner consistent with independent national
forest timber sales.
Assure that the price of timber sold to long-term contract holders 301(c)(8)
will be adjusted to be comparable with the price of timber sold
in competitive independent timber sales.
Assure that timber offered under the long-term contracts meets the 301(c)(9)
economic criteria consistent with the timber offered in
independent timber sales.
--------------------------------------------------------------------------------
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C.
Linda L. Harmon
John P. Murphy
Mehrzad Nadji
Timothy J. Guinane
OFFICE OF THE GENERAL COUNSEL
Alan R. Kasdan
Richard P. Johnson
Kathleen A. Gilhooly
SEATTLE REGIONAL OFFICE
James K. Meissner
Robert B. Arthur
Jill J. Lund
Stan Stenersen
RELATED GAO PRODUCTS
Tongass National Forest: Contractual Modification Requirements of
the Tongass Timber Reform Act (GAO/RCED-91-133, Mar. 28, 1991).
Tongass National Forest: Administration of Two Long-Term Alaskan
Timber Contracts (GAO/RCED-90-87, Feb. 21, 1990).
Tongass National Forest: Timber Provision of the Alaska Lands Act
Needs Clarification (GAO/T-RCED-88-44, May 26, 1988).
Tongass National Forest: Timber Provision of the Alaska Lands Act
Needs Clarification (GAO/RCED-88-54, Apr. 11, 1988).