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KANSA S ST AT E U N IV E R SH E A R I N G

BEFORE TH E

— MITTEE on public works

a ? UNITED STATES SENATE

NIN ETY-F OU RTH CONGRESS

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F IR S T SE SS IO N

ON

S. 364

REL ATI NG TO CER TAIN FO REST TIM B E R SA LE 

CO NT RA CT S IN VOLV IN G RO AD CONST RU CTI ON

V H t L -l uJi -i

MAY 19, 1975

SERIA L NO. 94-H16

P ri nte d f or th e u se o f th e Co mmitt ee on Pub lic W or ks

53-963 O

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1975
t . *1 »* *-»

W

&

! ,

COMM ITT EE ON PUBL IC WO RK S

JEN NIN GS RAN DOL PH, West Virginia, Chairman (

EDM UND S. MUSKIE, Maine 

JOSEPH M. MO NT OY A, New Mexico 

MIKE GR AV EL , Alaska

LL OY D M. BE NT SE N, Texas 

QU EN TIN N. BU RDIC K, North Dakota 

JOHN C. CU LV ER , Iowa

RO BE RT MO RGAN, North Carolina 

G ARY HA RT , Colorado

HOW ARD H. BA KE R, Jr., Tennessee 

JAM ES L. BUCKLE Y, New York 

RO BE RT T. STA FFOR D, Vermont 

JAMES A. McCLURE, Idaho 

PE TE V. DOMENICI, New Mexico

M. Barry Meye r, Chief Counsel and Chief Clerk

Bailey Guard, Minority Staff Director

Leon G. Bilungs and Richard D. Grundy, Senior Professional Staff Members

Richard A. Hellman, Minority Counsel

John W. Y ago, Jr., Assistant Chief Clerk; Philip T. Cummings, Assistant Chief Counsel

Harold H. Brayman, Senior Professional Staff Member (minority)

Professional and research staff; Karl R. Braithwaite, James W. C ase (Assistant Counsel), Paul C himes, 

T renton Crow, K atherine Y. Cudlipp, Paul F. Ebeltoft, Jr., George F. Fenton, Jr., Randolph G. Flood, K athaleen R. E. Forcum, Ann Garrabrant, Richard T. Greer, Richard M. 

Harris (Assistant Counsel), Wesley F. Hayden, Richard E. Herod (Assistant Counsel, Minority),

Veronica A. Holland, R onald L. Katz, John D. K wapisz, Michael McFarland, L arry D. Meyers, 

Judy F. Parents, John B. Purinton, Jr., Margaret E. Shannon, Charlene A. Sturbitts, 

E. Stevens Swain, Jr., Sally W. Walker

(in

»

4
C O N T E N T S

Page

McClure, Hon. James A., U.S. Senator from the State of Idaho, opening

statement of___ ______ ______________________________________ 1

LIST OF WITNESSES

Doerner, Ray, county commissioner, Douglas County, Oreg., accompanied 

by: Kenneth Tollenaar, director, governmental research, University 

of Oregon; Jim Evans, legislative representative, National Association 

of Counties, Washington, D.C__________________________________ 75

Bendix, Gerhardt, secretary-manager, Hi-Ridge Lumber Co., Yreka, Calif. 30

Hakenson, Carl, forester, Duke City Lumber Co_____________________ 35

Hall, John, vice president, National Forest Products Association, accomF

anied by: Wayne Gaskins, Western Forest Industries Association,

nc., and Howard McDowell, Inland Forest Resources Council______ 27

Resler, Rexford A., Associate Chief, Forest Service, USDA, accompanied 

by R. M. Peterson, Deputy Chief, Programs and Legislation; Jack 

Todd, Assistant Director of Timber Management; Frank Hammond,

Engineering Staff____________________________________________ 7

Richards, W. T., president, Idaho Forest Industries, Inc., Couer D’Alene,

Idah o______________________________________________________ 27

Saiser, Art, logging manager, Fort Vancouver Plywood Co_____________ 32

Tollenaar, Kenneth C., director, Bureau of Governmental Research and

Service, University of Oregon__________________________________ 116

Vincent, David T., Northside Lumber Co__________________________ 34

STATEMENTS AND MATERIA L SUPPLIED FOR TH E RECORD

Forest Service, response to a request for additional information from

Senator Ha rt_________ 18

Letters:

Hobin Lumber Co__________________________________________ 123

Industrial Forestry Association_______________________________ 25

Simonson Lumber Co_______________________________________ 123

Library of Congress, an analysis of S. 364__________________________ 95

National Association of Counties:

County platform___________________________________________ 77

Financing national forest roads: Background information for county

government policy_______________________ 78

S. 364, reprint of______________________________________________ 6

Statements:

Gaskins, Wayne, forester, Western Forest Industries Association___ 38

Hall, John F., vice president, National Forest Products Association__ 43

Montoya, Hon. Joseph M., U.S. Senator from the State of New

Mexico_________________________________________________ 2

Packwood, Hon. Bob, U.S. Senator from the State of Oregon_____ 5

Stevens, Hon. Ted, U.S. Senator from the State of Alaska_________ 3

(i n )

TRANSFERABLE FOREST ACCESS ROAD CREDITS

MON DA Y, MAY 19, 19 75

U.S. Senate,

Committee on Public Works,

Washington, D.C.

The committee met at 10 a.m., pursuant to call, in room 1114, 

Dirksen Senate Office Building, Hon. James A. McClure presiding.

Present: Senators Gravel, Ha rt, Stafford, McClure, and Domenici.

OPENING STATEMENT OF HON. JAMES A. McCLURE, U.S. SENATOR 

FROM THE STATE OF IDAHO

Senator McClure. The committee will come to order.

Each year the Forest Service sells about 11 billion board feet of 

timber from the national forest system to purchasers who then manufacture the timber into a variety of products for homebuilding and 

other construction.

The present slump in homebuilding has created the situation where 

investm ents made by timber purchasers in road construction with the 

expectation tha t housing sta rts continue at the 2 million start level 

will continue the lag in the economic pipeline for an extended period of 

time.

Forest access roads are primarily financed by timber purchaser 

investment and then recovered by the purchasers through a system 

of purchaser credits when the timber is removed for sale. Normally, 

a timber operator has several sales on which he is operating in various 

stages of development. His heaviest investment is in the initial road 

construction before he can remove timber.

S. 364 would permit a timber operator to transfer earned but unused 

credits from a sale on which he is not yet able to remove timber to 

another sale on the same national forest where roads are already 

completed.

The urgency for considering S. 364 comes about because of the 

current slump in the housing and construction market. The timber 

industry was asked to prepare for our lumber market associated with 

housing starts at the rate of 2 million per year.

Timber sales and road construction were based on that level. I t is 

obvious tha t with the precipitous drop in housing starts the large 

investment in roadbuilding cannot be recovered as expected from 

lumber sales.

Passage of S. 364 would not only assist operators who have reached 

borrowing limits and are faced with bankruptcy, but it would free 

needed capital for operating expenses and payroll, thus providing an 

(1)
2

immediate boost for jobs in an ind ustry with unem ployment rates 

abov e 20 percent, the highest unem ployment rates outside the auto 

industry.

It would also have the effect of some reduced pressure on lumber 

prices which should provide some assistance to the depressed housing 

market. Bu t allowing the timely transfer of earned but unused purchaser road credits between sales on the same national forest would 

provide an incen tive for earlier construction starts.

This means the new road would have a longer time to set up and 

become stab le prior to use. The operator could recov er his inve stm ent 

factor for futu re business use and plan his road construction schedule 

with emphasis on a full seasoning of the road with out the urge ncy of 

having funds tied up for a longer period of time.

I am most appreciative for Chairma n Ran dolph’s courtes y in 

scheduling ear ly hearings on this imp ortant bill.

At this poin t in the record, I would like to include the stateme nts of 

Senator Mo nto ya, Senator Stevens, and Senator Packwo od.

[The statements referred to and the bill S. 364 follow:]

Statement of Hon. Joseph M. Montoy a, U.S. Senator From the State of

New Mexico

Mr. Chairman, as a cosponsor of S. 364 I am pleased to have this opportunity to 

present testimony concerning its merits. Being a member of the Public Works 

Committee I want to thank you for holding early hearings on this bill, and let me 

take this opportunity to congratulate Senator McClure for his leadership on this 

matter.

S. 364, which permits the transfer of earned credits for purchaser road construction on U nited States Forest Service Timber Sale contracts is, I believe, a timely 

measure. I know that all of us are aware that the depressed condition of the construction industry has resulted in severe economic problems for the lumber industry. It is important to stress th at what is proposed in S. 364 is not any type of 

government aid program. This bill in my view only provides for a more prompt 

payment system for those who perform work on federal forest lands.

In the current economic situation it has become increasingly difficult for 

those in the lumber industry to expend large amounts of money on the construction of roads which will not be repaid until several years in the future. Under 

the present system timber purchasers construct the necessary roads several 

years in advance of actual logging operation but cannot receive credit for this 

outlay until cutting begins on the timber sale in question. This procedure results 

in the government deriving significant benefit from these roads for many years 

at no cost, and without a requirement tha t compensation be paid for the use of 

this money during those first years when the forest service and in some cases 

the general public— is benefiting from the existance of these roads.

Mr. Chairman, I note with pleasure that this bill has received solid industry 

support. Also I am proud that representatives from Duke Cit y Lumber Company 

in Albuquerque, New Mexico are participating in the industry panel testifying 

before this Committee.

Some argue that adoption of S. 364 would result in severe financial losses to 

those counties which receive twen ty-five percent of these National Forest cash 

receipts. I do not agree with this assertion. While there may be a slight delay in 

the first year, I am convinced tha t increased employment opportunities and 

continued economic a ctivity in the areas where lumber companies will be able to 

continue operations because of greater working capital being available, will 

offset an y temporary losses.

Arguments that pretend alarm at the enormous drain on the federal treasury 

are not persuasive. It seems to me tha t at this time it is more important to assure 

the continued full operation of this vital industry than to retain a relatively 

small amount of money in the federal treasury for a few years longer. Fiscal 

responsibility is important, and I have long been a strong advocate of moderation 

in this area, but rejection of S. 364 will not effect a real saving to our economy. 

In fact by forcing lumber companies to cut-back operations in certain areas,
3

rete ntion of the present system could have adverse consequences by increasing 

already high unemployment in New Mexico and other tim ber producing state s. 

This committee has alrea dy been presented with hard evidence from Duke City 

Lumber Company of New Mexico which illustrates the effect I outlined above.

Mr. Chairman, I think this bill offers a just and fair solution to a difficult 

problem and I urge th at this measure be sent to the floor a t the earliest possible 

time. I am hopeful th at after Com mittee approval the Senate will act favorablv 

on this ma tter.

Statement of Hon. Ted Stev ens, U.S. Senator F rom the State of Alaska

Mr. Chairman, it is my privilege today to submit test imony in stron g support 

of S. 364, a bill which I co-sponsored with Senator McClure.

The ability to transfer unused purchase r credits would be of great importance 

to the Alaskan timber producer. Nearly all the tim ber purchased in Alaska is 

from National Forest lands, which comprise over 20 million acres.

Roa d building is by far the highest cost element in Alaska’s total logging cost 

pictu re. Most of the Forest Service timber purchase con trac ts require the logger 

to build roads well ahead of logging operations. Most are built ahead at least 

one year. For example, in a sale purchased in the Spring, road construction m ust 

star t and be completed by Winter if the purchaser is going to be able to log the 

following year.

Current logging road costs in Alaska are runn ing nearly $85,000 per mile. 

Because roads must be completed on nearly all sales before logging can begin, the 

logger mu st expend considerable sums of money before he can hope to receive 

purchaser credits. Even when he does sta rt to receive purchaser credits it is only 

commensurate with his log prod uction.

Let me provide an example of what this means. On the average, a 30 million 

board feet timb er sale in South eas t Alaska requires the constru ctio n of approximately fifteen miles of road. At a cost of $85,000 per mile, road costs for this 

sale would be approximately $1,275,000. In Sou theast Alaska the average yearly 

cut ting rat e on a sale this size is 20 million board feet. Therefore it would take 

1/2 years to log the sale, and this coupled with the year required to put in roads 

means the en tire $1,275,000 invested by the logger for roads would n ot come back 

in purcha ser credits until 2J4 years after the purchase of t he sale.

Simply put, this bill would allow the timber purchase r to receive credits as a 

road is constructed, provided he holds other National For est timber sales. This 

would mean th at the timber purchaser would no longer have to carr y road costs 

as long as he is logging other Nation al Forest tim ber where purchaser credits 

could be applied.

At this point, I would like to stress th at the Tongass National Fore st in Alaska, 

the country ’s largest National Forest, is broken into three parts for adm inistrative purposes. For this bill to be effective in Sou thea st Alaska the logger must 

have the ability to transfer credits between the N orth , Middle, and South Tongass. 

As I understand the bill, such transfers would be allowed.

Mr. Chairman, this bill has the strong supp ort of the Alaskan timb er indu stry. 

Recent declines in the world tim ber market have hit the Alaskan industry very 

hard. In addition, the Fore st Service has recently increased stum page values for 

Forest Service timber between $60 and $100 per thousand board feet, nearly a 

1,000 perc ent increase. The ability to transfer purchaser road credits would be of 

considerable help to this alread y beleaguered industry, which I might add is 

Alaska’s largest year-round employer.

I strongly urge the Committee’s approval of this bill.

Mr. Chairman, I have att ached several letters I have receiv ed from Alaskan 

loggers strongly supp orting this bill. I ask th at the y be inclu ded in the hearing 

record.

Thank you.

[Telegram]

Senator Ted Stevens,

Capitol Hill, Washington, D.C.

Reference S. 394 a t present we have only one, all USFS timber sale, but we 

expect to bid on more sales and this bill should allow us a greater flexibility in 

money management, thereby lowering our cost. We would urge the comm ittee 

pass S. 394.

J ohn Daly,

Kodiak Lumber Mills, Inc.
4

Alaska Lumber & Pulp Co., I nc.,

Sitka, Alaska, May 13, 1975.

Hon. Ted Stevens,

U.S. Senator, Washington, D.C.

Dear Ted: Passage of Senate Bill S364 is extrem ely important to Sou thea st 

Alaska Timber Industry at this time. Escalating stumpage values and transp ortation system costs require larger 

capital expe nditures to be tied up each year. Logging in Southea st Alaska necessitates construction of road systems a t least a year in advance of logging. To Alaska 

Lumber & Pulp Co. and its affiliates this means roughly ten million dollars investment to be carried over each year.

On Alaska Lum ber & Pulp Co.’s long term timb er sale the carry-over of pur ­

chaser credits will no t be utilized until after Jun e 30, 1976. These cred its appear 

to be approximately one million dollars.

Passage of S364 would serve to impleme nt critical company cash flows at 

a time when in pla nt environmental considerations threaten to tie up millions in 

additional cap ital.

Very tru ly yours,

J. A. R ynearson,

Vice President, Woods Division.

Alaska Loggers Association, I nc.,

Ketchikan, Alaska, February 13, 1975.

Hon. Ted Stevens,

U.S. Senate, Washington, D.C.

Dear Senator Stev ens: Thanks for y our letter of February 4 concerning road 

credits between tim ber sales, as proposed by Senator James McClure of Idaho.

You will have received a letter from George Woodbury, of Ketchikan Pulp 

Company, which outlines our position on the proposal. We urge you to support 

the legislation.

Sincerely,

Donald A. Bell,

General Manager.

Alaska Lumber & Pulp Co., I nc.,

Sitka, Alaska, February 14, 1975.

Hon. Ted Stev ens,

U.S. Senator, U.S. Senate, Committee on Commerce, Washington, D.C.

Dear Ted : Until recently purchaser road credits meant very little to our 

operation s in Sou theast Alaska. However, we are now operating on numerous 

timber sales th at allow purchasers credit for road construction.

We recently completed a five year reappraisa l on our Pacific No rth ern Timber 

Com pany’s long term timber sale in which we agreed to the purcha ser credit 

concept. We are now negotiatin g with the forest service on Alaska Lum ber & Pulp 

Company’s pre sen t five year long term reappraisal. At this time I feel certain 

th at we will p erhaps also agree to incorporate purchasers credit in this contrac t.

It is my feeling, especially here in Alaska where we have been forced to overbuild access road s th at those credits accru ing above and beyond stump age pay ­

ments should be transferable to other sales. I therefore urge you to give your full 

sup port to Sen ator McClure’s bill. If you should require further information, please feel free to call on this office 

at any time.

Very tru ly yours, J ames A. R ynearson,

Woods Manager.

Ketchikan Pulp Co., 

Ketchikan, Alaska, February 12, 1975.

Hon. Ted Stevens,

U.S. Senate, Washington, D.C.

Dear T ed : Don Finney is out of town un til l ate r this m onth and in order to give 

you a quick reply on Senator McClure’s Bill dealing with transferable purchaser 

credits I will convey m y thoughts.
5

The ability to transfer unused cred its is especially im po rta nt to the Alaska 

timber purchaser. Roadbuilding is the highest cost element in our total logging 

cost picture. In order to ma intain an orderly operatio n it is essential to build 

roads well ahead of logging operation s, preferably one year. This, in dollars, 

means th at if a thirt y million boa rd foot timber sale is purchased abo ut fifteen 

miles of road must be constru cted to harvest the timber. If the sale is purchased 

in the Spring, road construction mu st star t and hopefully be comp’ete by Winter. 

At present, logging roads are run nin g abo ut $85,000/mile or, in this case, abo ut 

$1,275,000.00. The purchase r would not star t logging until the following year, 

one year after the purchase date . This means th at he will n ot receive purchase r 

credits for the first year he holds the sale and then the cred its will come to him 

at a rate comm ensurate with his log production. Depending upon the productio n 

schedule, which would averag e a rou nd 20 M MB F a year, the en tire $1,275,000.00 

would not come back to the purchaser in purchaser credits until 2% years after 

the purchase of th e sale.

Senator McClure’s bill would allow the purchaser to receive credits as road 

is constructe d, provided he holds other National Forest Timber Sales. This would 

be a gre at adv antage to anyone purcha sing timber in Alaska, in th at road costs 

would no longer have to be c arried by the purchaser as long as he was logging other 

National Forest timb er where the purchaser credits could be applied.

As you know, the Tongass National Forest has been broken into three parts 

for adm inistra tive purposes; the No rth, Middle and South Tongass. In order for 

Senator McClure’s bill to be effective in S.E. Alaska, we must have the ability 

to tran sfer credits between the North, Middle and South Tongass.

I would encourage you to do all you can to support Senator McClure’s bill 

as it would be a great help to the Alaska timber purchaser.

Very truly yours,

George Woodbury, 

Ad min istrat ive Forester.

Statement of II on. Bob Packwood, U.S. Senator From the State

of Oregon

Mr. Chairman, on behalf of the people of the Oregon timber industry, I wish 

to thank the committee for allowing me to appear before you and express my 

views in suppor t of Senator McC lure’s bill, S. 364, which I cosponsored. This 

bill permits purchasers of national forest timb er to transfer earned bu t unused 

purchase r credits for road construction, providing, however, these timb er sales 

are in the same national forest. These credits which will be deducted from the 

timber sales price will provide additio nal cash flow which is so necessary for the 

timber industry in its current depressed condition. This essential assistance to 

the industry will serve to stim ulate it as well as to help sustain productio n so as 

to ensure job security as well as to create additional jobs. Both of these factors 

assure the country a stead y arid pred ictab le supply of wood prod ucts which is 

so necessary if we intend to maintain a strong housing industry, the goal of 

Congress for many years. A stea dy supply of timb er serves to stabilize prices in 

the wood prod ucts indu stry as well as the homebuilding industry. This stability 

in both the prices and the ind ustry benefits the consumer.

Furthermore, while it is little understood by the general punlic, many of the 

forest roads th at are enjoyed by recreationists on our national forest system 

are built as a result of roads con stru cted for the purpose of harv esting the timber 

sales. Many of these roads are purchaser constructed. Tim ber sale contracts 

provide for roads to be sub stantially completed before tim ber tra nspo rt is permitted. This, of course, results in large amounts of ca pita l tied up for long periods 

of time.

For instance, in my S tate of Oregon alone, it has been e stim ated b y the National 

Forest Service th at the earned road credits for fiscal year Julv 1, i9 75 -1976 will 

be $67,S12,000.

This legislation will permit forest purchasers who are building roads as part of 

timber sale contrac tual requiremen ts to increase their cash flow capability with 

no cost to the Government. Also, prov iding more cash flow should actually help 

the consumer ultimately, for this bill will free borrowed money and thu s result 

in less inte res t costs to be passed along to the consumer.

This very beneficial legislation is su ppo rted by both large and small businesses 

in the tim ber indu stry. I urge prom pt actio n on this im porta nt legislation.
6

i CONG RE SS 0 9 P 4

1st Session

IN TH E SE NA TE OF TH E UNIT ED ST AT ES 

J anuary 23,1 975

Mr. McClure introduced the following bil l; which was read twice an d r eferred 

to the Committee on Public Works

A BILL

Relating to certain Forest Service timber sale contracts involving 

road construction.

1 Be it enacted by the Sen ate and House of Representa2 tines of the United States of America in Congress assembled,

8 Th at section 4 of the Ac t of October 13, 1964 (78 Stat4 10 89 ), is amended by add ing at the end thereof a new

5 sentence as follows: “The Secretary shall include in each

6 Fo rest Service timb er sale contract involving road construc7 tion a provision for purchaser credit earned by road con8 stru ction but unused thereu nder to be transferred to meet

9 charges for stumpage und er other such contracts held by 

10 the timb er purchaser on the same National I orest, exce pt

II
7

2

1 that cash pa ym en t for tim ber cut un de r a co nt ra ct from

2 wh ich purch ase r cre dits are transferred cann ot be less than

3 the sum of (1) an y suc h credits transferred , and (2 ) tim ber

4 value at base rates.” .

5 Sec. 2. Th e am en dm en t made by the fir st section of

6 this Ac t shall be effe ctiv e with res pect to contr acts in effect

7 on the date of en ac tm en t of this A ct and co ntracts ent ere d

8 into on and afte r su ch date.

Senator McClure. We have a long list of witnesses headed by 

Rexford A. Resler, Associate Chief, Forest Service, USDA.

Mr. Resler, would you and your team come forward and if you 

would identify the others for the record.

STATEMENT OF REXFORD A. RESLER, ASSOCIATE CHIEF, FOREST

SERVICE, USDA, ACCOMPANIED BY R. M. PETERSON, DEPUTY

CHIE F, PROGRAMS AND LEGISLATION; JACK TODD, ASSISTANT

DIRECTOR OF TIMBER MANAGEMENT; FRANK HAMMOND, ENGINEE RIN G STAFF

Mr. Resler. Thank you, Mr. Chairman.

Senator McClure. Do you have any statement, Senator Stafford?

Senator Stafford. I have no statement. I am ready to hear the 

witnesses.

Senator McClure. Senator Hart?

Senator Hart. No, thank you.

Mr. Resler. Good morning, Mr. Chairman, members of the committee. My name is Rex Resler. T have with me R. M. Peterson on 

my right, who is Deputy Chief for Programs and Legislation. On 

my left is Jack Todd, Assistant Director of Timber Management 

for the Forest Service. On his left is Mr. Frank Hammond, of the 

of the engineering staff in Washington.

I want to thank you and the committee for this opportunity to 

present the views of the Department of Agriculture on Senate bill 

364, a bill that would amend section 4 of the act of October 13, 1964.

Section 4 of the act of October 1964 provides tha t the financing of 

forest development roads within lands administered by the Forest 

Service may be accomplished through four methods. One of the 

methods commonly used is to authorize purchasers of national forest 

timber to build the roads needed to remove timber from the areas where

it is harvested.
8

Under this method, timber is appraised and offered for sale as if 

the necessary roads had already been constructed. As road construction proceeds, the timber purchase is credited for the estimated cost 

of such work up to a maximum amount stated in the timber sale 

contract.

As timber harvesting proceeds, accrued credit is applied against the 

charge for the timber in excess of the stated base rates.

Since road construction generally precedes timber removal, and the 

initial rate of removal may not be sufficient to currently amortize 

costs, accrued bu t unused credit may accumulate. The intent of Senate 

bill 364 is to permit the unused credit to be applied toward charges for 

timber under the other contracts held by the same purchaser in the 

same national forest.

Legislation would be required to permit this because such credit 

transfers have been found by the Comptroller General to be without 

statutory authority (51 Comp. Gen. 826).

The amendment contained in section 1 of S. 364 would require the 

Secretary of Agriculture to include in each timber sale contract involving road construction a provision permitting the transfer of unused 

credit earned by road construction.

Section 2 of the bill provides tha t the amendment shall be effective 

with respect to both existing and future contracts. The bill would 

therefore require the Secretary to modify all existing timber sale 

contracts involving road construction.

We believe tha t a number of undesirable effects would result from 

the enactm ent of this bill and therefore recommend against its 

enactment.

If unused credits are authorized to be transferred as proposed by 

the bill, there is certain to be a sharp reduction in national forest 

receipts during the first year following enactm ent and noticeable 

reductions will likely occur during the second and third year. Such 

reductions would occur because many purchasers will have unused 

credits from existing contracts available for immediate transfer, to 

be used in lieu of cash, to meet charges for timber on other contracts.

We estimate that $160 million of credit would be available under 

existing contracts and $9 million of credit would be available under 

new contracts for transfer during fiscal year 1976. Consequently, if 

S. 364 were enacted by July 1, 1975, it could have the effect of reducing 

fiscal year 1976 receipts by $169 million.

Since 25 percent of these receipts are payable to the States for 

distribution to the counties in which the national forests are located, 

the amount tha t would be received by the counties could be reduced 

bv $42 million. This $42 million represents approximately 35 percent 

of the total payments to the States from national forest receipts collected in fiscal year 1974.

Reductions of this magnitude could have a disruptive effect on the 

budgetary considerations, particularly with respect to counties. Ultimately, the cash payments tha t were deferred would have to be paid 

but a lag period of several years would exist until such time as the 

level of timber purchaser road construction within any given national 

forest was significantly reduced.

Moreover, the timber portion of the benefits from the credit transfers 

would flow to those timber purchasers with the most and largest sales
9

on the same national forests. Such purchasers could then be in an 

economically advantageous position in bidding on new timber sale 

contracts over purchasers with one or few sales and over certain purchasers who bid on sales in more than one national forest.

The modification of existing contracts as required by the bill would 

be contrary to the basic contractual principle tha t both sides should 

be bound by the condition for which they freely negotiated. Altering 

the contracts through legislation would introduce an element of uncertainty into the contractual relationship between the United States 

and timber purchasers. This might establish a precedent tha t would 

encourage purchasers to seek relief from other contract conditions to 

which they agreed in competitive bidding.

Finally, the establishment of a link between two or more contracts 

where the fiscal status of one is connected with the fiscal status of the 

other could cause various technical problems in contract administration.

This completes my prepared statement, Mr. Chairman. My compatriots and I will be happy to respond to any questions you may have. 

I would say tha t our report will be up very shortly. It is in the process 

of being cleared now.

Senator McClure. Thank you very much for your statement. 

Mr. Resler.

I would have preferred i t come down on the other side of the question, which my preliminary contacts with the Forest Service have 

indicated tha t it would. I have a couple of questions, one which is 

rather obvious.

You concluded by saying there are some other problems. What are 

those other problems? Your n ext to the last paragraph says “various 

unidentified technical problems.”

Mr. Kesler. Mr. Chairman, there are a number of problems I can 

visualize. We don’t want to make too much of an issue of them. We 

will be glad to discuss elements of them. I would like to say at the 

outset, however, tha t in our earliest considerations of this kind of a 

legislative proposal there were some attractive features to the idea.

We recognize that anything that tends to free up working capital 

generally, and in these times in particular, has some very favorable 

aspects. But our concern is with the general nature of the legislation 

and its direction that it be applied to all contracts and it, therefore, 

results in a series of problems, some of which we mentioned, tha t can 

lead to unforeseen problems late r on.

I would like to ask Mr. Todd, if I may, to elaborate on one or two 

additional points of a technical nature to which we have referred.

Senator McClure. Very well. Mr. Todd.

Mr. T odd. One of the immediate problems would be the question 

of how we would handle the transfers in what we call a timber sale 

account in which cash payments and earned purchaser credit are 

accumulated in each contract.

The regions tha t do the most business have this automated on a 

computer. The transfer amounts would have to be handled by hand 

for some period of time until we can figure out how to reprogram.

That perhaps is not too serious. Some other problems tha t might 

arise and are purely speculative is what would happen in the event of 

contract default and contracts from which transfer of credit had been 

made or to which transfer of credit had been made. It is a little hard
10

to visualize exactly where we would stand with respect to collection 

of damages. We have anticipated it would be even more difficult to 

explain if litigation were required to resolve how much a particular 

purchaser owed us as a result of default.

Perhaps there are ways around all of these problems. It is a little 

hard to tell w hat might happen.

Senator McClure. With respect to a default on a contract, what 

would happen now if there was a default on a contract?

Mr. Todd. Where the contract has expired and the road construction which has been accomplished, credits earned; and the remaining 

road to be constructed is tied to the timber on tha t contract, the 

computation of damages is relatively simple.

Senator McClure. You are confining the difficulty then to the 

question of damages?

Mr. Todd. That is one of them; yes, in the event of default.

Senator McClure. Are there other difficulties in the event of a 

default?

Mr. Todd. I can’t anticipate any except the question of damages.

Senator McClure. You establish damage now by the simple 

mathematical computation, I assume. Is that correct?

Mr. Todd. Basically, the difference between what the purchaser 

had agreed to pay and what the current value would be at the time of 

default.

Senator McClure. If you transfer credits from one sale to another, 

wouldn’t you just simply aggregate the mathematical item in the two 

sales?

Mr. Todd. I think tha t is w hat you would have to do.

Senator McClure. Tha t doesn’t seem to me to be a very difficult 

process.

Mr. T odd. Perhaps it wouldn’t.

Senator McClure. I think I could do it with a sheet of paper and 

pencil, let alone the computer.

Mr. Resler. Mr. Chairman, it raises an interesting question of 

what might happen when a defau lt would occur and all of a series of 

sales were tied together. Obviously, they can become a legal entity 

under this arrangement, or it would appear to be so, so that the assets 

on one covered the defaults on another.

One of our problems is tha t we have not had an opportunity yet 

to explore all the ramifications of this bill. It could have some serious 

effects. I think I would say tha t our most serious concern at the outset is with the effect on the receipts not only to the Federal Treasury 

but also its effect on the disbursement to counties. Second, there is a 

question of whether or not it would upset the competitive relationships or favor one group of purchasers over another. You can speculate 

that it would have such an effect.

I am sure there will be testimony here this morning tha t would 

suggest otherwise. That may well be, but our crystal ball is not 

sufficiently clear to fully elaborate on that point.

Senator McClure. If the counties themselves are in favor of the 

bill—I don’t know what their testimony is going to be, but if they 

should be in favor of the bill in spite of the reduction in current cash 

flow to the counties, if tha t should be the result—would tha t alter 

the position of the Forest Service with respect to the concern about 

the counties?
11

Mr. Resler. It would certainly have an effect, Mr. Chairman. 

Under those circumstances, we certainly would be agreeable to considering it further within the administration. But we have not had the 

time to explore the ramifications fully with the counties and it is one 

of our standing concerns.

Senator McClure. The question with respect to favoring one 

segment of the industry over another, tha t seems to me from the 

contacts I have had with industries discussing this legislation and 

since it was introduced that virtually all segments of industry are 

in favor of it.

Yet, you indicate th at some would be disadvantaged. Are you seeing 

something tha t they don’t see?

Mr. Resler. I am sure that every segment of industry would see 

some direct advantages in terms of the freeing of the working capital. 

But if you get to contemplating what could develop over time, I 

think one can visualize some ways in which it would be possible to 

generate interest in assuring tha t more than one sale is acquired on 

a national forest in order to be able to take advantage of these purchaser credit transfers.

You have to deal in an area of speculation, Mr. Chairman, and one 

tha t is nebulous. We certainly grant that. But there are some opportunities for changing the flow of capital. Part of this is very desirable. 

There are some ways in which it would appear to us a t least tha t this 

flow of credit could have an impact on various sizes of purchasers.

I wouldn’t want to make more of tha t issue than what we have 

stated here at this time.

Senator McClure. You have put heavy emphasis in your statement and in your informal remarks on the loss of receipts to the 

Treasury tha t might occur if this bill were passed.

Is there a reason why th at would occur if the timber harvest operations occurred on one sale instead of the other? Would we suppose 

tha t there are more earned but unused credits that would be used 

more rapidly against timber harvest, regardless of which sale they 

occurred on? I assume that is the basis for that statement.

Mr. Resler. Mr. Chairman, I must have misspoken myself if 

I said loss indefinitely.

Senator McClure. I meant loss in the short term.

Mr. Resler. It would amount to a deferral. It really amounts to 

a deferral to some out-year when those values would be recovered in 

the Federal Treasury.

Senator McClure. Th at presupposes tha t the gross timber operation would recover from these sales at some future year, the assets 

which would be removed on tha t sale in future years.

Mr. Resler. Yes, sir.

Senator McClure. So you are referring primarily to this fiscal 

year?

Mr. Resler. Yes. It would have an effect over about a 3-year 

period during which it would impact receipts, but then it would build 

back up to about a normal state.

Senator McClure. Wha t is the normal length of timber contract?

Mr. Resler. About 4 years.

Senator McClure. Those are contractual terms?

Mr. Resler. Yes.

Senator McClure. Are they subject to extension?
12

Mr. Resler. In only the most extraordinary circumstances. I 

would say no. They are not ordinarily subject to extension.

Senator McClure. They have been extended.

Mr. Resler. Yes, they have been, but on a very limited basis.

Senator McClure. I understand tha t statement as intended to 

be heard by the industry. But, as a matter of fact, they do occur, if 

reasons are shown and sufficient for the extension. As a matter of 

fact, in periods of exceptional economic activity you would expect 

tha t perhaps extensions might be granted. I am not going to ask you to answer tha t in the affirmative in order 

to encourage all of these fellows to ask for extensions, but if economic 

activity, downturn, the housing starts turn down, the lumber isn’t 

there, you are not going to force them to go ahead and produce lumber 

for which there is no market.

Mr. Resler. Mr. Chairman, I am sure the members of the industry 

understand our extension policy very well, as I am sure you do.

Senator McClure. I don’t want to expand on th at extension policy, 

but I do want to get on the record tha t it is possible for extensions 

beyond the average 4-year-term contracts.

Mr. Resler. Yes. When certain conditions are met, there are 

conditions under which they can qualify.

Senator McClure. It isn’t my intention to, by asking these questions, cause any problem with respect to the flow of requests from the 

industry for extensions. Isn’t it also possible that the transfer of unused 

credits from one sale to another might accelerate the activities on 

another sale?

Mr. Resler. Yes. I t could have tha t effect. I think one can readily 

visualize that as long as purchaser credits can be transferred, they 

may be used in any kind of capital venture. It could go toward support 

of accelerated construction, as was alluded to in your opening statement. It obviously does one thing; it makes working capital free for 

whatever use the purchaser elects to place it.

Senator McClure. The real problem for the counties comes not 

under the provisions of this bill, but under the growing practice of 

the Forest Service to require more and more road construction out of 

the proceeds of the sale, does it not?

Mr. Resler. Yes, Mr. Chairman, it does. In order to maintain 

even a current level of sale offerings, which I am sure you know is 

almost 2 billion board feet under the allowable harvest level, we must, 

of necessity, put more burden on the timber sale purchasers in the 

absence of being able to adequately fund conventional contract 

construction.

Senator McClure. I don’t want to get very extensively into the 

peripheral issue of the adequacy of the direct fund appropriations for 

the roadbuilding activities within our national forests.

The reason for the transfer from appropriated funds to purchaser 

charge has been the failure of the Congress to adequately appropriate 

for the construction of the roads. Is that not correct?

Mr. Resler. That is correct, sir.

Senator McClure. There would be a much lower level of charges 

to the timber purchaser if Congress had been adequately appropriating 

for tha t road network through direct appropriated funds.
13

Mr. Resler. If I might change the assignment of responsibility, I 

would say that if more moneys could be made available for whatever 

reason, we would prefer to have more roads constructed by appropriated funds, by contract. There would continue to be a substantial 

amount of maybe somewhere on the order of one-half of all the road 

system continue to be constructed by the timber purchaser. But 

there would be a different class of roads.

Senator McClure. Would those roads be used by the general public 

for purposes other than the removal of the timber harvested?

Mr. Resler. Yes.

Senator McClure. To the extent tha t they are used by the general 

public for purposes other than the removal of the timber then the 

timber purchaser is building roads which have a public purpose and 

a public benefit.

Mr. Resler. Very definitely.

Senator McClure. When the Forest Service was originally estab ­

lished, a commitment was made with the counties of this country tha t 

25 percent of the receipts would go to the counties and tha t has been 

greatly reduced as we have transferred more and more of the costs of 

management to the purchaser.

Mr. Resler. Yes, sir. That is correct. Tha t has tha t effect.

Senator McClure. As I said, I don’t want to go into that aspect 

too far but the concern for the counties which you expressed could 

have been more adequately met by the Congress of the United States 

by adequately appropriating for the Forest Service for the management 

funds that they require and the management of the lands under their 

responsibility.

Mr. Resler. It has tha t effect, Mr. Chairman. I would add, 

however, over time—I am sure you are well aware—that the value 

of timber has gone up so shaprly that in terms of total receipts it has 

been steadily climbing.

Therefore, the contributions back to the counties have been-----

Senator McClure. It is a way of saying since they have got more 

money, you are free to take more of it.

Mr. Resler. No.

Senator McClure. We don’t do tha t to other people who have 

increased asset value. I don’t know why the counties should bear tha t. 

It may justify it and make your conscience feel better, but it doesn’t 

make mine feel better.

Senator Hart, I have some further questions, but if you would like 

to go ahead.

Senator Hart. Thank you, Mr. Chairman.

Mr. Resler, in ballpark terms without specific numbers, unless you 

want to provide them later, could you give us an idea of the number 

of companies doing business in the national forests and any kind of 

a breakdown in terms of volume tha t they do? Are we talking here 

about hundreds of companies?

Mr. Resler. Senator H art, we are talking about multiple hundreds.

I wouldn’t say in the thousands, but we do have somewhere in the 

order of 20,000 timber sale offerings a year in excess of $300 in value 

and, of course, many purchasers have from 2 to 20, somewhere in tha t 

range, and some more possibly, outstanding contracts at any one time.

53-953 0 - 75 - 2
14

Senator Hart. Would you care to characterize the size of these 

questions in relevant terms? Are there dozens of large ones and then 

hundreds of small ones?

Mr. Resler. Yes, you could say that; all the way from the very 

largest to the very small one- and two-man operations.

Senator Hart. But there is a pyramid in terms of size?

Mr. Resler. Yes.

Senator Hart. As I understand your testimony, this legislation 

would discriminate among those companies in terms of their size 

offering a preference, economic preference or advantage to the larger 

companies over the smaller ones?

Mr. Resler. Senator Hart, I intended to say tha t it has that 

potential. Whether or not it would have that effect remains to be seen. 

I am sure you can visualize that a small operator with one or a small 

number of sales may have less opportunity to take advantage of this 

transfer feature than the large operator with somewhere in the order 

of a half a million dollars of capital investments credits tha t could be 

transferred. So it is a question of opportunity among the various sizes.

Senator Hart. Is there any situation under this legislation where 

the net result would be that a particular company or firm would end 

up paying less money?

Mr. Resler. It is not so intended; no, sir.

Senator Hart. But could it operate that way? Can you envision a 

situation where it could happen?

Mr. Resler. The only manner in which I could visualize would be 

in the difficulties encountered in administering a series of timber sale 

contracts with rate adjustment features built into the contract, which 

could possibly result in a loss. One would have to ascribe it to our 

fault if that occurred—but it would be possible on a given sale because 

of the added difficulty in administering sales, to maintain the accounting systems and sufficiency of deposits on each independent contract.

There is a difference in the way rates can decline and raise with 

variations in the market. You are coupling tha t escalation feature 

with the opportunity to transfer purchaser credits among sales. We 

can envision some areas of concern.

Senator Hart. Is there any set of circumstances under which the 

operation of this proposed statute would result in a loss of revenue to 

any level of government, Federal or State?

Mr. Resler. We would not suggest th at it would cause a permanent 

loss. If it occurred as I say, it would be a complication that we would 

encounter in administering the act. But no, it amounts to a deferral 

based on the face of the legislative act.

Mr. Peterson. There is a possible technicality, which I understand 

is not intended by the act. That is the question of whether purchaser 

credit w’hich turns out later to be ineffective could be transferred.

In other words, with the escalation, deescalation feature, purchaser credit might be transferred out that later turns out to be 

ineffective. B ut tha t is a technical thing tha t could be cleared up.

Assuming tha t that were cleared up, we wouldn’t anticipate any 

loss. We would anticipate only a deferral in the point in time.

Mr. Resler. We assume tha t it is the intent of the chairman of 

this committee tha t this legislation would not in any way work to 

that end.
15

Senator Hart. Aside from the fiscal implications of deferrals and, 

the delay of the counties getting the money, would this proposed 

legislation have any impact on the competitive relationships among 

various timber companies?

Mr. Resler. I think you will hear testimony here this morning, 

Senator Hart, tha t would indicate tha t tha t would not be the case. 

We have no basis other than speculating about the opportunities 

tha t might change established competitive relationships.

That is so far as we can see at this time. It does cause us some 

concern, however.

Senator Hart. Thank you very much, Mr. Chairman.

Senator McClure. I have just a couple of follow-on questions and 

then I will yield to Senator Domenici.

Isn’t it possible tha t if this bill were enacted tha t the financial 

incentives to the companies would be enhanced and as a matter of 

fact they might bid more for current contracts and if tha t occurred 

then there would be a national enhancement of revenues, both for 

the counties and for the Federal Treasury?

Mr. Resler. Yes, sir. It could work tha t way.

Senator McClure. Because of cost of financing, which is a burden 

for small companies and particularly for small companies would be 

diminished and they could afford then to bid more for the stumpage.

Mr. Resler. Yes. Th at financial advantage would be more directly apparent under this arrangement than under the manner in 

which it is now handled. Th at is correct.

Senator McClure. A second question, just as a follow-on, you 

mentioned this would be a change in the terms of the contract and you 

are reluctant to have contracts changed. Isn ’t there a provision for 

changing contracts and isn’t it a matter of fact that many contract 

clauses are added after the contracts are signed?

Mr. Resler. Yes, sir. Th at is built into the contract now. We can 

make tha t kind of an adjustment, updating contracts by mutual 

agreement which this would amount to. Our specific references to the 

tying together of individual contracts over time would be the major 

cause. The rest of it is merely work for us.

Senator McClure. Senator Domenici.

Senator Domenici. Thank you, Senator McClure.

One of the reasons you have cited in opposition to this bill is th at it 

might work to the benefit of some large contractors and to the disadvantage of some small ones within the same national forest.

Do you happen to know whether this objection is theoretical or 

real? Could you tell us without too much checking on your part the 

competitive situation in the national forest between large and small 

contractors?

Mr. Resler. Senator, the first part of your question, it is theoretical. 

The way it is framed the intention would not be to enhance the 

competitive position of one operator over another, regardless of size or 

distinction.

I think the specific reference that we make would depend almost 

exclusively on how the operators, themselves, saw their competitive 

relationship, availability of working capital under this arrangement 

as opposed to prior conditions.
16

As I mentioned earlier, I really can’t elaborate on th at because it is 

speculative on our part. It happens to be a consideration tha t we would 

favor the framers of this legislation to take clearly into account.

There may be some testimony later on that would shed some light 

on this question.

Senator Domenici. I have found that both the large and the small 

operators are very willing to express their opinions to me as a Senator.

I have both kinds in my State. I have found little or no opposition to 

this bill, based upon your theoretical statem ent tha t it might work 

to the advantage of one and the detrime nt of another.

On the other hand I find tha t the small operator at this point in 

history is in serious economic trouble whether or not we pass this 

rather minor adjustment favorable to the capital needs of both small 

and large.

Don’t you find find that the small operator is having an enormous 

amount of trouble just existing and isn’t it true tha t many of them 

have been closing down in the last 18 months? Aren’t many small mills 

closed for one reason or another in all parts of the Nation as a result of 

the economics of the timber industry?

Mr. Resler. Senator, there is no question but what the entire 

industry has come through a very troublesome period, and by saying 

come through, I don’t necessarily mean to imply that they are out 

of the woods yet.

Certainly the economic situation has been such that operators 

have been injured financially and obviously the impact is greatest 

on the smaller operators who may be in a less solid financial state.

To the extent that is true, as I am sure it is in many cases, the 

freeing up of any kind of working capital obviously would be an 

assist.

Senator Domenici. As far as I am aware, perhaps the chairman 

knows something to the contrary, I have found no objection to this 

legislation, based upon this theoretical advantage competitively to 

one over anoth er within the same national forest.

Has the chairman had any such indication from those in the field? 

I think they have a rather unified approach. They know these hearings 

are going on. We have letters from small and large. Do we have any 

testimony from the small operators?

Senator McClure. Senator Domenici, there has been no contact 

tha t I am aware of from any segment of the forest industry tha t would 

indicate that this would change the competitive balances in the 

purchasing or marketing of timber products.

Senator Domenici. I notice, to follow on with reference to your 

concern about the counties, I find here again, as is so obvious in much 

legislation in these economically difficult times, tha t some balancing 

is required. I find some testimony that will be forthcoming soon from 

counties tha t where the timber industry is a large part of their economy, that they have 20 to 25 percent unemployed. They have mills 

closed down. I assume tha t when you are talking about a deferral on 

the counties receiving money for road construction tha t you also have 

to take the other side of the equation and say they are losing in all 

kinds of taxes they need to maintain their counties. They have suffered enormous losses because they are heavily dependent upon the 

timber industry.
17

I see that most of them favor the deferral because of the 

unemployment.

Do you have any observations with reference to that? Should t hat 

not be part of your concern for a stable industry?

Mr. Resler. I t most certainly is a m atter of concern to us. We have 

not had prior access to tha t assessment. I have seen some of the 

testimony this morning that will be presented. It certainly coincides 

with your summary very closely.

I think one thing that might be kept in mind, however, is that while 

this kind of authorization would definitely free working capital, 

you should also understand that under certain economic and market 

conditions, there may be some incentives to retrench on expenditures 

rather than to continue to make tha t money available in the form of 

additional jobs.

Here again it is speculation. I am sure that you will have testimony 

later on today tha t can add more specifically to this point than I 

can but we are expressing some of the possibilities which may or 

may not develop.

Senator Domenici. With reference to one other point tha t you make, 

Mr. Resler, you indicate that if we legislatively impose this additional 

condition which, in some cases, is retroactive, that there would be 

reason for the industry to expect tha t contracts will be changed from 

time to time, even after they have entered into them.

Why do you assume that it is not the prerogative of Congress to 

change your contractual authority from time to time in any event, 

whether or not it changes what the timber industry expects or not?

Mr. Resler. Senator, we do not presume to tell Congress w hat it 

may or may not do. The point being th at this is a modification tha t is 

retroactive and therefore it does, as I indicated, provide us a basis for 

some concern. I t is a retroactive provision and tha t frankly concerns 

us.

Senator Domenici. You can administer it, nonetheless, can’t you?

Mr. Resler. Senator, we would make a valiant effort to administer 

what every Congress in its wisdom passes and the President signs. 

Yes, sir.

Senator Domenici. Is there anything so sacred about the rules 

and regulations in an industry tha t is having as much trouble as 

they are, that some change other than tha t which you can implement 

administratively might no t be in order?

Mr. Resler. No, Senator. I didn’t mean to suggest tha t we think 

tha t way. No. The rules and regulations are meant to be changed, 

based on good and sufficient basis. We understand that.

Senator Domenici. Tha nk you, Mr. Chairman.

Senator McClure. Senator Hart.

Senator Hart. I would like to ask one personal request; tha t is, 

if you could provide, without too much difficulty for the record, 

the counties in Colorado tha t will be affected by this, and the amounts 

of money involved?

If tha t is going to be too onerous a burden, let me know. We are 

trying to get some views from the county people on this legislation. 

It would be helpful to know which of the principal counties are 

involved.
18

Mr. Resler. Senator, I think we can provide you an estimate. We 

have it for the State in total. Our problems are involved in breaking 

it down by county. But we can give you a fair estimate.

Senator Hart. Round numbers or else we can go to the State office.

Mr. Resler. We will try to provide that.

[The information requested follows:]

U.S. D E P A R T M E N T OF A G R IC U L T U R E ,

Forest S ervice, 

Washington, D.C., J une 19, 1975.

Hon. Gary Hart,

U.S. Senate

Dear Senator Hart: At the May 19th hearing on the bill S. 364, relatin g to 

certain Fore st Service timber sale contracts involving road construction, you requested th at we provide you with an evaluation of the effect of the bill on the 25 

percent payments to Colorado counties th at are made pur suant to 16 U.S.C. 500.

Enclosed is a tab le which illustrates what the effect could be on payments for 

fiscal y ear 1976.

Column one lists the counties that received paym ents from fiscal year 1974 

receipts.

Column two lists the amounts received.

Column three lists an estim ate of the amount the counties would receive for 

fiscal year 1976 based on the 1974 level of payments as reduced by the effect of S. 

364, if enacted on July 1, 1975. The reduction reflects our estimate of th e amount 

of earned but unused purchaser credit th at will be available for transfer and our 

estim ate of how much would actually be transferred.

Column four lists an estim ate of the amount the counties would receive for fiscal 

year 1976 based on predicted fiscal year 1975 payments as reduced by the effect of 

S. 364, if enacted on July 1, 1975. The redu ction also reflects our estimates of purchasers credits available for transfer and prob able transfers.

Sincerely,

John R. McGuire,

(For Chief).

Enclosure.

TA BLE.— FOREST SERVICE ESTIM ATE OF THE EFFECT S. 364 COULD HAVE ON THE FISC AL YEAR 1976 25-PERCEN T 

PAYMENTS TO COLORADO COUNT IES

Estimate d

Co unty

Actual paym ents 

fo r fiscal year 1974 

(16 U.S.C. 500)

Estim ate d 

fisc al year 1976 

paym ents based 

on fisc al ye ar 1974 

lev els as reduced 

by eff ec t of S. 364

fiscal year 1976 

pa ym en ts based 

on fiscal year 1975 

pred icted lev els 

as reduced by 

effe ct of S. 364

(1)

A rc hule ta ..................................................................................

Cle ar C re e k....... .....................................................................

Co nejos......................................................................................

D elta...........................................................................................

La Plata.....................................................................................

Gar fie ld ......................................................................................

G ilp in ..........................................................................................

G ra n d ..............................., ......................................................

Gunnison...................................................................................

Hinsd ale....................................................................................

Ja ckson......................................................................................

Jeffe rson ...................................................................................

Me sa...........................................................................................

M in era l......................................................................................

M offat........................................................................................

Mon tro se ...................................................................................

Par k............................................................................................

Rio Blanco .................................................................................

Rio G rande................................................................................

Routt..........................................................................................

Sa gu ache ..................................................................................

San Ju an ...................................................................................

San M ig uel...............................................................................

Dolores ......................................................................................

(2 ) (3 ) (4 )

$97, 079 $62, 221 $42, 806

17, 084 13, 865 10, 494

36, 071 26, 580 19, 366

8, 288 6, 598 4,94 0

93, 041 59, 369 40, 761

47,230 39, 969 30,91 9

2, 403 2,12 9 1,842

58, 530 46, 118 34, 868

51,734 38, 702 28, 355

75, 059 51,72 4 36,712

19, 064 5, 386 5,2 84

1,834 1,785 1,7 40

35, 904 30, 932 23, 752

78 ,714 54, 894 39,152

2, 496 879 810

22, 977 19. 829 15,234

11, 195 11,066 10, 931

29, 659 22, 064 17, 387

33, 288 24, 498 17, 840

33. 400 9,62 2 9, 387

85, 649 63,187 46,131

37, 060 23, 969 16, 557

13, 424 11,296 8,6 11

83, 248 53,121 36,47 1
19

TABLE.— FOREST SERVICE ESTIMATE OF THE EFFECT S. 364 COULD HAVE ON THE FISCAL YEAR 1976 25-PERCENT

PAYMENTS TO COLORADO COUNTIES—Continued

County

Actual payments 

for fiscal year 1974 

(16 U.S.C. 500)

Estimated 

fiscal year 1976 

payments based 

on fiscal year 1974 

levels as reduced 

by effect o f S. 364

Estimated 

fiscal year 1976 

payments based 

on fiscal year 1975 

predicted levels 

as reduced b„ 

effect of S. 36 ’

(1) (2) (3) (4

Montezuma.

Alamosa__

Ouray..........

Eagle...........

Pitk in.........

Summ it___

Boulder___

Larimer........

Chaffee____

Custer..........

Free m on t.. .

Hu erfano ....

Lake.............

Las Anima s.

Pueblo.........

Douglas........

El Paso.........

Te lle r...........

Total.

57, 379 36,614 25,138

3, 341 2, 471 1,803

9, 179 7, 871 6,035

54, 776 47, 743 36, 788

45, 736 39, 863 30,716

32, 636 26, 403 19, 875

5, 056 5, 055 5, 055

22, 662 22, 662 22, 662

6, 872 6, 872 6, 872

2, 493 2, 492 2, 492

1,525 1,524 1,524

2,127 2, 127 2,127

2, 377 2, 377 2, 377

336 335 335

501 500 500

2, 309 2, 309 2, 309

1,638 1,637 1,637

2, 052 2, 052 2, 052

, 227, 425 890, 710 670, 647

Senator McClure. So tha t I might understand tha t question and if 

I don’t, I think perhaps you might not, was there a request for the 

impact of this bill or the total amounts of payments to the counties 

under the 25-percent fund?

Mr. Resler. I understood tha t-----

Senator Hart. I am trying to find out which of the counties in my 

State are most heavily affected, where the heaviest timbering operations are, and the rough volume of their operations.

Mr. Resler. I should think in order for it to be best understood, we 

would try to provide both the receipts under normal situations and the 

impact effect, if we can do that.

Senator McClure. Could I ask you this question? How are you 

going to determine the impact?

Mr. Resler. By looking at individual sales under contract primarily, and on a sample basis. We have done some of that work. We 

have it for parts of Colorado.

Senator McClure. Can you determine from tha t what the impact 

will be, over what time frame? Can you determine whether or not the 

entire unused credits in the same forest will be consumed and not overmasked by increased production on another sale?

Mr. Resler. May I ask for some help here?

Mr. Todd. Yes. It is increasingly difficult with the smaller geographic areas you are dealing with. I would have some problem with 

the counties. But certainly in using the same assumptions we have in 

Colorado, we can probably assume the impact on the individual 

counties would be about tha t same portion.

Senator McClure. What assumption is that?

Mr. T odd. We built up the figures on the basis of the best judgments 

tha t the Forest Service made as to how much would be earned on the 

sale unused and transferred. It comes out nationwide to about 62 

percent.
20

Senator McClure. 62 percent of what?

Mr. Todd. Of the amount earned but unused would likely to be 

transferred, if it could be.

Senator McClure. That 62 percent would all be transferred and 

all consumed?

Mr. T odd. Y es.

Senator McClure. Over what period would it be consumed?

Mr. T odd. This is during fiscal year 1976, for everything previously 

earned and to be earned in fiscal year 1976.

Senator McClure. It is your estimate tha t 62 percent of the total 

credits would be transferred, only 38 percent used on the sales upon 

which those credits were earned?

Mr. Todd. Figures for what has been earned in the past have 

already been reduced by amounts applied to timber already harvested. 

So these are j ust residuals we are talking about.

Senator McClure. Isn’t it more likely tha t the residuals will 

actually be used than the initial, on the sale on which they are earned?

Mr. T odd. I would have to assume th at the support for this measure 

would indicate a considerable desire to transfer.

Senator McClure. I would suspect that is true, but I am not 

sure that that is a good basis upon which you can make your estimate 

to justify a 62-percent figure.

Mr. Todd. I have to confess that we really don’t know what the 

figure is.

Senator McClure. How are you going to respond to Senator 

Hart’s request, if you don’t know?

Mr. Todd. We have in our sample, several forests from Colorado 

in which we asked people that put these figures together to give us 

the best estimate they could, basing it on the individual purchaser, 

on what might be available for transfer. Tha t is the best information 

we have. I suggest we might break tha t down using the same percentage relative to the counties.

Senator McClure. But saying tha t it is available for transfer 

does not necessarily mean that it is going to be transferred?

Mr. Todd. That is absolutely correct. We expected our people 

to look at the other contracts that these purchasers had and simply 

use their best judgment as to what might happen. It is admittedly 

very speculative.

Senator McClure. All I am trying to do is get the figure for the 

record so that Senator Hart can use that information when he gets it 

upon what basis the estimate is made. Now it comes out, I suppose, by 

ranger district or by forest supervisor office they are making a guess 

as to how much because of earned but unused credits a particular 

purchaser may have compared to other contracts tha t he has on the 

same forest tha t he might use it.

Mr. Todd. Right.

Senator McClure. Is tha t correct?

Mr. Todd. Y es.

Mr. Resler. Mr. Chairman, might I add one basis for our assumption? As long as there were earned credits, effective credits available, 

I think the assumption would logically be tha t tha t working capital 

would be put to work as quickly as possible and the main concern 

we have in making the estimate is with the question of whether or not
21

the timing of operation on both of these sales or several sales would 

permit it.

Senator McClure. He may use those earned credits on tha t sale 

or he may transfer them to anoth er sale or a combination of other 

sales.

Mr. Resler. We won’t really know what happens on this until 

after it becomes an act, obviously.

Senator McClure. If he transfers them to several different sales 

and uses them very quickly, then the forward projection would be that 

there would be a very rapid increase in the recovery as timber is 

removed from all of those other sales.

Mr. Resler. Correct.

Senator McClure. Senator Gravel.

Senator Gravel. Thank you very much, Mr. Chairman.

I didn’t entirely understand the request of Senator Hart but I know 

the request I would make in that regard and maybe it does dovetail 

with his. You are going to break out the data for Senator Hart for 

each county as to the amount of credits tha t could be used. Is that 

what the request was?

Let’s reaffirm the request so we all understand it.

Senator Hart. I am afraid my request was much more rudimentary. 

I am just trying to find out where the greatest impact in terms of 

volume of business is being done; in which counties, and we will go to 

the county commissioners and try to get their figures.

Senator Gravel. Let me expand on th at point. Can you break out 

what the amount of credit is in our State? I think it would be good to 

just develop a chart showing where all the credits are right now.

Then from that, I would judge it would be very easy, if they used 

all the credits, to determine what the impact would be in each area.

I think everybody should be aware as to what the financial impact 

could be in each of the counties.

Certainly you must have these records because you write the checks.

Mr. Resler. Senator Gravel, we do not have those figures available 

to us w ithout going back and running through the calculation on each 

individual sale. We have, as Mr. Todd indicated, done some sampling.

Senator Gravel. You mean you don’t have any idea as to what 

they are going to be hitting you with or what you are laying out to 

industry in costs?

Mr. Resler. No, sir. I didn’t mean that. We obviously have an 

accounting system to tell us precisely what the data is.

Senator Gravel. Do you have a computer over there?

Mr. Resler. Yes.

Senator Gravel. I understand the administration has a few computers. Do you plug the credits questions into the computer so you 

could find out where we are? It seems good accounting practice. 

We are talking about a big chunk of money. Is that an unfair request?

Mr. Resler. No. Certainly the request isn’t unfair. I am only concerned with the work involved in developing it.

Mr. Peterson. The question is not tha t we don’t know how much 

earned purchase credit is there on the books. The question is as Senator 

McClure has indicated the question of asking how much of th at would, 

be transferred, how much would an individual purchaser transfer?
22

First, you have to determine whether he has two sales or not on the 

same forest. Then you have to look at his operation and see whether 

he has a practical opportunity to transfer. Tha t isn’t in the computer, 

that kind of information. We can get the potential, but how much 

of that would actually be transferred is not something you could pull 

out of a computer.

Mr. Todd has gone through this, if he wants to add something. 

But tha t is our basic judgment. It is our judgment based on a sample 

of sales. We have in excess of 15,000 such sales on the books right now. 

So you have to apply judgment to each one of those 15,000 sales to 

get any reasonable estimate. So tha t is the reason for the samples we have taken, as Senator 

McClure has indicated, there is some speculation; but we have applied 

tha t judgment to the larger group.

Senator Gravel. I can see where that would take place. But it 

appears you can’t prepare for the committee a breakdown of all the 

credits in existence and relating—you can’t do it.

Mr. Todd. Not out of the computer; we have a program that summarizes the individual ones.

Senator Gravel. Do you have a breakdown by States?

Mr. Todd. We have tried to make an estimate by States. Th at is 

all it is, an estimate.

Mr. Resler. Senator, may I ask t ha t you let us explore wha t kind 

of information we can provide, and within an acceptable range of 

effort, I would trust, and feedback to you a little more specifically?

Senator Gravel. Let’s proceed on that basis and see what you can 

get back to us. I think you can see what we are looking for. The obvious 

change in policy in this legislation is to stop the private loggers from 

having to help the Federal Government out with money. That is what 

it really is. We are borrowing their money.

If you buy the principle th at we p ut in the roads, all we are doing is 

accomplishing it through the loggers. We ought to let them recoup the 

money as we p ut it in rather than our warehousing their money for a 

year or more or whatever the case may be. Since this hill goes against 

that policy, we want to do away with warehousing the money from 

the private people. It is like taking a tax ahead of time. We don’t 

even give in terest on it. I am not too keen about the IRS practice and I am less keen about 

this practice here. If we need money, let us go to the marketplace and 

borrow money. That is just a ma tter of philosophy. In the interest of 

trying to implement this legislation, our problem is to see what impact it would have on our local governments.

I might suggest that what we could do is write into this bill a 3-year 

period in which existing credits can be amortized. Th at would mitigate 

the impact financially on both the communities and on the Federal 

Government. Then make the revised policy apply to all subsequent 

contracts. So if you can provide us with this information, obviously it would 

facilitate our making a judgment of whether we do go with a scaledown in time or ju st leave it as a sudden death operation as we now 

propose in the bill.

Mr. Resler. We will at least come back shortly with an indication 

of what we think we can do to satisfy the request.
23

Senator Gravel. I want to commend the chairman for the legislation. I am a cosponsor of the bill. I hope the committee will act on it 

promptly.

Than k you, gentlemen, for your efforts.

Senator D omenici. Mr. Chairman, I have a couple more questions.

As I look at your stateme nt and think about this for a minute, 

couldn’t your concern for the counties be handled by just giving a 

75-percent credit? They would still getXheir 25 percent and we would 

be back where we were. Th at would get rid of your concern for the 

counties, assuming that that is a bona fide concern and tha t they 

themselves are concerned. Is that not correct?

Mr. Resler. Yes, sir. There are a number of ways in which the 

counties could be made whole.

Senator Domenici. Is n’t th at the split now?

Mr. Resler. 25 percent to the counties, plus another 10 percent 

goes back to the Forest Service for construction and maintenance of 

roads and trails within the S tate and counties.

Senator Domenici. With regard to fiscal matters, not in-house 

management problems or problems of conditional contracts tha t you 

have referred to, what other objections would the office of 0 MB have 

to this kind of legislation?

Mr. Resler. I would have to speculate as to what their specific 

concerns would be. I would think, Senator, one would certainly be 

deferring receipts. Under the new Budget Act, the timber purchaser 

construction credits will be included in our budget as we present the 

Resources Planning Act submissions for next year. This would be 

coupled with a reduction in receipts which would tend to cause some 

problems as far as adm inistration is concerned. I think tha t would be 

the principal one.

Senator Domenici. So the principal one is the flow of receipts as it 

applies to your outlay budget. Is that right?

Mr. Resler. Yes.

Senator Domenici. Thank you, Mr. Chairman.

Senator McClure. That principal concern really isn’t the Forest 

Service’s; it is OMB’s. That flow of receipts doesn’t affect your outlays one bit, does it?

Mr. Resler. No, sir. The only effect it has, is on the 10-percent 

forest road and trail fund, b ut still the job has to be done one way or 

the other.

Senator McClure. I recognize that. Still in this period of time 

when we are appropriating almost every day, authorizing certainly, 

and have already authorized in the budget resolution not a few thousand or a few million, but a few’ billion dollars to accelerate some 

job creation opportunities in this country, it seems to me tha t 0MB 

might look at the potential this has for getting some w ork underway 

right now on some timber sales.

If we can afford to invest billions of dollars for job creation, it seems 

to me we might be willing to defer receipts for 16, or 24, or 36 months 

in order to do the same thing.

Mr. Resler. Mr. Chairm an, it w’ould certainly have the effect of 

freeing working capital. I w’ould be most interested in the testimony 

later on today to indicate w’ha t the industry reaction is to the question 

of how’ that freed working c apital might best be put to use. As you
24

express it, it certainly would have a favorable effect on local 

economies.

Senator Gravel. I just wanted to establish one point for the 

record. I cannot speak for the rest of the Nation but a t least in Alaska 

there has been a new policy established with respect to timber practices; tha t is, to require tha t cutting be limited to smaller areas and 

tha t the type of roads constructed be more permanent. That will allow 

loggers to return after a period of time and then cut a little bit more 

and wait a while until that area becomes more sightly and aesthetically 

attractive, then go in and cut an other piece.

The effect of that policy has been to require better quality roads 

and a larger capital investment in them before the money could be 

recouped by the private loggers. Is that not correct?

Mr. Resler. Yes; th at is correct.

Senator Gravel. So what we have done, through Government policy 

in the last 3 years is actually in the opposite direction. We have required them to come forward with a larger capital investment and 

obviously Senator McClure’s bill would eliminate the warehousing of 

money. It also would remove the greater burden we have placed on the 

private sector in timber.

Mr. Resler. Tha t is correct, Senator. The directions we are taking 

in change of policy leads to those very effects. But these changes are 

very important from the standpoint of developing, both the productivity of the land and our capacity to manage those lands for a 

fuller array of uses. But it has the effect of adding capital requirements, there is no question.

Senator Gravel. I agree with the policy. I think it is a sound 

management policy. I think we must recognize, Senator McClure, 

tha t it has at least—has this policy been undertaken nationally or 

just in Alaska?

Mr. Resler. Yes, sir. We have been moving in tha t direction for 

quite a number of years. It has been a combination of things, partly 

growing out of the environmental concerns of the sixties coupled with 

some rath er substantial increases in the cost of doing business for the 

last few years. It has had a marked effect.

Senator McClure. Let me jus t put into the record a half dozen 

figures that illustrate what has happened, the figures from 1967 and 

1975 which I think illustrate the shift: In 1967, the Forest Service 

construction of roads was $52.5 million; in 1975 tha t had dropped to 

$21.8 million. In 1967, the Forest Service purchaser engineering was 

$20.4 million; that by 1975 had grown to $85.2 million. In 1967, 

purchaser credits on these sales was $59.4 million; by 1975, tha t had 

grown to $187.4 million.

I think tha t is an adequate measure of the increased burden upon 

timber purchaser of a change in policy which has national purposes, 

but they bear the expense of it. I would say again tha t the counties 

bear the expense of it, too, one-fourth of th at increased cost.

Just one last question. We will get down tc the question of the 

county commissioners later when they testify and their concerns about 

the reduction in receipts from the 25 percent fund. But I suspect 

every county commissioner in any timber producing region of this 

country is very, very much concerned about the 20 percent unemployment rates in his county. He is going to be very much persuaded 

by the men and women tha t live in his county tha t are out of work
25

and have been out of work, and they are going to be doing whatever 

they can to get these men back to work. If this bill will help get them 

back to work, I suspect that they are going to say tha t outweighs 

their concern about the receipts to the county treasury, roads and 

schools funds from the 25 percent fund.

One request and one comment: We have a copy of a letter dated 

June 16, 1972, from the Comptroller General of the United States to 

the Secretary of Agriculture. That letter makes reference to a letter 

from Secretary, or from the Assistant Secretary, dated April 28, 1972. 

I wonder if we could have for the record a copy of the lette r of April 28, 

1972, for the Comptroller General?

Mr. Resler. Certainly, Mr. Chairman.

[The letters discussed above are included in the statement from 

John F. Hall, National Forest Products Association. See appendix C 

to tha t statement, p. 55].

Senator McClure. I don’t know tha t there is anyway in which 

the administration can ever pin responsibility for a decision, but I 

would like to ask this question for tha t reason in tha t attempt.

Is this decision by the Forest Service to oppose this legislation a 

result of complete Forest Service discussions unaffected by the 

requests or discussions with OMB?

Mr. Resler. Mr. Chairman, this is our position based on our own 

analysis and considering the time frame in which we had to make a 

judgment. Obviously, the Office of Management and Budget has 

much the same concern. They are somewhat different than ours; 

but, nevertheless, they represent a part of the administration’s 

general concern.

I would like to say tha t we are not unmindful of some of the 

beneficial aspects of this legislative proposal tha t you and the others 

have made. I would say again that we all are confronted with mixed 

emotions on it, but largely affected by how we perceive this legislation 

might be implemented.

It is on tha t basis that we have to make a judgment in the short 

term for the purposes of this hearing. We would prefer because of 

what is a t stake to err, if err we do, on this basis. This is not to suggest 

tha t we are not amenable to considering other changes tha t might 

overcome some of our real concerns.

Senator McClure. I am not sure tha t I understood whether 

OMB had consulted with you about this prior to your adopting 

a position.

Mr. Resler. Mr. Chairman, I am saying tha t we do consult with 

OMB; but I am not suggesting tha t OMB directed this decision.

Senator McClure. Thank you, very much. WTe appreciate your 

testimony.

[A letter from the Industrial Forestry Association relative to the 

testimony of Mr. Resler follows:]

I ndustrial Forestry Association,

' Portland, Oreg., M ay 28, 1975.

Hon. Lloyd M. Bentsen,

Chairman, Subcommittee on Transportation, Senate Committee on Public Works,

Senate Office Building, Washington, D.C.

Dear M r. Chairman: On May 9, 1975 one of my colleagues, N. E. Bjorklund,

wrote you a l etter s uppo rting S. 364. Thereafter, we received a copy of the Sta tement made before your committee on May 19 by Mr. Rexford A. Resler, Associate 

Chief, U.S. For est Service, which recommended t ha t the Bill n ot b e enacted. We
26

want to furnish you, by these means, our reaction to Mr. Resler’s statement. It would be greatly appreciated if this letter could be included as part of your 

hearing record on S. 364. In these times of economic difficulties, it is hard to understand the negative reac­ tion of the U.S. Forest Service toward S. 364, which would facilitate the use of private money advanced to the United States for construction of roads b y national forest timber sale purchasers by permitting transfer of monies representing credit for roads built from one timber sale to another. The proposal is a practical solution to the critical working capital problem of all national forest timber purchasers. The only reason that timber sale purchasers are in the unique position of having to finance the construction of public roads with their own capital is because the Congress has neither authorized nor appropriated sufficient funds to allow comple­ tion of the national forest transportation system to this date. This Association has worked for more than 25 years to get recognition by the Congress of the need for completing the national forest road system as the first essential for effective pro­ tection, management and use of the national forests. Because of the difficulty of obtaining sufficient road funds, the Forest Industry, which depends heav ily upon the national forests for raw material, has willingly cooperated with the Government for many years by building roads as part of its timber sale contracts. Many of these roads cost hundreds of thousands of dollars for a relativ ely small sale of less than five million board feet, which is only enough timber to run a medium­ sized operation two months. With the necessity for purchasing timber ahead in order to have the leadtime it takes to build roads, to log during those seasons when it is permitted, to keep their employees on the job and to be prepared for the demands of the marketplace, many relatively small national forest timber purchasers have from a half million to several million dollars tied up in roads ahead all the time. The purchaser credits granted therefrom, and which are used to pay for national forest timber as it is harvested, are probably the most important cashflow tha t timber purchasers have. Because theirs is a risky business, not only because of market fluctuations but the vicissitudes of weather, money bor­ rowed for road building is expensive. Because the Forest Service does not allow interest on borrowed capital as a cost in appraising its timber, it is essential that 

th e amount borrowed be kept at a practical minimum. Mr. Resler estimates that the amount of purchaser credit which would be avail­ able under S. 364 is so high that it would have an adverse effect upon the share of receipts to the counties. We believe tha t the possible diminution of receipts to counties estimated by Mr. Resler is exaggerated. First, a significant part of the $169 million in existing purchaser credits would be used in fiscal year 1976 any­ way and it would be impossible for the industry to use all the available purchaser credits in any one year. Actually, the fact that companies would have a better cash flow under S. 364 from purchaser credits would allow expansion of timber harvesting operations during the current year, which would have a beneficial 

effect upon county receipts. The best way to assure continuation of a high level of county receipts is to do away with the current artificial timber shortage from the national forests. This has been caused by failure to sell two billion feet annually of the full allowable cut in the last several years. Get that deficit on the market and we’ll have a 

healthier economy all around. The cost of tim ber purchaser constructed roads are actually borne 25 per cent by the counties, so if the Forest Service is really concerned about county receipts, it could substantially reduce the costs of roads built by national forest timber pur­ chasers by building less luxurious roads under the policy of Public Law 88-657 which authorizes maximum economy roads. The Forest Service has had a tendency to overdesign and overbuild too many roads, but the operator who bids on national forest timber must accept such wasteful practices when he buys a timbe r sale and obligates himself to build roads as part thereof to Forest Service specifications. Neither do we buy the implication of Mr. Resler’s testimony where he alleges that a major portion of purchaser credit transfers would benefit those with the most and largest sales on the same national forest. The principle of transferring purchaser credit would affect everyone equally as his interest appears. Regardless of an operator’s size, minimizing his borrowed working capital is essential for 

successful operation of his business. Mr. Resler also indicated in his testimony that modifications of existing contracts, wThich S. 364 would authorize, would be contrary to the basic contractual principle tha t both parties should be bound by conditions which they freely
27

nego tiated. The fact is th at Forest Service timber sale contracts are not “freely 

neg otiated.” They are, simply, offerings by the Governm ent, at term s and conditions it imposes as a pa rt thereof, to an Ind ust ry with many bidders for raw 

material who have no choice bu t to buy or die. With the F orest Service controlling 

more than half the total merchantable timber supply in the Un ited States, it is 

paten tly clear that a m ajor share of the Nation’s fourth largest Ind ustry is at the 

complete mercy of the Federal Gov ernm ent when it comes to survival.

The final objection in Mr. Resler’s statem ent is th at linking of two or more 

timber sale contracts by tran sferrin g purchaser cred its would cause problems in 

contract adm inistration. These ■would be no more difficult than other contrac tual 

problems of such adm inistration with which the Forest Service has 70 years 

experience.

Finally, Mr. Resler’s sta temen t does not list any of the many benefits which 

would result from the tran sfer of purchaser credits which will encourage timber 

purchasers to build roads as fas t as possible for timber harves t by operators and 

tim ber mana gement by the Fo rest Service and th at they will be ready when additional tim ber sales in the area are to be sold.

It is difficult to understand th e philosophy of a Gov ernmen t objecting to making 

a practica l financial arran gem ent which w'ould not only safeguard companies from 

economic disaster, but help assure jobs for their employees, stabilize dep end ant 

comm unities and, in th e long run, provide a stronger financial sup port for county 

governm ent.

Very truly yours,

W. D. Hagenstein, 

Executive Vice President.

Senator McClure. The nex t witness is Gerhardt Bendix, secretarymanager of the Hi-Ridge Lumber Co., Yreka, Calif. I think the panel 

will include Carl Hakenson, forester, Duke City Lumber Co., Albuquerque, N. Mex.; John Hall, vice president, Forestry Affairs, National Forest Products Association; Wayne Gaskins, Western Forest 

Industries Association, Portland, Oreg.; Howard McDowell, Inland 

Forest Resource Council, Missoula, Mont.; W. T. Richards, president, 

Idaho Forest Industries, Inc., Coeur d’Alene, Idaho; Art Saiser, 

logging manager, Fort Vancouver, Wash.; and David Vincent, Northside Lumber Co., Philomath, Oreg.

Gentlemen, you can lead off in whatever order you like. Do I 

understand, Mr. Richards, you are the leadoff witness?

IND USTRY PAN EL

STATEM ENT S OF GERHARDT BEN DIX , SECRET ARY -MANAG ER, HIRIDG E LUMBER CO., YRE KA , CA LI F.; CARL H AKENSON, FORESTER,

DUK E CITY LUMBER CO., ALBUQUERQUE, N. MEX., JOH N HALL,

VIC E PRESIDENT, FORESTR Y AF FA IRS, NATIO NAL FOREST PROD ­

UCTS ASSOCIATION; WAY NE GASKINS, WES TE RN FOR EST IND USTR IES ASSOCIATION, INC ., PORTLAND OREG.; HOW ARD McDOWELL , INLAND FOREST RESOURCES COUNCIL, MISSOULA, MONT.;

W. T. RICH ARD S, PR ES IDEN T, IDAHO FOR EST INDU STRIES, INC.,

COUER D’ALENE, IDA HO ; AR T SAISER, LOGGING MAN AGER, FORT

VANCOUVER PLYWOOD CO., FORT VANCOUVER, WAS H.; AND

DAVID VINCENT, NO RTHSIDE LUMBER CO., PHILO MA TH , OREG.

Mr. Richards. Tha t is correct, Mr. Chairman. I am Tom Richards, 

president of Idaho Forest Industries, a lumber company located in 

Coeur d’Alene, Idaho. I would like to introduce the members of our 

industry panel. I will serve as the moderator for the presentation.
28

As we put the presentation together, we anticipated tha t there would be some concern over the effect of this legislation on small companies. You will note that the five companies whose representa­ tives are presenting testimony today, are all in the small- and medium- size category. We would like to present our five statem ents this 

morning, and then we will respond to questions. Mr. Gerhardt Bendix on my left is secretary-manager of the Hi- Ridge Lumber Co. Yreka, Calif., and on his left is Art Saiser, logging manager, Fort Vancouver Plywood, Vancouver, Wash. On his left is David Vincent, president, Northside Lumber Co., Philomath, Oreg.; on my immediate right is Carl Hakenson, forester, Duke 

City Lumber Co., Albuquerque, N. Mex. Also appearing with us today, on the far left, is Mr. Howard McDowell, executive vice president of Inland Forest Resources Council, Missoula, Mont.; on the far right, Mr. John Hall, vice president, Forestry Affairs, National Forest Products Association, here in Washington, D.C.; on his immeidate left, Mr. Wayne Gaskins, forester for the Western Forest Industries Association, Portland, 

Oreg. Mr. Gaskins and Mr. Hall have prepared statements which we 

will submit for the record. Also with us in the audience today is Mr. Elliot Jenkins, Int ern a­ tional Paper Co., in Eugene, Oreg. Mr. Jenkins is the newly elected 

president of the National Forest Products Association. Mr. Chairman and members of the committee, Idaho Forest Industries is a successor to a family company tha t was founded in 

north Idaho in 1908. We are a medium-sized company by lumber 

industry standards, presently employing approximately 390 people. 

In addition, we also provide employment indirectly for many sub­ contractors who are involved in logging, road building, and other 

related activities. I wish to than k you for giving me the opportunity to present testi­ mony in support of Senate bill 364, which permits the transfer of earned credits for purchaser road construction on U.S. Forest Service 

timber sales contracts. Roads built under present timber sale contracts are the only Govern­ ment construction projects for which the builder is not reimbursed in a timely fashion as construction progresses. As purchasers of national forest timber, we have become very much aware of this fact in recent years. Larger and larger amounts of our operating capital are being tied up in timber sale contract roads; roads which are long-term capital investments owned by the Federal Government. At the same time, we are paying cash, again our operating capital, for timber being harvested from other timber sales on the same 

national forest. This very inequitable situation is partially corrected by the pro­ posed legislation. It would permit the transfer of those earned, but unused purchaser road credits to the timber sales where charges for stumpage are being made. This would free t hat operating capital to build other roads, to harvest other timber, to make improvements, and more important, to keep people working in doing all of these 

jobs.
29

Ten years ago, this would not have been a critical issue to our 

company. At that time, the Federal Government was building 

multiple-use roads tha t provided most of the primary access to 

harvestable timber; and the purchasers built only the spur roads. 

Today, the Federal share of national forest access road construction 

is about 5 percent 1

 of the total, with the purchaser providing the 

other 95 percent.

Ten years ago, purchaser road projects were comparatively small 

and Forest Service appraised road costs in our region were $3 to $4 

per thousand board feet. Currently, timber sale road costs are appraised at an average of $20 to $25 per thousand and in region I have 

run as high as $70 to $75 per thousand board feet. This is further 

compounded by the provision for purchaser engineering which 

creates additional costs, and delays in recovering those costs.

We presently have three such timber sales with engineering credits 

of $72,000, a good share of which we will not be able to use on those 

sales for at least a year and a half after they have been earned. This 

may not seem like a large sum of money to others, bu t for us, it is a 

very material amount; an amount sufficient to pay one of our small 

operators for 3 months of logging, or to build 2 miles of road.

Had tha t engineering been performed by a contractor for a Federal 

road construction project, he would have been paid as soon as each 

engineering phase was approved. He would then use those payments 

to continue his work. Under our timber sale contracts, we do not 

have that opportunity. I believe the Federal Government should not 

only be an equal opportunity employer, but also an equal opportunity 

contractor.

Let me give you another example of how our cash flow has been 

affected over the past 5 years at Idaho Forest Industries. From 

1969 to 1972, the impact upon the amount of working capital retained 

in roads, which we were not able to use, was between $40,000 and 

$50,000 per year.

During 1973 and 1974, this average of earned, but unused, road 

credit skyrocketed to an average of $175,000 per year. This is indeed 

the amount of money tha t we have outstanding right now, and by 

December 30, 1975, our best estimate of earned, but unused, credit 

will be $375,000. This amount is very significant to our small company.

If we were able to transfer this amount of earned road credit to 

different timber sales in the national forest, not only would we save 

approximately $34,000 in interest charges, but it would make us 

more competitive in bidding on other timber sales, and it would 

enable us to also perform the o ther necessary activities in our industry, 

such as road building, slash disposal, regeneration and forest stand 

improvements on our own lands.

We can predict safely th at the trend of increased road construction 

costs will continue into the future. Contributing to this is the fact 

tha t we are building roads in more difficult terrain, the mileage between smaller cutting units is increasing, and environmental and 

aesthetic constraints result in higher road standards. Add to this the 

ever-present inflationary trend and there is no way that our costs can 

go anywhere but up.

1

 Lib rary of Congress Congressional Research Service Report on S. 364, P. CRS-5.

53 -953 0 - 75 - 3
30

In view of the obvious impact upon our operations, we ask tha t 

Senate bill 364 apply to all existing contracts in the region. This does 

not change the competitive situation since all timber purchasers are 

operating under these same intolerable conditions. We know of no 

timber purchaser in the region tha t opposes this legislation as written.

We also suggest tha t this committee undertake a review of the 

several related issues concerning national forest road construction 

standards and financing following committee action on S. 364.

Thank you.

Mr. Chairman, I would also like to make a couple of comments at 

this time concerning the statements by Mr. Resler. I think it is 

important to note that the Forest Service has, on at least two occasions that we know of, indicated support of the concept contained 

in Senate bill 364. In this regard, we would refer to Mr. Hall’s testimony as submitted.

1 think it is also important to look at the state ment the Forest 

Service has made concerning where the benefits would flow. They 

have made the statement that the maximum benefits would flow to the 

larger companies. It is my opinion tha t the smaller companies are the 

ones who most need the working capital relief right now, particularly 

after the last 12 months of the lumber market, not the large companies: 

The passage of this bill would likely reduce any competitive disadvantage tha t the smaller companies now find themselves under 

because of very severe lack of working capital.

I would like to call on Mr. Gerhardt Bendix.

STATEMENT OF GERHARDT BENDIX, PRESIDENT, WESTERN 

TIMBER ASSOCIATION

Mr. Bendix. Mr. Chairman and members of the committee, I am 

here today to speak for my firm and for Western Timber Association, 

which I currently serve as president. I am Gerhardt Bendix, secretary 

treasurer of the Hi-Ridge Lumber Co., Yreka, Calif., where we own 

and operate a sawmill and planing mill.

We are a closely held California corporation and have operated 

continuously in Siskiyou County, Calif., since 1953. We have been 

totally dependent on national forest timber since we started. I am 

one of the incorporators of our company and I have been a stockholder, officer and director since tha t time. We have 78 year-round 

employees and our logging contractor and log haulers have approximately 80 employees during the logging season.

It has been one of my primary functions to understand the Forest 

Service timber sale contract, to bid on timber sales as they are offered, 

and to discuss with the Forest Service all problems occurring during 

our operations under the contracts.

E Q U IT A B L E TO SM ALL O PER A TO RS

As a small operator, we believe a provision to make established 

purchaser credit interchangeable between timber sales would be 

equitable. With limited access to credit, it would enable us to build 

roads well in advance of logging operations. Due to the difficulties 

of terrain and magnitude or required road construction, we frequently
31

have to build roads and establish purchaser credit in a timber sale 

long before we can log the timber and apply these credits as payment 

for the timber. Since the Forest Service owns the lands and the roads 

built on it, it constitutes an interest-free loan to the landowner to 

have these roads constructed well in advance of our need or use of 

these roads.

As illustrations: We purchased the Salt Walker timber sale, contact No. 013982, December 16, 1971. Purchaser credit upon completion of the roads is $133,959. We built roads in this sale and had 

established purchaser credit of $93,117 in August of 1973. Due to 

special conditions, we only logged a small amount of the timber, 

and as of April 1974, had a remaining credit of $74,244.

In November of 1973, the Forest Service asked that we consent to 

a change of this sale for environmental reasons and we agreed. This 

is a time-consuming undertaking and we have not yet received the 

modified contract. For well over a year now, there has been $74,000 

tied up.

The Dutch Creek timber sale, contract No. 016910, awarded 

November 20, 1973, provides purchaser credit of $77,870 upon 

completion of roadbuilding. We had, by December of 1974, established purchaser credit of $64,046, without moving one log from the 

sale area. The first log from this sale was logged April 21, 1975.

The Eas t Horse timber sale, contract No. 016316, was purchased 

June 28, 1973. Purchaser credit was $176,049. We established $8,200 

of purchaser credit in September of 1973, and by October of 1974, 

this had increased to $11,244. No logging has taken place in the sale 

area.

COST LY CA PIT A L T IE D U P

In these three examples, our company has tied up $149,534 in 

sorely needed and costly capital. Cash payments for timber scaled 

were $2,037,643 in 1974, and $1,207,160 in 1973. It would have been 

helpful had we been able to apply the $149,000 against the cash 

required for 1973 and 1974 stumpage payments. Under the timber 

sale contracts now held by us, roads to be built will be even more 

costly and more time consuming to construct. We will have to build 

roads long before logging can begin, and I can foresee tha t we will 

tie up ever greater amounts over longer periods of time.

Four timber sales purchased by us in 1974 have a total volume of 

57.9 million board feet. The purchaser credit available is $1,197,091, 

or an average of $20.68 in purchaser credit per 1,000 board feet.

Last year, our firm earned $476,358 in purchaser credit through required construction of national forest roads. Much of this was applied 

directly to stumpage charges as the work progressed, but as I have 

just outlined, about 20 percent of it was tied up to our disadvantage. 

Interest on such funds, either paid or forgone, can be substantial. The 

Forest Service gives no effective recognition in timber appraisals to 

interest payments on borrowed capital. The elimination of such 

interest costs could result in greater Government income through 

higher bidding.

A DR AG ON LO CA L ECO N O M IE S

Such burdens inhibit operators from efficiently using their plants 

and employees more fully to harvest and process national forest timber.
32

The net effect is an unnecessary drag on the local economy. It should be noted that the total Government receipts will be unchanged over 

an extended period. We understand there has been some concern that the Government would be adversely affected if after the transfer and use of purchaser credit in a second sale there was a drop in the market causing down­ ward escalation of stumpage rates under the contract under which the credit was originally established. There is no reason for such concern. Charges against cash and purchaser credit in each timber sale account adjusted throughout the life of the sale to permit, to the extent pos­ sible, full use of purchaser credit for payment of stumpage charges above base rates. However, the proposed act would require tha t the amount of transferred purchaser credit be added to total base rate value as a floor below which escalation could not reduce the amount of cash payment. Further, the administrative work involved will be 

simple and minimal. I have used our firm’s experience to illustrate the consequence for one purchaser of national forest timber. There are many other firms dependent on Federal timber. In California, the Forest Service sells about 2 billion board feet per year and Western Timber Association 

members process about 90 percent of it. On behalf of all of those firms, we ask approval of the proposed legislation with any perfecting amendments needed to meet the objective of a fair recognition of purchasers’ expenditures for roads. The use of any effective purchaser credit earned on a national forest to make stumpage payments under any contract on the same national forest is justified as a matter of equity tha t should help stabilize the 

timber economy. Mr. Chairman and members of the committee, I sincerely appreciate 

the opportunity to be heard. Thank you.

Mr. Richards. Thank you, Mr. Bendix.

Next on our panel is Mr. Art Saiser.

STA TEM ENT OF ART SAISE R, LOGGING MAN AGER, FORT 

VANCOUVER PLYWOOD CO.

Mr. Saiser. Mr. Chairman and members of the committee, my name is Art Saiser and I am logging manager for Fort Vancouver Plywood Cooperative in Vancouver, Wash. Today I am representing the Douglas-fir region industry as well as the worker-owned plywood industry. We are one of 17 cooperative plywood plants still operating 

in the United States. Cooperative plywood plants are worker-owned and worker-oper­ ated facilities that depend on public timber supply for their raw material. We generally run in good times and bad and have a steady­ ing effect on a community because all of the worker-owners are local and spend their money in the area where they work. There were 34 worker-owned plants on the west coast at one time and now there are 

only 17 left. The reasons for the elimination of half of the worker-owned industry va n’ widely, bu t the root cause can generally be traced to raw material shortages or insufficient operating capital. Today the Federal 

Government holds the answer to both these problems.
33

T H E F IR S T P R O B L E M : RA W M A TERIA L SH O R T A G E

Since the Federal Government controls 60 percent of the softwood 

sawtimber inventory in the country, we feel th at they hold the solution 

to our raw material problems. By adopting management policies 

tha t encourage intensive forestry and timber harvest and by receiving 

adequate funding from Congress, the U.S. Forest Service could greatly 

increase the output of timber and our raw material situation would be 

greatly improved.

T H E SE COND P R O B L E M ; IN S U F F IC IE N T O P E R A T IN G CA PIT A L

Roads investments have changed since I first went to work at Fort 

Vancouver in 1966. Almost no roads are built now by road contractors 

using direct contracts and appropriated funds. Hardly any roads are 

built in advance of timber harvesting to open areas where high mortality losses occur. Jus t last month, Chief McGuire, testifying before 

the House Appropriations Committee, stated that the Gifford Pinchot 

National Forest, the one we buy new timber on, loses 80 million feet 

of timber annually to mortality. This would run two plants like ours 

forever.

The burden of financing road construction has been completely 

shifted to timber purchasers who construct roads under reduced timber 

prices. This puts a strain on our ability to raise capital and operate 

efficiently.

Congress could help our short capital situation by passing S. 364 

which would permit the transfer of effective purchaser credit between 

timber sale accounts within individual national forests. Workerowned operations are small in comparison to other U.S. businesses. 

Our gross sales amounted to $15 million last year and we are one of the 

biggest worker-owned plywood mills. Our payroll was about $5 

million. In an average year, we have about $700,000 tied up in road 

building contracts, which is a lot of money for us. Here are two examples of how the bill before you would help us recover our investment in building national forest roads faster.

“Tie” timber sale was purchased by my company from the Gifford 

Pinchot National Forest in Washington State in June 1972. Our 

company policy is tha t a road should be built and accepted 1 year 

before hauling over it. This allows for the road to stabilize and is an 

environmentally sound operation. Last August, $162,610.20 of an 

approved road job of $275,188 was completed and accepted.

We were able to log and haul only $22,130.15 worth of timber from 

the road right-of-way of this sale. So we still have $140,480.05 of 

effective purchaser credit tied up on the sale that we can’t use. Transferring this credit to another sale th at we are currently logging, would 

allow us to recoup our investment in a matter of weeks, instead of 

years. Multiply this by several sales and you can see large sums of 

money are involved.

In addition to the financial burden, there is an environmental reason 

to allow transfer of purchaser credit. This would encourage roads to be 

built far ahead of hauling of timber so tha t settling of roadbeds could 

take place and disruption of the soil would be minimal. Also, if adverse 

weather conditions occurred, operations could be shifted because of the 

lack of urgency for recovering road investments rapidly.
34

An example of this besides the one just given is on a sale we recently 

bought called the roundoff. This sale calls for a $504,393 road job. If 

we had transferable purchaser credit, we would do this job immediately. This way, the U.S. Forest Service would get the advantage 

of a paved road 2 years earlier and we would get it for less cost because 

of inflation. Under the present procedures, we won’t pave until next 

year when we are scheduled to log the sale.

Section 2 of the S. 364 with its reference to sales presently under 

contract is antiinflationary because it will encourage operators to 

build roads immediately, even though timber may not be harvested 

for 1 or 2 years. More important, perhaps is the fact that it will increase employment now in the construction industry which is suffering 

from underemployment in our region.

I hope your committee and the Congress will make the effort to 

secure early passage of this legislation so employment will increase 

and we can use the transferable purchaser credit this season.

I appreciate the opportunity to appear before this committee.

Mr. Richards. Thank you, Mr. Saiser.

Our next panelist is Mr. David Vincent.

STATEMENT OF DAVID T. VINCENT, NOETHSIDE LUMBER CO.

Mr. Vincent. Mr. Chairman, members of the committee, mv name 

is David T. Vincent of Northside Lumber Co. located in Phiiomath, 

Oreg. We are a small family-owned and operated sawmill employing 

approximately 150 people out of our community of 2,000. We have 

provided steady employment for our 150 employees since 1957 at 

this present location and are 95-percent dependent on Federal timber 

for our raw material requirements.

Mr. Chairman, I am here today to testify in support of S. 364 and 

to try and emphasize the importance of this legislation to small companies such as ourselves. S. 364 would allow us, as purchasers of 

United Forest Service (USFS) timber, to be paid promptly for work 

completed to USFS contractual specifications and accepted by the 

USFS as meeting those specifications.

Our company has always felt a responsibility to construct our USFS 

timber contract roads on an orderly scheduled basis which means 

beginning construction as soon as weather permits in the next operating season after purchase. This allows our company to have roads 

constructed at least 1 year in advance of scheduled logging and provides us with the flexibility necessary to meet varying order demands 

and market situations.

Because of this philosophy, which is nothing more than good business practice, we found ourselves on February 1, 1975, with oyer 

$900,000 of cash tied up in earned unused purchaser credits, a situation 

tha t we are now attempting to solve. These dollars were spread over a 

total of seven timber sales (table I) affecting approximately 35 million 

board feet of timber. Had this money been available for transferring 

to sales we were actively logging, our company would n ot have been 

placed in a difficult cash flow situation which forced us to the open 

money market to try and find financing.

[Table 1 follows:]
35

TAB LE I. — SIUS LA W NA TION AL FOREST TIM BER UNDER CONTRACT WITH EARNED PURCHASER CREDITS

Effective

earned

Date of U.S.F.S. credits

Sale nam e purchase contract No. 1

 Feb. 1,19 75

Minister 2-7 2...................................................................................................................June 30 ,197 2 0279 6-7 $65,43 5

Howell 203......................................................................... .............................................. Aug. 18,19 72 02 82 3-9 160,7 10

Crab 1-7 3........................................................................................................................... Dec. 1,19 72 02 86 2-7 79 ,978

Pitchfork 1-7 3................................................................................................................Dec 6,197 2 02 86 5-0 38,909

Benner 1-7 3..................................................................................................................... Dec. 20 ,1972 02 87 5-9 78, 442

Divide 1-7 4....................................................................................................................... Oct. 30 ,197 3 03 18 0-3 183,994

Min ister 1 - 7 4 ................................................................................................................ Dec. 4,197 3 03 20 8-2 30 3,639

To tal.................................................................................................................................................................................... 91 1,10 7

' Earned but unused purchaser credit.

Mr. Vin ce nt. We cu rre ntly have three othe r sales un de r co ntr act 

requiring a total of $300,000 wo rth of road constru cti on and reco nstr uc tio n. Needless to say, constru ction of these proje cts would 

pro vide a muc h needed s tim ulu s for o ur local a lre ady sagging economy. 

Th e fate of this legislation will influence our decision on wh eth er we 

proceed this sum mer or wa it and pay more , due to inflation and so 

forth , ne xt ye ar or the ye ar aft er, when hop efully, the cash flow 

sit ua tio n will be imp roved.

The importa nce of this legislation is amplified to da y because of 

USFS avera ge roa d costs ha ving skyrocketed due to increased design 

requ ire men ts such as pavin g, env ironm ent al res tricti ons, and increased c on str uctio n costs. Six to eight years ago, a large or high-p riced 

roa d co nstru cti on pro jec t was $50,000.

To da y tim be r sales with $300,000 to $500,000 wo rth of roa d credits 

are com monplace . Sure thi s is an obvious reflection of our times, 

bu t also an obvious in dic ation of a need for tra nsfer of e arn ed effective 

pu rch aser cre dits to sales th at are curre ntl y active so th at small, as 

well as large, businesses c an op erate the ir facilities on a more effective 

and efficient basis.

Tha nk yo u again for this op po rtun ity to prese nt our testim ony.

Mr. Richards. Th an k y ou, Da ve.

Our final pan elis t is Mr. Ca rl Hakenson.

STATEMENT 0E CARL HAKENSON, FORESTER, DUKE CITY 

LUMBER CO.

Mr. H akenson. Mr. Ch air man , mem bers of the com mittee , I 

am Carl Haken son , fore ster, from Duke Ci ty L um be r Co. with ma nu ­

facturing facilities in Es pano la, Cuba, and Albuquerq ue, N. Mex., 

and Winslow, Ariz. Our facilities employ 550 workers and provide 

jobs for an add itio nal 250 worke rs in our co ntract logging ope rations.

We fav or passage of S. 364. We know this su pp or t is share d by all 

memb ers of the Fed eral Ti mbe r Purch ase rs Associatio n and believe 

the sam e is tru e of all the tim be r indu str y in the Ro cky Mounta ins . 

We are 100 per cent de pe nd en t on natio nal forest tim be r for our 

surviv al.

Th e purpo se of this bill, to tra ns fer earned , but unused, purch ase r 

road cre dit s to me et charges for stu mp age on op erating sales, is time ly
36

and extremely important to the lumber industry and the economy in 

the timber dependent areas. Almost all of the timber sales purchased by Duke City Lumber Co. require the company to construct purchaser- credit-type roads which, in reality, are multiple-use or all-purpose 

roads. Purchaser-credit roads present a cash flow problem for our com­ pany. A prerequisite to logging timber sales is the construction of a specified road to the standard, design and location specified by the Forest Service in the contract. This construction requires the expendi­ ture of large sums of money which usually cannot be transferred into cash credits for long periods of time because we find tha t purchaser credit roads must be completed and accepted by the Forest Service 

before logging operations begin. Duke City Lumber Co. currently has 10 Forest Service timber sales under contract where credit for road construction has been earned, but is unused. These sales involve a total appraised construction allowance of $1,893,463. The earned, but unused, credit amounts to $563,870. Tying up that much cash has worked a tremendous hardship on our company and has limited our operations these last 8 months. S. 364 would allow our company to transfer the $563,870 to sales 

which are being operated upon to meet stumpage charges. Beginning in September 1974, Duke City Lumber Co. closed down all of its contract logging operations, involving approximately 250 workers. Another 80 employees at our mill operations were also laid off. The overriding reason for this drastic curtailment from our total work force of 550 employees was cash flow. If the earned, but unused, purchaser credit could have been transferred to other sales, we would have been able to keep more of our work force employed. This is an important consideration since one of the counties in northern New Mexico within our operating area had an unemployment rate of 23.6 

percent in March of 1975. We do not feel that because we are considered one of the larger companies puts us in any different category than the smaller companies when consideration is given to the fact tha t we have had a large number of people unemployed the same as anyone else. A lot of this problem has been due to the roads tha t we are currently building for 

the Forest Service. The effect on our one company is multiplied many times over throughout the region in which we operate. In New Mexico, the Forest Service estimates the amount of earned, but unused, purchaser credit as of December 31, 1974, was $602,652, and as June 30, 1975, is estimated to be $712,761. In Arizona, as of December 31, 1974, this was $1,549,637. and as of June 30, 1975, will be $1,185,325. We took the time to contact the various national forests within the area in which we operate in region 3 to get these figures, which we feel are quite accurate. Thus, for the southwestern region, the amount of earned, b ut unused, purchaser credit is currently fluctuating around $2 million. We believe this to be a substantial interest-free loan to the Federal Government which is hindering our efforts to provide jobs 

and goods at a reasonable level. Being able to transfer road credits would allow our company to construct purchaser credit roads months earlier than is presently being done. This would allow fresh earth fills to settle and stabilize
37

prior to the period of heavy use, thus diminishing the effects of erosion 

and pollution. It would also provide added protection to the forest 

by permitting early access for fire, insect, or disease control.

The question has been raised that transferring earned, but unused, 

purchaser credit would adversely affect the 25-percent fund to the 

counties. We feel that the effect upon counties will be negligible when 

viewed in the broad context. Based upon the previous year, in New 

Mexico, S. 364 would have had the one-time effect of deferring not. 

more than 20 percent of the counties’ share for 1 year.

The real problem involved in this issue is that purchaser-credit 

road costs are always deducted from stumpage. The $1,893,463 mentioned earlier comes off the top of stumpage payments and the 

counties receive no part of this money under the 25-»percent fund 

formula. This subject should not be considered in the deliberations 

of S. 364.

There was a remark by Mr. Rosier that the average time per sale 

perhaps was 4 years in length. I feel th at as far as the sales tha t Duke 

City has under contract, a 4-year sale is an extremely long sale for us. 

By the time we buy a sale and find a contractor to build the road and 

finally get the road accepted by the Forest Service, we have tied up a 

lot of money. But there is not tha t much lag in time that this deferral 

would be a major detriment to county receipts as far as I am concerned.

The present record keeping system of the Forest Service would 

contain checks and balances to keep an orderly account of transfers of 

credit from one sale to another. The Forest Service is presently 

authorized to transfer unused cash from one sale to another without 

bookkeeping problems. Based upon discussions with persons involved 

in such bookkeeping, no problems are foreseen and very little additional work would be required for the transfer of road construction 

credit.

On that subject, I personally contracted two of the national forests 

in our region and I have gone right down to the grassroots, talking to 

the clerks who would do this work. They inform me personally tha t 

there will be no problem in this regard as far as they are concerned.

In summary, Duke City Lumber Co. supports S. 364. To consider 

the merits of this bill, it must be kept in mind tha t purchaser credit 

road construction is a liability tied to a timber sale. It only makes 

good business sense to allow the cost of credit earned and not used 

for road construction to be transferred to other sales to meet stumpage 

obligations.

[Statement of Wayne Gaskins, forester, Western Forest Industries 

association and John F. Hall, vice president, forestry affairs, National 

Forest Products Association follow:]
SEN A TE PU B L IC W OR KS C O M M IT T E E

SU B C O M M IT T E E ON T R A N SPO R T A T IO N

S T A T E M E N T O F

W E S T E R N F O R E S T IN D U ST R IE S A SSO C IA TIO N 

W ash in g to n , D. C.

M ay 19 , 1975

M r. C h a ir m a n , M e m b e rs o f th e C o m m it te e , m y n a m e is W ay ne 

G a sk in s. I a m a f o r e s t e r f o r th e W e s te r n F o r e s t I n d u s tr ie s A s s o c ia tio n , 

a f o r e s t p r o d u c ts m a n u f a c tu r e r s ' a s s o c ia tio n c o m p r is e d of th e in d e p e n d ­

e n t tim b e r p r o c e s s o r s lo c a te d th ro u g h o u t th e w e s te rn U n it ed S ta te s , i n ­

c lu d in g A la s k a . O u r m e m b e rs a r e h e a v ily d e p e n d e n t on th e N a ti o n a l F o r ­

e s ts o f th e W est f o r th e ir ra w m a t e r i a l su p p ly . I a m h e r e to d a y sp e a k in g 

in b e h a lf o f th e P r e s id e n t of W e s te r n F o r e s t I n d u s tr ie s A s s o c ia tio n , M r. 

J a c k G a te s w ho is a ls o th e P r e s i d e n t o f 3 -G L u m b e r C om pany, lo c a te d a t 

P h ilo m a th , O re g o n . M r. G a te s h a d p la n n e d to be h e r e to te s tif y in b e h a lf 

of th e A s s o c ia tio n m e m b e rs h ip b u t c o n fli c ts in h is sc h e d u le m a d e it 

im p o s s ib le f o r h im to a p p e a r .

We a r e p a r tic u la r ly a p p r e c ia tiv e th a t y o u r c o n m itte e an d th e 

s p o n s o r s an d c o - s p o n s o r s of S. 36 4 an d it s c o m p a n io n , H. R . 5077, a r e 

g iv in g c o n s id e r a tio n to th is m o s t im p o r ta n t p r o p o s a l a ffe c ti n g a p o rti o n 

of o u r b u s in e s s r e la tio n s h ip w ith th e F e d e r a l g o v e rn m e n t.
This p ro p o se d le g is la ti o n w ou ld p e rm it th e tr a n s fe r of e a rn e d 

eff ecti v e p u rc h a s e r ro a d c re d it s fr o m on e ti m b e r sa le to a n o th e r sa le

bei ng o p era te d by th e sa m e c o n tr a c to r on th e sa m e N at io nal F o re s t.

B ackgro und- - A s u c c e s sfu l b id d e r fo r a N ati onal F o re s t ti m b e r sa le

is oft en re q u ir e d by th e te rm s of th e p u rc h a se c o n tr a c t to c o n str u c t

a c c e s s ro ad s to th e s a le a re a . In m any c a s e s , th e se a re m u lt ip le -

p u rp o se ro a d s, d e sig n e d to hig h sta n d a rd s fo r re c re a ti o n , fire c o n tr o l, 

an d o th e r a d m in is tr a ti v e an d public u se s. The c o n tr a c to r is re q u ir e d

to in v est h is ow n c a p it a l in th e ro ad c o n str u c ti o n , oft en beg in nin g a

y e a r o r m or e b e fo re a n y ti m b e r is h a rv e s te d an d an y in com e is d e ri v e d

fro m th e sa le .

Thi s c u rc u m sta n c e a r is e s fr o m th e n eed in m any a re a s o f th e

c o u n tr y to devote on e fu ll o p era ti n g se a so n to th e ro ad c o n s tru c ti o n --

an d w aitin g unti l th e n e x t y e a r to begin th e lo ggin g o p e ra ti o n .

Th e ad vance e x p e n d it u re s fo r ro ad c o n str u c ti o n a re c re d it e d to

th e o p e ra to r's a cco u n t on th a t p a rtic u la r ti m b e r s a le , an d su ch c re d its 

a r e la te r use d by th e o p e ra to r to c o m p en sate fo r ti m b e r a s it is h a rv e s te d --u p to th e fu ll c re d it e d am ou nt . O nc e th e c re d its a re u se d, c a sh

pay m en t co m m en ces fo r ti m b e r re m o v ed .

P ro b le m s fo r O p e r a to r s - - Eve n in n o rm a l ti m e s , th e re q u ir e m e n t fo r 

m a jo r, advanced c a p it a l in v estm en t in ro ad c o n str u c ti o n p la ce s an e x ­

cep ti o n al b u rd en on th e c o n tr a c to r. The fu nd s, u su a ll y m u st be b o rr o w ed
40

a t h ig h r a te s o f in te r e s t o r d iv e r te d f r o m n e e d e d in v e s tm e n ts in p la n t 

an d e q u ip m e n t. It is ev en w o rs e in tim e s su c h a s no w w h en th e lu m b e r 

m a r k e t is s e v e r e ly d e p r e s s e d an d it is d if fic u lt o r im p o s s ib le to b o rro w 

ro a d c o n s tr u c tio n fu nds a t an y r a te o f i n te r e s t .

E ffe c ts o f P r e s e n t P o li c y on G o v e rn m e n t R e v e n u e s - - A m a jo r p o r tio n 

of th e N a ti o n a l F o r e s t ro a d s y s te m is b e in g fin a n c e d f r o m t i m b e r - s a l e 

re v e n u e s r a t h e r th an f ro m a p p r o p r ia te d fu n d s. W he n th e c o n tr a c to r 

a d v a n c e s m o n e y f o r c o n s tru c tio n u n d e r th e r e q u ir e m e n ts of h is c o n tr a c t, 

it is th e e q u iv a le n t of a n i n t e r e s t - f r e e lo a n to th e F e d e r a l g o v e rn m e n t. 

E ffe c ts o f P ro p o s e d C h a n g e -- If th e e ffe c ti v e c r e d its e a r n e d b u t u n u se d 

by a c o n tr a c t o r co u ld b e t r a n s f e r r e d to a n o th e r s a le in th e s a m e N a ti o n a l 

F o r e s t - - w h e r e th e sa m e c o n tr a c to r is c u r r e n tly re m o v in g t i m b e r - - t h e 

p e n a lt y now im p o s e d on th e c o n tr a c t o r w ould be re m e d ie d .

It I s im p o rta n t to r e a liz e th a t n o t a ll su c h c r e d i ts w o u ld be 

t r a n s f e r r e d ; th e r e f o r e , th e e ffe c t on c u r r e n t T r e a s u r y a c c o u n ts is 

lik e ly to b e c o n s id e ra b ly le s s th a n th e to ta l of su c h o u ts ta n d in g c r e d its . 

T h is a r i s e s f r o m su c h c ir c u m s ta n c e s a s (1) th e in te r v a l b e tw e e n ro a d

c o n s tr u c tio n an d tim b e r re m o v a l o n so m e s a le s is n o t s u f f ic ie n tl y 

g r e a t to w a r r a n t a n o p e r a t o r 's r e q u e s t fo r t r a n s f e r o f c r e d i ts , o r (2) 

th e o p e r a t o r d o e s not h a v e a n o th e r s a le u n d e r c o n tr a c t in th e s a m e 

N a ti o n a l F o r e s t , and th e r e f o r e h is ro a d c r e d its w o u ld r e m a in n o n tr a n s -

f e r a b le u n d e r th e p ro p o se d c h a n g e .
41

By li m iti n g th e t r a n s f e r s of c r e d i ts b e tw e e n s a le s in th e s a m e 

N a ti o n a l F o r e s t, th e p r o p o s e d le g is la tio n w o u ld im p o s e l ittle , if a n y , 

a d d it io n a l a c c o u n ti n g r e q u ir e m e n ts on th e F o r e s t S e r v ic e . T he c r e d i ts 

m u s t be a p p li e d a t s o m e p o in t, and it m ak es j u s t a s m u c h s e n s e to 

a p p ly th e m a g a in s t c u r r e n t re m o v a ls a s a g a in s t r e m o v a ls a t so m e

d is ta n t d a te .

A n ti c ip a te d P u b li c B e n e f its - - In so m e in s ta n c e s , th e fin a n c ia l c o n ­

s t r a in t s im p o se d o n th e c o n tr a c to r by th e n o n - t r a n s f e r a b il i ty of ro a d 

c o n s tr u c tio n c r e d i ts r e s u l t s in d e la y s in ro a d b u il d in g u n ti l th e la te s t 

p o s s ib le tim e . T h is w e ig h s a g a in s t th e o p tim im o r d e r l y fl ow o f tim b e r 

p ro d u c ts onto th e m a r k e t d u rin g tim e s w h en h o u sin g c o n s tru c tio n is 

b o o m in g an d d e m a n d f o r lu m b e r and ply w ood is h ig h .

A ls o , it fo ll o w s th a t th e ro a d s w o u ld b e a v a ila b le to th e F o r e s t 

S e r v ic e and to th e p u b li c e a r l i e r th a n o th e r w is e .

If th e s u c c e s s f u l b id d e r on a s a le k n o w s th a t c a p ita l in v e s te d 

in ro a d c o n s tr u c tio n is n o t to b e ti e d up f o r su c h a lo n g ti m e in a c u r ­

r e n tly n o n -p ro d u c tiv e a s p e c t of h is o p e r a tio n , h e w o u ld be m o re li k e ly 

to c o m m e n c e c o n s tr u c tio n im m e d ia te ly - - p e r m ittin g m u c h g r e a t e r 

fle x ib ility in th e ti m in g o f a c tu a l h a r v e s tin g o p e r a tio n s to c o n fo rm to 

c h a n g in g n e e d s in p u b li c d e m a n d fo r w ood p ro d u c ts .

In s u m m a ry I w o u ld lik e to e m p h a s iz e tw o p o in ts th a t a r e m o s t

im p o r ta n t to us in th e in d u s tr y . W ith th e p a s s a g e o f th is p ro p o s e d
42

l e g is la tio n , it w ould be p o s s ib le to in itia te ro a d b u il d in g p r o g r a m s 

im m e d ia te ly on tim b e r s a le s u n d e r c o n tr a c t and s c h e d u le d f o r h a r v e s t 

in fu tu r e y e a r s . T h is w ould be a n im m e d ia te b e n e fit in im p ro v in g 

e m p lo y m e n t o p p o rtu n it ie s in o u r m a n y W e s te rn c o m m u n it ie s th a t a r e 

e x p e r ie n c in g e x tr e m e ly h ig h u n e m p lo y m e n t le v e ls . T he o th e r p o in t is 

th e d e s i r a b i l it y of g e tt in g th e ro a d " in p la c e " w e ll in a d v a n c e of a n y 

a c tiv e lo g g in g o f th e tim b e r . By g e tt in g o u r ro a d " in p la c e " th is y e a r 

f o r tim b e r h a r v e s te d 1, 2, o r 3 y e a r s in th e fu tu r e , it e n a b le s us to 

l e s s e n th e e n v ir o n m e n ta l im p a c t o n th e a r e a . B e c a u se of th e s e tw o 

b e n e fits a lo n e th is le g is la tio n sh o u ld b e e n a c te d a s q u ic k ly a s p o s s ib le . 

We s u p p o r t th e r e tr o a c tiv ity a s p r o p o s e d in th is b ill a s it a f f e c ts 

c o n tr a c ts a lr e a d y in e x is te n c e . B y a ll o w in g th e r e tr o a c t i c i t y i t w il l 

m e a n im m e d ia te jo b s c r e a te d th is c a le n d a r y e a r .

I a p p r e c ia te th e o p p o rtu n it y to a p p e a r b e fo re you to d a y and 

u r g e r a p id e n a c tm e n t of th is p ro p o s e d le g is la ti o n .
43

M

■^■NATIONAL FOREST PRODUCTS ASSOCIATION

1619 Massachusetts Avenue, N. W „ Washington, D. C. 20036

FORESTRY

S T A T E M E N T O F

JO H N F . H A L L

N A T IO N A L F O R E S T PR O D U C T S A SSO C IA TIO N

B E F O R E TH E

T R A N S P O R T A T IO N S U B C O M M IT T E E O F T H E 

SE N A T E P U B L IC WOR KS C O M M IT T E E 

ON S. 36 4

MA Y 19 , 19 75

M r . C h a ir m a n an d M e m b e rs of th e C o m m it te e :

I a m Jo h n F . H a ll, V ic e P r e s id e n t - F o r e s t r y A f fa ir s w it h th e 

N a ti o n a l F o r e s t P r o d u c ts A s s o c ia tio n . N F P A is a f e d e r a tio n of 26 

r e g io n a l, p ro d u c t a n d s p e c ie s a s s o c ia tio n s r e p r e s e n tin g th e g r o w e rs , 

m a n u f a c tu re rs and w h o le s a le r s of s o li d w ood p r o d u c ts th ro u g h o u t th e 

U n it e d S ta te s .

A p p ro x im a te ly o n e - th ir d of o u r n a tio n 's tim b e r su p p ly c o m e s 

f r o m F e d e r a l la n d s , th e b u lk of th a t la n d is N a ti o n a l F o r e s t la n d 

a d m in is te r e d b y th e F o r e s t S e rv ic e of th e D e p a rtm e n t o f A g r ic u ltu re .

T he F o r e s t S e r v ic e an d th e A d m in is tra tio n h a v e on tw o o c c a s io n s 

in d ic a te d s u p p o rt f o r th e c o n c e p ts in S. 364. On J a n u a r y 30, 19 75 , 

A s s is ta n t S e c r e ta r y of A g r ic u ltu re R o b e rt L o n g , in a l e t t e r to M r. P a u l 

E h in g e r, C h a ir m a n of th e in d u s try -w id e T im b e r S u p p ly T a s k G ro u p 

s ta te d :

"T h e F o r e s t S e rv ic e sa y s it a g r e e s w it h y o u r 

re c o m m e n d a ti o n a b o u t th e tr a n s f e r of P u r c h a s e r C r e d it.

I w ould li k e to se e i f yo u an d th e F o r e s t S e rv ic e c a n g e t 

to g e th e r on a p r o p o s a l th a t w e c a n ta k e u p w it h O M B . It 

m a y ta k e so m e c o m p r o m is e s on both s id e s , b u t th is is an 

a r e a w h e re w e sh o u ld be ab le to r e a c h r a t h e r p r o m p t 

d e c is io n s ."

(M r. L o n g 's le t t e r a p p e a r s a s A ppendix A to m y s t a t e m e n t . )
44

On A p r il 25, 19 75 , F o r e s t S e r v ic e D ir e c to r of T im b e r M a n a g e m e n t 

R ic h a rd W o rth in g to n p ro v id e d S e n a to r M c C lu re w it h a p a p e r e n title d 

" S u p p le m e n t to D e p a rtm e n t of A g r ic u ltu r e R e p o rt on S. 364" w h ic h c o n ­

ta in e d a p ro p o s e d re v is io n of S. 364 an d an a c c o m p a n y in g e x p la n a tio n of 

th e p r o p o s e d r e v is io n . T he f o r e s t p r o d u c ts in d u s tr y a g r e e s w it h th e p r o ­

p o se d r e v is io n of S. 36 4 a s p r e s e n te d in th a t F o r e s t S e rv ic e p a p e r . (T he 

F o r e s t S e rv ic e p a p e r a p p e a r s a s a n A p p en d ix B to th is s ta te m e n t.)

T h e r e a s o n w hy le g is la tio n i s n e e d e d to a c c o m p lis h th e o b je c tiv e s 

of S. 364 a r e s e t f o rth in a Ju n e 1 6, 19 72 le t t e r f r o m th e C o m p tr o lle r 

G e n e r a l to th e S e c r e ta r y of A g r ic u ltu r e . T he S e c r e ta r y h a d so u g h t th e 

G e n e r a l A c co u n ti n g O ffic e 's d e c is io n on a p r o p o s a l to t r a n s f e r e a r n e d , 

e ffe c ti v e r o a d c r e d its fro m one s a le to a n o th e r w it h in th e s a m e N a ti o n a l 

F o r e s t . T h e C o m p tr o lle r G e n e r a l 's r e p ly c o n fu se d th e s itu a tio n r e s u ltin g 

f ro m s o - c a lle d " d e fic it" s a le s w it h th o se s a le s h av in g a n o r m a l p r o f it 

m a r g in . T h is c o n fu sio n r e s u lte d in th e o p in io n th a t th e p r o p o s a l w ould 

h av e a u th o r iz e d th e e x ch a n g e of tim b e r fo r ro a d c o n s tr u c tio n w it h o u t 

s ta tu to r y a u th o r ity . T he C o m p tr o lle r G e n e ra l h e ld th a t th is w a s c o n tr a r y 

to th e in te n t a n d p ro v is io n of P . L . 8 8 -6 5 7 and th e r e f o r e w o u ld n e c e s s ita te 

s p e c ia l le g is la tio n . S. 36 4 h a s b e e n d r a fte d to a v o id th e p o s s ib i l it y of 

u s in g t im b e r v a lu e s in one tim b e r s a le a r e a to p a y f o r r o a d c o n s tr u c tio n 

in a n o th e r tim b e r sa le a r e a . (T h e 19 72 e x ch a n g e b e tw e e n th e S e c r e ta r y 

of A g r ic u ltu r e and th e C o m p tr o lle r G e n e r a l a p p e a r s a s A p p e n d ix C . )

A n a d d it io n a l r e a s o n w hy e n a c tm e n t of S. 364 is n e e d e d is to o v e r ­

co m e so m e of th e in e q u itie s im p o s e d on N a ti o n a l F o r e s t tim b e r p u r c h a s e r s 

b y th e A d m in is tr a tio n 's c h an g e in th e m e th o d s of fin a n c in g N a ti o n a l F o r e s t 

ro a d c o n s tr u c tio n .

T h e f o r e s t p ro d u c ts i n d u s tr y h a s c o n s is te n tly u r g e d th a t th e F o r e s t 

S e r v ic e c o n s tr u c t th e b u lk of N a ti o n a l F o r e s t r o a d s . T he P u b lic W o rk s 

C o m m itte e s h av e c o n s is te n tly a u th o r iz e d s u ffic ie n t fu n d s f o r su c h ro a d 

c o n s tr u c tio n . A d m in is tr a tio n B u d g e t r e q u e s ts an d C o n g r e s s io n a l a p p r o ­

p r ia tio n s h a v e n o t k e p t p a c e w it h y o u r d ir e c tio n s . One r e s u l t is th a t 

th e F o r e s t S e rv ic e in c r e a s e d th e m ile a g e and v a lu e of r o a d s c o n s tr u c te d 

b y tim b e r p u r c h a s e r s a s p a r t of N a ti o n a l F o r e s t tim b e r s a le c o n tr a c ts .

An e x c e lle n t c h a r t sh ow in g th e t r e n d s in fin a n c in g f o r N a tio n a l F o r e s t 

ro a d c o n s tr u c tio n w a s p r e p a r e d b y M r. K en n eth T o lle n a a r , D ir e c to r , 

B u re a u of G o v e rn m e n ta l R e s e a r c h & S e rv ic e f o r th e U n iv e r s ity of O re g o n . 

(M r. T o ll e n a a r 's c h a r t a p p e a r s a s A p p en d ix D of m y s ta te m e n t.)

T h e s e r o a d s a r e b u ilt fo r m u ltip le - u s e p u r p o s e s n o t j u s t tim b e r 

h a r v e s t a lo n e . T he lo c a tio n , a li g n m e n t, g ra d e an d s ta n d a r d s of th e ro a d s 

a r e m o d if ie d to a s s u r e th e y c a n m e e t th e fu ll m a n a g e m e n t n e e d s of th e 

N a ti o n a l F o r e s t s . W hen a v a ila b le , su p p le m e n ta l fu n d s a r e p ro v id e d b y
45

b y th e F o r e s t S e r v ic e to a ll o w th e p u r c h a s e r to d e f r a y th e a d d it io n a l c o s t 

of ro a d c o n s tr u c tio n n e c e s s ita te d b y m u ltip le - u s e r e q u ir e m e n ts .

T he p u rp o s e of S . 364 is to a ll o w N a ti o n a l F o r e s t tim b e r p u r c h a s e r s 

to m o re p r o m p tl y be p a id fo r th e a c tu a l w o rk th e y p e r f o r m on F e d e r a l f o r e s t 

la n d s .

The b ill o r its le g is la tiv e h is to r y sh o u ld m a k e c le a r th a t p u r c h a s e r s 

a r e a u th o riz e d to t r a n s f e r " e a r n e d ," " e f f e c tiv e " P u r c h a s e r C r e d it f r o m 

one tim b e r s a le to a n o th e r w it h in th e s a m e N a tio n a l F o r e s t . T he t e r m s 

" e a r n e d " and " e f f e c tiv e " a r e im p o rta n t.

" E a r n e d " m e a n s th a t th e P u r c h a s e r C r e d it h a s b e e n r e c o g ­

n iz e d b y th e F o r e s t S e rv ic e a s th e e s tim a te d c o s t of p e r f o r m ­

in g th e w o rk a n d th a t th e w o rk h a s a c tu a lly b e e n p e r fo r m e d 

to th e s p e c if ic a tio n s in th e tim b e r s a le c o n tr a c t.

" E ffe c tiv e " r e f e r s to th a t p o rtio n of th e P u r c h a s e r C r e d it 

w h ic h m a y b e u s e d to p a y fo r th e v a lu e o f t im b e r ab o v e B a se 

R a te s .

B oth of th e s e t e r m s a r e im p o r ta n t to a s s u r e th a t th is b ill w ould n o t 

be a p p li c a b le to s o - c a lle d " d e f ic it" s a l e s . T h o se a r e s a le s fo r w h ic h th e 

f u ll c o s t of th e ro a d c a n n o t be re g a in e d f r o m th a t p o r tio n of th e tim b e r 

v a lu e th a t e x c e e d s F o r e s t S e rv ic e e s ta b lis h e d " B a s e R a t e s ." Such B a se 

R a te s m u s t be p a id in c a s h . A g lo s s a r y of " T im b e r S a le C o n tra c t 

D e fin it io n s " a p p e a r s a s A p p e n d ix E .

S. 36 4 d o e s n o t p r o v id e a " f r e e lo a n " to tim b e r p u r c h a s e r s . T he 

G o v e rn m e n t h a s b e en g e tt in g th e f r e e lo a n , if it is to be c o n s id e re d th a t. 

C u r r e n tly , tim b e r p u r c h a s e r s h ave e x p e n d e d m illio n s of d o lla r s on c o n ­

s tr u c tio n of F o r e s t S e r v ic e r e q u ir e d r o a d s , a s sh o w n in A p p en d ix D. 

P u r c h a s e r s a r e u n a b le to re c o u p th e v a lu e o f t h e ir in v e s tm e n t u n til th e y 

b e g in to h a r v e s t tim b e r f r o m th a t p a r ti c u l a r s a le . In a n o r d e r ly p r o c e s s , 

r o a d c o n s tr u c tio n sh o u ld u s u a lly p r e c e d e tim b e r o p e r a tio n s by a fu ll o p e r ­

a ti n g s e a s o n . U n d e r th e p r e s e n t s itu a tio n P u r c h a s e r s ' w o rk in g c a p ita l 

is tie d up fo r a y e a r an d th e y m u s t d e a l in th e m o n e y m a r k e t fo r fu nds to 

m e e t tim b e r h a r v e s t r e q u ir e m e n ts on o th e r c o n tr a c ts .

P u r c h a s e r C r e d it is a v a ila b le o n ly w h en th e w o rk h a s b e e n p e r ­

f o r m e d to th e r e q u ir e m e n ts of th e c o n tr a c t. In so m e c a s e s , p h a se p e r ­

fo r m a n c e is p o s s ib le f o r w h ic h th e p u r c h a s e r is c r e d ite d f o r th a t p o rtio n 

( u s u a lly a ro a d s e g m e n t o r m a jo r p o rtio n of ro a d s t r u c tu r e ) a s i t is p e r ­

f o r m e d and a c c e p te d b y th e F o r e s t S e rv ic e .

53- 95 3 0 - 75 - 4
46

P u r c h a s e r C r e d it is n o t a v a ila b le f o r te m p o r a r y r o a d s . T h e c o s t 

and v a lu e of th o s e ro a d s is c o n s id e re d in m a k in g th e b a s ic tim b e r 

a p p r a is a l. T h o s e ro a d s do n o t e n te r in to th e e ffe c t of S. 364.

T h e re a r e l e s s th an 6 ,0 0 0 s a le s to w h ic h th e p r o v is io n w o u ld a p p ly . 

E x is ti n g c o n tr a c ts p ro v id e th at: " B y a g r e e m e n t and w it h c o m p e n s a ti n g 

a d ju s tm e n ts , w h e re a p p r o p ria te , th is c o n tr a c t s h a ll be m o d if ie d to p r o ­

v id e fo r: (a ) th e e x e r c is e of a n y a u th o r ity h e r e a f te r g ra n te d by la w o r 

R e g u la ti o n of th e S e c r e ta r y of A g r ic u ltu r e if su ch a u th o r ity is th e n g e n ­

e r a l ly b e in g a p p li e d to F o r e s t S e rv ic e tim b e r sa le c o n tr a c ts , an d (b ) 

a n y o th e r c o n tr a c t u r a l p ro v is io n th e n in g e n e r a l u s e b y F o r e s t S e r v i c e ." 

(S e c ti o n B8. 3, TSC 2 4 0 0 -6 , 1 9 7 0 .)

T h e p r o v is io n s of th is b ill w o u ld b e n e f it a ll r e g u la r p u r c h a s e r s 

of N a ti o n a l F o r e s t tim b e r - - la r g e o r s m a ll. T y p ic a l p u r c h a s e r s u s u a lly 

h o ld s e v e r a l tim b e r sa le c o n tr a c ts a t th e sa m e tim e . P a s s a g e of S . 36 4 

w o u ld b e e s p e c ia lly h e lp fu l to th o s e c o m p a n ie s , u s u a lly th e s m a ll e r o n e s, 

w h ic h h av e e x tr e m e ly ti g h t c a s h fl ow s itu a tio n s . B y p e r m ittin g p u r ­

c h a s e r s to c o n s id e r th e ir " e a r n e d ," " e f f e c tiv e " p u r c h a s e r c r e d i t a s th e 

sa m e a s c a s h f o r th e p a y m e n t of N a tio n a l F o r e s t tim b e r , th e G o v e rn m e n t 

w o u ld s u ffe r no l o s s . T he c o u n ti e s w h ic h re c e iv e 25 p e r c e n t of N a ti o n a l 

F o r e s t c a s h r e c e ip t s w ould r e c e iv e n o lo s s . T he te m p o r a r y d e la y , d u r ­

in g th e f i r s t y e a r , of a p o rtio n of su c h r e c e ip t s w ould b e o ffs e t b y th e 

o p p o rtu n it ie s f o r c o n ti n u e d e m p lo y m e n t a n d e c o n o m ic a c tiv ity in th e a r e a 

if c o m p a n ie s a r e l e s s s tr a p p e d fo r w o rk in g c a p ita l.

On A p r il 15, M r. R o b e rt W o lf , A s s i s t a n t C h ie f, E n v ir o n m e n ta l 

P o lic y D iv is io n , C o n g r e s s io n a l R e s e a r c h S e rv ic e p r e p a r e d a m e m o r a n ­

d u m f o r th e S ta ff D ir e c to r of th e S e n a te P u b lic W o rk s C o m m itte e d i s ­

c u s s in g th e h i s t o r y an d c u r r e n t s itu a tio n of ro a d fin a n c in g on th e N a ti o n a l 

F o r e s t s . In tw o a r e a s , th e f o r e s t in d u s tr y a g r e e s w it h th a t a s s e s s m e n t , 

n a m e ly :

(1 ) T h e b ill " n e e d s g r e a t e r s p e c if ic ity , th e d e fin it io n of 

t e r m s a n d a fu ll e x p la n a ti o n a s to e x a c tly how i t w ould 

o p e r a t e . " T h is w ould o c c u r th r o u g h th e h e a rin g p r o c e s s .

(2 ) "A n e e d e x is ts to re v ie w th e e n tir e ro a d p r o g r a m an d

to c o n s id e r th e e x te n t to w h ic h th e o r d e r ly h a r v e s t o f N a ti o n a l

F o r e s t t im b e r , and th e o r d e r ly m o v e m e n t to w a rd s e c u rin g 

th e o p tim u m le v e l of m u ltip le - u s e m a n a g e m e n t an d s u s ta in e d 

y ie ld of s o u r c e s is a id e d o r in h ib ite d b y th e p r e s e n t p o lic ie s 

and p r a c t i c e s . " T h is is a lo n g t e r m o b je c ti v e w h ic h th e 

in d u s tr y s u p p o r ts . H o p e fu ll y , im p le m e n ta tio n of th e H u m p h re y - 

R a r ic k A c t w il l a s s i s t in th is o b je c tiv e . H o w e v e r, a c tio n on 

S. 364 s h o u ld n o t be d e la y e d p e n d in g th is c o m p le te r e v ie w .
47

O th e r c o m m e n ts an d c o n c lu s io n s in th e L ib r a r y of C o n g r e s s m e m o r ­

a n d u m a r e n o t e n d o rs e d b y th e f o r e s t p r o d u c ts in d u s tr y . A m e m o ra n d u m 

on th o s e c o m m e n ts a p p e a r s a s A p p en d ix F of m y s ta te m e n t.

T h e r e a r e n u m e ro u s o th e r is s u e s a s s o c ia te d w it h th e N a ti o n a l F o r e s t 

ro a d c o n s tr u c tio n p r o g r a m w h ic h sh o u ld be re v ie w e d b y th e C o m m it te e on 

P u b lic W o rk s and its S u b c o m m it te e on T r a n s p o r ta tio n . T h e f o r e s t p r o d u c ts 

in d u s tr y u r g e s su c h a re v ie w b e u n d e rta k e n fo ll o w in g c o m p le ti o n of th e 

C o m m itte e 's fa v o ra b le a c tio n on S. 36 4.

T h a n k you.
-48

C O P Y AP PE ND IX A

Janu ary 29 , 1975

Mr. Paul F . Ehi ng er

Ch air ma n

Timbe r Supp ly Tas k Group

Edward H in es Lu mbe r Com pany

P . O. Bo x 278

W es tf ir , Oregon 97492

Dea r M r. Ehi ng er :

A ll of u s in the Adm inistration co nc er ne d with tim be r su pp ly a pp re ci at e

the eff ort of you and your gro up to b ring to our atten tio n the se rio us pr ob le m s

now fa ci ng yo ur in dus tr y. I'm so rry tha t I co uld not attend the Janu ary 10

m ee ting in the White Hou se , but I did attend the m ee ting with Sec re ta ry Butz

and I ha ve re ad yo ur br iefing m ate ria ls .

This Dep ar tm en t, alo ng with the Whit e House staf f, the Of fic e of M an ag em en t and Bud ge t, and the Co un cil of Eco no m ic Advi so rs gave se rio u s co n si d ­

er at io n to the se ven re co m m en da tio ns be ginn ing on page 13 of yo ur ba ck ground

st at em en t. We a ls o co ns id er ed your re co m m en da tion that an inde pe nd en t in ­

ves ti gato r be ap po inted to 'r ev ie w the in dust ry 's pr ob le m s and re por t his find ­

in gs to the Whit e H ou se . The idea of an inde pe nd en t in ve st ig at io n is att ra cti ve,

but w e ha ve do ub ts about the tim in g. As yo u m ay k now , si nce 1968 th er e ha ve

be en at le a st 15 se para te studi es of file tim ber supp ly pr og ra m . We ha ve a

la rg e nu mbe r of re co m m en da tion s bef ore u s . Ac tio n is need ed now , no t anoth er

stu dy . I hope yo u and you r co lle ag ue w il l re consi d er th is re co m m en da tion . If

you'd li k e, I w il l be gla d to d is cu ss it f urt her with you.

The fir s t of the re co m m en da tion s re ga rd in g the F o rest Ser vic e tim be r

sa le pro gra m , on pa ge 13, ca ll s for an ec onom ic analy si s of roa d des ig n

stan da rd s. The F o rest Ser vi ce te ll s me th at th is is be ing don e and that en vi ro nm en ta l an aly si s is a ls o re qu ired . None the le s s , I su sp ec t tha t th er e are situ at io ns

whe re ro ad s ar e inde ed ov er des ig ned , and I would lik e to know i f y ou ca n su gg e st so m e sp ecif ic ex am pl es tha t we could jo in tly ev alua te. I know that the

F o re st Servic e has be en try ing to co pe with th is pr ob le m for so m e ti m e. Pe r^

ha ps we sh ou ld look fo r a wa y of w or king to ge th er to make m ore rapid p ro g ress.

I thin k we ^should get away fr om g en era li ti es, ho wev er , and tr y to find so m e

part ic ula r pro ble m tha t can pr om ptly b e corr ec te d .

Rec om m en da tio n 2 ca ll s fo r a re ev alu ation of sl ash dis p osa l stan da rd s.

Si nc e th is is a ra th er co m plex ar ea in vo lv in g ma ny vari able s in clud in g u ti li sa ­

tio n of resid u e, re ge ne ra tion , and fi re co ntr ol, I wou ld be hes it ant to underta ke

a broa d stud y. I wo uld wel co m e your su gges ti on s as to so m e sp ecif ic a reas which

il lu st rate the pr ob le m in w hich we could rev ie w . Ag ain, I am co nc er ne d ov er

br oa d, tim e co ns um in g st udie s.
49

The third recomm endation is one with which all of us can agree. However, training will take time and I would like to see the Fo re st Service corre ct deficien cies more prom ptly. The Clearw ate r National Fo rest is one

place where con trover sies over skyline and helicopter requirements have been

particularly frequent. Rex Re sler and John Sessions will be visiting the

Clearw ater as soon as the snow is gone to make sure that the program is being

conducted properly. If you have suggestions regarding other problem are as,

ple ase let me know.

The deficit sale pro blem worries us also. If you st ill feel strongly

that such a review should be made, let's talk some more about this recom ­

mendation. In the meantim e, we are looking into the po ssibility of releasing

another $10 million in obligational authority f or road construction in the balance

of this fisc al year. It may be that we can give mos t help to this problem by

increa sing Federal expenditures for roads.

We agree with the fifth recommendation, but would rather seek improvement than cut off offerings imm edia tely. Your cooperation is needed to insure

that the bes t possible cost data are made ava ilab le. I would also like to talk

some more with you about this subject to see if we can find some specific ways

of bringing about prompt improvemen t.

The Fo rest Service says it agrees with your recommendation about the

tra nsfer of Purchaser* C redit . I would like to see if you and the Forest Service

can get together on a pro pos al that we can take up with OMB. It may take

some compromises on both sid es, but this is an area where we should be able

to reach rather prompt decision s.

Fin all y, there is no disa gree men t with your last recommendation reg ard ­

ing reforestation and more intensive forest management. Rather the problem

is one of Federal pr ioritie s. As you know, the Pre sident has requested re sc is ­

sion on these program ar ea s, but we think that the economic situation may have

changed enough to warrant reconsideration. We are willing to undertake that

reconsideration.

Again, thank you for an excellent presentation. The Department and the

For es t Service join with you in a desire to achieve meaningful progress and

quickly.

Sin cer ely,

Robert W. Long

As sis tan t Secre tar y

cc: Norman Ross

Don Webster

John H ill

Ga ry Seevers

John McGuire

Jack Horton
COPY

A P P E N D IX B 

A p ril 24 , 19 75

S U P P L E M E N T TO D E P A R T M E N T O F A G R IC U L T U R E 

R E P O R T ON S. 36 4

D e p a rtm e n t o f A g r ic u lt u r e P r o p o s e d A m e n d m e n t

On p ag e one of th e b ill s tr ik e a ll a f te r th e e n a c ti n g c la u s e and 

i n s e r t in li e u th e fo ll o w in g :

" T h a t s e c tio n 4 of th e A ct of O c to b e r 13 , 19 64, (7 8 S ta t. 1098;

16 U .S . C . 5 35), is a m e n d ed by ad d in g a t th e end th e r e o f th e fo ll o w in g : 

'P r i o r to c o n tr a c t te r m in a tio n , u n u s e d ro a d c r e d its a c c r u e d u n d e r 

p r o v is io n s f o r a m o r tiz a tio n o f ro a d c o s ts in F o r e s t S e rv ic e tim b e r 

s a le m a y b e t r a n s f e r r e d to m e e t c h a r g e s f o r tim b e r u n d e r c e r t a i n o th e r 

tim b e r s a le c o n tr a c ts w h ic h p ro v id e f o r su c h t r a n s f e r an d a r e h e ld by 

th e s a m e p u r c h a s e r of N a ti o n a l F o r e s t tim b e r and o th e r p ro d u c ts on th e 

sa m e N a ti o n a l F o r e s t , s u b je c t to th e fo ll o w in g r e q u ir e m e n ts : (i) u n u se d 

ro a d c r e d i ts m a y be t r a n s f e r r e d o n ly to o th e r c o n tr a c ts w h ic h c o n ta in 

s ta n d a r d p r o v is io n s fo r th e a p p li c a tio n o f su c h c r e d i ts , (i i) t r a n s f e r r e d 

ro a d c r e d i ts s h a ll be a p p li e d in c o n fo rm a n c e w it h th e s ta n d a r d p r o ­

v is io n s of th e c o n tr a c t to w h ic h su c h c r e d i ts a r e t r a n s f e r r e d , (ii i) n o tw it h sta n d in g a n y o th e r c o n tr a c t p r o v is io n , c a s h p a y m e n t fo r tim b e r c u t 

u n d e r a c o n tr a c t fro m w h ic h ro a d c r e d i ts a r e t r a n s f e r r e d c a n n o t be le s s 

th a n th e su m of (a ) c r e d its t r a n s f e r r e d f r o m th e c o n tr a c t l e s s a n y c r e d its 

t r a n s f e r r e d to th e c o n tr a c t, an d (b) v a lu e of th e to ta l s a le v o lu m e a t

m in im u m r a t e s s ta te d in th e c o n tr a c t.
51

" S e c . 2. T he a m e n d m e n t m a d e by th e f i r s t s e c ti o n of th is A ct s h a ll be

e f fe c ti v e on th e d a te of e n a c tm e n t of th is A c t. A s so o n a s p r a c tic a b le

a f te r e n a c tm e n t, th e S e c r e t a r y sh a ll d e v e lo p su c h p r o v is io n s a s he fin d s

n e c e s s a r y to t r a n s f e r u n u s e d ro a d c r e d i ts a n d s h a ll in c lu d e su c h p r o ­

v is io n s in e a c h F o r e s t S e r v ic e tim b e r s a le c o n tr a c t w h ic h c o n ta in s

s ta n d a r d p r o v is io n s fo r th e a p p li c a tio n o f ro a d c r e d i ts and is a w a rd e d 

t h e r e a f t e r . T he S e c r e t a r y a ls o s h a ll, upo n a p p li c a tio n of p u r c h a s e r s ,

m o d if y su c h c o n tr a c ts to in c lu d e su ch p r o v is io n s a s n e c e s s a r y to p e r ­

m it th e tr a n s f e r of u n u s e d ro a d c r e d its ."

E x p la n a ti o n of th e P r o p o s e d A m e n d m e n t

A V A IL A B IL IT Y F O R T R A N S F E R

S. 36 4 c a n be r e a d to s u g g e s t th a t u n u s e d ro a d c r e d i ts m a y be

a v a ila b le fo r t r a n s f e r in d e fin ite ly . Such an i n te r p r e t a ti o n co u ld le a d to

r e q u e s t s fo r t r a n s f e r of c r e d i t b a la n c e s w h ic h m a y h a v e e x is te d u n d e r

so m e c o n tr a c ts te r m in a te d in th e p a s t.

T he p ro p o s e d a m e n d m e n t e x p r e s s ly r e q u ir e s t r a n s f e r s to be

a c c o m p lis h e d , " p r i o r to c o n tr a c t te r m in a tio n . . . . "

A U TH O R IT Y O F T R A N S F E R C R E D IT

S. 36 4 d ir e c ts th e S e c r e t a r y to in c lu d e in e a c h c o n tr a c t in v o lv in g 

r o a d c o n s tru c tio n a p r o v is io n fo r c r e d it to b e t r a n s f e r r e d . W hile th e

la n g u a g e is c le a r a s to w h a t th e S e c r e ta r y m u s t d o , t h e r e is n o th in g

c o n tr a in e d in th e la n g u a g e w h ic h e x p r e s s ly a u th o r iz e s th e t r a n s f e r of

c r e d i t.
52

The p r o p o s e d a m e n d m e n t e x p r e s s ly p r o v id e s th a t, " u n u s e d c r e d i t . . . 

m a y be t r a n s f e r r e d . . . . "

C O N TR A C TS T O W HIC H A P P L IC A B L E

S. 36 4 w o u ld d ir e c t th e S e c r e ta r y to m o d if y e v e r y tim b e r s a le c o n ­

t r a c t in v o lv in g r o a d c o n s tru c tio n th a t w o u ld be in e ffe c t on th e d a te of 

e n a c tm e n t w it h o u t r e g a r d to su c h c o n s id e r a tio n s a s c o n tr a c t s ta tu s to w a rd 

c o m p le ti o n , w h e th e r an y u n u se d c r e d it i s lik e ly to d e v e lo p , w h e th e r a n y 

c r e d it r e m a in s to be a c c ru e d , w h e th e r th e p u r c h a s e r d e s i r e s c o n tr a c t m o d ­

if ic a tio n , an d w h e th e r th e p u r c h a s e r h a s o th e r c o n tr a c ts to w h ic h c r e d i t 

co u ld be t r a n s f e r r e d . B e c a u se of th is , th e b ill co u ld c r e a te a c o n s id e r a b le 

am o u n t of u n n e c e s s a r y a d m in is tr a tiv e w o r k in m o d if y in g c o n tr a c ts .

T he p r o p o s e d a m e n d m e n t p r o v id e s th a t u n u se d c r e d i t m a y b e t r a n s ­

f e r r e d f o r a p p lic a tio n to c e r ta in c o n tr a c t s , an d th a t th e S e c r e ta r y m a y 

m o d if y su c h c o n tr a c ts to th e e x te n t n e c e s s a r y to im p le m e n t th e t r a n s f e r 

of c r e d it. W h il e th e a m e n d m e n t p r o v id e s th e r e q u is ite a u th o r ity to m e e t 

th e o b je c ti v e o f S. 36 4 to m a k e it p o s s ib le fo r p u r c h a s e r s to t r a n s f e r 

c r e d it, i t d o e s n o t r e q u ir e m a n d a to ry m o d if ic a tio n in s itu a tio n s w h e r e no 

p r o s p e c t of t r a n s f e r s e x is t. You w il l n o te th a t we u r g e th a t m o d if ic a tio n 

n o t be a u th o r iz e d . We h ave s t r u c tu r e d th e p ro p o se d a m e n d m e n t to p e r m it 

d e le ti o n of th is fe a tu r e w it h o u t r e w r itin g o th e r p o r tio n s of th e a m e n d m e n t. 

T h e p r o p o s e d a m e n d m e n t a ls o c o n ta in s a r e q u ir e m e n t (s e c tio n 1 (i) ) 

th a t c r e d it m a y be t r a n s f e r r e d o n ly f o r a p p li c a tio n to a n o th e r c o n tr a c t th a t 

is of a f o r m th a t c o n ta in s s ta n d a r d p r o v is io n s fo r th e a p p li c a tio n of su c h
53

c r e d i t. T h is r e q u ir e m e n t c la r i f i e s th a t t r a n s f e r s w o u ld o n ly be m ad e 

b e tw e e n s im ila r c o n tr a c ts ; i. e . , c o n te m p o ra r y c o n tr a c ts d e sig n e d to 

a c c o m m o d a te th e ro a d c o s t a m o r tiz a tio n p r o c e d u r e s .

T R A N S F E R P R O C E D U R E S

S. 36 4 p ro v id e s f o r th e in c lu s io n in " e a c h F o r e s t S e rv ic e tim b e r 

s a le c o n tr a c t in v o lv in g ro a d c o n s tr u c tio n " a p r o v is io n f o r p u r c h a s e r 

c r e d i t to be t r a n s f e r r e d to o th e r " su c h c o n tr a c t s . " T h e la n g u a g e a p p e a r s 

to p r e c lu d e t r a n s f e r of c r e d i t to m e e t c h a r g e s f o r tim b e r u n d e r c o n tr a c ts 

w h e re th e r o a d s n e e d e d to h a r v e s t tim b e r a lr e a d y e x is t. S. 36 4 a ls o 

p r o v id e s th a t c a s h p a y m e n t f o r tim b e r c u t u n d e r a c o n tr a c t f ro m w h ic h

p u r c h a s e r c r e d its a r e t r a n s f e r r e d can n o t be le s s th a n th e su m of su ch

c r e d i ts t r a n s f e r r e d . T h is p r o v is io n w ould te n d to p r e c lu d e th e e ffe c ti v e 

u se of a n y u n u se d c r e d i t a c c r u e d u n d e r a th ir d c o n tr a c t to r e p le n is h c r e d i t

t r a n s f e r r e d fro m th e in itia l c o n tr a c t.

T h e p ro p o s e d a m e n d m e n t w ould p e r m it c r e d i ts to be t r a n s f e r r e d to 

m e e t c h a r g e s f o r tim b e r u n d e r c o n tr a c ts w h e re th e r o a d s w e re a lr e a d y 

in p la c e , p ro v id e d su c h c o n tr a c ts w e re of a fo rm th a t c o n ta in e d s ta n d a rd

p r o v is io n s fo r th e a p p lic a tio n of c r e d it. S e c ti o n 1 (i ii ) o f th e a m e n d m e n t 

a ls o p r o v id e s th a t t r a n s f e r r e d c r e d i t can be r e p la c e d w ith u n u se d c r e d i t 

f r o m o th e r c o n tr a c ts , in w h ic h c a s e c a s h p a y m e n ts o th e r w is e n e c e s s a r y 

w o u ld be re d u c e d u n d e r so m e c ir c u m s ta n c e s . T he a m e n d m e n t a ls o c o n ­

ta in s a r e q u ir e m e n t ( s e c tio n 1 (i i) ) th a t t r a n s f e r r e d c r e d i t be a p p li e d in 

c o n fo rm a n c e w it h th e s ta n d a r d p r o v is io n s of th e c o n tr a c t to w h ic h su c h
c r e d it is t r a n s f e r r e d . T h is r e q u ir e m e n t c la r if i e s th a t s ta n d a r d F o r e s t 

S e rv ic e c o n tr a c t p r o v is io n s re q u ir in g a c e r t a i n m in im u m le v e l of c a s h 

p a y m e n t fo r tim b e r w o u ld n o t be v o id ed .

E F F E C T IV E D A T E

S. 36 4 w o u ld b e e ffe c ti v e w it h r e s p e c t to c o n tr a c ts in e ffe c t on th e 

d a te of e n a c tm e n t, a n d th e im p li c a ti o n is th a t p u r c h a s e r s co u ld e x p e c t 

to h av e c r e d i ts t r a n s f e r r e d on th a t d a te . T h is co u ld c r e a te a d m in is tr a tiv e 

p r o b le m s of c o n s id e r a b le m a g n it u d e .

T h e p ro p o s e d a m e n d m e n t w ould m a k e th e a u th o r iz a tio n e ffe c ti v e 

w it h e n a c tm e n t, b u t w ould p ro v id e a g r a c e p e rio d fo r th e d e v e lo p m e n t 

of c o n tr a c t p r o v is io n s and im p le m e n ti n g in s tr u c tio n s . T h is d e la y w o u ld 

a ffo rd a n o p p o rtu n it y fo r an o r d e r ly tr a n s it i o n in to th e new s y s te m .

T he p r o p o s a l a m e n d m e n t a ls o c o n ta in s la n g u a g e ( " c o n tr a c ts w h ic h 

p ro v id e fo r s u c h t r a n s f e r . . . " ) to m a k e i t c le a r th a t t r a n s f e r c a n n o t ta k e 

p la c e u n til a n d u n le s s c o n tr a c ts c o n ta in a u th o riz in g la n g u a g e .
55

A P P E N D I X C

B-17 58AO

C O M P T R O L L E R G E N E R A L O F T H E U N IT E D S T A T E S

W A S H IN G T O N . O.C . I S M

June 16, 1972

Dea r Mr. Secretary:

Reference is ma de to a l ette r dated April 28, 1972, from the Assistant Secretary r eque sting our decision on a proposal b y industry to 

change the road amortiz atio n provisions in standard Forest Service 

timber sale contracts so as to permit transfer of ea rned purchaser 

credit betwee n contracts.

It is reported that "earne d purchaser credit" is part of a system 

employe d to amortize road constru ctio n costs incurred in cons truc ting specified roads to remove timber from a particul ar sale area. Under 

the system, timber is apprais ed and offered for sale as if the nece ssary roads had al ready been constructed. As road constru ctio n proceeds, 

the timbe r pur chaser is cr edi ted for the e stim ated cost of such wor k up 

to the maximum amount stated in the contract and the earned credits 

applied against the charges, in excess of base rates, for the timber.

Sinc e road construction mu st prece de timber removal, and the rate of 

removal ma y not be suffi cien t to amortize the costs, ther e m ay be a 

bal ance o f earned but u nused purch aser credit eq uiva lent to about one 

ye ar ’s road construction cost at any giv en time. Industr y proposes 

that it be allowed to app ly this balance toward stumpage charges on 

oth er sales and there by reduce cash outlays. It is argued that this 

wou ld be in the public inte rest as it would result in a more effective use of capital and bet ter and more orderly road construc tion and 

tim ber harvestin g on Na tional Forest lands.

It is the Depa rtment's pos ition that any such benefi ts as may ac ­

crue would not be suff icient to offset the disadvantag es, which include 

a t emporar y reduction in stump age receipts. It is poi nted out that while 

it mi ght be argued that any reduction in cash payments on one sale would 

be offset by highe r payments on other sales, there are situations where 

this w oul d not be true. So-c alled deficit sales are cited in illustration. 

These are sales in which the diffe renc e between value at base rates, 

which must be paid in cash, and b id rates is less than the estimated road 

cost. Transfer of ear ned pur chaser credit from such sales would result 

in reduced total stumpage charges. Another example cited involves sales 

fro m whic h the timber is not removed as a result of damage after con stru ction of the road.
56

Furthermore, it is the D epartm ent ’s vie w that indus try ’s proposal 

would be contrary to the long-established principle that a tract of 

timber ma y not b e charged with costs for wor k which is not neces sary 

to the har vesting of that timber. Cited in this connection are two 

decisi ons of our Office, B-65972, May 19, 19^7* and B-130831, February 7, 1958. Als o cited as an example of this principle is the 

foll owin g quotatio n f rom a portio n of the legislative history of the 

Easem ent Ac t, Public Law 88-657:

"The amendment to section 4 adopted by the Senate 

and include d in the reported bill makes it clear that 

purc hase rs of national forest t imber and other forest 

product s wi ll not b e'req uired to pa y out of their own 

funds more tha n the cost of the stan dard of road needed 

in the harv esting and removal of the timber and other 

product s covered by the particular sale."

The que stion involved in the cited cases was w hether your Department had a uthori ty to provi de for the construct ion of perma nent type 

roads beyo nd those reasonably requi red by timber purchasers to remove 

timber t hrough a reduction in the apprais ed value of the g iven tract 

of timber. We pointe d out that the only statutory authority, 16 U.S.C. 

476, to sell National Forest timber pro vide s that the Secretar y of 

Agricul ture "* * * may sell the same for not less than the appr aise d 

value * * *." in construing the provisio ns of this statute we conclude d 

that w hile there was nothing conta ined therein which expre ssly perm its 

the use o f p roceeds fr om such sales for road construction, the Secre ­

tary properly recognized that t imber purchasers must have access roads 

and m ay prop erly allow the cost of constru ctin g roads against the ap ­

praised val ue of the timber p urchased. However, we concluded th at to 

provide for constr ucti on of roads of a higher standard th an necessar y 

for timber remo val through a reduc tion o*1 the appraised value would r educe the pr ice of the timber sold acco rdingly and woul d result in the 

exchange of timbe r for road cons truc tion witho ut statutory authori ty 

therefor. It is our view that appl ication of purchaser credit to other 

than the trac t of timber un der w hic h it was earned would likewise be 

the exchange of timber for-r oad cons truc tion and with out stat utor y 

authority.

Accordin gly, we are constra ined to object to the transfer of earned 

purchas er credit between contracts.

Sincerely yours,

Deputy Comptrol ler G eneral 

of the United States

The Honora ble

The Secreta ry of Agriculture
57

DEPARTMENT OF AGRICULTURE

O F F IC E O F T H E S E C R E T A R Y

WASHINGTON. 0. C. 2 02 5 0

Ap ril 28. 1972.

Hon orab le Elmer B. S ta a ts

C om ptr ol le r Gen eral o f th e U ni te d S ta te s

G en er al Ac co un tin g O ff ic e

441 G S tr e e t, N. W.

W ashing ton, D. C. 20548 

Dear Mr. St & ats:

Your d ecis io n is re quest ed on a pro posa l by in d u str y to cha nge th e 

ro ad am o rt iz ati o n p ro v is io n s in st andard F o re st Serv ic e tim be r sa le 

c o n tr a c ts . R ep re se n ta ti v es o f tim be r purc hase rs have aske d th a t 

fu tu re c o n tr a c ts be w rit te n *so as to pe rm it tr a n s fe r o f ea rn ed 

p u rc h aser c re d it betwe en c o n tr a c ts .

P urc has er c re d it is c r e d it ea rn ed by a purc hase r in co n str u c ti n g 

sp e c if ie d ro ad s to remove tim ber from a sa le a re a . I t is p a rt o f a 

sy st em fo r am ort iz in g s p e c if ie d road co n str u c ti o n c o s ts , which was 

in co rp o ra te d in th e 2400-5 c o n tr a c t form pla ce d in us e in Ju ly 1965 , 

and co ntinued in th e re ce ntly-i m ple m en te d 2400- 6 for m.

Under th is syste m tim be r is appra is ed and o ff e re d fo r s a le as i f the 

ro ad s are in p la c e . As ro ad c o n str u cti o n pro ceeds, th e purc hase r is 

c re d it e d fo r the est im ate d c o st o f th e work up to th e maximum amount 

s ta te d in th e c o n tr a c t. Ea rned purc has er c r e d it may th en be used to 

s a tis f y charg es, in ex ce ss o f ba se r a t e s ,.f o r tim be r rem ove d. Th is 

sy stem per m its co st am o rt iz ati o n to keep pa ce w ith c o n str u c ti o n , pro ­

vid ed tim be r is removed f a s t enough.

However, be ca us e ro ad c o n str u c ti o n must pr ec ed e tim be r remov al, th ere 

is a p r a c tic a l li m it to th e sp ee d with which ea rn ed c r e d it may be us ed .

At ar.y one tim e most p u rc h asers w il l have a bal an ce o f ea rn ed but unu sed 

p u rc h ase r c re d it eq u iv ale n t to ab ou t one y e a r's road co n str u c ti o n c o st.

I f th is ba la nc e co uld be a p p li ed tow ard stumpage pay ments on o th er s a le s , 

p urc hase rs co uld redu ce th e ir ca sh o u tl a y s, every th in g e ls e be ing eq u al.

Pro po ne nt s s ta te th a t th e ch ange would pro du ce p u b li c ad va nt ag es in th e 

form o f more e ffe c ti v e use o f c a p it a l and in b e tte r and more o rd erl y 

road c o n str u c ti o n and tim be r h a rv e sti n g on N ational F o re st la n d s. We 

a re in c li n e d to do ub t th a t s u f f ic ie n t b e n e fit would be re a li z e d to 

o f f s e t the dis advanta ges, wh ich in cl ude a tem po rary re d u cti o n in stum page 

r e c e ip ts .
58

Our view Is Chat Che proposal would be contrary Co Che long -estab lis he d pr in cipl e Chat a tr ac t of timber may not be charged with co st s for work which Is not necessa ry to the harve stin g of that timber. Your de cision s B-65972, May 19, 1947, and B-130831, February 7, 1958, se t forth th is principle . Subseque ntly the Easement Act (PL 88-657 , October 13, 1964) made th is principle a matter of statut or y law. In th is connection the follo wi ng is quoted from the report on S1147 (which became PL 88-657) of Che House Committee on Public Works:

"Th4 Forest Ser vice sought authority by Sectio n 4 of the b ill as in it ia ll y introduced, both in the House and the Senate, to charge again st timber in a pa rticul ar sa le the fu ll co st of a road b u il t to standards which would sa ti sf y an tic ip ated use fo r a ll subsequent timber sa le s and not ju st the in it ia l sa le .

The amendment to se ction 4 adopted by the Senate and included in the reported b ill makes i t clea r tha t purchasers of na tio na l fo re st timber and oth er fo re st products w il l not be requ ired to pay out of th ei r own funds more than the co st of the standard of road needed in the ha rvestin g and removal of the timber and oth er products covered by the pa rticul ar sa le ."

The fa ct tha t an attempt to ob tain broader autho rity was un success ful emphasizes con gre ssional in te nt to tie road constru cti on for an in di ­ vid ual sa le to the needs of th at sa le alo ne. While the language deals sp ecif ic a ll y with standards, i t seems inc oncei vable that i f a purchaser cannot be required under the Act to con struct roads to stand ards high er than needed, he could be required to constru ct en tire roads not needed

on a pa rticul ar sa le .

It may be argued that any redu ction in cash payments on one sa le w il l be o ff se t by high er payments on oth er sa le s. However, i t can be demonstrated that there are si tu ati ons in which per mitting the tra nsfer of cr ed its would reduce the cash re ce ip ts from a timber sa le without adequate compensation in the form of high er re ce ip ts from eth er sa le s. i • .

One such situ at io n would in vo lve so -c al le d d e fic it sa le s. These are sa le s in which the di ffer en ce between value at base ra te s (which must be paid in cash) and valu e at bid (or adjuste d) rates is le ss than the est imate d road co st . ' The d e fic it con dition may exis t at the time of off eri n g, in which caise i t is known to prosp ect ive pur chasers, or may be the re su lt of downward es ca la ti on. At an” ra te , tran sfe r of earned cr ed it s from such sa le s would have the eff ect of reducing to ta l stumpage

payments.
59

Another sit u a ti o n would in vo lv e sa le s from which the timb er w il l no t

or cann ot be removed sub sequen t to co ns tr uct io n o f the road. This

may re su lt from ca ta st ro p h ic damage to the timber rend ering the road

unneeded. In th is s it u a ti o n there may be no ad dit io n al timber to

ha rv es t dur ing the l i f e o f the road in which ca se the re would be no

way to rec ove r the c o s ts .

Under the circums tan ces de sc ribe d above the e f fe c t o f the pro posal

would be to requ ire the timb er (purchase r) to bea r the co st o f road

co ns tr uct io n no t ne ce ss ar y fo r it s rem ova l.

May we have *you r d ecis io n as to whether pu rch ase r cr e d it may be tr an sfe rr ed from a sa le served by the roads co ns tr uc te d to a sa le not ser ved

by those roads?

S in ce re ly ,

T. K. Oowden

A ss ista nt Secreta ry
TRENDS IN NATIONAL FOREST

ROAD AND TRAIL FUNDING

1967 to 1976

millions

of dollars

240

220

200

180

160

140

120

100

1967 1968 1969 1970 1971 1972

10 Pe r Cent and Other Funds

1973 1974 1975

Pur chaser

credits

Purchaser

road engineering

and supplements

Forest Service

construction

1U76

Total direct government

financing available for

obligation

durce: U.S. Forest Service

Highway Act Authorizations

Fr om : "F inancin g Na tio nal F orest Roads: Backg rou nd Inf orma tion _ . _ ti 1 Q 7 C W o n n o t h C.

Tollena ar
61

APPEN D IX E

TI M BE R SA LE CO NT RA CT DEFI NIT IO NS

(N ota ti on s in P a r e n th ese s R e fe r to

S p e c if ic C ontr act P r o v is io n s )

ADVERTIS ED RATE S (A5)

A d v e r ti sed R ate s a r e th o se in d ic ate d by th e a p p r a is a l in w hic h no c o st a llo w a n ce has bee n m ade fo r th e c o n str u cti o n of S p ec if ie d R o a d s. A d v erti sed R ate s

a r e n ev er le s s than B a se R a te s , an d in cl ude paym en t of d e p o s it s fo r "S ale A rea

b e tte r m e n t" --r e fo r e s ta tio n , th in nin g and b ru sh c o n tr o l.

BASE RATE S (A5 )

The lo w e st ra te s of p aym en t fo r ti m b er a u th o riz ed by th e c o n tr a ct. B ase

R a te s r em ain con st an t th ro u ghout th e li fe of th e co n tr a c t.

BASE RATE VALU E (B 4. 21 )

B a se R ate s m u lt ip li ed b y th e e sti m a te d volu m e o f ti m b er rem ain in g.

BID PR EM IU M RATES (A 5)

. The am ou nt P u r c h a se r b id s in e x c e s s of A d v e r ti se d R a te s . Bid P rem iu m

R a te s rem a in con st an t duri ng th e li fe of th e c o n tr a ct.

BI D RATES (A5 )

T he ra te s bid by th e P u r c h a s e r . Thi s wou ld be th e su m o f A d verti sed R ate s

an d B id P rem iu m R a te s. B id R ate s m ay be e it h er F la t R a te s, or T en ta ti ve R ate s

w h ic h a r e su b je ct to e sc a la tio n . F o r pu rp ose s o f co n v e n ie n c e in c o ll e c tio n and

b ook k eep in g. B id R ate s in clu d e paym en t of d e p o sit s fo r "S al e A r ea b ett erm en t. "

CON VE RS IO N RETURN (B 8. 221)

The d if fe re n c e b etw een th e e sti m a te d en d produ ct valu e an d th e to ta l o p e r a tin g c o sts (w hi ch ih clu de ro ad an d oth er d evelo p m en t fa c ilit ie s c o s t s ).

C U R R EN T CO NTR ACT R A TE S (B 3, 1)

E it h er F la t R ate s o r T en ta ti v e R ate s adju st ed by th e e s c a la tio n p ro c ed u r es.

T h u s, C urren t C ontr act R ate s a r e th e rate s pa id fo r ti m b er at an y p arti cu la r ti m e.

53-953 0 - 75 - 5
62

C U R R E N T C O N T R A C T VA LU E (B 3. 1)

C u r r e n t C o n tra c t R a te s m u ltip li e d by th e re m a in in g u n s e a le d tim b e r v o lu m e.

D E F IC IT S A L E

S a le in w h ic h th e v a lu e of th e tim b e r is n o t s u ffic ie n t to o ffs e t c o s ts (i n c lu d ­

in g lo g g in g , o p e r a tin g , ro a d a n d o th e r d e v e lo p m e n t c o s ts , a n d an a ll o w a n c e fo r 

p r o fit a n d r is k ) . T e c h n ic a lly , th e s e a r e s a le s in w h ic h th e C o n v e rs io n R e tu rn r e ­

d u ced by a n a llo w a n c e f o r p r o fit an d r i s k is a n e g a ti v e v a lu e .

E F F E C T IV E PU R C H A SE R C R ED IT (B 4. 21 )

T h a t p o r tio n of P u r c h a s e r C r e d it w h ic h w il l be a v a ila b le to p a y f o r th e v alu e 

of tim b e r a b o v e B a s e R a te s . T e c h n ic a lly , it is u n u s e d P u r c h a s e r C r e d it w hic h 

d o es n o t e x c e e d C u r r e n t C o n tr a c t V alu e m in u s B a se R a te V alu e. U n u se d P u r c h a s e r 

C r e d it is P u r c h a s e r C re d it e a r n e d to d a te w h ic h is in e x c e s s of th e d iffe re n c e b e ­

tw e e n C o n tr a c t V alu e of tim b e r s c a le d to d a te an d its B a se R a te V a lu e .

E S C A L A T IO N

A p r o c e s s in w h ic h B id R a te s a r e a d ju s te d q u a r te r ly a c c o rd in g to c h a n g e s in 

an in d e x o f e n d p ro d u c t p r i c e s . T e n ta tiv e R a te s a r e s u b je c t to e s c a la tio n , w h e re a s 

F l a t R a te s a r e n o t.

PU R C H A SE R

T h e p r iv a te p a r ty who e x e c u te s th e tim b e r s a le c o n tr a c t.

P U R C H A S E R C R E D IT (B 4. 21 )

C r e d it e a r n e d by P u r c h a s e r u p o n c o n s tru c tio n of S p e c if ie d R o a d s .

P U R C H A S E R C R E D IT LIM IT (B 4. 21 )

T h e m a x im u m am o u n t of P u r c h a s e r C re d it a ll o w e d . It m u s t n e v e r e x c e e d th e 

to ta l of th e e s tim a te d c o s t of p r o je c t s e g m e n ts . E a c h p r o je c t s e g m e n t h a s its s e p a ­

r a t e P u r c h a s e r C re d it L im it .

't f l . * •
REQ UIR ED DEP OSI TS (A5)

D ep o s it s w hic h P u r c h a se r m a y be req u ir ed by la w to pay fo r s la s h d is p o sa l

an d ro ad m a in te n a n ce. R eq u ir ed D e p o sit s do not in clu d e p aym ent of d e p o sit s fo r

"Sal e A rea b ett erm en t. "

S P E C IF IE D RO AD S (B 5. 2)

A ll r o a d s, in cl udin g r e la te d tra n sp o rta ti o n f a c ilit ie s , fo r w h ic h P u r c h a se r

is giv en P u r c h a se r C re dit o n ce th ey a r e co n st ru cte d . S p e c if ie d R oad s a r e th o se

w hic h th e F o r e s t S e r v ic e c o n s id e r s n e c e s s a r y fo r fu tu re m a n a g em en t of th e area

T e m p o ra ry R oads a re th o se b u il t by a p u rch a se r to ex p ed it e r e m o v a l of ti m b er.

No P u r c h a s e r C re dit is ea rn ed on th e s e ro ad s.

SU BST A N TIA LL Y C O M PLET ED (B 5. 23 )

R oad s w h ere gra din g h as b een co m p le te d ; e ffe c tiv e ly fu n cti on in g dra in ag e

str u c tu r e s have bee n in sta ll ed ; an d at le a s t h alf , bu t not le s s th an th r e e in ch es,

o f th e s p e c if ie d de pt h of th e b a se c o u r s e , if an y, h as b een la id .

TEM PO RA RY RO AD S (B 5. 1)

R oad s oth er th an S p ecif ie d R oad s w hic h a re c o n str u cte d by P u r c h a se r fo r

th e p u rp o se o f h a r v e st and r e m o v a l o f ti m b e r . No P u r c h a se r C red it is earn ed on

th e s e ro ad s w h ic h a r e n o rm a ll y o b li te r a te d by P u r c h a se r a fte r u s e .

T E N T A T IV E R A T E S (AS)

R a te s th at a r e su b je ct to q u a r te r ly ad ju st m en t by e s c a la tio n . T enta ti ve R ate s

a r e com p u te d b y ad din g to g eth er A d v e r tis e d R ate s and B id P r e m iu m R a te s.

TIM BER SA L E ACC OUN T (B 4. 2)

An a cco u n t of a ll of P u r c h a s e r 's d e p o sit s, c r e d its , p aym ent q u a ra n te e s, and

th e c h a r g e s fo r (1) ti m b er at C u rren t C on tr act R a te s, (2) s la s h d is p o s a l an d to ad

m a in te n a n ce a t R eq u ir ed D ep o sit R a te s , (3) co o p era ti v e w ork at r a te s e sta b li sh e d

by s p e c ific a g r e e m e n t, an d (4) oth er c h a r g e s pro vid ed in th e c o n tr a c t.
64

A P P E N D IX F

C o m m e n ts by N a ti o n a l F o r e s t P ro d u c ts A s s o c ia tio n 

on th e S ta te m e n t C o n ta in e d in th e 

A p ril 15 , 19 75 M em o on S. 36 4 

F r o m R o b e rt B. W olf , C o n g r e s s io n a l R e s e a r c h S e r v ic e 

to th e S e n a te P u b lic W ork s C o m m it te e 

M ay 16 , 19 75

In r e f e r e n c e to tim b e r s a le r o a d s on page 3, it is s ta te d " V ir tu a lly no ro a d s 

a r e b u ilt f o r m u lti-p u r p o s e u s e ; a ll r o a d s a r e fo r tim b e r . " T h is is n o t so . R o ad s 

fin a n c e d b y P u r c h a s e r C r e d it m u s t m e e t m u lt ip le u se o b je c tiv e s , a s w e ll as s e rv e 

tim b e r h a r v e s t p u rp o s e s . S e c ti o n 4 of P . L. 88-6 5 7 s ta te s th a t f o r e s t d e v e lo p m e n t 

ro a d s a r e a u th o r iz e d "in lo c a ti o n s a n d a c c o rd in g to s p e c ific a tio n s w h ic h w il l p e r ­

m it m a x im u m e c o n o m y in h a r v e s tin g tim b e r f ro m s u c h la n d s t r ib u t a r y to su c h 

r o a d s an d a t th e sa m e ti m e m e e t th e r e q u ire m e n ts fo r p r o te c tio n , d e v e lo p m e n t, 

a n d m a n a g e m e n t th e re o f, an d fo r u tiliz a tio n of th e o th e r r e s o u r c e s th e re o f. F i ­

n a n c in g of s u c h ro a d s m a y b e a c c o m p lis h e d (1) by th e S e c r e ta r y u tiliz in g a p p r o ­

p r ia te d fu n d s , (2) by r e q u ire m e n ts o n p u r c h a s e r s of n a ti o n a l f o r e s t tim b e r and 

o th e r p r o d u c ts , in clu d in g p r o v is io n s fo r a m o r tiz a tio n of ro a d c o s ts in c o n tr a c ts , 

(3) b y c o o p e r a tiv e fi n a n c in g w it h o th e r p u b li c a g e n c ie s an d w it h p r iv a te a g e n c ie s 

o r p e r s o n s , o r (4) b y a c o m b in a ti o n of th e s e m e th o d s . "

O n p a g e 8, th e r e is a ty p o g r a p h ic a l e r r o r on th e f i r s t lin e of th e la s t p a r a ­

g ra p h . C h a n g e 10, 00 0 m illio n b o a r d f e e t to 10 m illio n b o a r d f e e t. S im ila rly , 

on p a g e 10 , th ird li n e , 1, 20 0 M B F sh o u ld be 12 M B F .

T h e fo u r e x a m p le s of ty p ic a l s a le s itu a tio n s d is c u s s e d on p a g e s 8 -1 0 a p p e a r 

g e n e r a lly to b e te c h n ic a lly c o r r e c t . H o w ev er, th e d e ta ils d e s c r ib e d b y th is d i s ­

c u s s io n a r e ir r e le v a n t to th e s u b je c t a d d r e s s e d by S. 36 4 w h ic h is m o r e e q u it a b le 

an d e ffe c tiv e u se of a p u r c h a s e r 's c a p ita l r e s o u r c e s .

O n p a g e 11, it is s ta te d th a t th e e ffe c t of S. 36 4 w ould b e " to p ro v id e an in ­

t e r e s t f r e e lo a n th a t c an be u s e d u p u n til tim b e r is c u t u n d e r th e c o n tr a c t. . .O n 

tim b e r p u r c h a s e r r o a d s , th e p r o m is e to w o rk w ould b e s u f f ic ie n t to v e s t th e 

'c r e d i t ' w it h th e c h a r a c t e r i s t i c s o f a lo a n . " T h is is a b s o lu te ly w ro n g . U nder 

S. 364, o n ly P u r c h a s e r C r e d it w h ic h h a s b e e n e a r n e d co u ld b e t r a n s f e r r e d . T h is 

is c r e d it e a r n e d by th e p u r c h a s e r f o r w o rk w h ic h h a s a c tu a lly b e e n a c c o m p li s h e d 

an d a c c e p te d by th e F o r e s t S e r v ic e . Up u n ti l no w , it is th e F e d e r a l G o v e rn m e n t 

th a t h a s b e e n g ett in g th e " f re e lo a n . " P u r c h a s e r s h a v e b e e n u n a b le to re c o u p 

m illio n s of d o lla r s sp e n t on r o a d c o n s tru c tio n u n ti l th e y a c tu a lly b e g in to h a r v e s t 

tim b e r f r o m th e s p e c ific s a le s on w h ic h it h a s b e e n e a r n e d .
65

In th e l a s t p a r a g r a p h on p a g e 11 , it is s ta te d " A ls o , th e 'u n u s e d ' p o rtio n of 

a c r e d it, c r e a te d by th e ty p e of s itu a tio n in a d e fic it w o rth s a le c o n tr o lle d b y b a s e 

s tu m p a g e r a t e r e q u ir e m e n ts , co u ld p e r m it th e p u r c h a s e r to r e c e iv e fu ll e s tim a te d 

a llo w a n c e . " T h is s e e m s to im p ly th a t S. 36 4 w ould a ll o w t r a n s f e r of in e ffe c ti v e 

p u r c h a s e r c r e d it a r is in g in d e f ic it s a l e s . ’ D e fic it s a le s a r e th o s e in w h ic h th e v a lu e of th e tim b e r is not s u ffic ie n t to s u p p o rt th e c o s t of ro a d c o n s tru c tio n an d o th e r 

r e q u ir e m e n ts n e c e s s a r y to h a r v e s t th e tim b e r. T h e re is no in te n tio n th a t S. 36 4 

a p p ly to th e s e s itu a tio n s .

O n p a g e 12 , it is im p lie d th a t th e r e c e n t h is to r y of o v e rb id s in th e D ou g la s - 

f i r re g io n of th e P a c ific N o rth w e s t so m e h o w m a k e s th e is s u e of t r a n s f e r r i n g P u r ­

c h a s e r C r e d it n o t im p o rta n t. In p r e s e n t c ir c u m s ta n c e s , a n in d iv id u a l p u r c h a s e r 

m a y b e r e q u ir e d to in v e s t $25, 00 0 to $1 00 , 00 0 in a r o a d s y s te m on a s in g le tim b e r 

s a le b e f o re r e c e iv in g an y r e t u r n . C o n s id e rin g th e p r e s e n t h ig h c o s t of m o n e y , th e 

e x is ti n g p o lic y h as a s ig n ific a n t a d v e r s e im p a c t on tim b e r p u r c h a s e r s - - m a n y of 

w h o m do n o t h av e la r g e c a p ita l r e s e r v e s .

O n p a g e 14 , th e s p e c te r of p o s s ib le a p p lic a tio n of S. 36 4 to d e f ic it s a le s is 

a g a in r a i s e d . A s p r e v io u s ly d e s c r ib e d , S. 36 4 d o e s n o t a p p ly to th e s e s itu a tio n s .

O n p a g e 17 , it is im p lie d th a t u n d e r S. 36 4, th e r e m a y b e a n e e d to d is tin - 

q u is h b e tw e e n rb a d s th a t a r e te m p o r a r y an d ro a d s th a t a r e p e r m a n e n t. T h is is 

n o t n e c e s s a r y . P u r c h a s e r C r e d it c a n o n ly b e e a r n e d f o r c o n s tru c tio n of s p e c if ie d 

r o a d s . T h e s e a r e p e r m a n e n t r o a d s n e e d e d fo r fu tu re m a n a g e m e n t of th e a r e a . 

T e m p o r a r y ro a d s n e e d e d f o r s h o r t - t e r m p u r c h a s e r o p e r a tio n s a r e o b lite ra te d a f ­

t e r u s e . No P u r c h a s e r C r e d it a llo w a n c e is m a d e .

In s e v e r a l p la c e s in th e L ib a r y of C o n g re s s d o c u m e n t, it is im p li e d th a t to 

e n a c t S. 364 w ould im p o s e c o m p lic a te d an d o n e ro u s b o o k k e e p in g p r o c e d u r e s up on 

th e F o r e s t S e rv ic e . U n d o u b te d ly , p r o c e d u r a l p ro b le m s w il l o c c u r , b u t th e re is 

no r e a s o n to b e lie v e th a t o n ce p r o c e d u r e s a r e w o rk e d o u t th e p r o c e s s co u ld not 

b e c o m e q u ite ro u tin e . F o r e s t S e r v ic e tim b e r s a le a c c o u n ti n g p r o c e d u r e s a lr e a d y 

id e n ti fy , f o r e a c h tim b e r s a le , th e a m o u n t of P u r c h a s e r C r e d it w h ic h is e a rn e d 

b u t n o t u s e d . B e c a u se of th is , it w o u ld s e e m to be a r e la tiv e ly s im p le m a tte r to 

d e v e lo p a p r o c e d u r e fo r t r a n s f e r r i n g th is a m o u n t to o th e r tim b e r s a le s u n d e r 

c o n tr a c t tp th e p u r c h a s e r on th e s a m e N a ti o n a l F o r e s t .

In th e l a s t p a r a g r a p h on p a g e 17 , th e is s u e is r a i s e d th a t " u n u s e d " c r e d it 

m ig h t b e c a r r ie d on th e b o o k s f o r lo n g p e rio d s of tim e , p r e s u m a b ly c re a tin g 

s o m e a d m in is tr a tiv e p r o b le m s . T h is w il l li k e ly n o t b e a d iffic u lty s in c e p u r ­

c h a s e r s w ill h av e a g r e a t in c e n tiv e to u s e th e c r e d i t a t th e e a r l i e s t p o s s ib le 

tim e , a n d th u s m a k in g m o r e e f fe c tiv e u s e of th e ir c a p ita l. T h is is th e p r im a r y 

p u r p o s e of S. 36 4. T h e re is little li k li h o o d th a t P u r c h a s e r C r e d it w ould b e c a r ­

r i e d on th e b o oks lo n g e r th a n i t w o u ld ta k e to u tiliz e it on th e s a le in w h ic h it 

w as d e v e lo p e d . T h is is th e s itu a tio n a s it e x is ts to d a y .
66

On page 18 , it is im p li ed th at S. 36 4 w ou ld be b e n e fic ia l on ly to " la rg er and

reg u la r p u r c h a se r s of N ati onal F o r e s t ti m b er in c o n tr a st to s m a lle r p u r c h a se r s. "

T h is is not s o . E ve n s m a ll p u r c h a se r s of N ati onal F o r e s t ti m b er com m o n ly ha ve

s e v e r a l s a le s un der co n tr a ct at th e sa m e ti m e an d, th us, co uld ta ke ad vanta ge of

S .3 6 4 .

On p a g es 20 and 21 , th e d if fic u lt ie s in h eren t in e s ta b li sh m e n t of a du al bi d

s y s te m in w h ic h ro ad c o s ts w ou ld be bid se p a r a te ly fr o m pro duct valu e w ere d is ­

c u s s e d . T h er e is no q u est io n th at su c h a s y s te m wou ld be u n d e sir a b le . H ow ev er ,

th e in fe r e n c e th at S. 36 4 w ou ld be a ste p in the d ir ecti o n of e s ta b li sh in g su ch a s y s ­

te m is not s o . T h er e is no p r o p o sa l to ch an ge th e e x is ti n g p r o c e d u r e s fo r a p p r a is ­

in g and bid din g ti m b er s a le s , in clu d in g a s s o c ia te d ro ad c o s ts .
67

Mr. Richards. Thank you, Carl. Mr. Chairman, this completes 

our prepared statements. We would be pleased to answer any questions 

you might have. We would ask th at, in addition to the panel members, 

we could also call on the staff members present in answering these 

questions.

Senator McClure. We have statements from the Western Forest 

Industries Association and the National Forest Products Association. 

Do you want to give those statements at this time or do you want 

them to be made a p art of the record?

Mr. Richards. No. We will jus t make those a part of the record.

Senator McClure. Those will be made a part of the record immediately following the statements you have just made. (See pp. 

38-66.)

I have jus t a couple of questions. First of all, it has been suggested 

that if the bill is passed, that the earned but unused credits will 

immediately be consumed in wha t would otherwise be cash sales 

and therefore the Treasury receipts would be reduced by the amount 

of the unused credits.

I think at least one of the state men ts indicated that not the entire 

amount of credits would be used. I think Mr. Gaskins, in your prepared statement on behalf of the Western Forest Industries Association, you indicate tha t for several reasons not all of the earned but 

unused credits would be immediately applied to the purchase products 

of timber which otherwise would be paid in cash.

Do you have any hard figures as to the amount of unearned unused, earned but unused credits might be used within this fiscal 

year to pay for timber which otherwise would have generated cash 

flow to the Treasury of the United States?

Mr. Richards. Wayne, do you have that?

Mr. Gaskins. I think Mr. Bendix, Mr. Chairman, had the reference in his statement, also.

Mr. Richards. Carl, do you have figures on that?

Mr. Hakenson. Perhaps Gerhard t could answer that.

Mr. Bendix. The figures we have, of course, are for one individual 

company. But in our own case, which might be typical, we feel tha t 

at one time the maximum of these earned but unused purchase 

credits that would have been transferred would have been approximately 30 percent of the total. Of over $400,000 that we earned 

during the year, a total of approximately $149,000 would be 

transferred.

If I can elaborate further; by this time of year, this amount would 

have been cut down by another 50 percent. So th at as of this moment, 

should this bill become law, we would transfer perhaps $74,000 to 

apply against stumpage payments.

What it would do for us would be to enable us to build roads well 

in advance of logging. It would enable us to put another contractor 

to work if we could solve the cash flow problem that this policy 

creates.

Senator M cClure. So you are indicating for your company it 

might amount to 15 percent?

Mr. Bendix. Correct, sir.

Senator McClure. I think Mr. Hakenson used the figure of 20 

percent.

Mr. Hakenson. Yes, sir.
68

Senator McClure. Would others of you have any reason to agree 

or disagree with those estimates?

Mr. Richards. Senator, our best estimate was 30 to 40 percent. I 

think the most important thing is the flexibility tha t it would give 

us to get through markets such as we have seen during the last 12 

months. A large company, of course, during these periods can fall 

back on private timber tha t is lower priced.

If this bill is passed, it would give us more flexibility to expedite 

completion of forest service contracts. I think tha t is im portant.

Senator Gravel. Using tha t as a conclusion, we could say this 

legislation actually is more advantageous to the smaller loggers than 

it would be the larger ones who have easier access to capital. They 

can go to a bank and borrow it because they are bigger and they have 

a better financial base. When they say tha t at least the Forest testimony is that the reason the bill inures to the benefit of the large guys 

is because many of the small guys don’t have two sales within one 

forest.

If they had some money available now the smaller operators might 

have two sales because they could buy into another sale. T hat probably would be what would happen, would it not?

Mr. Richards. That could be.

Senator Gravel. So we could conclude tha t under some circumstances this plan would create more competition within the industry 

rather than lessen the competition or be an advantage to one group or 

another.

Mr. Richards. Correct.

Senator Gravel. Thank you, Mr. Chairman.

Senator McClure. I suspect th at each of you would really prefer a 

system under which you are paid for your construction on a project 

completion basis, wouldn’t you?

Mr. Richards. We certainly will.

Senator McClure. Tha t would be consistent with the practice 

tha t would occur if the Forest Service were to contract for the construction of the road directly. They would pay as the road was being 

constructed. They would make progress payments, and upon the final 

inspection and completion of the road, they would pay the full amount 

of the contract price. It is only in the vent tha t it is merged into the 

price of the timber under contract for the sale of timber, in which this 

is a requirement of the sale, t ha t they escape having to pay for it as 

the road is built.

I assume that each of you would find it much easier for yourself 

under the circumstances tha t you built the road and they paid you 

for the road as it was built.

This legislation doesn’t seek to go that far. It seeks only to allow 

you to use tha t as against other sales on the same forest.

Senator Gravel. Would the Senator yield?

Senator McClure. Sure.

Senator Gravel. I would like to make tha t point very clear. All 

I saw was some heads nodding. I would like a little bit more affirmation 

on that because I think what may develop is an effort to reinstate 

within the rural highway program the appropriated method of building 

roads. Would tha t be something tha t you, from industry, would feel 

would be beneficial?
69

Mr. Richards. Mr. Hall?

Mr. Hall. The industry has long supported additional appropriations to have forest roads constructed by the Government with 

appropriated funds. The two Public Works Committees have been 

extremely helpful over the years in keeping the authorization level 

for these funds at a high level, much higher than the administration 

has requested, or the Appropriations Committees have allowed.

Appendix D to my filed statement has a chart prepared by 

Mr. Tollenaar, who is a subsequent witness this morning which 

presents in graphic form the authorization level approved by this 

committee and the appropriation level sought by the administration 

and provided by the Appropriations Committees.

In summary to your question, we would suppo rt increased appropriations for forest road construction and would urge your committee 

to take a close look at the design standards and the financing of 

National Forest road construction because we do think it needs your 

attention.

Senator Gravel. Thank you.

Thank you, Senator McClure. I just wanted to make tha t a part 

of the record.

Senator McClure. Maybe the record should also indicate that, as 

I asked the question, there were several heads nodding. It was unanimous a t the table.

Senator Gravel. Is there any objection to that statem ent? Was 

it unanimous?

Mr. Hall. No objection whatsoever.

Senator Gravel. Those little points are very important when we 

get into debate.

Thank you.

Senator McClure. Thank you, Senator.

One statement listed contracts on one forest. What is the general 

pat tern of your operations within a national forest? How many contrac ts will you have pending at one time on the same forest?

Mr. Saiser. Mv company, Fort Vancouver, presently has 14 

timber sales contracts on the Gifford Pinchot National Forest.

Mr. Richards. We would generally have six to seven on one n ational forest.

Mr. Hakenson. The 10 I referred to are on three national forests. 

I am no t sure of the breakdown.

Senator McClure. They range something on the order of 3 to 4 

per national forest to a high range of 14. When we are talking of 

transfers, this is the number of sales upon which transfers might be 

made under this legislation.

Senator Domenici?

Senator Domenici. Might I first ask, Mr. Chairman, in our information for the day we have some background information of financing 

national forest roads for county governments, prepared from a meeting in Albuquerque, N. Mex., March 19 through 21.

Was this going to be made a part of the record? Did I miss tha t at 

some point?

Senator McClure. It has not been made a part of the record b ut 

it will be made a part of the record. (See p. 78.)
70

Senator Domenici. I believe it should. I think the chart is extremely 

relevant with reference to the approved obligation level and the 

authorizations that we in Congress have made, especially in the year 

1974 where there is a disparity of some $45 million between what was 

authorized and what was spent?

Senator McClure. I think that is the same chart that appears in 

the national forest products.

Mr. Hall. No. He is referring to the document which will be submitted, I understand, by Mr. Tollenaar, who is our next witness.

Senator McClure. I think the chart is the same.

Mr. Hall. No. He is referring to the chart on page 4. I had reproduced the ch art on page 10 of Mr. Tollenaar’s document.

Senator Domenici. If Mr. Tollenaar is going to use this, I see no 

reason to necessarily make it a part of the record at this point, just 

so it is made a pa rt of the record before we conclude.

Mr. Hakenson, let me ask you with reference to your statemen t as it 

pertains to your company, it has come to my attention over the last 12 

to 14 months that in the same county tha t you are referring to in New 

Mexico where your company has had to cut back operations, that a 

number of small operators have both cut back and a number have 

closed up completely. I guess you are aware of those?

Mr. Hakenson. Yes; I am.

Senator Domenici. These are all in the same county, a very high 

unemployment area.

I know you don’t purport to speak for all of them, large and small, 

although you have made reference to the fact tha t you have found no 

objections to this bill. But could you elaborate a bit in that area that 

you have referred to, New Mexico and the Winslow office area?

Would this bill inure to the benefit of the so-called small operators 

as well as Duke City?

Mr. Hakenson. I sincerely believe tha t it would. The companies 

that I have personally contacted along these lines have certainly 

given me their assurance tha t they would support the bill. I know 

of no company tha t has any other feeling other than total support.

Senator Domenici. It is true, is it not, tha t along with other problems, t ha t those small operators have run into a cash flow problem and 

cannot arrange long-term financing. Isn’t tha t what you find to be 

their basic problem?

Mr. Hakenson. Yes, sir. I certainly do. The two companies you 

refer to which have closed their operations permanently, I cannot 

speak for them as to the reason for their closing.

They were dependent on national forest timber. For one reason or 

another, they have ceased to operate. I assume t hat financing had a 

great deal to do with that.

Senator Domenici. In your statement you have attempted to analyze the impact on county funds.

Could you explain to us in a little more detail the statement tha t 

based upon the previous year, there would really only be a one-time 

20-percent effect?

I don’t think I quite understand because of the technicalities, what 

you are telling us there.

Mr. Hakenson. Yes, sir. For example, in New Mexico we have the 

Carson, Cibala, Gila, Apache, Lincoln, and Santa Fe Forests.
71

The Forest Service sent a questionnaire to the Santa Fe Forest, 

regarding the use of purchaser credit road moneys. The Santa Fe was 

asked to estimate the amount of purchaser credit unused as of June 

30, 1975.

The Santa Fe Forest responded and Mr. Kulosa, of the Federal 

Timber Purchasers Association, also contacted all of the other forests 

tha t I have mentioned. We found that a total of $712,761 is earned 

purchaser credit, but unused as of June 30, 1975.

I took 25 percent of tha t because the counties would receive 25 

percent of tha t amount. Th at is, roughly, $178,000. The counties in 

New Mexico received $903,000 in 1974. Therefore, the maximum reduction would be approximately 20 percent of the total. This would 

be a one-time effect.

Senator McClure. May I inte rrupt?

Senator Domenici. Surely.

Senator McClure. That is assuming tha t all the unused credits 

were transferred.

Mr. Hakenson. Tha t is true, sir. I mentioned our sales are of short 

duration. These credits would not be held for long periods of time.

As we operate on the few sales we have we will be paying cash for 

stumpage in instances in which credit has been transferred. This 

would occur almost immediately in some cases.

Senator McClure. So th at would be a maximum amount th at could 

possibly be an immediate loss of revenue?

Mr. Hakenson. Yes, sir.

Senator McClure. It would be made up for by increased revenues 

on these other sales as timber was produced on those other sales?

Mr. Hakenson. Yes, sir.

Senator Domenici. A general question to any of the witnesses who 

may want to answer this: I note in reading some of the general background materials that in some instances you build your own roads 

and in some instances you contract out to contractors to build the 

roads.

Could you give us some idea over the last 3 or 4 years as to how this 

particular breakdown of doing it yourself to contracting it out has 

been?

Mr. Richards. In our case, over the last 3 or 4 years 100 percent 

has been subcontracted.

Mr. Saiser. My company has contracted 100 percent also.

Mr. Bendix. Ours does, too. We don’t build any roads ourselves. 

It is all subcontracted.

Mr. McDowell. Even the larger companies th at in the past have 

been in the practice of building timber sale roads themselves have now 

found the roads to be of such magnitude tha t they have had to hire 

contractors who build highways to come in and build roads for them.

We have a timber sale in the Idaho Panhandle National Forest, 

which has an allowance of over $800,000 for purchaser credit. Over 

$80 per thousand for tha t road. Tha t requires a contractor who can 

handle th at kind of work.

Senator Domenici. I may be wrong on this next question, but 

from the material I have been reading, I understand that sometimes 

the Federal Government comes in and builds all or part of the road. 

Is th at true or not?

Mr. R ichards. Mr. Hall?
72

Mr. Hall. Under Public Law 64-657, which this committee was 

instrumental in getting enacted in 1964, the purchaser is required 

only to build to that road standard needed for a prudent operator to 

harvest the timber. That amount of money is deducted from stumpage 

payments in the form of purchaser credit. Public Law 88—657 also 

allows roads to be built by the purchaser if the Federal Government 

supplements the purchaser’s activity in some way.

The Forest Service has elected, rath er than give the purchaser cash, 

to pay for the difference in road standard between what they seek on 

the area and w hat the prudent operator standard of the road would be 

either to perform some of the services or to provide some of the 

materials. This is frequently in the form of culverts and pipes which 

are a major expense item.

These are so-called purchaser road supplements and are shown in 

tha t chart tha t I appended to my statement—from Mr. Tollenaar’s 

report. The amount of purchaser road engineering and supplements 

has increased over the years.

This again is money appropriated, provided in the form of materials 

or services to the purchaser, for a portion of the road representing the 

standard to which he is required to build it higher than tha t necessary 

for the removal of timber alone.

Senator Domenici. But you have no complaint at this point in 

time with reference to how much they are attributing to the statuto ry 

obligation to you and how much they are picking up from whatever 

the outside source?

Mr. Hall. For the purposes of this hearing, we are not addressing 

tha t issue. Th at is one of the several other issues tha t we would encourage the committee to look into at an early date.

Senator Domenici. Thank you, Mr. Chairman.

Senator McClure. The statement is made at one point tha t the 

unused but earned road credits at any given time are about equal to 

one y ear’s average road construction budget. Would you agree with 

tha t estimate?

Mr. Hall. Looking at the chart again, which is about the best data 

we have, the purchaser credit anticipated in 1975 was $200 million— 

excuse me, $190 million. With the Forest Service appropriated construction running about $25 million.

Senator McClure. I was not referring to the budget of the Forest 

Service. T was talking about the road construction costs th at you have 

on your contracts.

Mr. Hall. That would be the purchaser credit figure of $190 

million.

Senator McClure. Is that about equal to 1 year’s road building 

schedule under a typical operator’s budget?

Mr. Richards. In our experience it is less than one year’s.

Senator McClure. Less than 1 year?

Mr. Richards. Less than 1 year.

Senator McClure. Would any of the rest of you care to comment 

on that?

Mr. McDowell. The fact tha t it is escalating so rapidly really 

makes it very difficult to get any kind of a handle on whether it is 1 

year.
73

I would say give or take, it is fairly close to that, to 1 year, and it 

may be a shorter period, say 9 months, depending upon the operating 

season where the operator works.

Senator McClure. I have no further questions.

Mr. Gaskins?

Mr. Gaskins. Mr. Chairman, first I would like to address a question tha t Senator Domenici directed to our friends from New Mexico. 

I am with a timber trade association representing small operators in 

your State.

I want to assure you that those small operators tha t are still in 

existence would certainly welcome the opportunity to improve their 

cash flow, and get their money free of the roads that they currently 

have built, from which they cannot now recover their capital.

The other thing, Mr. Chairman, tha t bothered me significantly 

this morning was the Forest Service’s response tha t they had not had 

time to adequately develop the data tha t you and Senator Hart and 

Senator Gravel have asked for. This is hard to understand since we 

have seen this type of proposal introduced since July of 1972.

I don’t quite understand why they did not have more time to prepare. The other question that you asked was whether the amount of 

dollars represented in this $180 million would represent 1 year. I think 

tha t at the rate of current road construction it represents something 

less than a year.

In response to your other question regarding how much purchaser 

credit might be transferred, the Duke City testimony is very good in 

tha t the company operates on three or four national forests with just 

two or three sales on a national forest.

A great deal of purchaser credit would not be transferred. Even 

though a large amount m ight be transferable, much of it would not be 

transferred.

Our association is concerned with two other points. One is the opportunity to recover some money now to sta rt roadbuilding and reduce 

the current unemployment that we are now experiencing. We would 

like to get the roads in place for the next improvement in the lumber 

market so tha t when we do have an improvement we will have the 

roads in place and be ready to respond to the national need.

Senator McClure. I think tha t is important because, as we all 

know, the number of housing starts has dropped dramatically in the 

last 18 months to 2 years. We hope that it will increase as dramatically.

Our national housing goal was 2.5 million housing starts per year. 

We never quite attained that. But we are less than half tha t at the 

present time.

If we are going to get back up to the 2 million starts per year, almost 

double what we are doing now, it will require some additional operations on the national forests of this country.

1 think it would be a good national policy to have some preliminary 

work done so that we are ready to move in there very quickly because 

otherwise there will be a tremendous shortage of lumber if we get tha t 

rapid increase and tha t will bid the prices up much more rapidly than 

if indeed roads are in place and contracts are ready to be performed 

and there can be an orderly flow of lumber to the market.

I think for a number of reasons, it makes good sense to have an 

orderly program going forward during this period of time while the
74

lumber m arke t is depressed and while the housing market is depressed 

in anticipation of what many people in the industry say will be a 

shortage in not too many months from now.

So I think it makes good sense. But if we expect you people to put 

up the money, then certainly you have got to have a way of getting 

it back or at least a way in which you don’t have to go out and borrow 

it and leave it invested while we wait for tha t market to turn around.

Senator D omenici. Mr. Chairman, that last state ment—it didn’t 

make sense to me then and still is short some facts—nobody testified 

tha t they would be building some roads tha t they aren’t now building 

if this credit situation was allowed. At least I didn’t hear them.

Mr. Gaskins. I think Mr. Saiser indicated tha t they would be.

1 recently called one of our members who has a large Forest Service 

road project.

The contract, it is a new contract, will terminate in 1981. I said, 

“How soon are you going to start building?” He said, “We won’t 

be in there until 1977 or 1978, but if you can get the road credits 

transferred, I have a contractor ready to go right now.”

Senator Domenici. So what you are saying is tha t because of this 

exceptional advance of outlays of capital tha t you can’t get back tha t 

you are deferring the building of roads to the last possible time under 

the contract rather than expediting the construction. Is that correct?

Mr. Gaskins. Yes, sir. This is particularly true of our membership 

which is comprised of small, independent manufacturers. We just 

don’t have extra money th at we can allow to be tied up for a year or

2 or 3.

I have other examples. I just mentioned one. This is a very significant thing for our people. The other point th at I have made in written 

testimony is we would like to put the road in place in advance of 

logging, not only so tha t we can respond to the marketplace but for 

the very good of the land itself. It doesn’t have as much disruption of 

the land. We get the road in place, get it settled before we ever use it.

Senator Domenici. You made tha t point in your testimony.

Mr. Gaskins. Yes, sir.

Mr. Bendix. If I may be permitted to address myself to tha t question, Mr. Chairman. There is another good valid reason. If we can 

contract for the road immediately after having purchased the sale, 

there is a much better opportunity to get the road built for close to 

its estimated cost than if we have to defer it, due to the rapidly 

increasing costs of all goods and services. We have had the experience 

tha t roads that we could have built at the time tha t the contract was 

awarded later cost us as much as 27 percent more than the contract 

cost. The last increase was even greater for the materials which we 

were required to supply.

There is presently no way in which we can finance the construction 

of the road immediately. If this bill wrere passed there would be a 

vehicle that would permit us to build roads much more promptly.

Senator McClure. I want to thank you all for your testimony. 

I think your composite testimony makes the case very well. I will see 

that OMB gets a full transcript.

Thank you very much.

The next witnesses are a panel from the National Association of 

Counties, Mr. Jim Evans, and Ken Tollenaar, and Ray Doerner. 

Would you come forward, please?
75

I would state tha t Senator Packwood had intended to be here. He 

was unable to be here at this precise time. He has a prepared stateme nt 

in support of the legislation which will appear immediately following 

the statement of Senator Ted Stevens, which was included in the 

hearing this morning.

Gentlemen, if you will introduce yourselves, you may proceed as 

you wish.

NATIONAL ASSOCIATION OF COUNTIES PANEL

STATEMENT OF RAY DOERNER, COUNTY COMMISSIONER, DOUGLAS

COUNTY, OREG., ACCOMPANIED BY KENNETH TOLLENAAR, DIRECTOR, GOVERNMENTAL RESEARCH, UNIVERSITY OF OREGON;

JIM EVANS, LEGISLATIVE REPRESEN TATIVE, NATIONAL ASSOCIATION OF COUNTIES, WASHINGTON, D.C.

Mr. Doerner. I will introduce myself and the other members of 

our panel. My name is Kay Doerner, county commissioner, from 

Douglas County, Oreg.; Jim Evans, staff member from the National 

Association of Counties, and deals in the field of public land matters; 

on my immediate right is Kenneth Tollenaar, previously referred to 

here. He is the director, Bureau of Governmental Research, University 

of Oregon, and has done extensive research for the counties and many 

of these kinds of matters.

Before I start, Mr. Chairman, I would like to state that certainly 

I appreciate the committee’s concern over an issue of this kind that is 

extremely important in many of the heavily forested counties such 

as mine, and since I have been here this morning, 1 particularly 

appreciate the committee’s deep concern for the counties’ involvement 

in the fallout that may affect the counties if such legislation is passed.

We appreciate their concern greatly.

I am also presently chairman of the Public Lands Subcommittee 

of the National Association of Counties. Even though NACO has 

not had the opportunity to establish a legislative position on SB 364— 

this has come about because i t was rather late, rather recently that 

this matter has come to our attention—I am confident tha t what I 

have to say in behalf of Douglas County, Oreg., would also be the 

position of most of the forest counties that belong to the National 

Association of Counties.

My home county, Douglas County, Oreg., contains slightly more 

than 3 million acres—nearly 80 percent is prime timberland and over 

half of that is in Federal ownership.

As a member of the governing body of such a county. I along with 

my fellow commissioners, are cognizant of and constantly concerned 

with the state of the wood products industry. We know, as county 

officials, tha t the National Forests mean much more to us than just 

the 25 percent cash payments from timber sales.

The economic well-being of the timber industry is vital to our 

communities’ economic and social stability. Our official policy has 

always been to assist and encourage all segments of the productionharvest chain to the end tha t there will be the maximum of flexibility 

and a minimum of constraint, consistent, of course, with sound 

policies to protect both the county treasuries and the Federal 

Government.
76

We believe tha t the provisions of S. 364, if enacted, will relieve 

certain unnecessary financial burdens presently encountered by many 

timber purchasers. We believe tha t the relief of those burdens will, 

in the long run, benefit the counties’ 25 percent fund, the Federal 

Treasury, and particularly the sound management of the timber 

resource. The opportunity of purchaser credit transfers will free up some 

much-needed credit to effectively operate on other timber sales within 

each forest. We know of instances where purchasers are actually delaying the 

construction of the necessary roads until the last minute before harvest 

to avoid the tieup of their dollars. This condition causes unnecessary 

fluctuation in local employment conditions.

It is our understanding tha t S. 364 is so written tha t there is no 

possibility of actual loss of revenue to the counties. At least we tru st 

tha t is so. However, we are aware and concerned that a portion of the 25 

percent funds due the counties may be temporarily delayed. The full 

scope of this delay is not clear to us at this time. We believe tha t the 

added flexibility afforded to the purchasers will result in higher bids 

and more efficient operations—both to the credit of the counties and 

the Nation and will probably more than offset the inconvenience of 

the temporary delay in payment of the 25 percent funds to the 

counties. Considering some of the testimony here today, we too would certainly appreciate some good hard facts and the true impact of this 

before we would make tha t stateme nt as firm as I have previously 

indicated. 1 strongly suggest, however t hat the passage of S. 364, desirable as 

it may be, should not be considered as the ultimate solution to the 

road construction problem. The problem has been greatly magnified 

in recent years by the Forest Service’s increasing dependency upon the 

timber purchaser for the construction of its roads rather than by 

direct government financing. Recent studies by the NACO and others indicate tha t over the past 

few years there has been a rapid increase in the use of the purchaser 

credit method of road construction and a corresponding decrease in 

the use of appropriated funds. Such a change may have some very 

attractive short-term benefits to the cash-flow problems of our 

Nation’s treasury, but it may also be a poor way to manage a resource.

Preroading the forest (1) insures more competitive bidding, (2) 

leaves roadbuilding to roadbuilders, and (3) provides the counties 

with the full 25 percent tha t the National Forest Act originally 

intended. This is particularly true where the roads are bu ilt to standards th at accommodate uses other th an timber harvest.) I do no t mean 

to imply tha t all roads should be built by appropriated funds—spur 

roads tha t apply only to the particula r sale involved should obviously 

remain an obligation of the harvester. In summary, I believe tha t the favorable effects of allowing the 

transfer of credits will add stability to the industry and will indirectly 

find their way into the future bidding process, all to the advantage 

of the counties and the Federal Government.

I will ask Jim Evans to comment further.
77

Mr. Evans. Mr. Chairman, I would like to point out tha t in 

addition to Commissioner Doerner’s statement, we have a copy of 

the county platform, our formal position on National Forest road 

construction that we would like to submit for the record.

Senator McClure. It will be made a part of the record.

[The document referred to follows:]

N a tio n a l Asso cia ti on of C o u n t ie s

CO UN TY PL ATF ORM

8.^5 Forest Access and Grazin g Lands Roads.—The federal govern ment should 

increase its partici pation in the construction and maint enance of forest roads 

and roads on grazing lands. Road construc tion, within these areas, by timber 

purchasers should be directed toward only those roads required for flexibility in 

their operations, these forest access roads should be const ructed and maintained 

to the appropriate standard for harvesting timber and for ma ximu m utilization of 

other resources and these forest lands.

Mr. Evans. We also have a background paper, prepared by 

Mr. Tollenaar, tha t has been referenced already. We would like to 

submit tha t for the record.

Senator McClure. It will be made a part of the record.

[The document referred to follows:]

53 -9 53 0 - 7 5 - 6
78

FINANCING NAT ION AL FOREST ROADS: 

BAC KGROUND INFORMATION FOR COUNTY GOVERNMENT PO LICY

(Prepared for di scussion at the National A sso cia ­

tion of Counties' Wes tern Regi on Conference, at 

Albuquerque, New Mexico, Mar ch 19-21, 1975.)

Road Systems S erving the National Forests

Road systems serving the National Forests are of two broad types. First, 

the forest s are served by systems wh ic h are pri marily intended to carry 

traffi c through the forests between point s outside the forest boundaries. 

These systems include the federal aid interstate, primary and secondary 

system, the federal aid Forest Highway System, and miscel lan eou s state 

and coun ty roads not on any federal aid system. Except for the state 

and count y roads, these systems are financed from the federal highway 

trust fund, plus state matching, and thus are p rimarily fund ed by user 

taxes and fees.

The secon d type consists of Forest Develop ment Roads and Trails, which 

federal law d efine s as:

. . . those fo re st roads or tr a il s o f primary importance

fo r the pr ot ec tio n, ad mi nis tra tio n, and u ti li z a ti o n

o f the nat ional fo rests , or where nec essary , fo r the

use and development o f the resour ces upon which communitie s within or adjacent to the national fo res ts are

dependent. (23 US C 101)

Forest Develo pme nt Roads and Trails provide access to Nation al Forest resources, incl uding timber and rec reation areas, and oth erw ise provide for 

protection, util ization and man age men t of forest resources. Draft material being proposed for i nclusion in the Forest Service Manual would 

clas sify Fores t Development Roads as follows:

1. Arteri al Ro ads. Thes e provide service to large land

areas and usually connect with public high ways or other 

arteri al roads to form an integrated network of primary 

trav el routes. The loc ati on and standard are often determin ed by a demand for maximum mo bility and trav el 

eff iciency rather than spe cif ic resour ce manageme nt 

service . They are usu ally developed a nd operated for
79

long term land and resour ce manageme nt purp oses and constant service.

2. Collector R oa ds . The se serve small land area s and are 

usually connected to an arterial or public highw ay and 

collect traffic from service roads or term inal faci lities. The location and standard are influenc ed by both 

long term mul ti- res ource service needs as well as travel 

efficiency. Col lec tor roads may be operated for either 

constant or interm itt ent service, depend ing on land use 

and resou rce managem ent objectives for the a rea served 

by the facility.

3. Service Ro ad s. The se roads connect term inal facilities 

with c ollector or art eri al roads or publ ic highways.

The locat ion and sta nda rd are usually det erm ine d by that 

requi red to serve a specific resour ce act ivi ty rather 

than travel efficie ncy. Service roads may be develop ed 

and operated for either long or short term service.

Figu re 1 illus trates each c las sif ica tio n of Forest Deve lopment Road.

Methods of Financing 

Forest Development Roads and Trails

In the long run, the bu rden of financing the c ons tru cti on and m ain tenance of forest roads and trails is borne by the timber, consumers of 

fores t products, and the genera l taxpayer. In the short run, however, 

fin ancing comes from two main sources: (1) direc t government financing, and (2) indirect fina ncing from the pu rcha sers of Nati onal Forest 

timber w ho are allowe d credits against the price of the timber in return for financing the costs of the roads. The choi ce of financing 

met hods has nume rous conse que nce s w hich are dis cussed in the final sections of this paper.

Dire ct Gov ernment Financing

Most of the direct government fina ncing for Forest Develo pme nt Roads 

and Trails is authorized unde r the biennial Federal Aid Hig hway Act. 

Unli ke mos t of the appropri ati ons authorized unde r the Hig hway Act, the 

Fores t Roa ds and Trails app rop riation comes from the gen eral treasury 

rath er than the highwa y trust fund.

1, U.S , F o re st S erv ic e, D iv is io n o f Engin ee ri ng Ifenagem ent, u n ti tl e d p ap er, n .d .
80

Figu re 1

FUNCTIONAL CLASSIFICATION OF

NATIONAL FOREST ROADS

Fo re st De velop me nt Roads

A r te r ia 1 --------------- -

Co lle ctor —----------- *■"

Se rv ice -----------------

Sou rce: U .S . Fo re st Se rvice Te rm ina l ••• or •
The other major source of direct government funding is the "ten per cent 

fund" established by 16 U.S. Code 501, which requires that 10 per cent 

of the receipts from the National Forests be spent for roads and trails 

within forests located in the states from which such proceeds are derived. 

In addition to funds authorized under the Highway Act and ten per cent 

funds, a relatively small amount of additional direct government financing is derived from miscellaneous sources, including funds contributed 

by users under maintenance agreements, a special allocation of receipts 

from timber sales from certain Oregon and California land grant lands 

within National Forest boundaries, and emergency funds for the repair 

of storm damage.

It should be noted that Forest Service road and trail obligations— the 

amount the Forest Service is actually allowed to spend from government 

funds — has, at least in recent years, been considerably less than the 

sum of the authorization, plus 10 per cent and "other" funds. Amounts 

authorized for the past ten years, along with the approved obligation 

level, are shown in Table 1.

Table 1

GOVERNMENT FINANCING AVAILABLE AND APPROVED OBLIGATION 

LEVELS, NATIONAL FOREST DEVELOPMENT ROADS AND TRAILS 

1967 to 1976

(m ill io ns )

Au tho ri zatio ns l

196? 1968 1969 1970

Highway Act $ 85.0 $170.0 $170 .0 $170.0

Ten Pe r Cent 16.8 17.5 20 .9 31.2

Other is 8 3.8 U .?

TOTALS $103.2 $189.3 $194.7 $213.1

Approved Obliga tion: $118.4 $122.7 $120. 4 $163.8

1971 1972 1973 1974 1975 1976

$170.0 $170 .0 $170.0 $140.0 $140.0 $140.0

28.8 22.7 33 .9 45. 5 47.0 0 0

48 .9

11.3 8. 4 0 0 0

$210.1 $201.1 $203.9 $185.5 $187.0 $188.9

$175.1 $170.8 $160.3 $140.2 $171.1 $158.3*’ *

* Inform ation not av ai la ble . 

** Esti mate.

•** Req uested.

1. Fur th er disc us sio n of ob liga tions is pre sente d below, pp. 5- 7.
82

Financing Pur chaser Construction

A second meth od of financing Forest Dev elopment Roads and Trails, utilized incr easingly in recent years, is to requir e purchasers of Nati onal 

Forest timber to build roads w hich pro vid e access to sale areas. When 

purchasers are requi red to build roads, the Forest Service credits the 

purchaser's account with the es timated cost of the road const ruction.

When this met hod of financing is used, the Forest Service ord ina ril y 

does the pr e-sale engineering and sup ervises the work, whi le the purchaser does the w or k w ith his own crews and equip ment or hires a road 

contractor to do it. The Forest Service may supplement pur cha ser credit 

finan cing w ith dire ct government funds unde r certain circumstances.

Under federal law,l purchasers can be required to par ticipate only to 

the extent that w ould be necessary to provide access to har vest and remove 

the timber from the particular sale. Any additional road width, base, 

safety features, etc., which are requir ed to provide for uses othe r 

than logging mus t be financed from sou rces other than purchaser credits.

Figure 2 shows the division of the app rai sed v alue of stum page among 

various paymen ts and allowances, includ ing the "timber pur chaser credit" 

whi ch is all owed when purchas ers are required to build access roads. As 

Indic ated by this pie chart, allowa nce s are m ade in the a ppraisal not 

only for the estimat ed per-thousand boa rd feet cost of the actu al road 

construction, but also the cost of rig ht of wa y clearing and port ions of 

the ov erhe ad and profit and risk a llo wan ce which are related to the base 

cost of the road construction itself. Dollars actually paid to the government for the timber may there fore reflect only a mi nor p rop ort ion of 

the total stumpa ge valu e— a fact of cons iderable concern to counties 

whi ch receive 25 per cent of the act ual Treasury receipts, not 25 per 

cent of the total stumpage value.

Budgeti ng Proc edures

At the p resent time, development of the total N atio nal Forest Develo pment Road and Trail program for e ach y ear involves both (1) bien nial 

appro val of an authorization level under the Federal Aid Hig hway Act by 

the Senat e and House Public Works Committ ees; and (2) approval of annual 

program leve ls (obligations) by the Hou se and Senate Appropriat ion s Committees. Und er federal law^, Natio nal Forest Development Road and Trail 

author iza tio ns are available for contract durin g the fiscal year preceeding and for two fiscal years suc cee din g the year of aut hor iza tio n as well 

as duri ng the year of authorization. Unobligated authoriza tio ns lapse 

at the end of the second fiscal yea r after the year of authorization, 

and they may be rescinded before that time upon rec ommendation by the 

Preside nt and approval by Congress. The sums appropri ated are the

1. l6 USC 535.

2 . 23 USC 2Q3.
SELECTED COMPONENTS OF APPRAISED VALUE

OF NATIONAL FOREST TIMBER

Sour ce: U.S . Fo rest Se rv ice.
84

dollars need ed to op era te a level of contra ct autho rity p reviously 

determined by the D epartment of Ag ric ult ure and the Office of M ana gem ent 

and Budget, and thus actual appropriations mad e by the Congress for 

Forest Develop ment Roads and Trails serve only the function of provi din g 

cash to pay off con tracts made pursuant to obligati onal authority. The 

purpose of using obligations as contract aut hor ity rather than appropriations is to pr ovid e for the lead time w hi ch must be available for 

engineering prior to construction, as w ell as construction time fram es 

which do not con for m to fiscal years.

To date, the a uthorization -ob lig ati on- app rop ria tio n process has app lied 

only to the governme nt financed portion of the total Forest Dev elopment Road and Trail program. Amounts of road construction to 

be financed through purchaser credits hav e bee n determined by the Forest 

Service and Depart men t of Agriculture wi th the approval of the O ffi ce of 

Management and Budget , and wi thout inv olvement of either functional or 

appropriations commit tee s of the Congress. However, the Forest and 

Range land Renewab le Resources Plan ning Act of 1974^- will require a change 

in this procedure, begi nning w ith the 1976 b udget request. Sect ion 9 of 

this n ew law provides as follows:

Sec. 9. Tra nsportation Sys tem.— The Congress declares

that the inst allation o f a p rope r sys tem of tra nsportation to s ervice the National Forest System, as is pro ­

vid ed f or in Publ ic Law 88-657, the Act o f Oct ober 13,

1964 (16 (JSC 532-538), shall be car rie d fo rwa rd in time

to mee t a nticipated needs on an economical and e nvi ronmental ly sound basis, an d the m et ho d ch osen fo r f ina ncing the constr uct ion an d ma intenan ce of the transportation syste m shou ld be s uch as to enhance local, regional,

an d nati ona l benefits, exce pt that for the financing

of fores t development roads as aut hor ize d by claus e (2)

of sec tio n 4 of the Act of October 13, 1964,^ shall be

deeme d "budget authority" a nd "budget o utla ys ” as those

terms are def ined in s ection 3(a) of the C ongressional

Bud get a nd Impoundment Control Ac t of 1974 a nd shall

be effect ive for any fisc al ye ar on ly in the manner

req uired fo r new spending authority as spec ified by

sectio n 401(a) of that Act. (Emphasis added.)

The underlined langua ge does not proh ibit finan cing of National Forest 

roads through pur cha ser credits. However, it will force a review of 

purchaser road pro gram levels by the A ppr opr iat ion s Committees alo ng with 

their appr oval of the direct government fina nced p rogram level. It will 

also requ ire the depa rtment to justify any failure to use the full amount 

authorized b y the Highway Act while pro posin g the use of purchaser credits 

for Forest Roads cons truction and maintenance.

1. Pu bl ic lew 93-378; 88 S ta t. 476. 2. Clause (2) of se ct io n 4 of the Act of October 13, 1964 re fe rs to roads financ ed th ro u^i pur ­

chase cre d it s.
85

Trends in Road and Trai l Fina ncing

Tab le 2 and Figure 3 reveal some significant trends and shifts in Forest 

Development Road and Trail finan cing over the past decade. Durin g the 

mi d- 19 60 ’s, the Nat ional Ass ociation of Count ies, in coopera tion with 

several other groups, succes sfu lly urged the Publ ic Works Committees of 

the Hous e and Senate to increa se substantially the authoriz ation levels 

for N atio nal Forest Develop men t Roads and Trails. Congress increased 

this auth orization from an annu al level of $30 m illion in 1961 to $85 

mil lion in 1965, and aga in to $170 mill ion in 1968 and for several years 

thereafter. Although the full amount author ize d was neve r obligated, 

the obligation level did ris e substan tially duri ng the late 1960’s 

and earl y 1970 ’s.

For a perio d of two o r thre e years, there was some shifting in the emph asis of the p rogr am from pu rchas er credits to d irect government financing, 

a shif t made possi ble by the increased a uth ori zat ion and o bligation level. 

This shift is reflected in the amounts obliga ted spe cifically for Forest 

Ser vic e road and b ridge constr uct ion wh ich incr eased consider ably in 1970 

and 1971, reachi ng a p eak of $110.5 mil lion in fisc al 1972. Purchaser 

cre dits Increased at about the same rate as Fore st Service construc tion 

dur ing these same years, but not as rapidly as they would have to reach 

the same total program level had the Forest Service not programmed this 

larg e Increase in dir ect govern men t financed road const ruction.

Howev er, the policy of inc rea sin g emphasis on dire ct government finan cing 

change d sudde nly in 1973 and 1974 as the Admi nis tration tried to respond 

to ne w demands not only to incr ease timber produ ction on government lands, 

but also to minim ize cash drains on the federal treasury. Substantial 

incr eases in purchaser credit s were a llowed by administr ati ve action d uring those years, and this req uir ed a drastic shift in the programming of 

gov ernment funds from Fore st Service road con str uction to pre-sale engineeri ng (location, surveys, plan s and supervision) of purchaser road con ­

struction. The Forest Se rv ic e’s justification of its fiscal year 1974 

bud get request stated:

The $44,697,955 program decrease has been made po ss ib le

by sh if ti n g p r io r it ie s to timber ac cess and by assig ning a greater degree o f re sp onsi bilit y fo r th is acc ess

to the timber purc hase r. ... The s h if t in the proposed

fi s c a l year 1974 fo r e st road and tr a il program from

dir ec t co ns truc tio n to support a c tiv it ie s fo r timber

purchaser road co ns truc tio n is a resu lt o f inc reased

timber needs, and the need to reduce Federal ou tla ys .

The relative emphasis on purch ase r credits and de-empha,sis on direct government financing has continu ed to the pr esent time.

Dep artm ent of. In te r io r and B el at ed Agencies

Ccn gr es s, f i r s t sessio n )
86

Table 2

ANNUAL OBLIGATIONS BY PROGRAM AND TOTAL AMOUNT OF PURCHASER 

CREDITS, NATIONAL FOREST ROADS AND TRAILS 

1967 to 1976

(m il li o n s)

1967 1966 1969 1970 1971 1972 1973 1974 1925. 1926

D ir ect Gov. Fi na nc in g

Hoed C on st ru ct io n 

Brid ge C onst ru ct io n

S u b to ta l, Fore st 

Ser vi ce Con st.

Purc has er Road 

En gi ne er in g

Purc ha se r Road Supple me nts

$ 49.4 $ 63 .2 $ 56 .3 $ 87 .2 $1 06 .4 $110.5 $ 59 .8 $ 8.3 $ 15 .7 $ 6.4 

3.1 7.1 4.1 7.2 — — -- _ 6 * • 

l — 5*5

20 .4

4 ,

S u b to ta l, A pp ro pr ia te d 

Funds sp en t an Cons tr u c t ion by Pu rc ha sM ain tena nc e, T r a il 

C onst ru ct io n and 

M isce lla ne ou s

TOTAL 0BUGATI01B

Purc has er C re dit s

TOTAL ROAD PICGRAM 

LEVEL

52.5 70 .3

20 .0

8.0

24 .9 28 .0

60 .4 94 .4 106.4 110.5 59 .8 13.3 21 .8 11.9

22 .0 22 .2 23 .0 23 .4 39 .6 70 .5 85 .2 93 .4

6.6 — 2*6 _ Z sS — 1Z3 6. 6

26 .7 28 .8 30 .6 31 .2 49 .5 73 .8 94 .1 100.2

33 .3 40.6 36 .1 29 .1 51 .0 53 .1 55.2 46 .2 41 .1 24 .4

$118.4 $122.7 $120.4 $1 63 .8 $175.1 $170.8 $16 0.3 $1 40.2 $1 71 .1 $158 .3*

59 .4 83 .1 78 .7 82.6 102 .2 116.8 146.9 157.4 18 7.4 210.0*

$177.8 $205.8 $199.1 $2 46 .4 $2 77.3 $2 87.6 $3 07.2 $2 97 .6 $ 35 8.5 $36 8.3

E xhib it ! Purc hase r C re dit s 

and A ppro priat ed Funds 

sp en t an Purc hase r Road 

Con st, as p er cen t o f

T ota l Pro gra m 4? .4 * 54.C* 52.95^ 45.2 * 47.9 * 51 .5 * 63 .9 * 77 .7 * 78 .5 * 84 .2*

• In clud ed $1 5. 6 mi H i an in floo d and ea rthq ua ke damage re p a ir and re c o n str u cti o n .

• • Req ue sted .

• • • Est im ate d.
Figure 3

millions

of dollars

TRENDS IN NATIONAL FOREST

ROAD AND TRAIL FUNDING

1967 to 1976

Source: U.S. Forest Se rvice

Highway Act Authorizations

Total direct governmentfinancing available for

obligation
88

County and Public Interests

Impact of Pur chaser Credit s on Cou nty Revenues

Federal law^ provides that 25 per cen t of the money receive d from each 

National Forest is to be paid to the state s wit hin which the Forests are 

located, to b e used for the bene fit of public schools and pub lic roads 

of the coun tie s in whic h the Fore sts are located, in a man ner to be prescribed by eac h state legislature. The states have pro vided a variety 

of distri but ion plans. In some sta tes the payme nts are used main ly for 

schools, while in others they are use d mai nly for roads.

Whet her earmar ked for schools or roads, the ba se against which the 25 per 

cent is com puted is the amount of mone y recei ved by the federal government. 

When this amo unt is reduce d by allowing timber p urchasers credit for 

the cost of roads built and ma intained in conn ection wit h timber sales, 

the counti es' 25 per cent rece ipts are reduc ed commensu rate ly. At present 

pro gram levels , counties and school dist rict s throughout the cou ntry are 

losing app roximately $50 milli on annually by virtue of purchas er credits.

Publi c Interest Consider atio ns

While it is Indisputa ble that fin anc ing throu gh purchas er cre dit s involv es sub stantial revenue losse s for c ounties and school distric ts, 

it may be that from a general pub lic interest standpoint there are some 

offse tti ng advantag es in c ont inu ing to use the p urchase r credit method 

of financing.

One consid era tio n in this respect is that there may be circ umstances 

unde r wh ic h the choice is be twe en purchaser credit roads or no roads at 

all. Thi s can occur wh en short ran ge conce rns about the level of direct 

federal expe nditures super sede lon g range concerns about the quality of 

the Nat ional Forest tra nsportation system, max imizing eco nomy in the use 

of roads, and ot her public inte rest considerations. One gre at virtue of 

purcha ser credit financing, from the standpoint of the Off ice of Man agement and Budget and others con cerned p rimaril y wi th the federal government's fiscal position, is that it reduces direc t federal outlays, even 

thoug h it also reduces the r eve nue s the T reasury would oth erw ise receive 

for the timber. Purch aser credit financi ng is also att rac tiv e in the 

short run bec ause the effec t is immediate; the gove rnme nt avo ids a cash 

out lay for road c onst ruct ion whic h must be subs tantially com pleted 

prior to harvest, whil e the reven ue reductions it suffers occur o ver a 

long er time frame, during the per iod of harvest. Finally, federal 

bud geteers cannot be unaware of the fact that under pur chaser credit 

finan cing , local governme nts are financi ng 25 per cent of the costs of

1 . use 50 0.
89

Che ro a d s, ev en ch ou gh , as noce d be low, dlr ec C go ve rn men t fin a n c in g m ight 

c r e a te c o n d it io n s under whi ch c o m p eti ti o n fo r fe d e r a l ti m b er would in ­

c re a se an d r a is e th e p r ic e en ou gh to o f f s e t th e lo s s o f t h i s In v o lu n ta ry 

lo c a l go ve rnmen t c o n tr ib u tio n .

A noth er ty pe o f c o n s id e ra ti o n fa v o ri n g m ai nte nan ce o f some le v e l of 

p u rc h a se r c r e d it fin a n c in g i s th a t some ty pe o f sp ur ro ad c o n str u c ti o n 

and m ai nte nan ce is o p e r a tio n a lly In se p ara b le fro m th e p u rc h a s e r's 

h a rv e s t o p e ra ti o n s th em selv es. Many p u rc h ase rs b u ild an d m ain ta in th e se 

ro ad s w it h th e same p e rso n n el an d eq uipm en t th ey a lr e a d y ha ve in th e s a le 

a re a fo r t h e i r h a rv e st o p e r a tio n s , and th ey a ls o ne ed to c o n tr o l th e ti m ­

in g an d to some e x te n t th e lo c a tio n o f su ch ro ad wo rk to c o o rd in a te t h e i r 

t o t a l o p e ra ti o n s .

Whil e c o n sid e ra ti o n s of th e fe d e r a l f i s c a l p o s itio n and th e o p e ra ti o n a l 

re q u ir e m e n ts o f tim ber p u rc h a se rs su ggest th a t some le v e l o f pu rc h ase r 

c r e d i t fin a n c in g w ill ha ve to be m ain ta in ed in d e f i n i te ly , th e re are 

s e v e ra l re aso n s to b e li e v e t h a t th e r a tio o f d ir e c t go ve rn men t fin a n c ­

in g to p u rc h aser c r e d it fin a n c in g sh ould be c o n sid e ra b ly h ig h er th an i t 

i s now . Among th e s e a re re a so n s r e la ti n g to ro ad s ta n d a rd s , co m p eti ti o n 

f o r ti m b e r, ro ad lo c a tio n s , an d th e p u b li c i n t e r e s t in e f f e c tiv e Cong re s s io n a l o v e rsig h t o f ag en cy o p e ra ti o n s .

Road S ta ndard s

As In d ic a te d ab ov e, fe d e r a l la w p ro v id es th a t p u rc h a se rs a re n o t r e ­

q u ir e d to b ear th a t p a r t o f th e ro ad c o sts n e ce ssa ry to meet a h ig h er 

sta n d a rd th an th a t ne ed ed in h a rv e s tin g th e p a r ti c u l a r s a le tim ber 

h a r v e s t, ro ads a re g e n e ra ll y s in g le -la n e d w it h te m pora ry d ra in ag e f a c i l i ­

t i e s , su rfa c in g and s t r u c tu r e s . Roa ds o f t h is ty p e wo uld be In adeq uate 

to se rv e th e m u lt ip le u se s to w hi ch our N a ti o n a l F o re sts a re put to day . 

In c lu d in g g e n era l p u b li c r e c r e a tio n use , as w e ll as u ses fo r f o re s t pro ­

te c tio n an d managem ent. S in ce under law th e e x tr a c o st o f m u lt ip le us e 

ro ad s cannot be born e by th e p u rc h a s e r,1 some d i r e c t go ve rn men t fu ndin g 

i s re q u ir e d to a ssu re th a t ti m b e r s a le ro ads (w hi ch w ill in e v ita b ly be 

us ed f o r m u lt ip le purp ose s r e g a rd le s s of t h e i r a c tu a l sta n d a rd o r conditio n ) a re b u i l t to ad eq u ate s ta n d a rd s .

A noth er a sp e c t o f th e te m pora ry v . pe rm an en t m u lt ip le use ro ad is su e is 

th a t lo ng ra nge tr a n s p o r ta tio n ec on om ies o fte n fa v o r c o n s tr u c ti o n of 

h ig h sta n d a rd ro a d s, th e ad de d c o s t o f which i s o f f s e t o v er a lo ng 

p e rio d o f tim e by re duce d p e r-m il e u se r c o s ts . A 1962 st u d y by e n g in e erin g p e rs o n n el o f th e F o re st S e r v ic e 's Re gio n 6 concl uded th a t i f access 

ro ads in Reg ion 6 co uld be b u i l t to pl an ned sta n d a rd s fro m 1962 to 1983,

1 , Jfeny purc has er s a lle g e , ho we ver, th a t th ey are in fa c t re q u ir ed to b u il d ro ad s to h i t l e r 

st an d ard s th an th e minimum n ecess ary fo r th e p a rtic u la r s a le . A lthou^i th e F o re st Ser vi ce 

do es not re q u ir e th e purc hase r to b ear th e co st o f do ub le la n in g or p avin g, d if fe re n ces may 

a r is e ov er ba se re quir em en ts , en vi ro nm en ta l p ro te c ti o i f a c i l i t i e s , e tc .
90

sa v in g s in m ai nte nance and h a u li n g c o s ts alo n e would amount to $3 29 .5 m il lio n , as co mpa red w it h c o n str u c ti o n c o s ts o f $282 m illio n .^

E ffe c t on C om pet it io n

As co mmercial ti m b er a v a ila b le fo r s a le i s foun d to a g re a te r and g r e a te r 

e x te n t in th e mo re re mot e a re a s o f th e N a ti o n a l F o re sts and in more ru gg ed t e r r a i n s , th e r e la tiv e c o st o f ro ad b u il d in g in c re a s e s , and la r g e r 

and la r g e r s a le s must be p u t up to in s u re th a t th e re w ill be s u f f i c ie n t 

re ve nu e to o f f s e t th e c o st of th e ro a d s. W hile t h is i s p ro bably o n ly one 

o f s e v e ra l f a c to r s which has pro du ce d th e obse rv ed d e c li n e in th e num ber 

of sm all m ills an d lo ggin g fir m s, i t may be a s ig n if ic a n t one. Sm all 

o p e ra to rs e x p erie n c e g re a t d i f f i c u l t y in o b ta in in g ev en th e sh o rt ra nge 

c a p ita l n e c e ssa ry to fin an ce la rg e ro ad c o n s tr u c ti o n ex p en d it u re s p r io r 

to th e tim e when th ey begin to r e a liz e a r e tu r n on th e s a le o f t h e i r lo g s 

o r lumbe r p ro d u c ts . T his n o t only f o re c lo s e s o p p o rtu n it ie s fo r sm all 

busi nes sm en , b u t i t may in th e lo ng ru n ha ve an ad v ers e e f f e c t on th e 

p ric e th e go ve rn men t ca n command fo r i t s ti m b e r.

E ffe c t o f Im prov ed Acc es s on Managem ent

So lo ng as ro ad c o n s tr u c ti o n mu st be fin an c ed p rim a ril y th ro ugh p u rc h ase r 

c r e d i ts , i t seem s axio m ati c th a t ro ad s w i l l be lo c a te d in a re a s whe re th e 

mo st pro m is in g o p p o rtu n it ie s e x is t fo r co m m er ci al ti m ber h a rv e s tin g . T his 

v i r tu a l ly p re c lu d e s th e p o s s ib i l it y o f ad va nc e ro adin g — a p o li c y ge ne r a l ly fa v o re d by p ro fe s s io n a l f o r e s t e r s which c a l l s fo r de ve lo pm en t of 

a pe rm an en t ro ad ne tw or k th ro ughout a f o r e s t , desi gned and b u i l t w it h o u t 

th e c o n s tr a in ts o f "p ru dent o p e ra to r" sta n d a rd s but w it h an eye to war d 

f u l l u t i l i z a t i o n o f f o r e s t p o te n tia ls an d maximum lo ng ra nge econom y. 

S ev era l ad v an ta g es a re cl ai m ed fo r an ad van ce ro ad in g appro ac h, in clu d in g 

th e p o s s ib i l it y o f sa lv ag in g m o r ta lit y from f i r e , win d and in s e c t o r d is ­

e ases (e sti m a te d a t ab ou t two b i l l i o n b oard fe e t an n u all y fo r th e N ati o n al 

F o r e s ts ) ; th e in c re a se d f ib e r p ro d u c ti o n th a t ca n be o b ta in e d th ro ugh in ­

te n s iv e manag ement p r a c tic e s su ch as pre -c om m erc ia l th in n in g ; and th e 

d is p e r s a l o f r e c r e a tio n us ag e to avoid over cr ow din g of e s ta b lis h e d r e c re a ­

tio n a re a s . D ir e c t go ve rnme nt fu ndin g o f ro ad c o n str u c ti o n w ill be r e ­

q u ir ed i f th e s e o b je c tiv e s a re to be a ch ie v e d .

1. "Need fo r Development of fcfaln Line Access Reeds - Region Si x, ” n.d .

2. See. M ilte r J . Ifoad, "MeB»ra«ium an Com petitive Bid din g fo r National Fo rest Timber in the Do uglae-Fir Su bregion ," (prepared fo r th e U.S . Department of In te ri o r, Bureau of len d Manage­ ment), September 1?, 1965, p. 8 . See al so the extended qu est ionin g and di sc us sion o f the eff ect of rood req uirem ents on sn ai l operators in House Ap pro pri ations Co um tte e, Hearin gs, Department of In te ri o r and Related Agencies Ap prop ria tio ns fo r 1975, Fd rt J, pp . 103-109,

93rd Congress, second se ss io n).

3. Appendix A of th is re port excerpt s a b ri e f di sc uss io n of advance roa din g from a paper prepared by Carl Newport, a fo re st economist with th e Po rtla nd firm of Mason, Bruce and G ir ar d, fo r the 

Pre si den t’ s Ad vis ory Panel on Timber and the Environ men t.
91

A c c o u n ta b il it y

The re i s , f i n a l l y , an a p p a re n t p u b li c i n t e r e s t in h av in g fu ndin g d e c is io n s 

a p p li c a b le to go ve rnmen t pr og ra m s made by re sp o n sib le o rg ans of th e Cong re s s . The p re se n t me thod o f pro gram mi ng N a ti o n a l F o re st ro ad c o n str u c ­

tio n and m ai nte nan ce w it h p u rc h a se r c r e d its av o id s C o n g re ss io n al s c ru tin y 

an d c o n s titu te s wh at some ha ve c a lle d "b ac k door f in a n c in g ." The new 

R es ourc es Pla nnin g Ac t w i l l g r e a tly re duce t h is pr ob lem beg in n in g w it h 

f i s c a l y ear 19 76 . Ho we ver, some r e la te d pr oble m s w ill re m ain . Fo r 

ex am ple , 23 USC 205 r e q u ir e s th e F o re st S e rv ic e to c o n tr a c t ro ad work 

e sti m a te d a t more th an $15,0 00 p er m il e , b u t t h i s do es n o t ap ply to ro ads 

b u i l t by ti m ber p u rc h a se rs. Many p u rc h ase rs a re now h av in g ro ad c o n tr a c ­

to r s do t h e i r ro ad wo rk ( e s p e c ia lly as th e com ple xit y o f c o n str u c ti o n in ­

c re a s e s in ru gg ed t e r r a in an d w it h p re ssu re fo r h ig h e r sta n d a rd s from th e 

F o re st S e rv ic e ), but th e s e c o n tr a c ts a re n o t n e c e s s a r ily l e t un de r th e 

c o m p e ti ti v e b id p ro ced u re s re q u ir e d by p u b li c c o n tr a c tin g la w s.

F in a lly , th e re may be so m et hin g o f a pr ob lem o f a c c o u n ta b ili ty in

a s s u rin g th a t p u rc h ase rs re q u ir e d to b u il d ro ad s do n o t make w in d fa ll 

p r o f i t s on th e ro ad wo rk in a d d it io n to t h e i r no rm al p r o f i t s on th e ti m ber 

o p e ra tio n I t s e l f . At th e p re s e n t ti m e, th e p u rc h a se r c r e d i ts are al lo w ed 

on th e b a s is of e s ti m a te s made a t th e tim e th e p r o je c t i s en g in eere d , and 

th e r e ap p ears to be no way f o r th e F o re st S e rv ic e to a u d it a c tu a l c o s ts 

ex p eri en ced by th e o p e ra to r w it h an ey e to war d a d ju s ti n g th e al lo w ance s 

made on th e b a sis o f th e e s tim a te .

T ow ard a NACO P o l i c y on F o r e s t R oa d F i n a n c i n g

The N a ti o n a l A sso c ia ti o n o f C o u n ti es has be en aw are fo r a goo d many y ears 

th a t c o u n ti e s a re lo s in g s u b s ta n tia l am ou nts o f re ven ue a s a r e s u lt of 

p u rc h a se r c r e d it fin a n c in g o f N a ti o n a l F o re st De ve lopm en t Ro ads. Dur in g th e 

m id -1 9 6 0 '8 , NACO c o n c e n tr a te d on tr y in g to p ers u ad e th e C on gr es s to in ­

c re a s e th e Roads and T r a ils a u th o r iz a tio n in th e F e d e ra l Aid Highway A ct, 

ass um in g th a t su ch in c re a s e s wo uld be-f o ll o w ed by a s h i f t fro m pu rc h ase r 

c r e d i t fin a n c in g to d i r e c t go ve rn men t fin a n c in g o f a c c e ss ro a d s. Wh ile 

th e d a ta p re sen te d ab ov e in d ic a te th a t some su ch s h i f t d id ta k e p la ce 

fo r a few y e a rs , i t see ms c le a r th a t in c re a s in g th e a u th o r iz a tio n alo ne 

doe s n o t in su re th a t th e d r a in s on co un ty fu nd s w ill c e a se , as i s amp ly 

i l l u s t r a t e d by ev en ts o f th e e a r ly 1 9 7 0 's .

En ac tm en t o f th e R es ourc es P la n n in g Act o f 1974 do es ap p ear to s e t th e 

s ta g e , ho wev er, fo r a r e c o n s id e ra tio n o f t h i s is s u e , and now th e memb e rs and s t a f f s o f th e r e le v a n t C o n g re ss io n al co m m itte es w i l l be d ir e c tly 

in v o lv ed in th e choic e o f fin a n c in g m etho ds . I t wo uld ap p ear to be a 

goo d ti m e fo r NACO to re v ie w i t s p o lic ie s on N a ti o n a l F o re st De velop ­

ment Road fin an c in g and p erh ap s to ta ke th e le a d e rs h ip in su g g e sti n g an 

ap pro ac h th a t would be b e n e f ic ia l n o t only to county go ver nm en t, but
92

a ls o to th e F o re st S e rv ic e , th e ti m ber in d u s try and th e g e n era l p u b lic . NACO's W es te rn R eg io nal D is tr ic t co uld d evelo p a pr op os ed p o li c y s t a t e ­ ment a t i t s March 1975 m ee ting in A lb uquerq ue, fo r su bm is si on and ad op ­ tio n by th e N a ti o n a l A sso c ia ti o n a t i t s annual conven ti on in Ju ne 19 75 .

W ith ou t a tt e m p ti n g to su ggest th e d e t a i l s o f su ch a pro po se d sta te m e n t, a few p o s s ib le a lte r n a tiv e s come r e a d ily to mind . One appro ac h wo uld be to tr y to develo p a w ork ab le , fu n c ti o n a l c la s s if i c a t io n of f o r e s t ro ads an d to id e n tif y th e ty pes o f ro ad s most a p p ro p ria te fo r ea ch ty pe of fin a n c in g . Fo r ex am ple, th e re wo uld be l i t t l e ar gu men t th a t p u r­ ch aser c r e d it fin a n c in g i s a p p ro p ria te f o r te m po ra ry sp ur ro ads lo c a te d w it h in th e im m ed ia te sa le a re a . On th e o th e r ha nd , per m an en t, tw o -l an e hard su rfa c e a r t e r i a l s th a t c a rry n o t o n ly lo g s but a ls o h ig h vo lu mes of r e c re a tio n t r a f f i c sh ould be fi n an ced w it h a p p ro p ri a te d fu n d s. In be­ tween th ese extr em es l i e a num ber of ty p e s of ro ad s and a v a r ie ty o f cir cu m sta n ces w hic h, c o n sid eri n g bo th s h o rt and lo ng ra nge f a c to r s , m ight t i l t th e ju dg m en t on e way or a n o th e r. Some e f f o r t to d e fin e th e se co n­ s id e r a tio n s m ig ht be made jo in t l y by th e p a r tie s in volv ed which could pr od uc e some guid an ce to th o se who must s e le c t th e fin a n c in g m et ho d.

A no th er appro ach , per hap s e a s ie r to im ple m en t, would be to re ach some 

g e n e ra l " r u le o f thumb" g u id e li n e s on th e ap pro xim at e r a tio of d ir e c t go ve rnmen t to p u rc h ase r c r e d it fin a n c in g th a t would be most s u ita b le to d if f e r e n t ty p e s o f N ati o n al F o re s ts . O bvio usl y, f o r e s ts which c o n ta in l i t t l e co m m er ci al tim ber are in a p p ro p ria te fo r purc h ase r c r e d it fin a n c ­ in g . I t i s p o s s ib le th a t a s c a le from minimum to maximum p u rc h ase r c r e d it fin a n c in g r a t i o s co uld be worked o u t an d ap p li e d on a f o r e s t- b y - f o r e s t 

b a s is .

V ari ous o th e r ap pro ac hes are p o s s ib le , an d sh ould be c o n sid ere d . Ano th er ty pe o f appro ach , wh ich c o n sid e rs o n ly th e pr ob lem of th e c o u n tie s ’ re v e ­ nu e lo s s e s , wo uld be to a d ju s t th e fo rm ula fo r N ati o n al F o re st re ven ue sh a rin g to re co g n iz e th a t th e 25 per c e n t pro vid ed by law no lo n g er means th e same th in g i t did when i t was e n a c te d in th e e a rly 1 9 0 0 's . Fo r ex am pl e, th e law m ight be amended to in c re a s e th e p erc en ta g e fig u r e or to re q u ir e an a d d it io n a l pay ment fro m th e T re asu ry equal to 25 p er cent o f th e am ou nts prog rammed a n n u all y f o r p u rc h aser ro ad c o n s tru c tio n .

Pre pare d by :

Ke nn eth C. T o ll e n a a r, D ir e cto r

Bu reau o f Gov er nm en tal R es ea rc h & S e rv ic e 

U n iv e rsit y o f Orego n

For:

A sso c ia ti o n o f Oregon C ounties and 

N a ti o n a l A sso c ia ti o n of C ounties
93

Ap pe nd ix A

E xcerp t frora^

"T im be r S ale s P o lic ie s an d P ro cedure s on N a ti o n a l F o re sts 

in R e la ti o n to S h o rt ru n Timbe r Sup pl y"

by C a rl Newport

ROADS

"R oads a re ne ed ed on n a tio n a l f o r e s ts fo r e x p e d it in g s a le s , In c re a sin g tim 

b e r s a le an d h a rv e st f l e x i b i l i t y , an d fo r im pr ov in g u t i l i z a t i o n .

"Much o f th e tim e sp en t in s e l e c ti n g , p la n n in g , p re p a rin g , and o p e ra ti n g 

ti m b er s a le s i s sp en t on ro a d s. I f th e F o re st S e rv ic e wer e f u lly fu nd ed 

by a p p ro p ria ti o n fo r i t s ro ad pr og ra m and p e rm it te d to c a rry i t o u t, th e 

ti m b er s a le prog ram wo uld be e x p e d it e d . Road c o n s tru c tio n by ti m ber purc h a se rs has li m it e d ro ad de ve lo pm en t to a re a s o f hig h v a lu e ti m ber and 

to p e rio d s o f h ig h p r ic e s .

" I f a more co m ple te ro ad sy st em wer e now in p la c e on th e n a ti o n a l f o r e s ts , 

i t wou ld be much e a s ie r fo r th e F o re st S erv ic e and th e in d u s try to 

pro m ptl y re sp ond to f lu c tu a tio n s in demand fo r wood p ro d u c ts . Subm arg ina l ti m b er could be s o ld , more p a r t i a l c u ts and more sa lv ag e and commerc i a l th in n in g s co uld be made. In a d d it io n , more a re a s o f ti m b er nee din g 

tr e a tm e n t to in c re a s e gr ow th wou ld become a c c e s s ib le f o r su ch pr og ra m s.

" S tu d ie s o f ad va nc ed ro ad ln g on n a ti o n a l f o r e s ts an d on o th e r p u b li c la n d s 

ha ve co ncl uded th a t i t i s n o t e c o n o m ic .H o w e v e r, th ese wer e te s te d 

a g a in s t e arn in g r a te gu id es now b ein g us ed on o th e r F o re st S erv ic e in v e s tmen ts su ch as h o ld in g ex cess gr ow in g sto c k , K-V e x p e n d it u re s, and to some 

o f th e c u r re n tly fin an ced ro ad pr og ra m . F u rt herm ore , th e s e s tu d ie s did 

n o t In c lu d e th e b e n e f its o f m o d era ti n g lumbe r an d ply wo od p r ic e flu c tu a ­

tio n s . In vi ew o f th e se f a c to r s th e low e arn in g r a te s o f 2 to 6 p erc en t 

fo r ad va nc ed ro ad in g ap p ear to be more th an s u f f i c ie n t j u s t i f i c a t i o n fo r 

a s i g n i f ic a n t prog ram.

" I t i s reco mmended th a t th e F o re s t S erv ic e more s p e c if i c a l ly docum ent th e 

c o s t o f and r e s u ltin g e x tr a y ie ld fro m more ra p id ro ad ln g on a f o re s t-b y ­

f o r e s t b a s i s . T his wo uld p ro v id e th e b a s is fo r g ra s s r o o ts p re s s u re on 

C on gr es s and OMB to g e t th e n e c e ssa ry fi n an c in g and wo uld r e l a t e pe rfor m ­

an ce d i r e c t l y to e x tr a ti m ber su p p ly , In c lu d in g th e ad v an ta g es o f f l e x i ­

b i l i t y . . . . "

-Payne, Brain R. "A ccele rated Ro edb uild ing on th e North Unpquer-An Economic A na ly si s. " ISHA 

Fo rest Ser vi ce rese ar ch pa per. IMS-137, 32 p p ., il lu s tr a te s P acif ic Northwest Fo re st and 

Range Experiment S ta tion, Por tlan d, O re g. , 1972.

1. App en dix G o f R ep ort o f th e P r e s id e n t’s A dvis ory P anel on Timb er and 

th e Env ironm en t, W as hin gto n, U.S . Government P r in tin g O ffic e , 19 73 , 

p. 22 2.

53-953 0 - 75 - 7
94

Mr. E vans. Th e third doc ument , in add ition, would be an ana lysis 

of S 364 some of the prob lems, clarifications th at we think should 

also be ma de a pa rt of the reco rd, th at Mr. To llenaar will go int o

in ju st a minu te.

Se na tor M cClu re. It will be ma de a pa rt 

[The docume nt referred to follows:]

of the record.
95

WA SHINGT ON , D.C.

THE LIBRARY OF CONGRESS 

Co ngres sio nal Research Service

A pril 15, 1975

TO: The Counsel Senate Public Works ~ -

A tte ntio n: Barry Meyer

FROM: Robert E. W olf, Ass istant Ch ief 

Environmental Policy Divisio n

SUBJECT: S. 364 Timber Purchaser C re dits, Forest Service RoajJs B u il t

by Timber Purchasers

This b ill would amend the Act of Oct. 13, 1964 to pro vide th at fo r 

a ll tim ber co nt ra cts in existe nce on the date o f enactment and a ll new 

co nt ra cts, an unused tim be r purchaser c re d it earned by performin g road 

co ns tru ction can be tran sf erred from one co ntract to another on the 

same Nation al Fores t i f ce rtain co nd ition s are met i. e . , the cash payments fo r tim be r on the f ir s t co ntract can no t be less than the sum o f 

the cre dits tr ansfe rr ed, and the value o f the tim be r at base rates on 

the f ir s t co ntract .

General situa tion

Nation al Forest tim be r is sold in 2 ways in sofa r as roads are : 

concerned.

1. I t li e s along a road and can be cu t and removed with ou t road 

co ns tru ction.

2. I t is remote from a road and thus roads have to be constructe d 

in ord er to remove the tim be r.
The second co nd ition ge ne rally pre vails. There are two ways th at 

roads needed to remove timber are secured.

1. A road is designed by the Forest Service and a road le t to con­ tra c t, the award going to the low bidd er. He constru cts the road. In th is system, on a road estim ated to co st $100,000, the build er would be paid at the end of each month on work performed plus invo ice ma­ te ria l on the job less 10% which is with he ld fo r payment at the end of the jo b. However, when 50% of the work is done the amount with he ld may 

be reduced to 5%.

2. Roads are also b u il t by tim be r purchasers under a system wh ich , in e ff e c t, reduces the price of the tim be r. I t is to th is aspect of securing roads th at S. 364 is di re ct ed. The method by which th is system 

op era t^ fw ill be outlined la te r.

There are sev eral imp ortant elements to th is approach th at need to be 

understood in orde r to assess S. 364. The capsule his to ry w il l de pi ct 

the changes in the finan cing of road co nstru ction since sho rt ly a fte r 

the 1964 Act was passed. The year 1972 represents the high poin t in 

Gov’ t co nst ru ct ion.

Program 1967 1972 1976 % change

m illio n o f dolla rs (g re ate st year)

—----—1-----

Govt Co nstru ction 

Approp. funds $ 52.5 $ 110.5 $ 11.9 - 91%

Timber Purchaser 

Cre dits (TBR. REV. 

RED.) 59.4 116.8 210.0 + 253%

Supl. with approp. 

funds to secure 

higher st ds . TBR. 

Purch. Road 4.5 7.8 6.8 • + 51%

To tal Timber Purch. 

Cre dit + Supl.

(2 + 3) 63.9 124.6 216.8 + 239%
Program 1967 1972 ' 1976 % change

m illio n of dolla rs (g re ate st year)

Total Constr.

Approp. and

TBR. REV. RED.

(1 + 4) $ 116.9 $ 235.1 $ 228.7 + 95%

Percent o f Road

Cost by Approp.

fund Constr.

(1 f 5) 44% 47% 5

Percent o f Road

Cost by TBR.

Revenue RED.

(4* 5) 56% 53% 95%

Approp. Funds

used to desig n,

Engineer g, Sneerw is e const r. of

TBR. Purch. Roads $ 20.4 $ 23.4 $ 93.4 + 357%

To tal Road Constr.

and Eng. Program 136.8 258.5 322.1 + 135%

★ * *

As the above shows the emphasis on the source o f "fun di ng " and the way 

roads are constructed has d ra s ti c a ll y shifte d. V ir tu a ll y no roads are 

b u il t now by road co ntractors using dir ect co ntracts and ap prop ria ted 

fun ds. V ir tu a ll y no roads are b u ilt fo r multi-pu rpos e use; a ll roads are 

fo r tim be r. V ir tu a lly no roads are b u il t in advance o f tim be r ha rvesting 

to open areas where there are hig h m ort ality losses or to prov ide fle x ib i lit y in schedu ling tim ber sa le s, both as to type o f tim be r to be cu t 

and to meet emerging market demands. The burden o f "f in ancin g" road constr u ctio n has been com pletely sh ifte d to tim ber purchasers who co ns tru ct 

roads under reduced tim ber prices.
98

In the long run, in one sense, i t makes no financia l diffe re nce, 

assuming a ll fa cto rs are equal, whether the road is b u il t with ap prop ria ted 

funds or by red ucing the price of the tim be r. The tim ber bears the co st.

A timbei^ along an exis ting road is wo rth say $300,OCX). I f the same sale 

is remote from a road and i t w il l re quire $100,000 to build a road to get 

i t , it s "w orth" is reduced to $200,000. Thus i f the Forest Servic e le t 

a road contract with appro priate d funds to build the road i t would co st 

the government th is sum plus the cost o f the money u n ti l returned by the 

harvest o f the tim be r. I f the tim be r price is reduced by the estimate d 

co st o f the road the tim ber purchaser puts up the c a p ita l, bu ild s the road 

and rec aptures th is cost when he ha rves t the tim be r. Included in the 

va lu atio n of’ the tim ber is an allow ance fo r p ro fit and ris k thus the tim ­

ber purchaser is compensated. The th eo ry is th at in the second situa tion 

the tim be r also pays fo r the road.

However, under th is approach not on ly does the tim ber manager los e 

the f le x ib ilit y to most e ff e c ti v e ly develop a transp ortatio n network but 

also ot her disadvantages and diseconomies a ff e c t both the government 

(fed era l and lo cal) and the tim ber purchaser. Some o f these are:

... The tim be r purchaser must enlarge hi s working capital requirements.

.. .S m alle r tim be r firms are les s able to compete e ff e c ti v e ly fo r sa les.

...S ale s purchased can not be harvested at once su bjec tin g the bidd ing 

to uncertain ties as to fu tu re markets.

...T he "d os t" of the road is an es tim ate in the tim be r contract, not 

su bjec t to the same treatm ent as a re gu lar road co ntract . Thus i t 

is never re a lly known whether the actual cost of the road rep resents 

the es tim ate.
99

...S in ce the tim ber bid of te n is above the governments appraised va lue, 

and the princip al business of the bidd er is tim be r pr od uc tio n, changing market cond ition s may Cause e ff o rts to build the low est cost 

road as a part o f reducing log co st s, with attend an t debate between 

the government and the logg er.

...F edera l tim be r revenues are reduced thus the base on which payments to 

co un tries of 25% o f revenue as a payment in -li e u of -tax es is reduced. 

Thus the coun tries actu a lly end up paying 25% of the cost o f roads 

b u il t by tim ber purchasers. In 1967 th is impact was on the orde r of 

$15 m il li o n . By 1976 i t w il l be $52.5 m illio n revenue lo ss, a jump 

o f 250%.

...Fr om a fo re st manager^ stan dp oint the Federal tim be r program has been 

reduced to plan ning sales in re la ti o n to road needs thus compounding 

the task o f making plans based on s il v ic u lt u ra l req uirements.

...S ale s must be of a species and typ e of tim be r, and an amount th at w ill 

carr y the in it ia l costs o f major tim ber purchaser road co nst ru ct ion. 

P a rti c u la rly in the Inland Rocky Mountain areas where Federal tim be r 

site s are at the lower end o f growth pote ntia l and olde r stands have 

a very low growth ra te , and ther e are heavy m ul tip le -u se demands, a ll 

resources'and uses are ti e d to "operable tim ber."

The net e ff e c t ove r the past several years has been to s h ift from a 

policy and a program th at stru ck a balance between d ir e c t co ntract and 

revenue redu ction co ns tru ction to one th a t is 95% revenue redu ction 

const ru ct io n. When the ra ti o o f ap prop ria ted fund co ntract co ns tru ction 

to tim be r purchaser co ns tru ction was in the 50-50 range i t was not keeping 

pace w ith the need to secure advance road co ns tru ction to provide in ­

te ns ive and sound s il v ic u lt u ra l management. Now th a t government constr u ctio n is on ly 5% of the to ta l, and h a lf o f th at is bridge replac ement (so i t is re a lly on ly 2 1/2 % o f the to ta l) , the op po rtunity to secure 

improved management on the Na tional Forests is fu rt h e r cripple d.

An e ff e c ti v e , planned transportation in fr a str u ctu re is es se nt ia l to 

pr oviding fo r both the vario us commodity and non-cormnodity uses and to
100

re a lizin g opportunities to secure and pro te ct the na tural resource 

pote ntial on the Na tional Forests.

I t is ag ainst th is background th at the e n ti re Fores t Servic e Road and 

T ra il Program needs to be viewed, in clud in g issues re la tin g to le ve ls 

of fund ing, and the programs of tr a il s and programs o f maintenance.

I t is also o f note th at under P .L ., 93-378, (16 U.S.C. 1601-10) provisio n was made in Sec. 9 (16 U.S.C. 1608) to view the issu e o f tim ber 

purchaser co ns tru ction and appro priate d fund co nst ru ct ion as were auth orized by the Act o f Oct. 13, 1964. The 1964 Ac t codifie d the exis ting tech ­

niques by which roads were autho rized fo r co nst ru ct ion w ith the understanding th a t in le ga lizin g the "timbe r purchaser" co nst ru ct io n, i t was 

intended th at i t would supplement the co nst ru ct ion o f multi-pu rpose roads 

with appro priated funds. In subsequent Highway auth orization Acts the 

Public Works Committees continued to provide substa ntia l auth orizations, 

to urge and d ir e c t th at fu ll use be made o f them and th at the agency move 

away from plac ing the burden on tim be r purcha sers.

However, the Highway Act au th or izat ion represents one o f two sources 

of appropriated funds av ailable fo r road and t r a il co ns tru ction on the 

Na tion al Forests . Another source is the Ac t of Mar. 4, 1913 (16 U.S.C. 

501). Under th is 10% of Nation al Forest Revenues are alloca te d to Roads 

and T ra ils in a manner th at has no adverse impact on the revenue base 

th at determines the payment of 25% o f revenues to the Counties as a payment in -li e u o f taxes (16 U.S.C. 500). As an op erating budget polic y 

the annual re q u e s to r Road and T ra il co nst ru ct io n and re co ns truc tio n bu t 

also the annual cost fo r road and t r a il maintenance. This cost has run
101

from $30 m illio n an nu ally to $55 m illio n an nu ally. On top o f th is , 

again using the device of tim be r revenue re duc tio ns , tim be r purchasers 

also an nually perform several m illio n dolla rs o f maintenance on roads. 

This is achieved by red ucing the pr ice of the tim be r. F in a lly the re 

is a type of road con st ru ct ion and maintenance th a t does not show up 

in the above programs. On almost every tim be r sale there are some 

"ro ads" th at are used on ly fo r ha rvestin g the tim be r on th at po rtio n o f 

the sa le. They are usually d ir t but may be gra vel based roads used 

fo r a few weeks or months and then oblite ra te d and seeded. While an 

estim ate of th e ir co st is inc lud ed in ap praisin g the tim be r value they 

are neither a permanent road nor a pa rt o f the "tim be r purchaser cre d it 

con cept. There are several m illio n dolla rs worth o f these "roads" also 

cons tru cted an nu ally but, unlik e the roads th a t are involve d in the 

issu e, these are not capital improvements, but op erating co sts, since 

th e ir u t ilit y expires w ith the removal o f the tim be r.

The Timber Purchaser Cre dit System

Timber Valua tion

The Forest Service values tim ber fo r sale on the stump by estim ating averages. The volume and grade o f the tim be r is estim ated in terms 

o f the products an average manufacturer might convert them to and an 

average value fo r a rece nt tim e pe rio d. The Service also estimates 

the average costs of manufacture in pla nts , tr ansportation to pl ants ,

» and logg ing, in clud in g the co ns tru ction o f both permanent and temporary
102

roads. In additio n an average allowan ce fo r p ro fit and ris k is ap plied. 

The sub tract ion of costs plus p r o fit and ris k from va lue, ex clus ive 

of permanent road co sts, determines the "value " o f the tim be r as th ou gh ’ 

the permanent roads were in . A second calc ula tion determines the value 

o f the tim be r includ ing permanent road costs. This second amount re ­

presents the actual dolla rs th at the purchaser w il l pay the government 

fo r the stumpage, assuming i t is bought at the appraised price.

Purchaser Cre dit

In some cases the tim ber volume and qu a lity when coupled w ith the 

co sts, re sults in a very low , or even a ne ga tiv e, appraised price.

Thus the Service applies a serie s o f "Base Rates" which are amounts 

below which tim ber w il l not be so ld . In sales where the tim be r v a lu ^/ 

co st re la ti o n is such th at the appra ised ra te exceeds the minimum, the 

purchaser can expect to earn the e n ti re "Road Cre dit" estimate d in 

the sa le . However, the re are sa le s, and they are found more often in 

the Inter-m ou ntain areas, were the appraised net value is so low th a t 

the ad ve rtise d ra te is raise d to the "base ra te ." The re s u lt th a t is 

o f concern here is th at th is has the e ff e c t of not gr ant in g to th a t 

purchaser f u ll cre d it fo r the estim ated co st o f the road. The fo llo w in g 

examples il lu s tra te how road fa cto rs in te ra ct with actual payments made.

Consider a basic situa tion which is a sale fo r 10,000 m il li o n board 

fe e t o f tim be r which w il l re qu ire the co ns tru ction o f permanent roads 

estim ate d to cost $100,000 or $10.00/f-BF. In sale "A" the appra ised 

va lu e/cost re la tion indica tes th at in cludin g road co nst ru ct ion costs
103

stumpage has a worth o f - $2.00/MBF. Excluding road co st s, it s worth 

is $8.00/MBF. The base ra te fo r the species is $5.00/MBF. The sale 

would be advertised at $8.00/MBF with the require ment th at $5.00/M8F 

be paid in cash, th at bein g the basic ra te th a t must be paid in cash. 

Thus $4,C0/KBF would be the road .co st. The tim be r purchaser would 

thu s be required to pay $50,000 fo r the tim be r or $5.00/MBF in cash 

plus co ns tru ct a road with an estimated cost o f $100,000. In theory 

hi s costs would to ta l $150,000. He would earn a "road c re d it " of only 

$3.00/MBF or $30,000 and "lose" a road c re d it o f $70,000 on a road 

estim ate d to cost $100,000. In sale "B ", the same co nd ition s exis t 

except th at the purchaser bids $15.00/MBF fo r the tim be r, exceeding 

Jthe appraised price by $7.00/M2F. In th is s it u a tio n he would pay $5.00 

MBF in cash fo r the tim be r and would "earn" the e n tire $10.00/MBF road 

c re d it . His cost fo r stumpage and road would be $150,000 and he would 

have no "unused" c re d it to apply to another sa le. By bidd ing the sale 

beyond the appraised price hi s actual cash payment fo r the stumpage 

would be no grea ter in Sale "B" than i t was in Sale "A ." However, 

te ch nic a lly he would not have an unused road c re d it . Sale "C" has 

the same road cost and volume but the appraised value is $20,00 /MBF.

In th is case he bids at the ap praisal price, earns a road c re d it of 

$10.00/MBF and pays cash o f $10.00/MBF. He would have no "unused" 

road c re d it . Sale "D" is the same as "C" bu t the actual volume cut 

turns ou t to be on ly 8,000 MBF, 2,000 MBF below the es tim ate. The 

Forest Service would be expected to get $100,000 road and $100,000 in 

cash. The purchaser would earn hi s fu ll road c re d it , $100,000. The 

Fo rest Service would get in cash on ly $60,000, because the $100,000
104

road estim ate is guaranteed at th is price le v e l. Thus i t would 

re a ll y get cash at $6.00/MBF ra th er than $10.00/MBF. Sale "E" is 

the same as "C" except th at the sale ha rvest turns out to be $12,000 MBF.‘ 

Tn th is case the purchaser earns his $100,000 road c re d it . His payment 

to the Fo rest Service in cash is $10.00/M8F fo r the f ir s t 10,000 MBF and 

$20.00/MBF fo r the 2,000 MEH7

 ov er cu t, sin ce the road co st is not ap plicable beyond the advertised volume. The Forest Service would thus get 

$40,000 in cash plus the road estim ate d $100,000.

Thus in on ly one of the cases, "A ," does the purchaser f a il to get 

his road c re d it . This is a so called "d e fic it " sale where the contr o ll in g fa cto r is th at payment must be made fo r the stumpage a t the 

minimum ba sic ra te .

New Treatment fo r Purchaser Cr ed it

However, S. 364 seeks to tr e a t the issu e o f "road c re d it " in a new 

way, which can be set fo rt h by c it in g three types o f situ a tio n s.

Assume a 10,000 MBF in Sale "A" w ith a road estima ted to cost $100,000. 

The purchaser bu ild s the road but has not cut any tim be r. He has thus 

"earned" a $100,000 road c re d it . He then wants to tr ansfe r th is cre d it 

to Sale "X ". He may do so bu t on ly to the ex tent o f $20,000. He is 

re qu ire d to pay fo r sale "A" $8.00/MBF or $80,000 fo r the 10,000 MBF.

In anoth er situation such as Sale *B" he could tr ansfe r the $100,000 

road c re d it to Sale "X ", but he would have no "unused" portio n. As 

soon as he tran sfer re d i t he would have to pay fo r Sale "B". cash in the
105

amount of $150,000, representing the estimated value of the road plus 

the minimum basic rate fo r the stumpage.

In s t ill another si tu atio n the purchaser may have constructed only 

$90,000 worth of road and tech nica lly he has an unused cr edit of 

$10,000. However, he is coranitted to construct the whole road, 

i f he wants to stop work on this sale and move his unused cr edit over 

to another sale, he must put up cash on the f ir s t sale in the amount of 

$10,000.

The governing situ atio n seems to be the requirement that fo r the 

fir s t sale the "cash payment fo r timber cut under a contract from which 

purchaser cre dits are transferred cannot be less than the sum of (1) any 

cred its tra nsferre d, and (2) timber value at basic ra te s." Thus one 

effect of the proposed b ill is to create an in tr ic a te system of bookkeeping fo r the Forest Service. The effect is to provide an in tere st 

free loan that can be used up until timber is cut under the contract 

from which the purchaser cre dits are tra ns ferre d.

In a regula r road construction contract the co ntractor does not get 

paid until he performs by eith er doing work or deliv erin g material to 

the site . On timber purchaser roads, the promise to do work would be 

suffic ie nt to vest the "c re dit" with the ch ar ac te ris tic s of a loan.

Doing the work would create th e,c re dit.

Also, the "unused" po rtion of a cre dit, created by the type of 

si tu atio n in a d e fi c it worth sale controlled by base stumpage rate requirements, could permit the purchaser to receive the fu ll estimated 

allowance. In order to take advantage of th is opportu nity a firm 

would have to acquire another sale on the same National Forest to which 

the tran sfer could be made.
106

Observations

The b i ll en grafts on an already complicated procedure s|it uto ry re ­

quirements th at introd uce new dimensions.

Now when the Forest Service se lls a sa le , a ll of the bid ders have had 

an op po rtunity to examine i t on the ground and to go over the appra isal. 

They make th e ir bid knowing the estimate s on ju s t th a t, no more, no less . 

Recently in the Douglas f i r reg ion o f the P acific North West the average 

bid price fo r stumpage has been 250^above the apprais al price: Bid price 

$127.57/MBF, Appraised price $36.53/MBF. Road estimates in these appra isa l 

were $14.24/MBF. With th is order o f disagreement between ap praise r and 

appraisee on stumpage values the road estimate elem ent, which the bidd ers 

took in to account in ’•a*sing th e ir cash o ff e r 250*, shrin ks as an issue.

S. 364 An alysis

S. 364 would requ ire th at the Sec. of A griculture inclu de in each 

Forest Service tim ber sale co ntract in volv in g road co ns tru ction a pro ­

vis io n fo r purchaser cre d it earned by road co ns tru ction but unused thereunder to be transf erred to meet charges fo r stumpage held under othe r 

co nt racts on the same Nation al Fo rest.

The language is po ss ibly su bjec t to various in te rp re ta tions.

Sec. 4 o f the Act o f Oct. 13, 1964 sta te s:
I See. -1. I he Secretary is authorized to provide for the acquisilion. construction, and maintenance of forest developI ment roads with in and near the national forests and oth er 

lands administered by the Forest Service in locations and 

according to specifications which will permit maximum economy in harvesting tim be r from such lands trib ut ar y to such 

n>ads and at the same time meet the requirements for proj tcction. development, and management thereof, and for ut ili za ­

tion of the other resources thereof. Financing of such roads 

may be accomplished ( li by the Secretary utiliz ing app ropriated funds. (3> hv renu ire men ts on purchasers of nation al 

forest timber and oth er products, including provisions for 

amortiz ation of road n.e.s in con tra cts. Cti by cooperative 

financing with other pub lic agencies and with priv ate agencies or persons, or ( Il by a combination of these methods:

Pm niletl. That where roads of.a higher standard than tha t 

needed in the harvesting and removal of the timber and oth er 

products covered by the pa rtic ula r sale are to he constructed 

the purchaser of the national forest timber and oth er products ;

shall not he required to bear t..al part of the costs necessary 

to meet such high er standard, and the Secretary is authorized 

to make such arrangements to this end as mav he appropriate. (16 U.S.C. 535) . ' .

This b ill would add its language to Sec. 4. The 1964 Ac t does not 

co ntain d e fi n itio n s . r t sim ply bro adly au thorizes the co nst ru ct ion of 

roads by reducing the price fo r tim ber using the language th a t is 

un de rlin ed above.

The terjfls'* purchaser c re d it earned by road co nstructio n^ and the 

term "unused thereunde r" are not in the ba sic act nor are the y defined 

in the proposed amendment.

. . . " Purchaser c re d it earned by road co nst ru ct ion" page 1 lines 7 and 8. 

A purchaser c re d it seemingly would be earned by road co nstru ction 

when the road had been constru cte d and o f f ic ia lly accepted by the 

Forest Service . At th at poin t the tim be r purch aser-roa d builder 

would have a cre d it as an o ff se t ag ain st stumpage payments due on 

th a t co ntract . The wording of the b ill would als o seem to contempla te th at a cre d it could be determined as "earned" based on constr uction o f a portio n o f the road.
108

... There cou ld be 2 general "but unused thereunder" situations were 

an earned cre d it page 1, lin e 8 co uld be "unused".

1. The road is p a rti a ll y or f u lly b u il t and no tim be r has been cut, 

or in s u ff ic ie n t timber has been cut under th at co nt ra ct to o ff s e t the 

estimated co st of the road cons tru cted . This would be ge ne ra lly a 

sh ort term pe rio d. As soon as tim be r ha rvest began on the sale the 

cre d it earned would begin to be de pleted . When tim ber equal in value to 

the estimate d cost of the road is harvested on th at sale the earned 

cre d it would be used.

2. The road is fu ll y b u il t and tim be r is harvested. The estimated 

allow ance has been earned but due to the minimum stumpage ra te re quirements less than 100% of the earned c re d it is ap plicab le. The portio n 

not o ff s e t by the basic ra te payment require ment w ill never be usable 

on th a t contract .

I f the b i ll inte nds to permit th is unused po rtio n of the estim ate d

value of the constructed road to be used, rega rdless , the e ff e c t w ill be

to reduce the pr ice fo r the tim be r on th at sale below the ba sic ra te ,

or in the altern ative to reduce the e ff e c ti v e pr ice on anoth er sa le .

ct sr y

I f the in te ntion of the b i ll is to tr e a t the s it u a tio n in above A

as a sh ort term loan the question s t i l l exis ts as to whether i t is als o 

inte nded to inclu de the "estimated " value earned but unused th a t would 

develop in situa tion 2. I f the e ff e c t sought is the f ir s t one on a 

lim ite d basis , the re su lt of the le g is la ti o n is to make the "earned 

road c re d it " the eq uivalent of a sh ort-term in te re st free loan to be 

used on ot he r sales.

The pra ctical values are hard to assess. Since v ir tu a ll y a ll sales 

have extensive purchaser road bu ild in g requirements of th e ir own and 

sin ce tim be r removal, except fo r min or right-of-way clearing does not 

commence u n ti l the road is b u il t, each sale has it s own "c re d it " th at 

can be ap plied toward stumpage.
109

Assume sale No. 1 has an earned unused cre d it o f $100,000 and ha rve st operation s are not to commence u n ti l 6 months a ft e r the road is 

complete. Assume sale No. 2 lik ewis e has road require ments and harvest 

can no t lo g ic a lly commence u n til it s $75,000 road is co ns tru cted . I t 

would make l i t t l e sense to tr a n sfe r the "earned but unused" c re d it from 

Sale 1 to Sale 2 u n ti l the c re d it on sale 2 was used. Then as soon as 

op erations began on Sale 1 the c re d it would have to be transfe rred back 

in orde r to ma intain the fin a n cia l in te g rit y requ ire d fo r Sale 1.

However, in those few situa tion s where tim be r is sold and no roads 

are re quire d, the earned allowan ce on sale 1 or 2 cou ld be used fo r 

such stumpage payments u n til op eration s began on them.

The b i l l , however, pro vides fo r ce rtain lim it a ti o n s , and these are 

not cle ar as to in te ntio n.

The cash payment on sale 1 "cannot be les s than the sum o f (1) any 

such cre dits transfe rr ed, and (2) tim ber values at base ra te s ." (Page 

2, lin e s 2-4 ). This seems to suggest th at the in te n t o f the amendment 

is to operate as fo llo w s: On sa le 1 assume the base ra te requ ire s payment o f $5.00/M8F fo r 10,000 B.F. or $50,000, and the purchaser road 

c re d it transf erred is $100,000.

In situ a tio n (a) assume $25,000 of the $100,000 is unusable due to 

base ra te require ments. The e n ti re sum can then bem ovedto Sale 2 and 

used th ere . However, i f th is is done i t create s a lia b ilit y to make 

a cash payment la te r on Sale 1 o f $100,000, w ith the re s u lt th a t cash 

payments on sale 1 would be $25,000 grea ter than the y would be i f the

53 -953 0 - 75 - 8
110

c re d it had been tran sf erred only in the amount o f $75,000. On the ot her 

hand i f the in te n t of the words "earned bu t unused" is to exclude the 

$25,000 "lo s t" due to the base ra te req uirem ent, then the b ill does not 

tr e a t th at sort o f situa tion .

There are several oth er aspects of the b ill th at deserve conside rati o n . There is no prov ision as to when an "unused" po rtion ex pire s. I f 

the in te nt is no t to tr e a t the situa tion caused by the Base ra te re quirement, the n, as dra fted, these unused portio ns are permanent.and can be 

applied fo re ve r. I f these are not inclu ded then they would ex pire as 

tim be r was cu t on a co nt ra ct.

The Act would be ap plica ble not on ly to contracts entered in to a ft e r 

the b i ll is enacted but also to a ll then in e ff e c t. Gen erally, amendments 

o f a nature th a t may aff ect contracts and the terms on which they were 

bid are made ap plicab le on ly to fu tu re co nt ra cts ra th er than to exis ting 

co nt ra cts. A de term ina tion might want to be made with the Co mptroller 

General as to the preferred method. In additio n a determ ina tion may want 

to be made as to whether, i f the b i ll were otherw ise acceptable to the 

Ex ecutive , in clu sio n of exis ting co nt ra cts would lead to a veto fo r tech ­

nic al reasons.

At any given time the Forest Service has under co nt ra ct and uncut 

about 2 1/2 yea rs worth of tim ber at'ann ua l sale le vels . This would 

to ta l about 28 b il li o n board fe et on over 60,000 sa les, ex clus ive of 

major long term contracts in Alaska. The Alaska long term sales cover 

about 20 b ill io n board fe et of tim be r.
I l l

Since the b ill would apply to every sale inv olving road constructio n , and th is term does not distinguis h between roads that are temporary and roads that are permanent, i t could encompass almost every sale . 

The b ill, i f enacted would direct that "the Secretary shall include in«A cb 

Forest Service Sale contract inv olving road con struction a provision 

fo r purchaser c re d it ... ." (Page 1, lines 5-7). Thus the b i ll , i f enacted, 

would require going back to ex istin g contracts to include such a provision as well as going forward on every contract with the same requirement. This could be ameliorated somewhat by elim inating sales under 

a ce rta in sura or size , or by making i t applicable only to sales with a 

ce rta in amount of road construction and most certain ly by re str ic ting 

ap plica tio n to those contracts which had "purchaser cre dits" in them 

when entered in to . By providing that the Act w il l apply to "contracts 

in effect on the date of en actm ent...", (page 2 lin es 5-8) i t becomes 

applicable to any contract with an "unused" road cre dit. I f i t is desi ra ble to make i t so apply, an altern ative would be to apply i t to 

"co ntracts in effect where con struction has not conmenced on the roads 

to which purchaser cr edit is applicable.'" However, as noted above the 

provision -f t^ t would probably be more consistent with general pra ctice 

if not to make the Act re troa ctive.

Additionally , there is no time li m it on how long the "unused" cr edit 

may be ef fe ctive and applied fo r tra ns fer. At le ast, i t would appear 

that the cr ed it can and must be carried in the books u n til i t is used.

Since i t only can be used applying i t to another sale on the same National 

Forest, there is no way of forecasting when a partic ula r company w ill 

secure another sale.
112

Fu rthe r, the language is so broad i t is possible th at the c re d it would 

be transfe ra ble and assignable by a person s e llin g a contract w ith an 

unused road c re d it or sellin g ju s t the unused road c re d it . I f i t is -not 

desired th at the unused cre dit be assign ab le, th is should be noted.

R elie f Proposed by S. 364

E ffort s to determine the a p p li c a b il it y of S. 364 have been hampered 

by the absence o f more than a guess at the coverage and e ff e c t of the 

b i ll. The Fores t Service has not developed analy tical data and applic ab ilit y and brea th o f coverage. S. 364, however, is lim ite d to applic ation to othe r sales purchased on the same Nation al Fo rest, (page 1 lines 

9-10) alth ough the ra tionale is not cle ar sinc e, in some pa rts o f the 

West the lo cation o f tim ber to the normal purchasing range of some companie s, causes them to purchase tim be r on two or more Fo rests . The b i ll 

would pro bably be of benefit only to la rg e r and re gul ar purchasers of 

Na tional Fo rest tim ber in co nt ra st to sm aller purchasers.

To the ex te nt th at i t permitte d a s h if ti n g of cre dits to apply in li e u 

o f cash fo r stumpage payments, i t would have it s heaviest impact on 

Forest revenues in the f ir s t ye ar. Thus i t would diminish payments to 

counties o f 25% o f revenues as payments in li e u o f taxe s. The in ­

clusion of a ll exis ting contracts would enlarge the f ir s t year impact on 

revenues and payments to counties.

Opera tion o f the program would re quire a comprehensive bookkeeping 

system with records of unused c re d it s , a cre dits tr ansfe r system, and
113

ot he r measures and controls . Since some roads are "pu rchaser cre d it" 

types and others are not because they are temporary and associa ted with 

the logg ing op eration, a s t r ic t d if fe re n ti a ti o n would be necessary. 

Re latio n o f S. 364 to Broa der Issues

Under the present system of tim ber sales the "c os ts" associated with 

tim be r removal and transportation are estima tes based on the past and 

based on averages. The tim be r bidd er is actu ally bidd ing on the stumpage 

and he is bidding fo r fu tu re use. There is a ge ne ra lly poor corr ela tion 

between appraised pr ice fo r stumpage and price bid . I t is d if f ic u lt to 

as ce rta in the extent to which antic ip ate d fu tu re pro duct values , the 

actual costs each bidd er expects to remove the tim be r, di ffe re nc es in 

u til iz a tio n pla ns, tax consequences, tim ber mixtu res and bidd ing stra te gies 

fi g u re in to the bid actu a lly entered and the price paid fo r tim be r. In 

a ll events the actua l expenditures fo r roads have not been sejregated

4L «

• in a manner th a t would enable the Fores t Service to

know with cert ain ty which part o f the costs actu ally experienced are 

pr ope rly chargeable to the road and which rep res ent costs o f tim be r removal 

Over the pas t few years the road program has shifte d so th a t in ­

stead o f about 50% o f the roads needed fo r the permanent system being 

cons tru cted with ap propriated funds and the work done by independent 

road co ntracto rs , on ly about 5% are now so co ns tru cted . In additio n, 

the re lia nce on tim be r purchaser co ns tru ction fo r over 95% o f the roads 

has plac ed a ll o f the emphasis on roads fo r tim be r removal ra th er than 

com pletion of the road network needed fo r m ultip le reso urce management,
114

in clud in g ca re fu lly planned harves t o f commercial tim ber to secure 

maximum yelds fo r fu tu re commercial stands.

The increa sing requirement th at roads needed on the Nation al Forests 

be paid fo r ou t o f the tim be r, using the device of red uctions in the 

appraised price o f the tim ber and the techniqu e of re qui rin g th at the 

tim be r purchaser co ns tru ct the road, poses su bs ta nt ial, problems th at 

S. 364 does not tr e a t.

The ba sic positio n of the tim ber in dustry has been th at the "e stim at ­

ed road co st" should be tran slat ed in to an actual road cost and th a t, 

to the ex tent th a t actual costs exceed the es tim ate, th is sum should 

be a "c re d it " ap plicab le to payments fo r tim be r. The concept is a 

variant o f "c ost" plus co nt ra cting and would sing le out roads, from a ll 

o f th e ’ "c osts" in tim ber pro cessing , fo r such treatm ent.

The Executive posture o f not using d ir e c tl y autho rized funds fo r 

Forest Road and T ra il Con struction, w hile re ly in g on tim ber price re ­

ductions and tim ber purchaser construction, creates the problem. The 

road co nstru ction program has been moved outside the normal means by which 

roads are secured; separately financed and audited programs fo r road constr uction done by road build in g firm s, with bids fo r the job s in accordance 

with the normal manner of ou tlin in g costs fo r the spe cific jo b. In the 

tim be r s it u a ti o n , where pa rt o f the co ntract is to pay cash fo r a pro duct 

with value and pa rt o f the co ntract is to pay with the service s in the 

form o f a roa d, these are serious problems in pricin g and con tr o l. The 

"road co st " could be separated and a dual bid system used with the 

fir ms o ff e ri n g a high bid fo r the tim be r and a separate itemize d below 

bid fo r the road (as is done in road contracts ). However, under such
115

a plan one timber firm could enter a high bid fo r the road and a low 

bid fo r the tim ber, while another might off er a low bid fo r the road 

and a seemingly high bid fo r the timber. In the conversion of the 

estimated costs to actual costs, the successful bidder might well have 

offere d less than the unsuccessful bidder and the re sult would be to 

complicate the entir e process. This is the dire ctio n in which S. 364 

heads.

A need exists to review the en tire road program and to consider the 

extent to which the orde rly harvest of National Forest timber, and the 

orde rly movement toward securing the optimum level of multiple-use 

management and sustained yie ld of resources is aided or inhibited by 

the present po lic ies and pra ctic es.

S. 364 seeks to enlarge on and convert ad ministrative provisions to 

statutor y requirements. In order to avoid adding undue complications or 

autho rizing more than is intended, the b ill, i f enacted, needs greater 

sp e cific ity, the de fin itio n of terms, and a fu ll explanation as to exactly 

how i t would operate.

Fin ally , in th is analysis only the simple timber sale has been used 

fo r analysis, not the escalation clause sale. The la tt e r is more complicated to expla in. An e ff o rt to cr edit road construction would add 

fu rther complications in th is type of sale since the escalation clause 

acts to li m it stumpage increases and a f i l l unused road cr edit could 

have added windfall type features i f not care fu lly safeguarded.

Comptroller General's decision B. 175840, June 16, 1972, which bears

on th is issue is attached.

REW: ami
116

Mr. E vans. As Com mission er Do ern er pointed out, I would like to 

add a couple of com ments as far as we are concern ed. Th e ma in problem we are all faced with here toda y is the me tho d of the back door 

financ ing fo r these National Fo rest Service roads. Th e ch ar t on page 10 of the backgro und paper does hig hlight the 

drastic cha nges occurring in the la st few yea rs as we mov e to the pu rchase cre dit method for fina ncing these roads. Also in th at bac kgrou nd 

paper we would like to call yo ur at tentio n to the pro ble ms described 

on pages 11 through 14 as a resu lt of this typ e of financing. We believe 

th at this comm itte e and oth ers should consider those problems.

Se na tor M cClu re. I migh t in te rr upt at th at po int to indic ate th at 

it is my hop e and I think the i nten tio n of the c om mi ttee to hold hearings late r in regard to the roa d building pro gra ms gen erally on public 

lands. We will take a much dee per look at the quest ion s you have raised 

on pages 11-14 of the atta ch m en t. Th an k you.

Mr. E van s. I am glad to hear th at .

As fa r as specific NAC O position on S. 364, as C om missioner Doe rner 

indic ate d, we app rec iate yo ur conce rn for the im pa ct on countie s. We 

are supp ortiv e of this co mmittee ’s efforts to help the tim be r indu str y 

who we feel are also being financ ially penalized along w ith counties by 

the cu rren t financing metho ds. Un de r certain con ditions we believe cou ntie s would no t objec t to a 

deferral of our share of pu rch ase cre dits in order to stim ulate the 

econom y and help the tim ber com pan ies. How ever, before ma kin g a 

specific endorse me nt we would like to see more of the fina ncial impac t 

da ta th at yo ur com mittee has toda y req ueste d so th at we can review 

thi s with our impac ted cou ntie s. We believe also, as Mr. To lle na ar will po int out, th at the re are 

certa in p ortio ns of S. 364 in its c ur re nt language th at need clarification 

and possib ly some am endm ents. I think with th at it prob ably w ould be be tte r to have Mr. Tollenaa r 

indic ate some of these areas th at we thi nk need clarification.

Se na tor McClure. Tha nk yo u very much.

STATEMENT OF KENNETH C. TOLLENAAR, DIRECTOR. BUREAU OF

GOVERNMENTAL RESEARCH AND SERVICE. UNIVERSITY OF

OREGON

Mr. T ollena ar. Mr. Ch airm an , mem bers of the comm itte e, my 

name is Ken Tollenaar. I am director, Burea u of Go vernme nta l Research and Service of the Un iversit y of Oregon. I am ap peari ng toda y 

as a co ns ultant to the Na tio nal Association of Co untie s and the Associa tion of Oregon Cou nties. Se nate 364 would allow bu ye rs of two or more tim be r sales in the 

sam e na tio na l fore st to tra ns fer unused pu rch aser cre dits from one 

sale to anoth er, using the tra ns ferre d cre dits in lieu of cash p ayme nts . In gen eral, the legislation wou ld be to the ad va ntag e of tim ber pu rchasers and to the disadv an tag e, at least in the short run , of the 

Federal Treasury and co un ty governm ent, because of the delay if n ot 

absolut e red uction in pa ym en ts of some of the stu mpa ge charges. 

W he ther the net re sult will be in the public int ere st will dep end largely 

on how the legislation is w ritten to apply or no t ap ply to differen t
117

kinds of situations, and perhaps to the tradeoff involving the timing 

of 25 percent payments which NACO has suggested. I might add 

parenthetically tha t the National Association of Counties, NACO, is 

suggesting a speed up, if possible, in the payment of the 25 percent 

charges, shared revenues to county governments which are now paid 

annually.

If these are to be paid monthly or quarterly, there would be some 

offsetting advantage to this legislation in the increased interest earnings which could be derived at the county level.

My testimony deals with some limitations which should be adopted 

to protect the public and the county interest, with some needed 

clarification of the language or intent of S. 364, and with the need for 

additional data necessary to evaluate the impact of this legislation.

D E F IC IT SA LE PR O B LE M

One major concern of the counties is the application of S. 364 to 

deficit sales. Timber is sometimes sold at rates so low th at allowing the 

full purchaser credit would reduce the purchaser’s obligation to less 

than base rates.

Since this is apparently done after consultation with potential 

buyers, who by submitting their bids agree to build the specified 

roads even though the difference between the appraised or bid rate 

and base rate is insufficient to allow the full purchaser credit, it seems 

logical to prohibit transfer of any portion of such credits below the 

base rate. To allow such transfers would reduce Federal Treasury and 

county revenues absolutely, rather than merely delay them.

If this type of limitation is accepted in principle, either the legislation or the regulations which will implement it should clearly specify 

tha t it applies not only to sales which are offered initially on a deficit 

basis, but also to those which become deficit sales through operation 

of escalation clauses.

The legislation or regulations should also stipulate tha t transfer 

of credits would be allowed only to the extent tha t the base rate plus 

the transferred credit does not exceed the Forest Service’s advertised rate.

If this limitation is not included, purchasers will be apt to bid up 

sales th at otherwise would be deficit sales just to protect the transferability of purchaser road credits, and this will in turn reduce Federal 

and county receipts absolutely, rather than merely delay them.

R E S T R IC T IO N TO PU R C H A SER R E L IE F

The purpose of S. 364, as stated in a memorandum by the National 

Forest Products Association dated April 24, 1975, “is to allow National 

Forest timber purchasers to more promptly be paid for the actual work 

they perform on Federal forest lands.” If this is the purpose, the legislation or the regulations should contain some provisions to prevent the 

use of transferred road credits as a hedge against fluctuations or general speculation in the market price of wood products.

It would appear to be in the interest of the counties and the Federal 

Government to insure that purchaser credit transfers will be used 

only to the extent necessary to secure the stated objective.
118

Several types of constraints might be considered to effect this purpose. It might be clearly spelled out in the legislation or regulations 

tha t transfers would be permitted only between sales held by the 

same buyer, and that the earned credits could not be assigned to other 

buyers except as part of a transaction involving all of the original 

purchaser’s interests in the sale. It might also be desirable to limit or 

perhaps prohibit transfers of credit among subsidiaries of the same 

paren t company.

N E E D TO CLARIF Y IN T E N T O F T H E LEG IS LA T IO N

The language of S. 364 is broad and general, and it may be necessary 

to clarify its intent. For example, the bill refers to “purchaser credit 

earned by road construction but unused thereunder,” but does not 

define these terms. Presumably, the purchaser credit will be earned only after the 

road is built and accepted by the Forest Service, and credit will not 

be transferable until that happens. Similarly, it will be unused only 

so long as it is not applied against stumpage charges and then only to 

the amount charged between base rates and the advertised rates, as 

suggested previously. Other clarifications may be needed. It perhaps should be spelled 

out tha t transferable credit applies only for permanent, multipurpose 

roads and not for temporary roads which are figured as part of logging 

costs. Since the purchaser credits are allowed not only for construction 

but also for maintenance, it should be carefully considered whether 

maintenance credits should be transferable along with construction 

credits. Finally, in view of the statem ent on page 2 of the bill that “cash 

payment for timber cut under a c ontract from which purchaser credits 

are transferred cannot he less than the sum of (1) any such credits 

transferred, and (2) timber value a t base rates,” it should be clarified 

tha t in any event a purchaser must pay, in cash or credits, the amount 

he bid plus or minus the effect of escalation and other contract 

adjustments.

N E E D FO R A D D IT IO N A L IN FO RM A TIO N

It has proven quite difficult to analyze the impact of this bill upon 

county government in the absence of hard data and estimates that 

would indicate the amount of money involved. To date, we have seen no data on the number of buyers holding 

two or more sales in the same National Forest, the number of sales 

held by each such buyer, the total amount of earned and unearned 

credits involved in these sales, or the amount of existing earned credits 

tha t would apply below base rates if deficit sale transfers are allowed.

It would also be helpful to have an estimate of the amount of 

credit tha t would actually be transferred if S. 364 is enacted, which 

presumably would be less than the amount eligible for transfer.

Senator McClure. Thank you.

Mr. Doerner, do you have any comparison of the counties receipts 

from O. & C. sales, as compared to the share from Forest Service 

sales? For example, in Douglas County?
119

Mr. Doerner. Yes, I do. I can give you a general idea. In the last 

10 years the receipts from O. & C. timberlands has tripled approximately. The National Forest receipts have approximately doubled. In 

other words, the O. & C. receipts have gone up higher in spite of the 

fact tha t the same buyers are buying the timber and they are making 

the same things out of it.

Senator McClure. Have increased Forest Service road standards 

been a factor in th at difference in recoverable amounts to the counties?

Mr. Doerner. I don’t know tha t the standards would have the 

effect. But the trend, I am certain, of shifting to the timber purchaser 

construction of roads has a very definite effect upon it.

A few years ago about 50 percent of the roads were built with appropriated funds. This has decreased to practically 5 percent or so.

Senator McClure. Mr. Tollenaar, you raised a couple of questions 

tha t I would like to explore a little further. One is in regard to the 

deficit sale, on the first page of your statement, you indicate tha t 

apparently after consultation buyers are willing to buy on deficit 

sales, where the road costs are greater than the difference between the 

total sale and the base price.

Is it your intention to convey tha t they are given credits for road 

construction; tha t is, greater than the difference between total sale 

and base price?

Mr. Tollenaar. I think on the deficit sale situation, as I understand it, Senator, and I might add tha t the deficit sales are somewhat 

rare in western Oregon-----

Senator McClure. I wish they were rare in north Idaho, but they 

are not.

Mr. Tollenaar. I don’t think the implication here is th at they are 

given credit for tha t difference. Rather the implication is reversed, 

tha t the purchaser under those conditions in fact has to absorb the 

extra cost.

Senator McClure. If he absorbs the extra cost, then it wouldn’t 

be a transferable credit.

Mr. Tollenaar. This is the point that I think needs to be clarified. 

Apparently the proponents of the legislation are agreed tha t they do 

not intend this to operate that way.

Senator McClure. It would be tha t amount of road cost that was 

identified in the contract is all that would be transferable and tha t 

would be above the base price.

Mr. Tollenaar. I think above base price.

Senator McClure. As a matter of fact, if the road cost is greater 

than the difference and they still bid that in effect is a bid of a 

higher price.

Mr. Tollenaar. I do wish to reenforce, though, one point tha t is 

made on the second page, the first full paragraph at the top of the 

page of my testimony; that is, that if we are really going to exempt 

deficit sales from these transfers, that I think it would be important 

to stipulate that the transfer of credits be allowed only to the extent 

that the base price, base rate, plus a transfer credit, does not exceed 

the advertised rate, because you can conceive of situations in which 

the advertised rate was low enough th at bidding that up to establish 

the actual rate for the sale would make purchaser credits which otherwise couldn’t be transferred, transferable.
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So something I think needs to be done to plug that, to carry out 

what is apparently the inten t of the performance and certainly consistent with our hope, too.

Senator McClure. The second question I had was your comment 

about credits other than road building credits, maintenance costs. My understanding tha t the standard forest contract identifies those costs in the contract, but they are not recoverable costs in the same way 

tha t road building costs are. Is that not correct?

Mr. Tollenaar. I must admit to some confusion on that point 

because when the Forest Service supplies data to us on the extent of these credits, they always have separately identified purchaser credits for construction and purchaser credits for maintenance and the maintenance credits are rather substantial. I gather that tha t is separate and apart from the log costs which are established as allowances under the contract. So tha t is why I think some attention needs to be given to tha t problem and some 

clarification.

Senator McClure. It certainly wouldn’t be our intention tha t the 

maintenance costs be transferable. But I think the contract identified them separately so that there is no real problem involved in that any more than there would be in any of the other practices that are 

required as costs to the contract. It is a point that we ought to hear in mind as we look to see whether 

the legislation really expresses what we intended i t should.

Senator Domenici?

Senator Domenici. I have just a couple of more general questions. 

You have had the county platform introduced. Mr. Evans introduced it. I assume with your background you have looked into this bill and also have looked into the overall problem tha t we are discussing. Is 

tha t not correct?

Mr. Tollenaar. I have some familiarity with the overall problem. 

Yes, sir.

Senator Domenici. Their county platform seems to take the position tha t road construction within these areas by timber purchasers should be directed toward only those roads required for flexibility in 

the operation. Forest access roads should be constructed and maintained to the appropriate standard for harvesting timber and for maximum utilization of other resources including these forest lands. My question is that most of your concern this morning, as you testified on 364, has to do with changing from an existing situation to another one and how the counties might be affected in the interim. But if we preserve the 25 percent tha t is to go to them and got over this hurdle of advanced funding and actually carrying the capital load for long periods of time that is under discussion, you would find no problem with the counties platform approach, would you, in terms of better fidfilling the roadway needs on forest lands than the present 

policy?

Mr. T ollenaar. I would certainly strongly endorse the counties 

platform which deals with this other issue that was discussed earlier about the proportion of these roads which are a financed or appro­ priated funds versus the portion which are financed through purchaser 

credits.
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For many, many reasons, some of them having to do with the impact 

on the operators who are testifying in support of the bill, others having 

to do with the sound management of the forest research itself, it is far 

better to build permanent, multipurpose, multiuse roads out of regular 

obligations and handled in the normal procedure as any other highway 

construction project.

Senator Domenici. As a matter of fact, tha t amount increases the 

net to the counties from the 25 percent because there would be far less 

deducted from the total foresting contract by those who are buying the 

stumpage. Is tha t not correct?

Mr. Tollenaar. Th at is an incidental part of it and one which we 

are very interested in. Yes.

Mr. Doerner. If I could add to that, in the early sixties, the N ational Association of Counties lobbied and Congress responded to much 

higher appropriation for forest roads and trails.

As you see by the chart, it never reached that. By administrative 

policy the objectives there have not been reached. Had they been 

reached, we wouldn’t be here today, I am sure.

Senator Domenici. As a matter of fact, the maintenance of the 

existing approach doesn’t necessarily assure better forest roads or 

even better roads by a county because from State to State there is 

great flexibility as to what they do with their 25 percent. Is tha t 

not correct?

Mr. Doerner. That is true.

Senator Domenici. In fact, the law permits them to use that money 

for schools, roadways and a variety of things. We don’t have before 

us anything indicating that it is directly related to the roadways in 

a county or more importantly roads of a general type on forest lands. 

Is that not correct?

Mr. Doerner. Th at is correct.

Senator Domenici. I have no further questions, Mr. Chairman.

Senator McClure. First of all, I have been handed a note by the 

staff tha t the purchaser credit is not earned by maintenance. It may 

be th at it is reflected in Forest Service figures t hat are reflected to the 

counties as impact road operations upon the 25 percent receipts to 

the counties because it would, if there is a cost of operation imposed on 

the sale, it would reduce the bid price on the timber.

So it would affect your 25 percent payment. But according to the 

staff at least it is not a credit to the purchaser. Therefore, it would 

not be affected by the language of this bill.

If you would like to look a t it further and investigate further and 

communicate with us on tha t particular subject further, we would 

welcome that input.

We will also check to make certain tha t is correct.

Senator Domenici. Mr. Chairman, I must leave. I would like to 

ask the chairman who is the principal author of the bill about one 

other point raised. It has to do with whether or n ot in the exchange 

of this credit, whether or not we ought to be specific and not let subsidiaries and others tha t perhaps were not the prime contractor in the 

original sense take advantage of this credit.

I assume that as principal author of the bill you definitely had in 

mind tha t the company tha t made the outlay be the one tha t gets 

the credit and tha t it not be used by a new subsidiary to give them 

a competitive advantage in another area, did you not?
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Senator McClure. It would be my contemplation tha t there was 

a legal identity of both contractors under both contracts, the one tha t generated the credits and the one tha t received the credits. I wouldn’t think tha t there is a variation except possibly as a legal successor to a reorganized company. I don’t think you would want to tie it down too tightly that they couldn’t benefit.

Senator Domenici. But so far as disposing of them or bartering with 

them, it certainly was not the intention of the legislation.

Senator McClure. That is correct.

Senator Domenici. I t is clear to me. We ought to get it on the record 

tha t that wasn’t your intention.

Senator McClure. That is correct.

Mr. Doerner. Mr. Chairman, one other point that we did not have testimony on, looking at it from the industry standpoint, bv forcing them to bear the burden of building many of these roads and financing them, we are asking them to take two risks. They are taking what the marketing of the timber, the end product is going to be, and we are taking another risk on what the inflation will do to the road system. The price of asphalt, it is very uncertain what it will be 3 years from now. It seems we would be spreading the risk if we could shift, back to to true road contractors, bidding and building these roads keeping road construction to the people tha t they are most familiar 

with.

Senator McClure. I would agree with the statement tha t you have just made, Mr. Doerner. I am one of obviously less than a majority of the Senate and when I served in the House less than a majority in the House who tried very hard to keep the Forest Service in the busi­ ness of paying for the roads tha t they were building, either through construction or by contract, which was the usual mode on anything 

except the very smallest of jobs. We have not been able to persuade Congress to appropriate enough money. I suspect that the reason we are here today is th at the Forest Service has been very resourceful. They have found a way of getting the job done when they couldn’t get enough money out of the ap­ propriation process. They did it by transferring those costs to the purchaser of the timber and to the counties that otherwise would have 

shared in a much larger fund than they now share. As I mentioned earlier, it is my hope that the Public Works Com­ mittee will get into the hearings later this year in regard to the general problems of road building on the public lands of the United States, 

both the Forest Service and BLM. That has been contemplated that tha t would be done in connection with the general oversight responsibility of the committee and also in connection with a possible revision in the general highway statutes 

of the United States. There is some possibility, I guess, tha t the administration proposal for revision of the general highway legislation might be delayed late enough in the year tha t we wouldn’t get around to it this year. But it would be my very strong hope that if the general legislation is to be delayed, if we are talking about a change in the distribution formula out of the highway trust fund, matters of comprehensive na­ ture such as that that might delay the consideration of the basic legislation, that we will still have the opportunity this year to go for-
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ward with hearings concerning the Federal responsibility on public 

lands because I think we have rather gotten ourselves into this situation by inattention rather than attention to the problem.

I particularly appreciated your statem ent, Mr. Doerner, in regard 

to the general attitude of commissioners like yourself, located in 

communities where forest operations are such a matter of high priority 

to local government and your willingness to accept some of the burden 

of delay in receipts in the 25 years fund if tha t is necessary in order 

to get something done tha t will help the forest industries that provide 

the tax base and the paychecks for the people th at live in your counties.

1 am not at all surprised at that testimony. I anticipated it. 1 am 

very much pleased by it. Thank you.

Mr. Doerner. Thank you for your comments, sir.

Senator McClure. Thank you.

A letter from the Hobin Lumber Co. and the Simonson Lumber 

Co. will be made a pa rt of the record at this point.

[The letters referred to follow:]

H o b in L u m ber C o ., 

Ph ilo ma th, Oreg., M ay 15, 1975. Re T ra ns fe ra bl e ro ad cr ed its , S- 36 4.

Hon . L lo yd M. B e n t s e n ,

Cha irman, Subcommittee on Tran sportatio n of the Sena te Pub lic Works Committee, Dirksen S enate Office Bu ild ing, Wa shi ngt on, D.C .

D ea r S en a to r B e n t s e n : We are a sm all in dep en dent sawmill loca te d in W es tern Or egon em ploy ing ap pro xim at el y 100 em ploy ee s w ith an an nual pa yr ol l in 

exc ess of 1.3 millio n do lla rs pl us th e em pl oy m en t of contr act log gers w ith a to ta l 

nu m ber of em plo yees an d pa yr ol l of abou t on e-ha lf of th e ab ov e. We de pe nd 

up on th e pu rc ha se of U.S. F ore st Servi ce ti m ber fo r ap pro xim at el y se ve nt y- five 

per ce nt of ou r raw m at er ia l.

The re qu ired co ns truc tion of fo re st ro ad s for th e gove rn m en t ru ns in to th e 

hun dr ed s of th ou sa nd s of do lla rs pe r ye ar. Du e to w ea th er and sche du lin g pro blem s we someti mes ha ve as hi gh as $300, 000.0 0 in ve sted in ro ad co ns truc tion 

pr io r to be ing ab le to rem ov e ti m ber from a part ic ula r sale in or de r to receive 

cr ed it fo r th e wo rk al re ad y ac co mplishe d.

We he ar tily su pp or t th e pa ss ag e of S- 36 4 co nc erni ng th e tr ansf er of es ta bl is he d 

ro ad cr ed its be tw ee n ti m ber sa les w ith in th e sa m e national fo re st boundar y.

A po sitive ac tio n by th e Con gres s on this prop os al wo uld m ea n th a t we wou ld: 

(1.) ha ve to bo rro w less mon ey to financ e pu blic fo re st ro ad s, (2.) im pr ov e our 

ca sh flow co ns iderab ly, (3.) be no ad de d co st or ex pe ns e to th e go ve rn m en t, (4.) 

benefic ial to th e em pl oy m en t of co ns truc tion cre ws and re la te d pe rson ne l an d 

(5.) wou ld be no n- in fla tio na ry .

Thi s pr og ra m is w or ka ble and co uld easily be in co rp ora te d in to th e cu rr ent 

ac co un ting process of th e in di vid ual na tion al fo re st an d its sy st em of in di vi du al 

sal es an d bu ye r ac co un ts. I t wou ld also pr ov ide a mor e ev en flow of co ns truc tion 

and fin ish ed ro ad s for log hau ling an d pu blic use .

T hank yo u for th is o p p ort unit y to co m m en t on w hat we be lie ve is a benefic ial 

act fo r all concern ed.

Sincere ly,

T ho m as T. B u r g ess ,

Tim ber Ma nager

Sim on son L u m b e r C o.,

Sm ith River, Ca lif., M ay 15, 1975.

M em b er s o f th e S u b c o m m it tee on T ra n spo r ta tio n o f t h e S en a te P ubli c

W o r k s C o m m it tee,

Dirk sen Sena te Office Build ing, Wa shing ton , D.C.

G e n t l e m e n : Sim onson Lum be r Com pa ny of Sm ith River , Califo rn ia wishe s

to info rm yo u of ou r fee lings th a t Se na te Bill (S-364 ) will gre at ly he lp us in co ntinuin g to op er at e on ti m ber pur ch as ed fro m th e U nited S ta te s For es t Servi ce.
124

This bill, if passed, will have the ultimate effect of allowing this company to 

reduce a cost, the cost of borrowing money, which at this time is a necessity. All too often, over the last few years, the wood industry has experienced the passage of much legislation on the Local, S tate and Federal levels of government which has caused restrictions on the resource used in manufacturing wood pro d­ ucts. Most of these restrictions have caused an increase in operating costs which have in tur n been passed on to the consumer in the form of higher selling prices of the products. Senate Bill (S—364) is a bill th at definitely will not cause an increase in the price of products produced and quite possibly will reduce operating 

costs enough to influence the final product. Simonson Lumber Company considers the following advantages will be obtained if this bill is passed:

1. There appears to be no cost to the public. 2. Road construction be increased further ahead of harvesting of timber. 3. It will improve employment opportunities with this company because of

increasing road construction program.

4. It will reduce our demand for borrowing money.

5. It will hav e a beneficial effect on our cash flow.

6. It is non-inflationary. I respectfully request that this bill (S-364) be given stron g consideratio n of 

acceptance by this comm ittee.

Sincerely, R ic hard C o x, 

Ass ista nt Resource Manager.

Senator McClure. If there are no further witnesses, the meeting 

will be adjourned. [Whereupon, at 1 p.m., the committee recessed, to reconvene 

subject to the call of the Chair.]

o