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

May 9, 2003 

Congressional Committees 

Subject: Natural Resources: Status of Merchantable Material Contracting 

Pilot Program Authorized by the Secure Rural Schools and Community 

Self-Determination Act of 2000

The Secure Rural Schools and Community Self-Determination Act of 2000, 

enacted October 30, 2000,1

 mandated that we assess a merchantable 

material contracting pilot program authorized by the act and report on our 

assessment by September 30, 2003. The pilot program encompasses 

certain forest-related projects undertaken as a result of the act and 

mandates the use of separate contracts for the harvesting or collection of 

merchantable material, such as timber, and the sale of that material rather 

than a single contract for both activities. 

In summary, based on our preliminary work, of the approximately 

1,300 forest-related projects approved at the time of our review, only 13 

are expected to generate merchantable material and, thus, be eligible for 

the pilot program. Only 6 of these 13 are expected to be conducted within 

the pilot program—and none of the 6 has yet been implemented. Given the 

preliminary nature of the pilot program and the small number of projects, 

a full-scale assessment by September 30, 2003, would provide very limited 

information. We briefed your offices on these findings and reached 

agreement that no further assessment of the pilot program will be 

conducted at this time. Also as agreed, we are providing this letter 

summarizing program activity to date. 

Since the early 20th century, counties containing federal lands have been 

compensated for the tax-exempt status of federal lands within their 

boundaries. This compensation generally represents a percentage of the 

receipts generated on federal lands through the sale or use of natural 

resources—such as timber, minerals, recreation, or grazing permits. 

Localities generally are required to use these funds for roads, schools, or 

other services and facilities. However, the steep decline in federal timber 

 1

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

United States General Accounting Office

Washington, DC 20548 

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

sales during the 1990s resulted in a significant decrease in federal 

payments to counties that historically depended on timber receipts. 

The Secure Rural Schools and Community Self-Determination Act of 2000 

was enacted, in part, to address the decline in federal payments by 

stabilizing payments to counties that depended on revenues from timber 

sales on Forest Service and certain Bureau of Land Management (BLM) 

lands.2

 Under the act, each county may continue to receive a portion of the 

revenues generated from these lands or can choose instead to receive 

annual payments equal to the average of the three highest annual revenue 

payments to the county from fiscal year 1986 through fiscal year 1999. 

Counties electing the second option generally must use 80 to 85 percent of 

the payments on certain county services such as maintaining roads and 

schools.3

 The remainder can be (1) reserved by the county for special 

projects that benefit federal lands, known as Title II projects; (2) reserved 

by the county for county projects related to federal lands (such as 

search-and-rescue work on federal lands), known as Title III projects; or 

(3) returned to the Treasury. The merchantable material contracting pilot 

program applies only to Title II projects. 

Title II projects are to be proposed by local resource advisory committees 

and must be approved by Forest Service or BLM; these agencies then carry 

out approved projects using the reserved Title II funds. Projects are to 

improve maintenance of existing infrastructure, enhance forest 

ecosystems, and restore and improve land health and water quality. The 

act requires that a certain percentage of Title II projects nationwide that 

are expected to generate merchantable material must be implemented 

under the pilot program, using separate contracts for harvesting or 

collecting the material and selling it.4

 The authority to initiate Title II 

projects under the act expires September 30, 2006. 

 2

The act covers all National Forest System lands as well as certain BLM lands in Oregon. 

3

Counties receiving less than $100,000 annually from National Forest System lands may 

spend up to 100 percent of the payment on these county services. 

4

In fiscal year 2001, 15 percent of Title II projects generating merchantable material were to 

be conducted under the pilot program; in fiscal years 2002 and 2003, 25 percent of projects; 

and in fiscal years 2004-2006, 50 percent. 
Page 3 GAO-03-596R Merchantable Material Contracting Pilot Program 

According to our analysis, as of February and March 2003, the Forest 

Service or BLM had approved 1,268 Title II projects. Of these, 13 projects 

are expected to generate merchantable material: 1 began in fiscal year 

2002 and is ongoing, 9 are expected to begin in fiscal year 2003, and the 

remainder to begin in fiscal year 2004 or later.5

 Of the 10 projects 

underway or expected to begin in fiscal year 2003, 6 are expected to be 

included in the pilot program using separate contracts for harvesting and 

selling merchantable material. All six pilot program projects are in Oregon, 

and all involve removing small-diameter trees. As of March 2003, no 

harvesting or collection of merchantable material had begun on any of 

the six projects. Table 1 shows the projects’ locations and anticipated 

start dates. 

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

Project name 

Project location 

(county and state) 

Title II funds 

reserved 

Estimated start 

date Managing agency 

Boaz Forest Health and 

Small Diameter Utilization 

Jackson (OR) $108,362 Spring 2003 BLM 

Density Reduction–Chetco Curry (OR) 75,000 Spring 2003 Forest Service 

Small Tree Treatment Project–Illinois 

Valley 

Josephine (OR) 67,500 Summer 2003 Forest Service 

Waters Creek Fuel Reduction Josephine (OR) 146,250 Spring 2003 Forest Service 

Westside Small Tree–Chetco Curry (OR) 75,000 Summer 2003 Forest Service 

Westside Small Tree–Gold Beach Curry (OR) 68,550 Summer 2003 Forest Service 

Source: Forest Service and BLM. 

Because of the small number of approved projects expected to be 

conducted within the merchantable material contracting pilot program, 

further assessment of the program by September 30, 2003, would provide 

limited useful information. As agreed with your offices, we are providing 

this letter summarizing program activity to date and plan no further 

assessment of the pilot program at this time. 

 5

No Title II projects involving merchantable material were approved or undertaken in 

fiscal year 2001. 

Few Pilot Projects 

Have Been Approved, 

and None Have Yet 

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

To determine the number of Title II projects, including the number of 

projects expected to generate merchantable material and the number to be 

conducted in the pilot program, we reviewed Forest Service and BLM 

documents including lists and descriptions of projects; interviewed 

officials in all nine Forest Service regions and BLM’s Oregon State Office; 

and interviewed cognizant headquarters officials in Forest Service and 

BLM. We conducted our work from January through March 2003 in 

accordance with generally accepted government auditing standards. 

We requested comments on a draft of this letter from the Secretaries of 

Agriculture and of the Interior. In response, we received oral comments 

from the Forest Service’s Director of Policy Analysis and BLM’s Acting 

Group Manager for the Forest and Woodland Management Group, who 

generally concurred with the information presented in our letter. The BLM 

official also provided some technical corrections, which we incorporated 

as appropriate. 

We are sending copies of this letter to the Secretary of Agriculture and the 

Secretary of the Interior. The letter also is available on GAO’s home page 

at http://www.gao.gov/. 

If you have questions about this letter or need further information, please 

contact me at (202) 512-3841, or David P. Bixler, Assistant Director, at 

(202) 512-7201. You may also reach us by email at hillbt@gao.gov or 

bixlerd@gao.gov. Other key contributors to this assignment were James 

Espinoza, Steve Gaty, and Diane Lund. 

Barry T. Hill 

Director, Natural Resources 

 and Environment 

Scope and 

Methodology 

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

List of Congressional Committees 

The Honorable Thad Cochran 

Chairman 

The Honorable Tom Harkin 

Ranking Minority Member 

Committee on Agriculture, Nutrition, and Forestry 

United States Senate 

The Honorable Pete V. Domenici 

Chairman 

The Honorable Jeff Bingaman 

Ranking Minority Member 

Committee on Energy and Natural Resources 

United States Senate 

The Honorable Bob Goodlatte 

Chairman 

The Honorable Charles W. Stenholm 

Ranking Minority Member 

Committee on Agriculture 

House of Representatives 

The Honorable Richard W. Pombo 

Chairman 

The Honorable Nick J. Rahall, II 

Ranking Minority Member 

Committee on Resources 

House of Representative 

(360296) 
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