[Federal Register Volume 73, Number 181 (Wednesday, September 17, 2008)]
[Notices]
[Pages 53817-53820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-21613]


-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Forest Service


Determination of Substantial Overriding Public Interest for 
Extending Certain Timber Sale Contracts

AGENCY: Forest Service, USDA.

ACTION: Notice of Determination of Substantial Overriding Public 
Interest.

-----------------------------------------------------------------------

SUMMARY: Pursuant to section 472a(c) of the National Forest Management 
Act of 1976 (NFMA), and the authority delegated at 7 CFR 2.20, the 
Under Secretary of Agriculture for Natural Resources and Environment 
has determined that the substantial overriding public interest (SOPI) 
justifies the use of market-related contract term adjustments (MRCTA) 
to extend beyond 10 years, certain existing green timber sale contracts 
tied to Softwood Lumber index <greek-i>0811 and Hardwood Lumber index 
<greek-i>0812 that were awarded prior to January 1, 2007. This SOPI 
determination is based on the sustained drastic reduction in softwood 
lumber prices since 2004 and the more recent hardwood lumber decline.

DATES: The determination was made on September 10, 2008 by the Under 
Secretary of Agriculture for Natural Resources and Environment.

FOR FURTHER INFORMATION CONTACT: Lathrop Smith, Forest Management 
Staff, (202) 205-0858 or Richard Fitzgerald, Forest Management Staff 
(202) 205-1753; 1400 Independence Ave., SW., Mailstop 1103, Washington, 
DC 20250-1103.
    Individuals who use telecommunication devices for the deaf (TDD) 
may call the Federal Information Relay Service (FIRS) at 1-800-877-8339 
between 8 a.m. and 8 p.m., Eastern Standard Time, Monday through 
Friday.

Background

    Section 472a(c) of NFMA provides, in part, as follows:

    Unless there is a finding by the Secretary of Agriculture that 
better utilization of the various forest resources (consistent with 
the provisions of the Multiple-Use, Sustained-Yield Act of 1960) 
will result, sales contracts shall be for a period not to exceed 10 
years: Provided, That such period may be adjusted at the discretion 
of the Secretary to provide additional time due to time delays 
caused by an act of an agent of the United States or by other 
circumstances beyond the control of the purchaser.\1\
---------------------------------------------------------------------------

    \1\ 16 U.S.C. 472a(c).

    Although the Forest Service generally does not allow the extension 
of timber sale contracts beyond 10 years, the Secretary of Agriculture 
may extend such contracts beyond 10 years if he determines doing so 
will result in the better utilization of the various forest resources. 
However, the Secretary ``shall not extend any contract period with an 
original term of 2 years or more unless he finds (A) that the purchaser 
has diligently performed in accordance with an approved plan of 
operation or (B) that the substantial overriding public interest 
justifies the extension.'' \2\
---------------------------------------------------------------------------

    \2\ Id.
---------------------------------------------------------------------------

    The Under Secretary of Agriculture for Natural Resources and 
Environment has determined that a healthy timber industry 
infrastructure results in the better utilization of the various forest 
resources. The grant of additional MRCTA time to purchasers eligible 
for relief under this SOPI is intended to help maintain that 
infrastructure by preventing timber sale purchasers from defaulting on 
their contracts, closing their mills, and filing for bankruptcy 
protection. Having numerous economically viable timber sale purchasers 
is in the substantial overriding public interest for many reasons, 
including the following: (1) It allows the Forest Service to accomplish 
land management objectives in a cost-effective manner; (2) it increases 
competition for National Forest System timber sales and can result in 
higher prices paid for timber; (3) it helps

[[Page 53818]]

provide a continuous timber supply to the public in accordance with the 
Organic Administration Act; (4) it helps accomplish fuels reduction 
projects; and (5) it helps maintain the economic stability of 
communities dependent upon the timber industry.
    MRCTA relief granted pursuant to this SOPI must be made in 
accordance with 36 CFR 223.52, subject to the following exceptions:
    (a) Notwithstanding 36 CFR 223.52(c)(3), up to 4 years may be added 
to a contract's length by MRCTA;
    (b) Notwithstanding 36 CFR 223.52(c)(4), the revised contract term 
may exceed 10 years; and
    (c) No contract subject to this SOPI may have its termination date 
extended past December 31, 2013.

Periodic payments shall be adjusted pursuant to 36 CFR 223.52(d).
    The following types of contracts are not eligible for relief under 
this SOPI: (1) Contracts the Forest Service determines are in urgent 
need of harvesting for reasons including, but not limited to, 
deteriorating timber conditions or public safety and (2) contracts that 
are in breach.
    To determine when there is a drastic decline in lumber prices 
sufficient to trigger a market-related contract term addition, the 
Forest Service monitors two producer price indices maintained by the 
Bureau of Labor Statistics (BLS): <greek-i>0811 Softwood Lumber and 
<greek-i>0812 Hardwood Lumber. These indices are published monthly by 
the BLS, but the Forest Service only uses the indices from the last 
month of each calendar quarter (March, June, September, and December) 
to calculate when MRCTA triggers. Because the BLS indices are not 
adjusted for inflation, the Forest Service uses a relative index 
adjusted for inflation that allows comparisons to be made over time on 
a constant dollar basis. The relative index is calculated each quarter 
by dividing 100 by the BLS all commodities index for that month and 
multiplying the result times the monthly indices <greek-i>0811 and 
<greek-i>0812. All references to BLS indices <greek-i>0811 and 
<greek-i>0812 in this notice are to the Forest Service's relative 
index.
    The current decline in the softwood lumber index is the worst on 
record going back to March 1949. After peaking in the third quarter 
2004, softwood lumber index <greek-i>0811 steadily declined so that by 
the end of the second quarter (June) 2008, it had decreased by 47 
percent. Beginning with the third quarter of 2005 and continuing 
through the second quarter of 2008, there were 12 consecutive calendar 
quarters where the declines were large enough to trigger MRCTA. The 
only other comparable market decline took place during the early 
1980's, but the current decline in the index value is worse as can be 
seen in the table below.\3\
---------------------------------------------------------------------------

    \3\ The number of consecutive qualifying quarters if MRCTA had 
been in effect at that time.
    \4\ The decline period begins with the month the index peaked 
and ends respectively (1) when the 1980s index bottomed out and (2) 
June 2008, which is the last quarter with data available for the 
current decline.

                                              Softwood Lumber Index
----------------------------------------------------------------------------------------------------------------
                                     Number of                                                         Trigger
        Decline period \4\             months     High index   Low index    Point drop     % Drop      quarters
----------------------------------------------------------------------------------------------------------------
9/78--9/82........................           48        155.8         99.8         56.0         35.9       \3\ 12
9/04--6/08........................           45        156.5         83.8         72.7         46.4           12
----------------------------------------------------------------------------------------------------------------

    After peaking in the second quarter 2003, the hardwood lumber index 
steadily declined through the second quarter 2008. During this 42-month 
period, the index dropped 46.3 percent and triggered MRCTA for three 
consecutive quarters (September 2005, December 2005 and March 2006), 
followed by seven quarters that did not trigger. The hardwood lumber 
index has triggered again in the first and second quarters of 2008. The 
table below compares the current decline to that in the early 1980s.

                                              Hardwood Lumber Index
----------------------------------------------------------------------------------------------------------------
                                     Number of                                                         Trigger
        Decline period \5\             months     High index   Low index    Point drop     % drop      quarters
----------------------------------------------------------------------------------------------------------------
9/78-3/82.........................           42        131.7         99.6         32.1         24.3        \3\ 7
12/03-6/08........................           54        138.8         92.5         46.3         33.3            5
----------------------------------------------------------------------------------------------------------------

    During the decline in the early 1980s, purchasers faced low demand, 
decreased product prices and severe competition from Canadian lumber, 
which resulted in many purchasers being unable to operate their timber 
sale contracts. As a result, a large number of purchasers were in 
danger of defaulting on their contracts and possibly being forced into 
bankruptcy. Such an outcome could have had a devastating effect on the 
economic health of the timber industry, as well as communities 
surrounding National Forests. Accordingly, in 1980, 1981, and 1982, the 
Forest Service determined that the substantial overriding public 
interest justified granting extensions to certain timber sale 
contracts.\6\
---------------------------------------------------------------------------

    \5\ The decline period begins with the month the index peaked 
and ends respectively (1) when the 1980s index bottomed out and (2) 
June 2008, which is the last quarter with data available for the 
current decline.
    \6\ See Extension of Certain Timber Sale Contracts, 48 FR 
38,862, 38,863 (Aug. 26, 1983) (describing the SOPI determinations 
made in the early 1980s).
---------------------------------------------------------------------------

    However, the adverse market conditions continued beyond 1982. In 
July 1983, the President authorized the Secretary of Agriculture, upon 
a finding of substantial overriding public interest, to grant 
additional extensions to certain timber sale contracts without interest 
for a maximum of 5 years beyond their present termination dates.\7\ On 
August 18, 1983, the Chief of the Forest Service made such a finding, 
and the Forest Service published a notice of interim policy 
establishing the multi-sale extension program.\8\ Under this program, 
total sale life could extend beyond 10 years.\9\ The Forest Service 
published a final policy on December 7,

[[Page 53819]]

1983.\10\ Current market conditions justify a similar use of 
discretion.
---------------------------------------------------------------------------

    \7\ Extension of Certain Timber Sale Contracts, 48 FR 54,812 
(Dec. 7, 1983).
    \8\ Extension of Certain Timber Sale Contracts, 48 FR 38,862 
(Aug. 26, 1983).
    \9\ Id.
    \10\ Extension of Certain Timber Sale Contracts, 48 FR 54,812 
(Dec. 7, 1983). After the housing market decline of the 1980s, the 
Forest Service promulgated 36 CFR 223.52, which provides for market-
related contract term additions in response to adverse timber market 
conditions. See Sale and Disposal of National Forest Timber; Market-
related Contract Term Adjustments, 55 Fed. Reg. 50,643 (Dec. 7, 
1990).
---------------------------------------------------------------------------

Substantial Overriding Public Interest Determination

    The Under Secretary of Agriculture for Natural Resources and 
Environment has concluded that a viable timber industry infrastructure 
results in the better utilization of the various forest resources. 
Accordingly, the Under Secretary has determined that helping to 
maintain numerous economically viable timber sale purchasers is in the 
substantial overriding public interest.
    The public benefits when defaulted timber sale contracts, mill 
closures, and bankruptcies can be avoided by granting additional 
contract time to purchasers. For example, government resources that 
might otherwise be spent recovering losses can be focused elsewhere. 
Further, a large pool of timber sale purchasers allows the Forest 
Service to accomplish its land management objectives in a more cost-
effective manner by increasing competition for National Forest System 
timber sales, which can result in higher contract prices. In addition, 
a large number of timber purchasers can provide a more continuous 
supply of timber to the public in accordance with the Organic 
Administration Act. The timber industry also helps to maintain the 
stability of dependent communities.
    Further, the timber industry is a valuable partner in the fight 
against catastrophic fires, especially those in urban interface areas 
found throughout the western United States. In December 2003, President 
Bush signed the Healthy Forests Restoration Act (HFRA), which contains 
a variety of provisions that speed up hazardous-fuel reduction and 
forest-restoration projects on specific types of federal land at risk 
for wildland fires and/or insect and disease epidemics.\11\ The Act 
also encourages biomass removal from public and private lands.\12\ 
Byproducts removed during hazardous fuels reduction and landscape 
restoration activities are often utilized in certain forest products 
(e.g., timber, engineered lumber, paper, pulp and furniture) and bio-
energy and bio-based products (e.g., plastics, ethanol, and diesel). 
The value of these products helps offset the Forest Service's hazardous 
fuels removal costs, making treatment of substantially more acreage 
possible.
---------------------------------------------------------------------------

    \11\ 16 U.S.C. 6501 et seq.
    \12\ See e.g. 16 U.S.C. 6531.
---------------------------------------------------------------------------

    Maintaining a viable industry infrastructure capable of processing 
material removed during HFRA projects is essential; it allows fuels 
reduction projects to be accomplished with timber sale contracts that 
return money to the Treasury. The loss of a viable industry in many 
parts of the country, including the Southwest and the Intermountain 
West, has limited the opportunities to harvest insect and fire damaged 
trees. Without a viable infrastructure, the Forest Service would have 
to pay a service contractor to perform the work. However, when trees 
are harvested for products, those products provide a valuable commodity 
to the American public and reduce the government's cost of removing or 
disposing material that might otherwise have to be burned, chipped, or 
masticated. In some market areas where little industry infrastructure 
remains, the loss of a single mill can significantly increase the 
government's costs of fuels reductions projects. Further, in many 
places, particularly in the western states, the industry infrastructure 
is already too small to respond to urgent needs; additional mill 
closures will aggravate this situation.
    An example of the problems associated with limited industry 
resources is Colorado, where a mountain pine beetle epidemic is 
impacting over 1.5 million acres. Remaining industry in Colorado is too 
small to keep up with the urgent need to reduce the fire danger posed 
by this epidemic by harvesting dead and dying trees around communities 
and within municipal watersheds. In a June 4, 2008 letter to the Chief 
of the Forest Service, Colorado Senator Wayne Allard stated the 
following: ``Providing relief on the ten-year deadline for green sales 
has become a pivotal issue this year. Under existing policy, operators 
will be forced to log green sales that are reaching their termination 
dates, rather than treating much more urgent areas. More important, 
forcing them to do so during the worst market they have ever 
experienced could hasten the loss of our last remaining 
infrastructure--without which the Forest Service would be incapable of 
performing its mission.''
    Considering the extraordinary market conditions currently facing 
the forest products industry, and recognizing the need to maintain a 
viable forest products industry, the Forest Service has implemented a 
variety of relief options over the past few years. For example, in 2006 
and 2007, the Forest Service issued SOPI determinations intended to 
help timber purchasers cope with steadily declining timber markets.\13\ 
However, the 2006 and 2007 SOPIs, like those issued from 1980-1982, did 
not provide adequate relief.
---------------------------------------------------------------------------

    \13\ See Extension of Certain Timber Sale Contracts; Finding of 
Substantial Overriding Public Interest, 71 FR 66,160 (Nov. 13, 
2006); Extension of Certain Timber Sale Contracts; Finding of 
Substantial Overriding Public Interest, 72 FR 64,991 (Nov. 19, 
2007).
---------------------------------------------------------------------------

    Accordingly, in May 2008, Congress passed section 8401 of the Food, 
Conservation, and Energy Act of 2008 (Farm Bill) to provide additional 
relief.\14\ Then, as the result of an error in the Farm Bill that did 
not affect Section 8401, the May 2008 Farm Bill was repealed. However, 
on June 18, 2008, Congress reenacted the Farm Bill, which included an 
identical section 8401.\15\ In part, section 8401 recognized that, due 
to the severity of the current market decline, many contracts had 
already received the maximum MRCTA time allowed under 36 CFR 
223.52(c)(3): ``No more than twice the original contract length or 3 
years, whichever is less, shall be added to a contract's term by 
market-related contract term addition.'' Therefore, Congress enacted 
section 8401(c), which provides as follows:

    \14\ Pub. L. No. 110-234, 122 Stat. 93 (May 22, 2008). Section 
8401, depending on the circumstances, allows for the following types 
of contract modifications: (1) Rate redetermination; (2) contract 
cancellation; (3) index substitution; and (4) MRCTA extension.
    \15\ Pub. L. No. 110-246, 122 Stat. 1651 (June 18, 2008).

    (c) EXTENSION OF MARKET-RELATED CONTRACT TERM ADDITION TIME 
LIMIT FOR CERTAIN CONTRACTS.--Notwithstanding any other provision of 
law, upon the written request of a timber purchaser, the Secretary 
may, at the sole discretion of the Secretary, modify a timber sale 
contract (including a qualifying contract) awarded to the purchaser 
before January 1, 2007, to adjust the term of the contract in 
accordance with the market-related contract term addition provision 
in the contract and section 223.52 of title 36, Code of Federal 
Regulations, as in effect on the date of the modification, except 
that the Secretary may add no more than 4 years to the original 
---------------------------------------------------------------------------
contract length.

    Section 8401(c) changed 36 CFR 223.52(c)(3) by giving the Secretary 
of Agriculture discretion to award certain contracts with up to four 
years of MRCTA to the original contract term. However, section 8401 did 
not change Sec.  223.52(c)(4)'s requirement that total sale length not 
exceed 10 years.
    Nationally, there are up to 46 contracts that are prevented from 
receiving the up to 4 years of MRCTA authorized by the Farm Bill 
because of the 10-year limit on total sale length. Nine of those 
contracts are scheduled to

[[Page 53820]]

terminate before the end of 2008 and 18 have termination dates in 2009. 
Six of the 46 contracts have current termination dates of December 31, 
2013 or later. Contracts with termination dates after December 31, 2013 
are not eligible for relief under this SOPI.\16\
---------------------------------------------------------------------------

    \16\ At this time, the softwood lumber is expected to recover 
sufficiently by December 31, 2013.
---------------------------------------------------------------------------

    Therefore, up to 40 timber sales could benefit from using MRCTA to 
extend contract length beyond 10 years. While this number is not large, 
the Secretary of Agriculture agrees with Senator Allard's observation 
that forcing those sales to be operated in the current market situation 
could hasten the loss of infrastructure needed by the Forest Service to 
perform its mission. Extending these sales and other sales allows 
purchasers to delay harvest of green timber while harvesting damaged 
timber.
    Purchasers of the 40 sales potentially eligible for relief under 
this SOPI face the same market conditions as purchasers eligible for 
the additional MRCTA time authorized by the Farm Bill. Further, some of 
these green timber sales have been delayed as a result of the Forest 
Service requesting that the purchasers harvest salvage timber instead. 
Without this SOPI, many of these purchasers may be forced to harvest 
sales that are uneconomical or may face default if their contracts 
can't be extended. An indication of the economic problems facing 
existing green sales is that over 360 applications have been made for a 
rate redetermination under the Farm Bill. These applications show how 
much the market has changed over the past few years and that without 
some economic or time-frame relief, older green timber sales can not be 
harvested economically.
    The 2006 and 2007 SOPI determinations and section 8401 of the Farm 
Bill provided relief options for most National Forest System timber 
sale contracts suffering under the ongoing drastic decline in forest 
product markets. The principal exceptions are the contracts ineligible 
for additional MRCTA time because of the ten-year limit on total 
contract length.
    Therefore, pursuant to 16 U.S.C. 472a(c) of NFMA, and the authority 
delegated to me at 7 CFR 2.20, I, Mark E. Rey, Under Secretary of 
Agriculture for Natural Resources and Environment, have determined that 
the substantial overriding public interest justifies the use of MRCTA 
to extend beyond 10 years certain existing green timber sale contracts 
awarded prior to January 1, 2007, that are tied to Softwood Lumber 
index <greek-i>0811 and the Hardwood Lumber index <greek-i>0812.
    MRCTA relief granted pursuant to this SOPI must be made in 
accordance with 36 CFR 223.52, subject to the following exceptions:
    (a) Notwithstanding 36 CFR 223.52(c)(3), up to 4 years may be added 
to a contract's length by market-related contract term addition;
    (b) Notwithstanding 36 CFR 223.52(c)(4), the revised contract term 
may exceed 10 years; and
    (c) No contract's termination date shall be set past December 31, 
2013. Periodic payments shall be adjusted pursuant to 36 CFR 223.52(d).
    The following types of contracts are not eligible for relief under 
this SOPI: (1) Contracts the Forest Service determines are in urgent 
need of harvest for reasons including, but not limited to, 
deteriorating timber conditions or public safety, and (2) contracts 
that are in breach.
    To be considered for additional MRCTA time under this SOPI, 
eligible purchasers must make a written request to the Contracting 
Officer. The timber purchaser must also agree to release the United 
States from all liability resulting from (1) any relief provided by 
this SOPI, and (2) a decision by the Forest Service not to provide 
relief under this SOPI.

    Dated: September 10, 2008.
Mark Rey,
Under Secretary, NRE.
[FR Doc. E8-21613 Filed 9-16-08; 8:45 am]
BILLING CODE 3410-11-P