With a few exceptions, the volume of salvage timber the Forest Service has offered for sale has remained fairly constant over the years. However, as the green (or nonsalvage) timber sale program has decreased in size, the salvage sale program has increased as a percentage of the total volume offered for sale. For example, even though the actual salvage timber offered for sale declined from about 2.9 billion board feet to 1.9 billion board feet in 1990 through 1996, it actually increased as a percent of total timber offered for sale from about 26 percent to 48 percent during this same period. The National Forest Management Act of 1976, as amended (16 U.S.C. 472a), established the Salvage Sale Fund as a permanent appropriation, and the Congress appropriated $3 million in fiscal year 1977 to get it started. The act authorized the Secretary of Agriculture to require timber purchasers to make deposits into the Salvage Sale Fund as part of the payment for the timber. Such deposits are then available to replenish the fund and pay for the costs of preparing and administering future salvage sales. As appropriations to fund the overall timber program have decreased, the importance of the Salvage Sale Fund as a source of funding has increased. For example, in fiscal year 1990, moneys from the Salvage Sale Fund represented 20 percent of all funds needed for the green and salvage timber programs, but by fiscal year 1996, the amount had risen to 45 percent. The Salvage Sale Fund is not the only fund in which salvage sale timber receipts are deposited. Salvage sale receipts not used to recover costs may be deposited into (1) the Knutson-Vandenberg (K-V) Fund, where they are used to reforest harvested timberlands, and (2) the National Forest Fund, where they can be used to make required payments to the states, the Roads and Trails Fund, and other obligations. Under federal law, at the end of each fiscal year, 25 percent of all moneys received at each national forest, including moneys received from salvage sales, is to be paid to the state in which the forest is located. These funds are to be expended for public roads and schools. Federal law also requires that at the end of the fiscal year, 10 percent of all moneys received is to be deposited into the Roads and Trails Fund. These funds are to be expended for roads and trails in the forests from which the moneys were derived. The Forest Service’s guidelines require that a plan be prepared for each salvage sale or group of small sales. This plan determines the amount of receipts to be deposited into the Salvage Sale Fund to recover the sale’s costs. Specifically, the salvage sale plan identifies the sale’s volume, the sale’s direct and indirect costs, and any additional amount that may be collected to meet future program needs. The salvage sale plan is the only document in which these costs are estimated and identified on a sale-by-sale basis. The Forest Service’s accounting systems do not track actual sale-by-sale costs. The history of the Salvage Sale Fund has been one of a growing balance through fiscal year 1993 and then a declining balance for the next 3 years. From the start of fiscal year 1990 through the end of fiscal year 1993, the Salvage Sale Fund’s balance more than doubled, from $111 million to a high of $247 million (see table 1). Declines through fiscal year 1996 lowered the balance to $186 million, a drop of 25 percent. The fund’s ending balance declined from fiscal years 1994 through 1996 for the following reasons: In fiscal year 1994, $40.2 million of the fund’s balance was considered excess to the salvage sale program’s anticipated needs and was used for other authorized purposes. During fiscal year 1994, salvage timber offered for sale declined to its lowest level in almost 10 years. As a result, less salvage sale receipts were collected from these sales in fiscal years 1995 and 1996. In fiscal year 1995, the emergency salvage timber sale program was implemented and additional costs were incurred to prepare and administer sales that would generate receipts largely in future years. In fiscal year 1996, as costs for the emergency salvage timber sale program continued to rise, the Forest Service deposited $35.6 million originally intended for the Salvage Sale Fund into the National Forest Fund to cover a shortage in the funds needed to make the payment to the states and other obligations. In addition, Forest Service officials stated that lowered receipts resulted from the volume offered under the emergency salvage program because the salvage timber was of lower quality. Because the fund’s balance had declined for 3 years and because the salvage sale program’s obligations for the last 2 years exceeded deposits to the Salvage Sale Fund by more than $30 million, we asked Forest Service officials to provide us with information about the agency’s ability to meet the salvage sale program’s future needs with available funding levels. They told us that the Salvage Sale Fund’s obligations for fiscal year 1997 and 1998 will be much lower than those in fiscal year 1996 because they expect a lower volume of salvage timber to be offered for sale. In addition, the Forest Service projects that in fiscal year 1997, about $167 million in salvage sale receipts will be deposited into the fund to cover an estimated $172 million in obligations. Forest Service officials expect the fund’s fiscal year 1997 ending balance to be about $182 million, an amount they consider sufficient to meet expected needs of $153 million in fiscal year 1998. Several management practices that affect the flow of salvage sale receipts into the fund need to be improved to ensure more consistency in the salvage sale program. Specifically, these practices include how regions and forests (1) establish priorities for distributing salvage sale receipts, (2) establish estimates of costs to be recovered, (3) review salvage sale plans for completeness and accuracy, and (4) satisfactorily correct deficiencies. When timber sale receipts were at much higher levels, Forest Service regional and forest-level officials decided how to distribute receipts. As a result, none of the four forests we visited distributed salvage sale receipts in the same order or complied with the legislative distribution priorities. Recently, however, declining timber receipts, combined with concerns about meeting all required obligations, resulted in headquarters actions to clarify how receipts should be distributed. It is not yet clear whether these clarifications will ensure that regions and forests handle the distributions of receipts in keeping with the different legislative priorities applicable to salvage and green sale receipts. If the separate legislative priorities are not applied, salvage sale receipts could be used for other purposes before the fund is replenished to cover costs. The first legislative priority for the distribution of timber sale receipts is the required 25-percent payment to the states. Even though the 25-percent requirement applies to receipts from both salvage and green sales, it does not require that the payment be made from the same source that generated the receipts. For example, if the receipts from green sales are sufficient, then they may be used to make the payment to the states that are attributable to salvage sales. There is one basic difference in how salvage sale receipts and green sale receipts are to be handled once the 25-percent requirement is met: Salvage sale receipts must be deposited into the Salvage Sale Fund until the sale’s preparation and administration costs are recovered. This deposit must occur from salvage sale receipts because receipts from the sale of green timber may not be deposited to the Salvage Sale Fund. Once salvage sale costs are recovered, any remaining salvage sale receipts may then be deposited in accordance with the priorities attributable to green sales. Since September 1996, the Forest Service has made several attempts to clarify how timber sale receipts should be distributed. These include amendments to the manual and the handbook as well as both interim and draft guidelines. The Forest Service issued interim guidelines in January 1997 to provide guidance until a task force developed and completed national guidelines. This task force issued its first draft in June 1997, a second draft in August, and a final report on August 28, 1997. However, none of these documents—the amendments, the interim or draft guidelines, or the final task force report—clearly illustrated the separate priorities existing for the distribution of salvage and green timber sale receipts. In its report, the task force recommended establishing priority groups to distribute timber receipts. For example, the first priority group includes required commitments for the payments to the states, the payment to roads and trails, the payments for the next year’s planned purchaser-elect road program, and the recovery of required K-V reforestation costs. The second priority group includes the regional and local needs of the Salvage Sale Fund and other reforestation activities. However, the priority groupings do not show that, unlike green sale receipts, deposits to the Salvage Sale Fund must be made to recover costs before the identified K-V reforestation requirements are satisfied. If receipts are set aside for other activities before salvage sale costs are recovered, the amount remaining may be insufficient to adequately replenish the fund. The task force’s report has been sent to the regions for implementation. How it will be implemented and interpreted remains to be determined. The four regions we reviewed were all responding in different ways to the interim guidance they had received: Officials in the Southern Region stated that because the region has always met the payments to the states and the other required payments, they saw no reason to change their established priorities as a result of the interim guidance. The region and the forests will monitor the situation to ensure that the National Forest Fund can meet all of its obligations, but the forests will continue to decide how to distribute timber sale receipts. The Pacific Northwest Region and the Northern Region have adopted regional policies similar to those in the task force’s June draft, except that the priorities within the first category have been reordered. For example, required reforestation is listed before the payments to the states. The Pacific Southwest Region is following the January interim guidance.