Legislature(1995 - 1996)
02/21/1996 08:07 AM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 344 VALUE-ADDED TIMBER SALES; MARKETING Number 017 C0-CHAIRMAN WILLIAMS announced that the committee would hear HB 344 but it was not his intent to move the bill from committee. He said Co-Chairman Green would chair the agency presentation on navigable waters and submerged lands. CO-CHAIRMAN WILLIAMS noted the arrival of Representative Davies. Number 117 CO-CHAIRMAN GREEN moved to adopt committee substitute for HB 344 as the working document. Hearing no objection, it was so ordered. Number 170 REPRESENTATIVE JOHN DAVIES asked the origination of the committee substitute and an explanation of the changes. CO-CHAIRMAN WILLIAMS stated that the changes came primarily from the Board of Forestry and would be addressed by Tom Boutin, the State Forester. Number 252 THOMAS BOUTIN, State Forester, Division of Forestry, Department of Natural Resources said that he was expecting Karl Ohls, Department of Commerce and Economic Development, to join him at the conference table. He made available his prepared testimony on the committee substitute and distributed a draft fiscal note. He introduced Ms. Kathleen Morse, Forestry Economist, Department of Commerce and Economic Development. MR. BOUTIN read his testimony into the record: "Thank you for allowing the Board of Forestry to add to the public process on HB 344. Last Fall, the Board of Forestry held a hearing on the bill and then worked what they heard into recommendations. The committee substitute adopted virtually all of those recommendations. MR. BOUTIN proceeded, "We're very pleased with the processes of which we have been a small part on both HB 212 and HB 344. The work of the House Resources Committee and HB 212 sponsor Representative Jeanette James allowed virtually all stakeholders and interests to reach an understanding. With HB 344, the Board of Forestry was able to bring its role as a consensus building body of interest groups to the process, The Board of Forestry looks for sound science and good process. MR. BOUTIN informed, "The Governor introduced this legislation in response to concerns of many groups, including members of the timber industry that we better utilize the timber that is cut in Alaska. HB 344 is our response to what we think we heard from many constituents who want better utilization of state timber. MR. BOUTIN said, "What you see in HB 344 is what we heard from people like Steve Seley, of Ketchikan. The Governor's office told me that Steve would be here to talk with you today but we just received the sad news that Steve's Dad just passed away. I understand that some other small Southeast operators would be patched into this teleconference except for the busy scheduled you have before you today. MR. BOUTIN introduced the committee substitute: "Section 1. The purpose of HB 344 is to bring some certainty of wood supply to processors who bring high value in the manufacture of state timber. The administration has talked with many small operators and they agree on at least one point they can find a market for any high-value product they can produce but they cannot buy the capital equipment those products require unless there is a reliable supply of timber. While HB 344 is not a mandate to eliminate log exports or change the forest products industry, it is still true that round log export prices prohibit small operators in Southeast from putting capital equipment in place. MR. BOUTIN continued, "HB 344 is a tool and an incentive for high value-added processing. While Governor Knowles would like small independent commercial wood users to have an advantage, this bill is directed toward maximizing the number of jobs per acre harvested and does not favor any sector of the forest products industry. MR. BOUTIN proceeded, "Section 2. provides that negotiated timber sales of up to 10 million board feet and 10 years in duration can be negotiated for use in the local manufacture of high value-added wood products. HB 344 originally provided for sales of no more than 5 million board feet per year. We did not intend that would be enough to supply all the wood needs of some types of value-added processing. However, a firm that has a certainty of supply for a substantial part of its needs can then compete on the open market for timber sold by private and public timber owners. Very few wood users receive all of their supply from one source. Number 576 MR. BOUTIN stated, "While the CS now allows sales of up to 10 million board feet per year, we would feel more comfortable with 5 to 7 million board feet as a maximum. Most timber sale contracts will be far less. A higher amount would alarm the public without gaining any utility whatsoever. The Board of Forestry did not recommend any change to the contract volume. MR. BOUTIN proceeded, "The Board heard concerns about the increase in timber offered that might result from this bill. Section 2 adopted the Board's recommendation to provide for limiting the number of contracts per region by regulation. There has been some discussion about different possible interpretations of line 16, page 2. The way I understand it, the commissioner could set a maximum number of contracts per region and that maximum must be two or more. That is acceptable to us if that is the correct interpretation. MR. BOUTIN continued, "Another area that the Board of Forestry investigated is the portion of state timber that is of sufficient quality to produce high value-added products. The CS adopts the Board of Forestry recommendation to allow consideration of other value-added wood products. MR. BOUTIN said, "Section 2, paragraph (e), required the commissioner to consider not only the economic benefits for the manufacture of high and other value-added wood products, but also the likelihood of the venture being successful, job creation and stability, fish and wildlife habitat and multiple use, and the stumpage return to the state. MR. BOUTIN informed, "The CS adds public process in providing for an updated Forest Land Use Plan after a 5-year performance review. The requirements of AS 38.05.112 (Forest Land Use Plans) and AS 38.05.113 (5 year schedules of timber sales) apply to HB 344 because the Governor wants good public process. The public has told us that at least during the past 2 years, forest land use plans and 5 year schedules have provided good public process. MR. BOUTIN continued, "The Board of Forestry looked at the list of high value-added products and recommended adding to the list. The CS has the amended list to now include veneer, plywood, finger- jointed lumber and house-logs, exactly as the Board of Forestry recommended. MR. BOUTIN said, "The Board also wanted to encourage the processing of other value-added products where the resource just cannot make high value-added products. The CS includes the list of other value-added wood products in Section 2, paragraph (k)(2). Other value-added wood products means pulp, chips, waferboard, green lumber, fiberboard, cants, slabs or planks intended for remanufacture. Similar products can be specified by regulation. MR. BOUTIN added, "Section 3. As noted earlier, the Board of Forestry heard about the public concern that this bill could lead to large increases in the amount of timber offered. The CS limits the number of these timber sales to no more than 2 per region in 1996, 1997 and 1998. "HB 344 as originally drafted provided for an Alaska Forest Products Research and Marketing Program. We had not heard of any concerns over that proposal but the CS eliminates it. Karl Ohls will talk about that in a moment. MR. BOUTIN testified, "HB 344 does not add timber sales. Timber sales on state land are unlikely to approach the ceiling of sustained yield with multiple use because of budget realties. MR. BOUTIN concluded, "HB 344 is simply a method of sale option. It does not change public process for timber sales. It does not transfer any forest management responsibilities to the timber purchaser. It does not close the door on round log exports." Number 803 KARL OHLS, Resources Specialist, Division of Trade and Economic Development, Department of Commerce and Economic Development testified stating, "the committee substitute deletes the original Section 3, which created the Alaska Forest Products Research and Marketing Program within the Department of Commerce. I understand the committee made this change because of concerns about creating a new program and adding to the fiscal cost of state government. MR. OHLS said, "The Commerce Department recognizes and respects the committee's legitimate concerns about adding more functions to state government. The department had these same concerns in mind when it decided to address HB 344 by setting new priorities within its existing budget. We currently have a budgeted position for a forest specialist in the Division of Trade and Development. We are incorporating the job duties described in the original HB 344 into the job description for the forest specialist. No additional expense would be involved. MR. OHLS declared that the department's fiscal note is zero. Number 843 MR. OHLS introduced Ms. Kathleen Morse, who will fill Commerce's existing position. "Ms. Morse currently works as a regional economist for the U.S. Forest Service. We are working on the final details of an Intergovernmental Personnel Act agreement with the Forest Service that would allow Ms. Morse to work for the state, starting in mid-March, with the official title of forestry economist. MR. OHLS said, "Ms. Morse will have two main assignments. The first is working on a strategy for maintaining a viable timber supply for the forest products industry. The second is developing a strategy for the expansion of value-added wood products. Number 916 MR. OHLS concluded, "In conclusion, the Commerce Department's view is that Section 3, as originally drafted, should reassure Alaska's forest products industry that the administration is committed to the development of value-added wood products in Alaska. The administration is willing to reinforce this commitment with language in statute. MR. OHLS added, "If the committee, however, leaves the CS as is, the department still plans to commit a significant amount of Ms. Morse's time to the duties described in the original HB 344. We believe these duties are critical for the success of our efforts to promote the value-added wood products industry. Number 998 CO-CHAIRMAN WILLIAMS noted the arrival of Representative Pete Kott and Representative Irene Nicholia announced her presence in Minto. CO-CHAIRMAN WILLIAMS apprised the committee that Marty Rutherford, Department of Natural Resources; Joanne Grace, Department of Law; and Jane Angvik, Division of Lands were on the Anchorage network. Number 1030 REPRESENTATIVE DAVIES referred to the CS on page 2, line 16, where the commissioner sets the maximum number of contracts per region. He asked if the Board of Forestry had discussed this issue. MR. BOUTIN said the Board of Forestry asked for just what is in the bill, that there be no more than two contracts per region for the three years following enactment of the bill and then a maximum per region be set by regulation. He added that the board did not tender language specific to that but asked that, "Motion Number Seven" of what we submitted to the House Resources Committee, that limit for three years be a limit of two. However, they did not ask that there be at least two per region, they asked that there be no more than two per region for the three years following enactment and after that the commissioner set it by regulation. REPRESENTATIVE DAVIES wanted further clarification and asked if the board's position was that there should be a maximum of two, or did they contemplate that the commissioner might set a limit higher than two sometime in the future. MR. BOUTIN replied that the board wanted no more than two per region for the three years following enactment and then, after that, it should be set by regulation. He said they were silent on the number and did not put, as section 2 has, that there be no less than two. Number 1164 C0-CHAIRMAN WILLIAMS addressed Joanne Grace, Department of Law, and referred to the February 19, 1996 memorandum to his office from the Division of Legal and Research Services regarding a risk that the provisions of this bill requiring local manufacture may violate the interstate commerce clause of the United States Constitution. JOANNE GRACE, Assistant Attorney General, Department of Law, informed the chairman that her attendance related to the Navigable Waters and Submerged Lands presentation and said that she was not prepared to discuss HB 344. Number 1205 MR. BOUTIN responded that he had heard discussion by other attorneys on Gerald Luckhaupt's memorandum and said the attorneys seemed divided on that issue. He stated that he had talked to a number of attorneys in the Department of Law and it would seem that the consensus is that, on-balance, HB 344 is constitutional and there certainly is a consensus that it is enforceable. MR. BOUTIN continued the discussion stating that the strategy used by the assistant attorney general for forestry was that since every timber sale requires a best interest finding, and the DNR uses the Forest Land Use Plan to substantiate that and DNR always talks about the economics in the Plan, any value-added proposition that is an increased number of jobs as a result of this sale, would become part of this best interest finding. Number 1328 MR. BOUTIN went on to say that it is true that HB 344 would be much enhanced by action in Congress. He informed the committee that language had been provided to the Alaska Congressional delegation that the DNR wishes Congress would adopt and that would then settle the question. He said all the attorneys he had talked with say that HB 344 is certainly constitutional, but in the absence of that, still the attorneys we have talked with believe that, on- balance, it is constitutional. Secondly, all the attorneys believe that the contract can be crafted as such that it is enforceable without getting crosswise with southcentral timber development. Number 1372 CO-CHAIRMAN WILLIAMS asked that the Department of Law provide the committee with a written response to the constitutional question. NUMBER 1382 REPRESENTATIVE DON LONG stated a concern that there is a 10 million board feet limit in one area and then a designation of two contracts per region. He asked the department to explain whether they are going for the 10 million board feet or limiting operations to two contracts per region. MR. BOUTIN responded that the committee substitute allows timber sale contracts of up to 10 million board feet. He said he had a hard time imagining that there would be any contract as much as 10 million board feet. He said, except for the hardwood resource in the Interior that is not being used, he does not know of a place where the state has an ability to put together a 10 million board foot, per year contract. He said that one million board feet is a much more likely number than even five million board feet. It does allow up to two of these a year, per region. So, in theory six per year of these contracts. He said the 10 million board feet is the absolute ceiling on the contract size and it is higher than it needs to be and certainly most of the contracts would be far smaller. Number 1464 REPRESENTATIVE LONG asked Mr. Boutin how many regions there were. MR. BOUTIN answered that there are three regions as set up in the Forest Practices Act: coastal, southcentral and interior. Number 1480 REPRESENTATIVE DAVIES said with respect to the interstate commerce and the congressional exemption, has the Administration formally transmitted this request to the congressional delegation. MR. BOUTIN replied that the Governor's Office had done that and responded to Representative Davies that he would provide the committee with a copy of that communication. Number 1537 REPRESENTATIVE ALAN AUSTERMAN asked for clarification on the fiscal notes. MR. BOUTIN explained that the Department of Commerce and Economic Development fiscal note is zero. The draft of the Department of Natural Resources fiscal note is $26.5 for the first year, for principally putting together regulations, and $3.5 for each year thereafter. Number 1570 CO-CHAIRMAN WILLIAMS stated his intention was not to move CSHB 344 today and said he would take teleconference testimony at this time. Number 1580 REPRESENTATIVE DAVIES said the fiscal note conflicts the expense and asked if the department expects any additional state revenue as a result of the letting of the contracts. MR. BOUTIN replied that begs the question of would there be an increase in the amount of timber sold. The state's timber sale program brings more money to the general fund that it costs. In the calendar year ending 12/31/95, the state brought in $1.9 million in timber sale receipts and that is a multiple of the cost of putting that timber up for sale. He said, if there was an increase in some part of the state, in the amount of timber, and that timber would bring more money to the general fund than what it cost, then that would balance out the amount in that fiscal note. Number 1665 JACK PHELPS, Executive Director, Alaska Forest Association, Inc., testified that the association represents timber industry throughout Alaska and supports legislation that enhances economic opportunities by making the forest resources of Alaska available for sustained harvest. MR. PHELPS stated that the Alaska Forest Association wants to express its appreciation to Governor Knowles for introducing HB 344. "We especially applaud the concept of fostering the growth of the forest products industry in the Interior of Alaska. We would also like to commend your efforts, Chairman Williams, in working with industry to produce a substitute bill which is much more likely to succeed in its stated goals." MR. PHELPS said the AFA supports the proposed committee substitute for HB 344. "We believe that the changes embodied in CS reflect the real world needs that must be addressed if this bill is to help foster an expanded forest industry in the Interior of Alaska." MR. PHELPS recalled that at the House Resources Committee meeting held in Anchorage, September 1995, "the industry told you that it needed some assurance of a relatively long-term steady and reliable supply of timber before it could make the investment necessary to enlarge the industry in the Tanana Basin. HB 344, as originally introduced, provided a sufficiently long term for the proposed contract to satisfy the reliability factor, but it limited the contract to a maximum volume of only five million board feet. That simply is not large enough of a supply to support even a moderate good sized mill. Your proposed substitute increases that number to 10 million board feet. While we might like an even larger number, we believe that this amendment vastly improves the potential for this bill to do its job. We ask that you resist any attempts to reduce this maximum sale size. I point out that it is a maximum as the bill is currently written, the commissioner is free to craft a smaller sale if the situation suggests it." He said, the House Resources Committee has heard Tom Boutin suggest that in most instances that would be the case, and he did mention the Interior hardwoods which are clearly an exception if somebody comes along: there is a proposal on the table that would deal with that. MR. PHELPS said the other major issue concerns the industry, at the time of the Fairbanks hearing, and the severe limitations the original bill placed on products qualified for these negotiated sales. "In other words, the definition of high value-added was entirely too restrictive. The proposed committee substitute adopts the definition language that was recommended by the Board of Forestry and we believe that this change addresses our previous concerns. It also proposes an adjustable percentage of the harvest that must go into these high value-added products and allows the commissioner to consider the production of other value-added products in negotiating the contract. These are excellent and important improvements to the bill." MR. PHELPS said, "In summary, Mr. Chairman, the AFA believes that you have proposed a very workable solution to the problem of encouraging the responsible harvest of timber from Alaska's boreal forest while also helping build an increased employment base here in Alaska. We commend you for crafting a vastly improved version of HB 344. We urge you to continue on your present course. Please be assured that we are available to work with you as the measure makes its way through the legislative process." Number 1824 RICK SMERIGLIO, of Moose Pass, testified from Seward. "I would like to state my opposition to the provision in the bill that requires renegotiation of the stumpage price once every three years or, at least, once every three years. I do not believe that the taxpayers will get the highest price for the resource that they own when we only renegotiate the price once every three years. I would like to say that Governor Hickel was right in calling this the `owner state.' We, the taxpayers, do own that resource and I think all interests are best protected when we get the highest dollar value. MR. SMERIGLIO reiterated that his main opposition to CSHB 344 is the provision that requires renegotiation only once every three years. He said, "I believe that the taxpayers ought to get the highest value for the resource that they own and that means selling the timber when the price is high and getting the highest value that way." Number 1911 RONALD RICKETTS, Executive Director, Fairbanks Industrial Development Corporation, recalled that he had testified before the House Resources Committee at the hearing in Fairbanks. He said, "I am pleased with the results of your work to this date. The committee substitute is a good piece of work. I also commend the Board of Forestry for their input to this process." MR. RICKETTS referred to page 4, beginning on line 21 of CSHB 344, the definition of `high value-added wood products' and `other similar finished wood products.' He said he equated plywood with engineered wood products and felt it should fall into the category of other similar finished wood products. He advised that oriented strand board and plywood are used for exactly the same purposes. Number 1982 MR. RICKETTS referred to line 26, page 4, and questioned the language "high defect birch" and stated his opinion is that aspen is more likely to be high defect. He related that his company sent both birch and aspen to an Oregon mill for test runs through their veneer plant; the birch was very acceptable but the aspen had too much defect to be usable for the quality they were looking for. Number 2061 MR. RICKETTS said he would like to present a copy of a letter sent to the Board of Forestry last October having to do with a five-year area plan: the operation schedule in the Fairbanks area. He said the letter is from the Oregon company looking at the feasibility of building a veneer mill in the Fairbanks area. The company asked for 15 million board feet of hardwood timber sale within the Five Year Schedule. He said he brought up this issue because it relates to the volume of timber we are talking about. Number 2105 REPRESENTATIVE SCOTT OGAN interpreted the language on page 4, line 26 "deciduous aspen, poplar, and high defect birch, includes engineered wood products and paneled wood products" meant that for that high defect product, it can be made into engineered wood products. He said the language simply allows for the less than high quality material to be used in engineered and paneled wood products. Number 2143 MR. RICKETTS suggested that the language read high defect aspen, poplar and birch. He felt that definition would be clearer. CO-CHAIRMAN WILLIAMS said the committee would make sure that the language was clear to everyone. He proceeded to close the testimony on CSHB 344 and turned the gavel over to Co-Chairman Joe Green.