Legislature(1995 - 1996)

02/21/1996 08:07 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                       
 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                     
 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               
 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                    
 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                  
 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           
 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              
 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               
 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               
 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            

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