There are eight times as many miles of logging roads built by the US Forest Service (360,000) than there are in the entire Interstate Highway System. Thousands of miles of these roads continue to be built every year at your expense, to the tune of $95 million annually. The Forest Service gets little or no compensation from the big timber companies, who then come in and cut down trees on public lands for well below the market value.The concept of “market value” has always been somewhat fluid when applied to the big timber companies. Until recently, these sums were arrived at in annual secret meetings (presumably in smoke-filled rooms) between Forest Service officials and timber industry executives. While that practice was halted by the Clinton administration, the Forest Service, still stocked with big timber's cronies, continues to undervalue their trees; your trees.
The US Forest Service (USFS) would like you to think that they're making a profit for us in managing our natural resources. They claim they made $214 million in timber sales in 1994, and $412 million in 1993. Even if that were true, the Forest Service eats up an annual budget of over $1.5 billion while producing that “profit.” But their claims aren't anywhere close to the truth, and they know it.
The USFS has been cooking their books to make it appear that they're sound managers. They simply ignore or disguise many of their costs. For instance, they don't count the costs of excavating or grading new roads(more than half the cost) because they say it “adds to the capital value of the forest.” They also amortize some reforestation costs over an absurdly long scheduleÑsometimes as much as 400 years.
In actuality, the USFS has been losing buckets of money while handing out goodies to the big timber companies. In 1994, the net cash flow to the Treasury was negative $309 million.And the losses for 1993 were $442 million. As one economist has pointed out, “ In terms of assets, the agency [USFS] would rank in the top five in Fortune magazine's list of the nation's 500 largest corporations. In terms of operating revenues, however, the agency would only be number 290. In terms of net income, the Forest Service would be classified as bankrupt.”
One study found that the Forest Service had lost more than $5.6 billion over the past ten years. The taxpayer subsidy for below-cost timber sales was $122 million in 1994, and $323 million in 1993.Not only are payments from big timber companies well below what it costs the USFS to prepare the timber for sale, but the taxpayer-subsidized roads and resulting deforestation contribute to soil erosion, water pollution, loss of wildlife habitat, and loss of recreational or other commercial uses. This hardly enhances the “capital value” of the land as the USFS claims.
104 of the 120 forests managed by the USFS lost money in 1994. Nine of them lost money even before counting their costs!How can that happen? The Tongass National Forest in Alaska Ñthe biggest money-loser in the entire USFS systemÑhas, to say the least, a creative accounting deal with its “customer,” the Ketchikan Pulp Company (KPC). The KPC, a subsidiary of the giant Louisiana Pacific timber corporation, has a 50-year monopoly contract guaranteeing it access to Tongass trees at non-compet-itive prices. For the first two decades of the contract, no road credits were charged at all. Since then, KPC has been able to deduct its road payments from its timber purchases, even though the timber bills were smaller than the road charges. This means you taxpayers have been paying Louisiana Pacific millions of dollars a year to cut down your trees, so that the Tongass National Forest has negative receipts, even before its costs are tallied.
The Tongass is not only this country's largest national forest (and arguably, one of its most beautiful), it is also the largest remaining temperate rainforest in the world. It hosts the largest concentrations of grizzly bears and bald eagles, and all five species of Pacific salmon, which have been deci-mated by logging operations across the Pacific Northwest. Apparently, though, Alaska's senators believe that these assets count for little against the opportunity to loot the Tongass even further.
Senator Ted Stevens (R-Ak.) and Senator Frank Murkowski (R-Ak.) have co-sponsored legislation to increase logging operations in the Tongass National Forest by 48%. Senator Murkowski at least remembered to sell his Louisiana Pacific stock, though he still invests in the First Bank of Ketchikan, which would also benefit from increased logging in the Tongass. This, of course, is an old story. Great stands of virgin forest across the continent have been clearcut, thanks to sweetheart deals between big timber companies and friendly legislators. During the five years between 1987 and 1992, the timber industry contributed $6.9 million to congressional campaigns. What they got for their troubles showed that amount to be a bargain investment. During that same period, the USFS lost $1.5 billion on timber deals.
It will come as no surprise, then, that the timber industry also enjoys certain favorable tax advantages. Since 1944, timber income has been treated as capital gains, and thus subject to a lower tax rate than other types of income (or no tax at all, if current “flat” tax proposals are enacted). Unlike other businesses, timber companies can also deduct certain capital costs lasting many years all at once, before their product is sold. Big timber can write off the costs of their machinery and other equipment faster than it actually wears out. This amounts to an interest-free loan from the taxpayers for those items, and effectively makes a zero tax rate for the timber industry's investments. Combined with the treatment of timber sales as capital gains, this actually gives the industry a negative tax rate; you pay them more than they owe the Treasury. The cost of these tax loopholes, over five years, amounts to about $2.6 billion.
Another gift to big timber, part of the 1987 tax “reform,” exempts publicly-traded timber “partnerships” from paying corporate taxes. This inspired many big timber companies to create new, smaller timber companies. Thus a limited-partnership subsidiary like Plum Creek, a spinoff of Burlington Resources, had a $33 million tax bill reduced to zero, thanks to tax reform.
Because of these fabulous tax breaks, the timber industry received a great deal of the action from the acqusitions, mergers, and leveraged buyouts of the 80s. This left many timber companies with huge debts, and thus huge appetites for more taxpayer-subsidized trees. Big timber also overbuilt its mills and cut their own trees far in excess of what was sustainable. The bottom line is that the big timber companies need to keep picking your pocket by buying off your elected officials. After all, you don't expect them to to pay market rates for privately held forests, do you?