Funding Fire Control

I live in a 20 year loblolly pine plantation in the Lowcountry of South Carolina. Fire has long been a part of life here. From the fire ecosystem implemented by Indians centuries ago to the cooperative (S.C. Forestry Commission, U.S. Forest Service, International Paper and Westvaco Corp.) fire control efforts of a decade ago, fire has been an important part of life and forest management here. As industry disposed of it's timberland, the burden shifted to the Forestry Commission and, to a lesser degree, the U. S. Forest Service (Francis Marion National Forest). As smoke related lawsuits from prescribed burning increased, prescribed burning declined and fuel loads have increased. This all has happened in the face of declining budgets for both fire control organizations. What has happened in the Lowcountry is a microcosim of the situation in the entire South and, to a lesser degree, the entire nation.

In recommendations to the Subcommittee on Interior, Environment, and Related Agencies regarding the FY2009 Budget for the U.S. Forest Service, George M. Leonard - Chairman, Board of Directors, National Association of Forest Service Retirees had this to say:

"The most critical issue that needs to be addressed in the Forest Service budget is the funding of fire suppression. The current procedure of including the ten-year average cost of fire suppression within the agency’s discretionary budget is destroying the capability of the Forest Service to carryout the remainder of its statutory missions. From 25 percent in FY2000, fire funding is now approaching 50 percent of the budget. The suppression cost trend means the ten-year average is going to continue to grow, further cannibalizing funding for other programs. While the overall Forest Service budget has increased nine percent over the last six years, the diversion of funds to fire suppression has had a major impact on the workforce available to carry out the multiple-use mission of the agency. The number of foresters, biologists, and other resource specialists, along with supporting technicians, is a good measure of the capability of a resource management agency to carry out its mission. As illustrated in the following table, the capability of the Forest Service has been seriously compromised."

You get the point, but if you want to read more, go here.

The SC Forestry Commission's situation is equally as bad, perhaps worse. Here are a few facts.

When adjusted for inflation, the current budget is 30% less than it was in 2001.
• Aging firefighting equipment is not being replaced on a timely schedule.
• Fuel costs are soaring.
• Hiring and retaining qualified firefighters is difficult due to a more urban economy and changing demographics.
• Forest industry changes have led to a loss of cooperator capacity, both personnel and equipment.
• Recent housing development has expanded into wooded areas, creating communities with very high fire risk.
• Forestry has a tremendous impact on SC’s economy: #1 employer, #2 payroll, #1 harvested crop, $1 billion in exports, $17 billion total economic impact.
• The Commission’s $18 million baseline budget investment is supporting a $17 billion industry economic impact, a multiplier of almost 1000.

If you have a home in SC, or own/manage timberland here, now would be a good time to contact your Senators in support of this years budget request, in particular, the members of the Senate Finance sub-committee responsible for reviewing the request. Those are Senators Yancy McGill from Williamsburg county, Larry Grooms from Berkeley county, Phil Leventis from Sumter county, and John Drummond from Greenwood county. By the way, these senators have been very supportive of forestry and fire control. Something to keep in mind the next time you go to the polls!

This post may appear to be somewhat local in nature but be assured that the words that you have read apply right outside your door, to your timberland and to your National Forest as well. What are you going to do about it? --Brian

Strategic Factors Driving Timberland Ownership Changes

This post references another paper examining the changes resulting from the shift in timberland ownership from vertically integrated industrial companies to TIMOs and TREITs. The paper was written by Mike Clutter (University of Georgia) and Brooks Mendell, David Newman, David Wear and John Greits (all with the USFS). The study was funded by the Forest Service. Following are a few extracts, kind of at random, that I found important or just interesting:

• "more efficient tax structures for owning timberland have evolved - such as single-taxed real estate investment trusts (REITs) and S-corporations - replacing the traditional double-taxed C-corporations..."
• "Client preferences and investment horizons impact the choice of silviculture treatments, leading TIMOs to tend to invest in silviculture early in the life of the investment funds, but not later."
• On TIMOs: "We make money on growth."
• On TIMOs: "Appraisals drive our business." Note that this comment and the one before it both get to the difference in accounting (GAPP) that allows such things as timber growth and appreciation in land prices to be treated as an annual return for the TIMOs but not for the C-corporations. Note too, that if a silvicultural activity, like mid-rotation release, doesn't increase the appraisal at least as much as it cost, it won't be done. Question - how good are the appraisers? Do appraisals reflect what is not seen?
• "TIMOs, without exception, focused on the financial metrics of concern to their clients. ...this measure was some variation of cash return plus asset appreciation, as established through appraisals."
• "These metrics reflected a general attitude toward silviculture treatments. ..., it’s ‘what will the market pay for this treatment if applied?’"
• "TIMOs view silviculture information as a "commodity" and, in general, appear reluctant to invest in long-term research or forestry coops. ..." In other words, if the impact does not show up in the growth and yield models or appraisals, it does not pay to make the investment."
• On community presence or public affairs: "TIMOs ... relied on their forestry contractors to establish and maintain sufficient working relationships within the communities." Some exceptions to this.
• "...fragmentation was not viewed as a major concern or priority by any interviewee."
• On fire control: "TIMOs and forestry consultants rely almost entirely on state resources. ...To assess the southern States fire suppression assets available for use we talked with all of the Fire Fighting Coordinators for each state... As expected, ... Most southern states have experienced significant reductions in private fire suppression capability during the past 15 years, the time frame during which industry ownership has been declining.
• "The thirteen responding states report reductions in the availability of 700 private cooperator-owned and available tractor/plow units. Of the thirteen states, only Kentucky has not reported a reduction; others ranged from 12 to 142 (Georgia). Notably, Kentucky has the smallest share of forest industry ownership in the South. Limited reductions in air tanker availability (4), 20 person hand crews (1), and helicopters (1) were also reported."
• "shareholders, analysts, and executives of the traditional vertically integrated forest products firms believe that returns on industry-owned timberlands lagged alternative investments, a fact complicated by the lack of recognition of asset appreciation and growth on forest products firms’ income statement."
• "In the preponderance of transactions ownership changes did not lead to substantial land use changes."
• "we expect these timberland ownership trends to continue. Within the next three years we expect that there will exist only one traditional forest products company that owns more than a million acres in the southern United States."
• "The other trend that will continue to impact timberland ownership is the continued growth of rural real estate markets at the urban / rural fringe. Continued emphasis will be placed on identifying those acres and monetizing the assets as they become more valuable for other uses."

Read the entire report: Strategic Factors Driving Timberland Ownership Changes in the U.S. South. See the quick version in The PowerPoint Presentation

There are no surprises in this research but it has helped to document those things that we have seen. --Brian