oversight

Federal Land Management: Estimates of Timber Value and Economic Effects of Harvesting the Headwaters Forest

Published by the Government Accountability Office on 1997-09-24.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

7          United States
.3-   A0   General Accounting
           Washington,
                                 Office
                         D.C. 20548

           Resources, Community,     and
           Economic Development      Division

           B-277881


           September 24, 1997


           The Honorable Frank H. Murkowski
           Chairman, Committee on Energy
            and Natural Resources
           United States Senate

           The Honorable Don Young
           Chairman, Committee on Resources
           House of Representatives

           Subject:    Federal Land Management: Estimates of Timber Value and
                       Economic Effects of Harvesting the Headwaters Forest

           The Headwaters Forest in northwestern California includes the nation’s largest
           privately owned stand of old-growth redwood trees. The forest has been the
           focus of a‘ decade-long struggle between its owner, the Pacific Lumber
           Company (Pacific Lumber), and environmenti groups intent on preserving the
           forest and one of its inhabitants, the threatened marbled murrelet, a species of
           bird.

           On September 28, 1996, the federal government, the state of California, and
           Pacific Lumber signed an agreement for the public to acquire approximately
           7,500 acres of timbered area in exchange for approximately $380 million in
           cash and assets from the United States and California The 7,500 acres to be
           acquired includes the Headwaters Forest and two adjoining properties: the
           Elk Head Forest (also owned by Pacific Lumber), which includes
           approximately 1,125 acres, and the Elk River Property (owned by the Elk
           River Timber Company), an additional buffer zone of approximately 1,845
           acres.

           To’ respond    to your interest in the value of the timber resources in the
           Headwaters      Forest and the effects of harvesting the forest on jobs, payrolls,
           and taxes if    harvesting were to occur, we obtained estimates of these values
           and effects.    We obtained estimates of timber values from (1) a 1996 federally

                                                            GAOIRCED-97-241R Headwaters Forest
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funded draft report entitled Preliminarv Consultation Report on Valuation of
Timber for Headwaters Forest, (2) a 1997 Department of the Interior
adjustment to that report, and (3) a 1993 Forest Service appraisal. (We
summarize these estimates in enc. I.) Also, while the departments of
Agriculture and of the Interior were reviewing a draft of this report,
MAXXAM, Inc. (Pacific Lumber’s parent company) provided us with five
additional appraisals prepared by consultants in 1991 and 1993 and a
discounted cash flow analysis prepared in 1991 by a financia.l analyst with
Pacific Lumber. (We summarize these estimates in enc. II.) We did not
evaluate the reasonableness of the methodology and assumptions that are the
basis of any of these estimates.

Estimating the value of timber involves a number of variables, including the
amount, type, and species of timber to be harvested, the timber’s quality, the
length of time required to harvest the timber, and the price of the timber.
Timber-value estimates are based on assumptions about these variables, which
can vary widely. As a result, the estimated values can also vary widely.

Accordingly, the estimates of timber values that we obtained varied -- -
considerably. The low estimate included two scenarios, one valued at $20
million and the other at $250 million. Although both scenarios were based on
a discounted cash flow methodology, the $20 million scenario assumed that
no standing old-growth timber would be harvested; rather, only down, dead,
and dying trees would be removed. In contrast, the $250 million scenario
assumed that 509 million board feet of timber, including standing old-growth
timber, would be harvested. The Department of the Interior further adjusted
the high end of this estimate by assuming higher timber prices over a 20-year
harvest; this assumption resulted in e&mated values of $410 million to $510
million for the same volume of timber. MAXXAM, Inc., provided,estimated
timber values ranging from a low of $375 million to a high of $706 million.
The lowest of these appraisals, prepared in 1991, considered the value of 593
million board feet of timber on 3,158 acres; the price of redwood was
assumed to be $650 per thousand board feet. The highest of the appraisals
($706 million), prepared in 1993, considered the value of 607 million board
feet of timber on 4,488 acres. In this appraisal, the price assumed for
redwood ($1,192 per thousand board feet) was almost twice as high as that
assumed in the earlier appraisal; comparable increases in prices were
assumed for Douglas fir and whitewood.

The estimates of employment and annual payrolls that would result from a
harvest of timber in the Headwaters Forest also varied. The low estimate
projected a total of 97 direct and indirect jobs, with a total annual payroll of

2                                               GAO/RCED-97-241R Headwaters Forest
B-277881
$2.9 million. The high estimate projected a total of 443 direct and indirect
jobs, with a total annual payroll of $18.9 million. We obtained one estimate of
annual federal, state, and local tax revenues, which totaled about $1.9 million.

BACKGROUND

The Headwaters Forest includes about 2,700 acres of old-growth forest,
including the largest tract of virgin old-growth redwood timber in private U.S.
ownership. The forest also includes other tree species, including Douglas fir
and hemlock. The Headwaters Forest, so named because of its location at the
headwaters of Salmon Creek and the Little South Fork of the Elk River in
northern California, provides habitat for the marbled murrelet, which is listed
as threatened under the federal Endangered Species Act.

Pacific Lumber notified the California Department of Forestry and Fire
Protection that it planned to begin clearing dead, dying, and diseased timber
from the Headwaters Forest in September 1996. Although the forest is
privately owned, this “salvage” operation was subject to restrictions under a
state law designed to protect forest resource values, including threatened and
endangered species. Despite a series of legal challenges by environmental
groups concerned about the effect of such an operation on the marbled
murrelet’s habitat, the company’s right to conduct a salvage operation had
been upheld by a California district court of appeals.

To prevent logging in the Headwaters Forest, the federal government and the
state of California entered into an agreement with Pacific Lumber to transfer
the Headwaters Forest and other acreage to the public. According to the
agreement, the state and federal governments together will acquire a total of
about 7,500 forested acr&, including approximately 5,600 acres of virgin and
old-growth forest. Of the 7,500 acres, approximately 5,625 will be acquired
from Pa&c Lumber and approximately 1,845 from the Elk River Timber
Company, which owns land adjacent to the Headwaters Forest. Under the
terms originally agreed to, the two companies will receive a total of
approximately $380 million in cash and assets-$250 million from the foderat
government and $130 million from California. Who will own and manage the
land that will be acquired has not yet been decided, but a federal official
predicts that it will be managed jointly by the federal government and by the
state of California.

Until the agreement is implemented, Pacific Lumber has agreed not to log or
to conduct salvage operations in the areas that will be conveyed to the public.
Under the terms of the agreement, the company will also submit for approval

3                                              GAO/RCED-97-241R Headwaters Forest
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(1) a habitat conservation plan to the federal government and (2) a sustained
yield plan to the state of California for its remaining fore&land-approximately
190,000 acres. Upon the satisfactory implementation of the agreement, Pacific
Lumber has agreed to withdraw two pending lawsuits against the state of
California and the federal government. According to an official with
MAXXAM, Inc., these lawsuits assert that federal and state regulations have
impaired the entire value of the Headwaters property.

The agreement was originally scheduled to expire on July 28, 1997. According
to the Department of Justice, the parties are operating under an informal
extension of the agreement until February 28, 1998. Although the original
agreement provided for an exchange of federal and state properties, including
cash, the federal portion of the compensation-$250 million-is now expected
to consist entirely of cash if such an expenditure is approved and authorized
by the Congress.

ESTIMATES OF THE VALUE OF TIMBER RESOURCES VARIED WIDELY

The estimates we obtained of the value of the Headwaters Forest’s timber
resources varied widely. The low estimate included two scenarios, one
valuing the resources at $20 million and the other at $250 million; the high
estimate, for $706 million, was provided by MAXXAM, Inc. Each of the
estimates we obtained relied on the assumption that some timber would be
removed from the Headwaters Forest, whether through a salvage operation,
which could be allowed for a portion of the year under existing requirements
for protecting threatened and endangered species, or through a harvest of live
trees, which is currently prohibited. Variations in the estimates we obtained
reflect differences in assumptions about the volume of timber that would be
logged and about increases in timber prices over time, as well as differences
in the methods of computing the estimates. Specific information about the
 estimates is presented in enclosures I and IL

Federal appraisal standards define fair market value as the amount for which
a property would be sold-for cash or its equivalent-by a willing and
knowledgeable seller to a wilhng and knowledgeable buyer.’ The standards
provide for several methods of deter-mining fair market value, including
analyses of comparable sales or prior sales of the identical property. In the
absence of reliable and comparable market prices, the standards provide for


%iform Annraisal Standards for Federal Land Acauisitions, Interagency Land
Acquisition Conference (1992).

 4                                             GAO/RCED-97-241R Headwaters Forest
B-277881
estimating the value of a resource on the basis of the present value of the
anticipated future income. Simply put, this method values the estiated net
future intiome stream from the development and production of a project and -
adjusts this income stream to its value today by using a discount rate. Such a
discount rate reflects the earning power of the money over time and the risk
associated with this earning power. The choice of a discount rate is a key
factor in determining the net present value--in effect, the lower the discount
rate, the higher the net present value of an asset.

The low-value estimate we obtained included two scenarios-one valued at $20
million and the other at $250 million. Both scenarios were based on a
discounted cash flow methodology, assuming a 20-year harvest and using a
discount rate of 7 percent. However, the $20 million scenario assumed that
no standing old-growth timber would be harvested; rather, only down, dead,
and dying trees would be removed. In contrast, the $250 million scenario
assumed that 509 million board feet of timber, including standing old-growth
timber, would be harvested. The Department of the Interior further adjusted
the high end of this estimate by assuming that the price of timber would
increase by more than the 1 percent per year assumed in the consultant’s
report. Assuming that timber prices would increase by 6 to 8 percent per year
over a 20-year harvest resulted in e&mated values of $410 million to $510
million for the same volume of timber.

The estimated values in the appraisals provided by MAXXAM, Inc., ranged
from a low of $375 milJ.ion to a high of $706 million. The lowest of these
estimates was prepared in 1991 and considered the value of 593 million board
feet of timber on 3,158 acres. This appraisal ($375 million) assumed prices of
$650 per thousand board feet for redwood, $600 per thousand board feet for
Douglas fir, and $200 per thousand board feet for whitewood. The highest of
the appraisals ($706 million) was prepared in 1993 and considered the value of
607 million board feet of timber on 4,488 acres. In addition to considering
higher timber vohxmes, this appraisal assumed higher prices-$1,192 per
thousand board feet for redwood, $1,082 for Douglas f& and $485 for
whitewood.

ESTIMATES OF THE EFFECT OF HARVESTING TIMBER ON JOBS,
PAYROLLS. AND TAXES VARIED

The estimates we obtained of the employment and payrolls that would result
from harvesting the timber in the Headwaters Forest varied. The low
estimate, provided by an official of the California Forestry Association, was
for a total of 97 jobs, with an annual payroll of $2.9 million for the life of the

5                                                GAOIRCED-97-241R Headwaters Forest
B-277881
harvest. This employment estimate included 79 direct and 18 indirect jobs,
with associated annual payrolls of $2.4 million and $0.5 million, respectively.
Direct jobs result directly from the timber operation and include such
positions as loggers and mill workers. Indirect jobs result from the increased
economic activity that occurs when timber workers spend their incomes on
goods and services; such jobs include positions in restaurants and retail
establishments. The high employment estimate, for a total of 443 jobs, would
have had an annual payroll of $18.9 million. This estimate included 314 direct
and 129 indirect jobs, with associated annual payrolls of $10.6 million and $8.3
million, respectively. This estimate was provided by an economist consulting
with Humboldt County, California. Specific information about the
employment and payroll estimates is presented in enclosures III and IV.

We obtained one estimate of annual federal, state, and local tax revenues,
which totaled about $1.9 milhon. This estimate, prepared by the California
Forestry Association official, includes approximately $1.3 million in corporate
taxes, $437,000 in federal personal income taxes, $58,000 in state income
taxes, and $125,090 in local taxes. We obtained estimates of annual county
timber yield taxes, which ranged from $125,000 to over $1 million. Estimates
of county timber yield taxes over the life of the harvest were about $6.4
million and $9.8 million. Specific information about the tax revenue estimates
is presented in enclosure V.

AGENCY COMMENTS

We provided the U.S. Department of Agriculture’s Forest Service and the
Department of the Interior with a draft of this report for review and comment.
These agencies provided technical clarifications, which we incorporated into
this report as appropriate.

SCOPE AND METHODOLOGY

To obtain estimates of the va3ue of the timber resources and of the effects of
the proposed exchange on potential employment and annual payrolls and
taxes for the Headwaters Forest in northwestern California, we contacted
federal, state, and local government officia.& representatives of the timber
company and of the timber industry; and environmental groups. Specifically,
we sought these estimates from officials in (1) the Forest Service’s
headquarters in Washington, D.C., and regional office in San Francisco,
Californiaq (2) the Office of the Secretary of Agriculture in Portland, Oregon;
(3) the Bureau of Land Management’s headquarters and state office in
 California; and (4) the Fish and Wildlife Service’s headquarters and Pacific

 6                                             GAOLRCED-97-241R Headwaters Forest
B-277881

Region. We also contacted officials at the California Resources Agency, the
California Department of Forestry and Fire Protection, the Office of the
Governor of California, and the California State Lands Commission; officials of
Humboldt County, California; officials at hIAXXAM, Inc., and Sierra Pacific
Industries; the California Forestry Association’s Vice President for
Governmental Affairs; the author of a consulting report prepared for the
Humboldt County Commissioners; a Humboldt State University economist;
and representatives of the Save the Redwoods League, the Citizen’s
Alternative Group, and the Rose Foundation. We contacted officials at the
Department of Justice, the President’s Council of Economic Advisors, and the
Council on Environmental Quality to ascertain whether they could provide
other valuation or economic estimates.

From our contacts with the above sources, we obtained estimates of resource
values from (1) a 1996 federally funded draft report entitled Preliminarv
Consultation Renort on Valuation of Timber for Headwaters Forest, (2) a 1997
Department of the Interior adjustment to that report, and (3) a 1993 Forest
Service appraisal review. In addition, while a draft of this report was being
reviewed by the agencies, MAXXAM, Inc., provided us with five additional
appraisals prepared by consultants in 1991 and 1993 and a discounted cash
flow analysis prepared in 1991 by a financial analyst with Pacific Lumber.
The Department of Justice provided us with the consultant’s appraisal report
that was the basis for the Forest Service’s 1993 appraisal review.

For each of the resource value estimates we obtained, we identified some of
the key assumptions and computation methods. However, we did not attempt
to ascertain the appropriateness or reasonableness of the assumptions and
methodologies. Similarly, we obtained estimates of employment, payrolls, and
taxes; we did not verify the assumptions or the methodologies used to
compute them. We also limited our review to the specific questions asked;‘we
therefore did not address other potential economic and social effects of the
proposed exchange.

We obtained projections of employment, payrolls, and taxes associated with a
timber harvest in the area from an economist at Humboldt State University in
Arcata, California; a representative of MAXXAM, Inc.; the California Forestry
Association’s Vice President for Governmental Affairs; and the author of a
consulting report prepared for the Humboldt County Commissioners.

We performed our review from April through August 1997 in accordance with
generally accepted government auditing standards.


7                                             GAO/RCED-97-241R Headwaters Forest
 B-277881



 As arranged with your offices, unless you publicly announce its contents
 earlier, we plan no further distribution of this report for 14 days. At that time
 we will make copies available to the Secretaries of the Interior and of
 Agriculture and to other interested parties. We will also make copies
 available to others on request.

  If you or your staff have any questions, please call me at (202) 512-3841.
  Major contributors to this report were Jennifer Duncan, Diane Lund, Sue
  Naiberk, and Victor S. Rezendes.


   I         T.   b
z!D
  BarryT.Hill
  Associate Director, Energy,
     Resources, and Science Lssues




  8                                               GAOLRCED-97-241R Headwaters Forest
ENCLOSURE I                                                                                                                                            ENCLOSURE I
                              ESTIMATES OF THE VALUE OF TIMBER IN THE HEADWATERS FOREST
                                       AND ASSUMPTIONS AND METHODOLOGIES USED

                              7                                           I                                               I
    Estimateof timber value       Mason, Bruce, and Girard’s                  Departmentof the interior’s adjustmentsto
    and assumptions and           draft preliminary estimate,                 scenario 1 of Mason, Bruce, and Girard’s        Forest Service’sappraisal review,
    methodology used              July 8, 1996’       .                       estimate,August 1, 1997b                        September13, 1993’
    Estimated value               Sceriario 1:            $250 milliond       $410 million and $510 million                   $496 million’
                                  Scenario 2:              $20 milliona
                              -I-Dtscounted cash flow analvsis
    Methodology used                                                    -1 Discounted
                                                                            ~~~       cash flow analvsis
                                                                                    ~~~                                   I Sales comuarisong
    Assumed price                 “Current log prices” with l-percent         “Current log prices” with 6- and 8-             Old-growth redwood:             $850/MBFh
                                  price rate adjustment                       percent price rate adjustments                  Young-growth redwood:            $595/MBF
                                                                                                                              Old-growth Douglas fir:          $8301MBF
                                                                                                                              Young-growth Douglas fir:        $450/MBF
                                                                                                                              Grand fir and hemlock:           $260/MBF
    Discount rate                 7 percent                                   7 percent                                       Not applicable
    Estimated logged volume       509 MMBF”                                   509 MMBF                                        592 MMBF
                              7
    Duration of harvest       I 20 vears                                  I 20 years                                      1 12 to 16 years

‘Mason, Bruce, and Girard, Inc., Draft Preliminarv Consultation Reoort on Valuation of Timber for Headwaters Forest (July 8, 1996). This repot-l was
done under contract to the US. government.

bLetter from the Deputy Secretary of the interior to Senator Frank H. Murkowski (Aug. 1, 1997).

“This appraisal review was prepared by the Regional Appraiser, Pacific Southwest Region, Forest Service (Sept. 13, 1993). The appraisal review was
based on the J.E. Fleming & Associates appraisal repot-t, The Salmon Creek ProPetty (Jan. 1, 1993).

din scenario 1, the report assumes that 75 percent of the timber would be harvested.

“in scenario 2, the report assumes that standing old-growth timber would not be harvested.

9                                                                                                                             GAOLRCED-97-241R Headwaters Forest
                                                                                                                                      .


ENCLOSURE          I                                                                                                                      ENCLOSURE        I

‘This is the value of the loggable timber only; the land and remaining trees were valued at almost $3 million. According to the appraisal, the value of
the property--which includes timber and land--was approximately $499 million.

gThe units of comparison were value per acre and value per thousand board feet (MBF) of timber.

hThese prices are for sawlogs; the appraisal also included prices for special cull logs and utility logs, which were as follows: $265/MBF for old-growth
redwood, $11S/MBF for young-growth redwood, .and $4O/MBF for old-growth Douglas fir.

‘This report relied on a 1992 timber .inventory that was not verified.

‘Million board feet.




10                                                                                                              GAO/RCED-97-241R Headwaters Forest
ENCLOSURE          II                                                                                                        ENCLOSURE         II

              APPRAISALS     OF TIMBER VALUE IN THE HEADWATERS             FOREST AREA PROVIDED BY MAXXAM,                   INC.

 Timber acreage,volume,            Solinsky,      NRMCorp.,          NRMCorp.,     Pacific Lumber,                   Able,        NRMCorp.,
 price, and appraisedvalue     March 1, 1991’   March 14, 1991b   March25, 1991’   March 14, 1991d         March 15, 1991’      June 10, 1993’
 Acreage                              3,158             3,158             4,549            3,158                    3,158                4,488
 Volume in MMBFg
     Redwood                            450               450               456              450                      450                  461
     Douglas fir                        133               133               130              133                      133                  143
     Whitewood                            IO               10                IO               IO                        10                     3
 Total volume                            593              593                596             593                       593                  607
 Price per MBFh
                                                                                                I
     Redwood                           $650             $700               $699                                      $643               $1,192
                                                                                                   I
     Douglas fir                        600               609               608                                       498                 1,082
                                                                                                I
     Whitewood                          200               225               225                                       236'                 485
 Appraisedvalue
                                                                                                   I
     Redwood                   $292,752,850     $315,120,380      $318,308,645                              $289,583,035        $549,783,870
                                                                                                   I
     Douglas fir                 80,039,400        81,240,400        79,262,225                               66,406,39-l           154,371,550
                                                                                                i
     Whitewood                    1,921,600         2,161,800         2,148,750                                2,268,44?              1,668,885
 Total appraisedvalue            $374,713,850     $398,522,580      $399,719,620      $535,432,000            $358,257,875          $705,824,305




11                                                                                                     GAOIRCED-97-241R Headwaters Forest
ENCLOSURE          II                                                                                                                      ENCLOSURE          II

‘Frank and Dean Solinsky Consulting Foresters, Appraisal of Certain Lands Owned by the Pacific Lumber Company (Mar. 1, 1991). In addition to
timber, this appraisal valued 3,158 acres of land at $1,579,000 ($SOO/acre)and included $2,620,160 for severance damages, resulting in a total
appraised value of $378,913,010. The appraiser used a comparable sales method.

bNatural Resources Management Corporation, Appraisal of the Pacific Lumber Comoanv Salmon Creek Block as of March 1. 1991 (Mar. 14, 1991).
Besides timber, this’appraisal valued 3,158 acres of land at $1,768,480 ($56O/acre), resulting in a total appraised value of $400,291,060. The
appraiser used a comparable sales method.       .

“Natural Resources Management Corporation, untitled appraisal of a portion of the Salmon Creek Block owned by the Pacific Lumber Company as of
March I, 1991 (Mar, 25, 1991). in addition to timber, this appraisal valued 4,549 acres of land at $2,547,440 ($560/acre) and included $150,000 for
the value of a rock pit, resulting in a total appraised value of $402,417,060. The appraiser used a comparable sales method.

‘The Pacific Lumber Company, Discounted Cash Flow for the Headwaters Forest (Mar. 14, 1991). MAXXAM presented this analysis to us as an
appraisal, but the report states that it is a financial planning tool that assesses the cash flow Pacific Lumber can expect to realize over a 7-year period
from processing the Headwaters timber and selling the resulting lumber. According to the report, the value is derived from analyzing Pacific Lumber’s
existing operations, planned improvements to those operations, relevant factors in the marketplace, and various forecasts based on these variables.
The analyst assumed a 9.5-percent discount rate and a loo-percent harvest of the net merchantable timber.

‘James L. Able Forestry Consultants, Inc., v                                                 (Mar. 15, 1991). Besides timber, this appraisal valued
3,158 acres of land at $1,263,200 ($4OO/acre)and deducted 12 percent from the gross value ($41,521,075) for “profit and risk,” resulting in a total
appraised value of $318,000,000, The appraisal was prepared for the Nature Conservancy, and the appraiser used a comparable sales method.

‘Natural Resources Management Corporation, <
Elk River as of April 30. 1993 (June 10, 1993). In addition to timber, this appraisal valued 4,488 acres of land at $3,498,880 ($78O/acre), resulting in a
total appraised value of $709,323,185. The appraiser used a comparable sales method.

gMillion board feet.

hThousand board feet.

‘Not available.

‘Price calculated by GAO.



12                                                                                                                GAOLRCED-97-241R Headwaters Forest
ENCLOSURE         III                                                                                                                     ENCLOSURE           III

                                 ESTIMATES      OF DIRECT AND INDIRECT EMPLOYMENT ASSOCIATED                              WITH
                                              HARVESTING TIMBER IN THE HEADWATERS FOREST

                          Humboldt County’s consulting         HumboldtState University    California Forestry Association       MAXXAMofficial’s estimate,
  Employment            economist’s estimate,July 1997a   economist’sestimate,July 1997b          official’s estimate, 1997’                          1997d
  Direct                                         314                              3418                                  79                            200
                                                                                     1.                                                                  f
  Indirect         I                              129 I                                I                                18 I
  Total            I                              443                              341                                  97                            200

aEstimate prepared for the Humboldt County Board of Supervisors by Daniel Ihara, Ph.D., consulting economist (July 7, 1997); additional information
obtained during a subsequent discussion. Assumes 44.8 MMBF of old-growth redwood and whitewood timber would be harvested annually over 16
years.

bEstimate prepared by John Grobey, Ph.D., professor of economics, Humboldt State University (July 8, 1997). Assumes 50 MMBF of old-growth timber
would be harvested annually over 15 years, beginning in 2007, and 8.25 MMBF of young-growth timber would be harvested over 25 years.

‘Estimate provided by John Hofmann, California Forestry Association. Assumes 8.669 MMBF would be harvested annually.

dEstimate provided by Byron Wade, Vice President and Chief Legal Officer, MAXXAM, Inc. Basis of estimate was not provided.

‘Assumes 41 jobs for young-growth harvest and 300 jobs for old-growth harvest.

‘Not addressed.




13                                                                                                                 GAO/RCED-9’7-2418 Headwaters Forest
ENCLOSURE          IV                                                                                                                  ENCLOSURE           IV

                                           ESTIMATES OF ANNUAL PAYROLL ASSOCIATED WITH
                                           HARVESTING TIMBER IN THE HEADWATERS FOREST

Dollars in millions


                    Humboldt County’s consulting ,      Humboldt State University         California Forestry Association     MAXXAMofficial’s estimate,
  Payroll         economist’s estimate,July 1997a  economist’s estimate,July 1997b               official’s estimate, 1997’                        1997d
  Direct                                 $10.6                             $11 .28                                  $2.4’                          $6.0’
                                                                                                                                                       h
  Indirect                                 8.3                               2.8g                                     0.5’
  Total                                  $18.9                              $14.0                                    $2.9                           $6.0

*Estimate prepared for the Humboldt County Board of Supervisors by Daniel Ihara, Ph.D., consulting economist (July 7, 1997); additional information
obtained during a subsecjuent discussion. Assumes 44.8 MMBF of old-growth redwood and whitewood timber would be harvested annually over 16
years.

bEstimate prepared by John Grobey, Ph.D., professor of economics, Humboldt State University (July 8, 1997). Assumes 50 MMBF of old-growth timber
would be harvested annually over 15 years, beginning in 2007, and 8.25 MMBF of young-growth timber would be harvested over 25 years.

‘Estimate provided by John Hofmann, California Forestry Association. Assumes 8.669 MMBF would be harvested annually.

dEstimate provided by Byron Wade, Vice President and Chief Legal Officer, MAXXAM, Inc. Estimate is for the 5,600-acre Headwaters area (the
Headwaters Forest and the Elk Head Forest) and is based on an allocation of $2.029 million paid in 1996.

“Assumes $1.345 million in lost direct wages for young-growth harvest annually and $9.840 million in lost direct wages for old-growth harvest annually. .

‘Assumes an average annual salary of $30,000; the MAXXAM official described the $6.0 million estimate as a maximum.

gAssumes indirect wages are 25 percent of direct wages. This results in $336,250 in lost indirect wages for young-growth harvest annually and
$2,460,000 in lost indirect wages for old-growth harvest annually.

hNot addressed.

14                                                                                                               GAOLRCED-97-241R Headwaters Forest
ENCLOSUREV                                                                                                                                ENCLOSURE             V

          ESTIMATES      OF TAX REVENUES ASSOCIATED                WITH HARVESTING            TIMBER IN THE HEADWATERS                  FOREST


                                                            Annual revenue                                           Total (over the life of the harvest)
                         Humboldt County       HumboldtState                                                         Humboldt County        Humboldt State
                              consulting        . University              California Forestry                             consulting            University
                            economist’s          economist’s            Association official’s MAXXAMofficial’s         economist’s           economist’s
  Tax revenue                  estimate’           estimateb                        estimateC       estimated              estimate*            estimateb
                                       e                   e                                                  e                    e                     e
  Federal income     .                                                            $436,500
  Corporate                             e                   e                                                 e                       e                     e
                                                                                  1,257,005
                                        e                   e                                                 e                       e                     8
  State income                                                                      58,200
                                        e                   e                                                 e                       e                     e
  Fuel                                                                              40,744
                                        e                   e                                                 e                       e                     e
  Timber harvest                                                                     4,855
  fees
                                                            8                             e                                           a                     e
  County property                $17,217                                                               $13,500
                                                                                                              e
  County timber                  923,130          $1,035,578                       125,000                                $9,800,000’         $6,443,000g
  yield
  Total                          $940,347           $1,035,578                   $1,922,304             $13,500              $9,800,000          $6,443,000

‘Estimate prepared for the Humboldt County Board of Supervisors by Daniel Ihara, Ph.D., consulting economist (July 7, .1997); additional information
obtained during a subsequent discussion. Assumes 44.8 MMBF of old-growth redwood and whitewood timber would be harvested annually over 16
years.

bEstimate prepared by John Grobey, Ph.D., professor of economics, Humboldt State University (July 8, 1997). Assumes 50 MMBF’of old-growth fimber
would be harvested annually over 15 years, beginning in 2007, and 8.25 MMBF of young-growth timber would be harvested over 25 years.

‘Estimate prepared by John Hofmann, California Forestry Association. Assumes 8.669 MMBF would be harvested annually.


15                                                                                                            GAO/RCED-97-241R Headwaters Forest
ENCLOSURE         V                                                                                                                      ENCLOSUREV

dEstimate provided by Byron Wade, Vice President and Chief Legal Officer, MAXXAM, Inc. Based on the allocation of the county property tax paid by
the company in 1993 for the Headwaters Forest acreage.

“Not addressed.

‘According to the study, this amount is the net present value of $923,130 in annual timber yield taxes for harvesting old-growth timber, discounted over
16 years at 6.015 percent.

gAccording to the study, this amount is the sum of the present values of the estimated annual timber yield taxes for harvesting old-growth and young-
growth timber. Young-growth timber is estimated to yield $112,448 per year over 25 years, discounted at 6 percent, resulting in a net present value of
$1,437,000 in 1997. Old-growth timber is estimated to yield $923,130 per year over 15 years (beginning in 2007), discounted at 6 percent, resulting in a
net present value of $5,006,000 in 1997.




(141104)

16                                                                                                             GAO/RCED-97-241R Headwaters Forest
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