What are we Demonstrating? Baxter SFMA Financial Assessment (DRAFT)

Transcription

1 What are we Demonstrating? Baxter SFMA Financial Assessment (DRAFT) Lloyd C. Irland The Irland Group 174 Lord Rd, Wayne, ME

2 Contents What are the Trust Duties Policy & analysis topics Some initial estimates What are the benchmarks? Tentative conclusions and recommendations 2

3 Trust Duties Maintain as forest Demonstrate -- meaning not entirely clear scientific forestry German style Hardwood Dauerwald? Norway spruce monoculture? Income production not mandated as such Above: Spessart oaks, Eichhall Below, Norway spruce, Ardennes, Belgium 3

4 Ways to Ask the Question Are we breaking even on a cash basis? Do we count (and how) increases in asset value? Could a private owner make a business proposition of this? Run a pro forma as would appear to a taxpaying private owner Or, if we advertised this land for sale, under a comprehensive WFCE, would anybody pay to buy it? Ecosystem services since the question has to do with how private owners might benefit from the demonstrations, we will not include. 4

5 Policy Questions What s the relevant time period? When do we start? Account for nontimber goals? Could value assets at market prices As a longterm investor would? As Dillon would? If the property cannot be sold, why would it matter? 5

6 Some details Roads or facilities -- would be used/maintained if no timber program? Effects of inflation up 2.83X since

7 Provisional Draft Income Statement Period Averages Expenses Ann exp less roads $34,599 Roads $34,230 Facil & Eqpt depreciation $26,460 Staffing $148,556 Total $243,845 Revenues $194,003 Net Returns -$49,842 "Erngs before depreciation"" -$23,382 7

8 Mbf sawalogs Market Collapse: Measurement period includes 6 yrs of worst housing markets since they started keeping the data! 350, , , , , ,000 50, Northwoods counties: Sawlog harvest (processed in ME) spruce fir hardwood 60% 40% 20% 39% 4 Northwoods Counties: Percent Hardwood Pulp 44% 39% 40% 39% 42% 42% 38% 40% 48% 49% 49% 45% 0%

9 $ / Mbf Baxter SFMA what are we 300 Statewide Sawlog Stumpage Prices Spruce fir White pine Hemlock Hard maple

10 1998/ / / / / / / / / / / / / / /2013 Dollars Trhouisdands of curent dollars 1998/ / / / / / / / / / / / / / /2013 Baxter SFMA what are we Cords 15,000 10,000 5,000 0 Annual Harvest Operational Results Aves Ave harvest: 8,147 cds Ave net revenue: $194 K Ave net per cd: $ Ave net/ A: $ Net Revenues, 1,000s, $50.00 $40.00 $30.00 $20.00 $10.00 $- Net Rev per Cd and per Acre, 98 to 13 Net per Cord Net per acre 10

11 The Capital Account Typically not explicit in government accounting Types of assets: Short lived assets: trucks etc. Longlived depreciable: buildings, bridges Long lived nondepreciable: road prism. Clearly asset changes are relevant Changes in volume/quality of timber inventory Investments in longlived assets, e.g road prism, water crossings. Correctly accounting for those removes mis-statemnets of income. Overstatements due to asset drawdowns or deferrals of replacements Understatements by not separating operating expenses from investment in long-lived improvements 11

12 Capital Account Changes Timber inventory Volume Quality Degree of regulation Forthcoming Hard Assets Roads, etc Forthcoming 12

13 What are the Benchmarks? How do we compare financial performance? To what? TIMO s? Financial Instruments? Conservatively managed private properties? Nonprofits with similar management mandates? Fair comparisons: Similar size (economies of scale) Similar forest types/ conditions/environmental issues Similar markets and values for wood (e.g. location too) Similar management policies 13

14 Shiller Div yield S&P Long bond Averages % 6.83% % 4.27% from his s/s/ downloaded Apr NCREIF ave 87 to 12 13% 5% 8% ave post Owl 8% 4% 4% % 3.5% 3.4% 14

15 Comparable Properties Similarly situated non-profits Conservatively managed privates? Metrics for comparisons: see handouts Even partial comparisons could be useful 15

16 Don t forget Risks Prices Fire, wind, etc. Mill risk Other? Obligation to re-invest? Or not? How to average results over the business cycle? 16

17 Conclusions SFMA has done well financially considering the obstacles/markets A focus on profitability would be desirable in future Not as a Goal but as one performance metric among others Requires a scheme for asset accounting Cross walk from current boopkkeeping Demonstration mission requires more complete financial analysis/reporting 17

18 Further: Ongoing effort to benchmark w. others desirable Some historical digging to clarify Governor Baxter s meanings attached to: Demonstration Scientific Forestry would be desirable. 18

19 Top of Head Recommendations What do you think? Thanks for your time and attention 19