GRANT COUNTY HEALTHY PRIVATE TIMBERLANDS PROJECT

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1 GRANT COUNTY HEALTHY PRIVATE TIMBERLANDS PROJECT Forest Resources Affairs LLC February 15, 2013

2 ACKNOWLEDGEMENTS Without the support and assistance of the Grant County Court and these people, the consulting team would not have been able to successfully complete the Grant County Healthy Private Timberlands Project. Project Steering Committee Scott Myers Boyd Britton Larry Blasing Roje S. Gootee Sue Newstetter Sally Bartlett Others Mary Ferrioli Jim Cathcart Angie Johnson Teresa Raaf Jim Geisinger Aaron Roth Bob Parker Andrew Crollard Mike Billman Grant County Judge/Commissioner Grant County Commissioner Grant County private timberlands owner Grant County private timberlands owner Grant County Title III Coordinator Grant County Economic Development Director Grant County Commission Secretary Oregon Department of Forestry Oregon Department of Forestry Forest Service Associated Oregon Loggers Natural Resources Conservation Service Oregon State University Extension Worksource Oregon Employment Department Malheur Lumber Company Members of the Grant County Forestry Commission and The many private timberlands owners of Grant County who supported this project with their time, survey responses and excellent questions This project was funded by the safety-net revenues under the Secure Rural Schools and Community Self-Determination Act of 2000, PL , Title III. 1

3 The Grant County Healthy Private Timberlands Project Team A team of five consultants worked together to complete this project. Each team member s background and experiences are highlighted below. 1. Craig Campbell o Over 28 years experience deploying information technology, GIS, databases and modeling in support of field operations and natural resource planning. o Formed Tartan Forest Management Services LLC (Tartan FMS) in 2005 as a consulting firm providing technology based products and services to private, corporate, state and federal landowners. o Technical experience, interpersonal skills and natural resource knowledge supports serving as a facilitator and trainer and a systems design consultant. o Clients include large and small timber REITs, forest product companies, federal and state agencies and other forestry consulting firms. 2. Bill Dryden o A 38-year career of professional experience in public and industrial forest management working in both operations and staff positions in the Pacific Northwest. o Began Forest Resources Affairs LLC in 2005 with a focus on forest policy and planning, natural resources communications, forest certification programs and green building. o Forest Resources Affairs supports forest products manufacturers and forest landowners in both tactical and strategic planning efforts on raw materials sourcing and facility expansion and prepares forest landowners for Sustainable Forestry Initiative certification. 2

4 o Other work includes stakeholder and public communications regarding forest planning and policy efforts, meeting facilitation and gaining green product certification for manufacturers. o Client base includes both public and private forest management and manufacturing organizations in the Northwest and regional and national forestry trade associations. 3. Bob Messinger o A 40-year career of professional experience in forest management working in operations, planning and budgeting, silviculture and harvesting in eastern Oregon. Self employed as a forestry consultant. o Extensive professional experience in managing tracts of private timberlands. Experienced in performing financial analyses, developing and implementing long term management plans and environmental assessments. o Developed criteria and managed large resource inventories including non-timber assets. Experienced in conducting feasibility studies and meeting production and financial goals including sustainable returns on investments. o Experienced with long-term land-use planning processes and working with federal planning teams, federal land managers and county representatives. Experienced with federal and state natural resource committees, advisory councils and other collaborative groups. 4. Tom Montzka o Over 30 years experience in forest products and natural resources management. o Formed Straight Arrow Consulting in 2005 as a consulting firm specializing in market analysis, supply chain management, forest asset management planning, coaching and facilitation and due diligence support. 3

5 o Clients include ENGOs, public organizations, financial institutions, timberland owners and forest product companies in timber markets across the United States. o Collaborated with another consultant to assist a consortium of environmental groups by developing and evaluating alternative strategies to protect resource values on private timberlands from risk of development. The lands possessed important ecological values and were intermixed with public ownership. o Involved in assessing timberlands acquisitions and divestitures activities and conducting wood basin studies for existing and prospective wood product manufacturing facilities throughout the United States and beyond. 5. David New o A 35-year career as a globally experienced natural resource business executive for two major international forest products companies with a proven track record in successful forest management, new business development and business acquisition. o Formed Growing Excellence in 2005, a small forestry consulting business focused on timberlands appraisal and acquisition, new business development, international strategic forestry business planning and organization staff development training. o Major clients include land trust organizations, environmental groups and state agencies. o Areas of expertise include 1) effective strategic business planning and budgeting, 2) development of innovative multi-landownership stewardship programs and 3) organization development with a focus on creating effective teams. 4

6 TABLE OF CONTENTS Healthy Private Timberlands Report Page Executive Summary...6 Action Options Healthy Private Timberlands Report Appendix #1 Risks to Grant County s Private Timberlands...1 #2 Projected Harvest from National Forests in Grant County #3 Regional Timber Supply and Demand; A View from Grant County 15 #4 True Cost of Wildfires #5 Community Forests Programs #6 Estimated Timber Supply and Projected Harvest Levels #7 Economics of Estimated Private Timber Supply #8 Opportunities for Non-Timber Revenue Carbon.. 95 Water Quality and Quantity Western Juniper Renewable Energy Ecotourism Conservation Easements Biodiversity and Species Banking #9 Cross Laminated Lumber #10 Timberlands Real Estate Investment Trust #11 Assembled Land Exchanges #12 Oregon Wildfire Protection Act #13 Standing Inventory Live and Dead Federal Lands #14 Shaded Fuel Breaks #15 Glossary of Terms

7 GRANT COUNTY HEALTHY PRIVATE TIMBERLANDS PROJECT EXECUTIVE SUMMARY Background In early 2011, the Grant County Court initiated discussions regarding the role of private timberlands in the economic and environmental health of local communities and Grant County. Those discussions led to a Request for Proposals in July of After a series of presentations and interviews, Forest Resources Affairs LLC was selected to develop a review of Grant County s private timberlands. Within the approved work plan, there were seven questions posed as the focal point of this project. As previously noted, a team of five independent consultants came together to provide their expertise, research and insights to address Grant County s goal of supporting private timberlands. Question #1. What are the options, both market based and public sector for providing long-term protection of private timberlands from conservation, development, wildfire and other threats? Response. Prior to developing action options, it was necessary to identify, define and examine the full range of possible threats to private timberlands in Grant County. Some may be actual threats to the economic and/or environmental health of those lands while others factors may be perceived as threats, but have little or no bearing on the private timberlands in Grant County. Six potential threats to private timberlands were identified by the project team; 1) wildfire, 2) conversion of timberlands to a non-resource use, 3) insect and disease 6

8 infestations, 4) juniper encroachment 5) lack of a wood products manufacturing infrastructure and 6) lack of a logging/forest management infrastructure. Each of these potential threats is analyzed to assess the current situation regarding private timberlands. In addition, a survey of private landowners assisted in prioritizing these threats. In the Action Options section, a range of possible actions that would support the protection and retention of private timberlands are listed and developed. For more information, please review Appendix #1. Question #2. How would these options interact with wildland restoration and watershed conservation? Response. For most owners of private timberlands, forest health and property values are closely linked. Landowners generally need a current cash flow or an expectation of future financial returns in order to justify making investments in forest restoration and/or watershed conservation projects. While the do nothing option is always available, doing nothing will increasingly move private timberlands in Grant County towards environmental degradation and economic loss. Active management of these lands is generally necessary to maintain healthy forest conditions and, in turn, economic returns. Active management also sustains or increases property values and provides other benefits to the landowner. In addition, timberlands owners with goals focused on wildlife habitat or other noneconomic actions should embrace active management as they learn of the positive impacts of management activities on their preferred outcomes. Question #3. What are the economic, forest health and other relationships of private lands to federal lands? 7

9 Response. Federal lands (Forest Service and Bureau of Land Management) occupy 82% or 1.56 million acres of forestlands in Grant County. The Forest Service manages the bulk of the federal forestlands with 1.51 million acres. This assessment estimated private forestlands in non-industrial or industrial ownership at 209 thousand acres (Note: juniper forests are not included). These lands are intermixed across the Grant County landscape and are linked to the public lands in a variety of ways and situations. Due to their large acreage, the federal lands have created an increased interdependence with the private lands for both economic and forest health linkages. Economic Linkages The federal lands are the key driver for sawlog markets in Grant County and beyond. As the timber sale volume from federal lands plunged in the early 1990s, the timber harvest on private lands escalated to meet the demand. However, as both timber supply and wood products demand changed over time, the number of wood products mills in and around Grant County declined. Today, a few small mills and the only remaining medium-sized mill, Malheur Lumber, are operating within Grant County. While Grant County sits in a sea of increasing federal timber volume, about 50% of the wood locally processed is harvested beyond the county s borders. The declining manufacturing infrastructure has negatively impacted log prices and, in turn, the economic value of private timberlands. For more information, please review Appendix #2, #3 and #4. Forest Health Linkages As with economic factors, federal lands are the key driver for local forest health conditions. The poor and declining forest health conditions on federal lands are creating a significant risk to private timberlands. The exclusion of fire coupled with the dramatic decline in timber harvest has created large expanses of overstocked forest stands on federal lands. When stressed by drought or other conditions, the 8

10 land cannot support those overstocked stands and the trees are stressed. These conditions are the ideal environment for a wide range of forest pests to gain a foothold and to expand their presence in stressed stands and eventually into even healthy stands. Recent Oregon Department of Forestry data indicate that nearly 19% of the federal lands in Grant County have forest pest infestations consisting primarily of bark beetles and other insects. As forest health problems have expanded on federal lands, the occurrence of catastrophic stand replacement fires has increased. Throughout the western United States, each summer brings a growing list of major fires that decimate forests, impact watersheds, and, at times, damage communities and endanger people. Private timberland owners are fully aware of these conditions with 84% expressing a high level of concern. Community leaders and others are joining them in their concern that Forest Service land managers are not fully addressing their responsibilities for improving forest health conditions and community economic stability. A telling piece of data regarding the impact of insects and similar factors as they relate to fuel loadings on federal lands was developed in the fiber supply analysis the volume of dead timber on Forest Service lands is more than twice ( FIA data to FIA data) that of the total volume green merchantable timber on private forestlands. On Forest Service lands, standing dead volume is percent of live volume. If reserved federal lands such as wilderness areas are removed from this analysis, the dead timber volume is about 18 percent of live volume as there are more dead trees per acre in the reserved areas. However, forest insects and wildfire do not differentiate between designated reserves such as wilderness areas and nonreserved lands so the higher numbers more appropriately describe the threat potential to private timberlands. While forest health conditions on federal forestlands have significantly declined over the last 20 years, private timberlands in Grant County have taken a different 9

11 path. Though timber harvest and other active management activities, private landowners have been able to generally offset and/or mitigate the impacts of forest pests. This is confirmed by recent ODF data indicating that 2.6% of private timberlands have forest pest infestations. As with federal lands, these are generally bark beetles and other insects. However, as conditions continue to deteriorate and insect infestations on federal lands expand and generally fail to gain effective treatment, the risk to private timberlands from forest pests increases. In the opinion of 69% of the private timberlands respondents, the federal timberlands in Grant County have a role in the protection and restoration of private timberlands. For their part, the local Forest Service personnel are aware of both the forest health problems on federal lands and the local concerns on the agency s poor performance. However, the local managers are burdened by a cumbersome and problematic planning process complicated by appeals and litigation. Local collaborative efforts have generated limited progress, but forest health and community economic conditions continue to decline. The current opportunity for a long-term stewardship contract from the Malheur National Forest offers the potential for improved management of those lands and improved local log and fiber markets. Question #4. What is the potential for Grant County acquisition of private lands? Response. When this project was initially discussed in early 2011, the concept of Grant County acquiring privately owned timberlands for a county forest was included in the discussions and final work plan. As the project advanced, that concept fell into disfavor. For example, when private timberlands owners were surveyed, only 16% supported Grant County acquiring timberlands. However, information in the report provides an understanding of a State of Oregon 10

12 community forest program that is available to Grant County. Community forest operations in other states are referenced for possible future review. More importantly, this discussion fostered several entries in the Action Options. For additional information, please review Appendix #5. Question #5. What are the potential fiber outputs i.e., sawlogs, post and poles, pulpwood, biomass, etc. from private timberlands? Response. A private timberlands database that connected forest types to land ownership and then identified volume per acre by timber type was developed to address this question. That database is linked to a geographic mapping system that supported an assessment of the potential fiber outputs from private timberlands. Three possible scenarios for owners management of private timberlands were created to facilitate the fiber supply analysis. These scenarios were based upon a review of the landowner survey data, an understanding of the current and projected supply of private timber, the productivity of Grant County private timberlands and the professional knowledge of the consulting team. For additional information, please review Appendix #6 and #7. Probable Scenario. Among those landowners that have recently harvested their property, there is generally a limited supply of available marketable timber in the near future. However, the survey of Grant County s private timberlands owners found that 47% are likely or extremely likely to harvest timber within the next five years. Another 17% may or may not harvest timber in the next five years. Over 60% of the owners of Grant County private timberlands could be bringing to timber to market in the next five years. With consideration for those factors, projected potential harvest in this scenario is approximately triple the current harvest level, but will fall below the longer term annual average private timberlands harvest level of 33 MMBF (million board feet). Projected potential average annual harvest from 11

13 2015 to 2032 is 15.6 MMBF. Achieving this level of annual harvest would necessitate the owners of private timberlands recognizing the longer-term financial benefit of maintaining a local manufacturing infrastructure. Sustainable Scenario. This scenario considers the application of forest management practices to maintain and improve forest health conditions and to improve growth rates with a fully sustainable level of harvest. Average annual harvest from 2015 to 2032 is 23.4 MMBF. Achieving this annual level of harvest would likely necessitate a sustained program of landowner technical and financial assistance so that effective forest management practices are applied. Potential Scenario. This scenario keeps inventories level over time. There is a small reduction in ponderosa pine species inventory, but a slight increase in total forest inventory. The potential harvest case is roughly in line with the historical average harvested volume for the past 25 years from private timberlands in Grant County. The projected average annual harvest from 2015 to 2032 is 29.8 MMBF. Achieving this level of sustainable harvest would likely necessitate a coordinated program of harvest planning and forest management activities. Question #6. What is the current wood manufacturing infrastructure s ability to utilize the identified fiber outputs? Response. Sawlogs from Grant County s private timberlands are at the economic margin of regional markets. While sawlogs do flow out from Grant County, the long haul distances, high fuel costs and lower cost and available supply of logs closer to those markets negatively impact the purchase prices for the Grant County logs. For additional information, please review Appendix #3. 12

14 To maintain the ability to manage private timberlands with the expectation of current and/or future timber harvests, it is critical to retain the currently operating sawmill. The owners of private timberlands must be willing to either provide a higher and sustainable harvest level or they will face an immediate and significant loss of future financial benefits should the single medium-sized operating mill close, leaving Grant County without any significant primary manufacturing operation. If this mill were to close, the value of logs from private timberlands would decrease by up to 50%. Question #7. What possibilities exist for the identified potential fiber outputs to create new jobs in Grant County? Response. There are a number of possible opportunities for Grant County to utilize the currently available wood fiber to generate new employment or to better secure current jobs. Some of these opportunities such as the utilization of woody biomass have been explored in past assessments. Therefore, this report will not dwell on that topic as it is already fully addressed. Other options may merit additional review as a comprehensive analysis of the feasibility and economic viability of these opportunities is beyond the scope of this report. In Action Options, each of these potential job creation opportunities is described and evaluated in greater detail. Expanded use of bioenergy in public and/or private buildings Juniper utilization Biofuels and/or power generation Post and pole operation Wood chip facility Secondary engineered wood product manufacturing 13

15 GRANT COUNTY HEALTHY PRIVATE TIMBERLANDS PROJECT ACTION OPTIONS Several observations 1. The planned level of activity on federal lands to improve forest health conditions will likely not be sufficient to mitigate the current level of risk to private timberlands. Over time, it is more likely those risks to private timberlands and rural communities from federal lands will increase. 2. While federal timber sale volume will likely increase over the next 20 years, the percentage of sawtimber within the sale volume may decrease. This can increase the demand for and value of logs on Grant County s private timberlands. The key variable is the retention of primary wood products manufacturing infrastructure. 3. If the volume of non-sawtimber harvest from federal lands increases, new products, manufacturing and marketing opportunities may surface. Coupled with similar resources from private timberlands, Grant County s timberlands and citizens could benefit. 4. The state of Georgia has an innovative and successful partnership between the state forestry agency, the cooperating counties and the state department of commerce for the domestic and international marketing of forest products manufacturing. There model relies on four key ingredients including 1) High quality assessments of the sources of timber, skilled labor, energy, other natural resources and infrastructure within each cooperating county; 2) Strategic level Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis of primary, secondary and tertiary forest products manufacturing opportunities; 3) Comprehensive assessment of state and county industrial development 14

16 programs and 4) Direct multi-local stakeholder meetings with potential investors on the ground in the wood basket. 5. The key point is that by increasing the log supply from private timberlands in Grant County, the risk to the local manufacturing infrastructure can be reduced, demand may rise as other eastern Oregon mills opt to purchase stumpage from Grant County s private timberlands and stumpage and land valuations can increase resulting in financial gains for the landowners, mill owners and communities. Note: The order of listing does not imply any priorities or cost/benefit ratios for the action options. 1. ACTION OPTION Pursue a technical assistance program for private timberlands owners. Grant County could provide a private landowner assistance program. The program would be a one stop situation in which private timberlands owners would either obtain direct technical assistance or be referred to the appropriate cooperating state or federal agency for assistance. In addition, a partnership with private sector consulting foresters would provide additional depth to a Grant County technical services program. The county forester could address the following tasks. Informing local landowners of the threats and risks to private timberlands so those landowners can make more informed decisions regarding forest management activities. Options for juniper products, control and eradication. Wildlife management opportunities Landowner informational workshops Developing written materials and a website to better inform private landowners Assist in the development and implementation of selected action options 15

17 Addresses questions #1, #3, #5 and #6. Supporting Information. In Grant County, there are a variety of technical resources available to private timberlands owners. The Oregon Department of Forestry provides landowners with technical support and limited cost-share funding through their landowner assistance program. The Oregon State Extension Services Program has an extension forester providing technical support for private landowners. The National Resources Conservation Service provides cost-share support through its Environmental Quality Incentives Program (EQIP). Local consulting foresters are also available to assist landowners. This full range of technical resources provides valuable assistance to private timberlands owners and they are commended for those efforts. However, these governmental programs have generally experienced significant personnel reductions in the past ten years so the ability to provide technical assistance has also significantly decreased. While private sector consulting foresters have been able to provide some additional assistance, in many cases, the landowners cannot afford those services. This combination of factors has severely limited the ability of the owners of Grant County s private timberlands. Data from the timberlands owners survey found 86% of those surveyed wanted additional information to better manage their lands. Key information needs included control of noxious weeds and invasive juniper, cost sharing programs, timber markets and wildlife management. Those surveyed preferred to receive information from written materials, professional foresters, workshops and seminars and the Internet. 2. ACTION OPTION Pursue a financial assistance program for private timberlands owners. A locally managed support funding mechanism would complement the Grant County private timberlands owner assistance program. A successful support fund would likely generally provide low interest loans with 16

18 some grants coupled with a landowner cost share component of 50 to 60%. Seed money sources for this local program could include conservation and charitable foundations, direct state and/or federal appropriations, county funds and/or other mechanisms. Addresses questions #1, #3, #5 and #6. Supporting Information. As the state and federal agencies have reduced staffing levels, there has also been a similar reduction in funding to assist landowners in completing forest management activities. For example, data provided by the Oregon Department of Forestry indicates that from 2002 to 2009, 68 landowner assistance projects covering 18,946 acres (2,370 acres per year) were completed. The average project cost $10,223 with landowners paying 55% of those costs and support funds averaging $4.662 per project or 45% of the total costs. From 2010 to 2012, there were five such projects in Grant County covering 2,732 acres or 910 acres per year. Support funding decreased to 42% at $1,577 per project. One bright spot Environmental Quality Incentives Program (EQIP) funding administered by the Natural Resources Conservation Service (NRCS) has become more focused on private timberlands with $40,000 allocated for the current year. These funds are targeted for thinning as a fire control measure on private timberlands adjacent to federal lands. In addition, the Oregon Watershed Enhancement Board has a small grants program that can assist timberlands owners for watershed restoration projects. Overall, the level of public support funding has decreased which has resulted in landowners decreasing their investments in forest management activities. If a higher level of technical assistance were provided, some landowners would still need support funding such as grants or low cost loans to support forest management activities. 3. ACTION OPTION Pursue the use of the Grant County Community Wildfire Protection Plan (CWPP) and Healthy Forests Restoration Act (HFRA) 17

19 to reduce the risk of wildfires to structures and other important resources. Using the current 2012 draft CWPP, seek to engage every rural homeowner in a site-specific plan to reduce the risk of wildfire to each house, auxiliary structure and access and egress route. Expand the application of the CWPP and the HFRA to include a wider array of public and private assets including every federal, state, county and private road used by the public for access and egress to home sites, recreational facilities, etc. Expand the plan to include other public/private assets such as electrical transmission lines, cell towers, domestic and municipal water structures and pipelines, etc. Addresses questions #1 and #3. Supporting information. The HFRA and the CWPP process provide a potentially powerful mechanism for reducing the current high risk of wildfires to private and non-federal public assets including rural homes and other structures, transportation systems and supporting infrastructure. Each rural homeowner should be exposed to this opportunity and supported in efforts to develop and implement site-specific fire wise plans. However, a program that works to fully protect rural homes while not addressing the potentially devastating impact of catastrophic wildfires on private timberlands and the economic and non-timber resources those lands provide to Grant County is not sufficient. Grant County could use existing authorities to provide fire wise plans and implementation efforts to all roads and highways to protect access and egress. In addition, Grant County could seek to expand CWPP coverage to domestic and municipal watersheds, communications facilities and related community infrastructure. 4. ACTION OPTION Monitor and, as appropriate, continue to pursue opportunities to control and/or utilize western juniper. Develop an inventory of the available juniper supply on private lands. Grant County has previously invested in reviews of the marketability of western juniper resources. While those efforts did not generate lasting benefits, others continue to seek those 18

20 solutions. Grant County should monitor those efforts and pursue options that have potential benefits for private timberlands. One of the most frequently cited obstacles to developing a sustainable juniper products industry is the lack of a detailed supply inventory. With the cooperation and collaboration of private landowners, Grant County could develop that supply information. Addresses questions #1 and #7. Supporting information. The commercial utilization of the western juniper resource faces many challenges. High cost of manufacturing and transporting juniper products relative to the market value of those products Lack of economic stability within the raw material supply chain Limited harvest, transport and manufacturing infrastructure Availability of dependable niche markets Grant County does not have the ability to independently address these challenges. However, Grant County can monitor the efforts of others, provide cooperative resources as appropriate and inform landowners of relevant developments. For additional information, please review Appendix #8. 5. ACTION OPTION Assess the development and introduction of a logging skills and forest management contractor training program. One approach to assisting the owners of private timberlands, current contractors and the manufacturing infrastructure is to support the training of well-qualified employees. A Blue Mountain Community College facility in Grant County could be the repository for such a program. Addresses questions #1 and #6. 19

21 Supporting information. There is a statewide need for a training program for logging skills and a related development program for forest management contractors. If located in Grant County, this program could provide economic and environmental benefits to both private timberlands and the entire community. Funding sources could include the Forest Service and the State of Oregon. Associated Oregon Loggers would be a welcome cooperator. On the ground training projects could help mitigate risks to private timberlands and assist in watershed restoration work. One cautionary note people will enter and participate in a workforce training program when there is an expectation of employment upon completion of the program. As the Forest Service is the major timber owner in Grant County and eastern Oregon, those future employment opportunities are very dependent upon their actions. If people understand that the Forest Service is ramping up their land management program including timber harvest for the long term, then a logger skills and forest management contractor training program has potential for success. If there is no such understanding, then this training program will likely not be successful. 6. ACTION OPTION Monitor, in cooperation with the State of Oregon, carbon credit trading opportunities and inform owners of private timberlands of the opportunities and challenges of carbon sequestration and carbon offset programs. A carbon credit trading is one of several non-timber revenue producing options for private timberlands owners. It is a relatively new opportunity in an emerging, but volatile market. Addresses question #1. Supporting information. Carbon sequestration and carbon offset programs are a potential revenue source for Grant County timberlands owners. There has been 20

22 some success in marketing carbon credits for both reforestation and afforestation projects. However, as carbon credits are a new product, there are no reliable perspectives on the impacts carbon offsets, an encumbrance on the property, have on land values. Landowners should be aware of this potential revenue source so they can learn more of the opportunities and challenges. For additional information, please review Appendix #8. 7. ACTION OPTION Assess the opportunity to develop market-based partnerships for watershed services. A cooperative of private timberlands owners in designated watersheds could develop a plan with Grant County that addresses the water quality management plan requirements of the Clean Water Act Section 303(d) that also includes elements for payment of watershed services. Addresses questions #1 and #2. Supporting information. Forest management practices influence sediment delivery to streams, influence the timing and amount of water flow, maintain streambank integrity and ameliorate stream temperatures to the benefit of water quality and in-stream fish habitat. In that last decade, payments for watershed improvements has become an emerging market for landowners interested in managing their lands within a plan to maintain or enhance water quality and/or quantity. While not a significant revenue source, these payments can offset the cost of mitigating identified risks to private timberlands by financing juniper eradication, developing seasonal water impoundments, increasing riparian tree planting, supporting pre-commercial and commercial thinning projects and related work. In addition, rangelands, agricultural lands and other lands could be included in a Grant County watershed services program. For additional information, please review Appendix #8. 21

23 8. ACTION OPTION Monitor the use of forest resources for biofuels. With the expectation of a long-tem supply of low cost natural gas, the bioenergy industry has struggled and Grant County s sole biomass plant at Prairie City has been shuttered. Three other similar plants in Oregon have also closed. However, emerging technologies may offer some future opportunities. Addresses questions #1 and #7. Supporting information. Pinyon-juniper lands are recognized as key source of biofuels. At this time, the cost of removal and processing these materials into biofuels greatly exceeds product values. There are several research projects that are developing new technologies that may support the future commercial use of juniper as a biofuel resource. As future opportunities are identified, Grant County s initial role could include information assessment and distribution. Local support is a critical factor as companies developing these new technologies are seeking a favorable operating environment to site facilities. For additional information, please review Appendix #8. 9. ACTION OPTION Assess the opportunities for tourism as a non-timber revenue source for private timberlands. Grant County is already marketing its natural beauty and scenic vistas to support tourism as a source of economic activity. Expanding those opportunities to private timberlands may provide an additional revenue source for landowners and other county businesses. Addresses question #1. Supporting information. As the forest health conditions deteriorate on federal lands and Forest Service recreation funds are further constricted, the opportunities are only expanding on private timberlands. Wildlife viewing is a growing segment of the tourism industry. People are paying to see elk, deer bear, eagles and other 22

24 species in a natural setting. Leasing private lands for fishing and hunting access is becoming a more common practice. The Bureau of Land Management has a program of sanctuaries for wild horses and burros on private lands. Landowners are compensated for providing defined services while also having the opportunity of tourists visiting these facilities. These are but a few examples of the expanding tourism opportunities for private timberlands in Grant County. For additional information, please review Appendix # ACTION OPTION Assess adding economic value to local timberlands through development of a secondary wood products manufacturing facility that compliments the current primary facility. The wood products industry has developed a wide variety of engineered wood products that utilize lower grade materials from multiple tree species to manufacture higher value building materials. In many situations, these secondary wood products rely upon or are integrated with a sawmill or other primary facility to supply some or all of the needed raw materials. Addresses questions #1, #6 and #7. Supporting information. An emerging, but proven technology is a secondary structural wood product called cross-laminated lumber (CLL). The use of inland West softwood species such as pine, Douglas-fir and white fir coupled with CLL technology could provide Grant County a potentially viable new manufacturing operation that would utilize the local timber supply and add value to both the private timberlands and the current manufacturing infrastructure. The access to West Coast markets and the scale of a potential manufacturing facility fit with the current lumber production in Grant County and neighboring areas. While primarily a European product at this time, CLL has applications in both residential and commercial construction and requires less raw materials, energy, staff and 23

25 capital investments than most other secondary manufacturing facilities. As the use of wood in multi-story residential and commercial construction increases, the use of CLL and related products will expand. For additional information, please review Appendix # ACTION OPTION Assess the potential for a cooperative private timberlands ownership and management organization. Current federal tax law permits multi-party ownership of real estate within a Real Estate Investment Trust (REIT). There are many successful private and publicly traded REITs and the concept could benefit Grant County s private timberlands. For Grant County landowners, a REIT would provide a favorable federal tax rate and a mechanism for generational transfer of ownership rights. Addresses questions #1 and #7. Supporting information. A Grant County timberlands REIT would consist of private timberlands owners exchanging ownership of specific timberlands for the ownership of an equivalent value of shares in a timberland REIT. The REIT stockholders would direct the management of those lands through the services of a forest management organization to conduct operations including, but not limited to, tree planting, thinning and other young growth projects, timber marketing, nontimber revenue generation, etc. The distribution of management costs and income would be identified within the organizing documents of the REIT. A condition of operations could be preferential treatment for REIT stockholders such as access or fishing and hunting rights. Benefits could include a joint timber marketing and forest management program, lower taxes, regular income and a more workable transfer of ownership between generations. For additional information, please review Appendix #10. 24

26 12. ACTION OPTION Assess the opportunity for a county facilitated assembled land exchange program to increase private and/or county timberlands ownership. By exchanging private timberlands and other private lands for Forest Service timberlands, the risk to some private lands can be mitigated and the value and economic benefits flowing from private lands can be increased. To be successful, the effort would need the support of Grant County landowners, the Forest Service and the State of Oregon. Addresses questions #1 and #4. Supporting information. There are approximately 75,900 acres of Grant County private timberlands within or nearly surrounded by federal lands. An assembled land exchange program of willing owners can result in the benefits of improved access, better financial returns, lower risk and lower operating costs. Assembled land exchanges can be structured with a group of private landowners or a single owner that has acquired targeted acres for an exchange. For additional information, please review Appendix # ACTION OPTION Assess expanding the use of bioenergy in public and private buildings. Grant County has a successful track record of converting fossil fuels heating systems in schools and other public building to systems that utilize wood pellets and related biofuels. By expanding that effort when and where economically feasible, Grant County could support a local industry while benefiting private timberlands. Addresses question #7. Supporting information. A project to identify all public and private buildings capable of converting to biofuels coupled with an incentives and/or funding mechanism would yield sustained employment for both the extraction of raw wood 25

27 materials and the production of biofuels. The costs and benefits for any conversion projects should be closely examined to assure any public funds are being well invested. Community distributed heating systems in which one biofuels facility heats multiple buildings should be a focal point. According to Dr. James Bowers of Dovetail Partners, the use of biomass for building heating through community distributed systems is three times more efficient (87% vs. 24%) compared to electricity and will remain highly cost competitive in the long term. 14. ACTION OPTION Pursue the passage of the proposed Wildfire Protection Act by the Oregon Legislature. The best way to prevent large fires is the up front investment in initial attack capabilities so that fires are effectively and efficiently suppressed. Grant County could consider offering amendments that address the need to buffer private timberlands from the threat of catastrophic wildfire from federal lands. Addresses question #1. Supporting information. The proposed legislation would redirect landowner funds currently allocated for the suppression of large fires to increasing the Oregon Department of Forestry s initial attack capabilities including expanded air tanker use. It would also address the issue of affordability for fire protection on lower value, but fire-prone eastern Oregon private timberlands by realigning current financial resources and fully funding the General Fund portion of the ODF s fire program. For additional information, please review Appendix #12. 26

28 15. ACTION OPTION Assess the costs and benefits of pursuing a group green certification for Grant County timberlands. If a cooperative land ownership and management organization is developed, that group and/or Grant County should assess a group green certification of those lands under one or more of the three US forest certification programs, the American Tree Farm Standard, the Sustainable Forestry Initiative or the Forest Stewardship Council. If a cooperative is not established, Grant County could provide information regarding green certification within a landowner assistance program. Addresses question #7. Supporting information. While the landowner survey found only nine percent of landowners had certified their lands with the American Tree Farm Standard being the most frequently used program, 58 percent shared the opinion that green certification added value. A review of the costs and benefits would assist interested landowners to determining their proper course of action. 16. ACTION OPTION Pursue a sanitation and salvage program on available Forest Service lands. With the large volume of dead standing trees on Forest Service lands, a sanitation and salvage program could provide raw materials for local manufacturing while alleviating some portion of the fuel loading. Addresses questions #1, #3 and #7. Supporting information. The volume of dead and dying standing timber on Forest Service lands significantly exceeds the live, green volume of standing timber on private timberlands. This material is part of the fuel loadings on federal lands that creates the high risk of catastrophic wildfire to private timberlands. This dead volume is also a wasted economic resource for Grant County. One-third of the 27

29 Forest Service managed lands in Grant County are classified as suitable for commercial timber production. A sanitation and salvage program would help protect the private timberlands and the growing stock on those federal acres. In addition, the removed volume of dead and dying trees could provide a stable source of raw materials for existing and possibly new manufacturing operations. This could also create new markets for similar sized material from private timberlands. For example, the shuttered post and pole operation might find a reliable source of small logs. Local contractors could stockpile wood and then opportunistically access markets for hog fuel and wood chips. For additional information, please review Appendix #2 and # ACTION OPTION Pursue a shaded fuel breaks program on targeted Forest Service lands. Utilizing the Forest Service s stewardship contracting authority, implement a program of shaded fuel breaks on federal lands adjacent to homes and private timberlands to partially mitigate the risk of catastrophic wildfire. Addresses question #1. Supporting information. Completing site-specific plans for shaded fuel breaks can partially address the risk of catastrophic crown wildfires escaping from Forest Service lands and damaging private homes and timberlands. Stewardship contracts or other mechanisms can be used to accomplish this work. In some cases, sawlogs could be a by-product of creating shaded fuel breaks. For more information, review Appendix # ACTION OPTION Assess those timberlands with development potential and with owners interested in development. To reduce the risk of 28

30 development to the vast majority of private timberlands, identify and consider development for the 10,000+ acres most suitable for development. Addresses question #1. Supporting information. It may appear to be counter-productive to develop some private timberlands in an effort to reduce the risk of development. However, the rationale is that when there is market for development of resource lands for primary or secondary homes and other non-resource uses, that development should be directed to those lands that are suitable for development and those landowners that desire development. In doing so, the bulk of the private timberlands are effectively removed from the risk of development. In addition, designated additional lands for development can spur some economic activity. Any effort to assess this action option should consider the currently available development lands, local zoning, statewide planning directives and related information. 19. ACTION OPTION Assess the opportunity and landowner interest in reforestation and/or afforestation projects. There is an unknown acreage of private lands within Grant County that can, but are not, supporting forest cover. Identifying those lands and working with willing landowners to plant trees would increase the base of the county s private timberlands. Addresses question #2 and #7. Supporting information. In the landowner survey, few respondent indicated tree planting had occurred on their timberlands. There are certainly some lands that can support forest cover that are now without trees. In some cases, this is part the landowner s management plan to provide forage or other non-timber resources. 29

31 However, it is likely there are some acres where landowners lack the information and/or resources to re-plant and maintain a young and growing forest. Perhaps within the Grant County timberlands assistance program, these lands and owners can be identified and supported. Clearly, a reforestation/afforestation program will not provide logs and fiber in the short term, but maintaining or even expanding the private timberlands base will support the long-term health of the forest industry in Grant County. 30

32 Appendix #1 Risks to Grant County s Private Timberlands Background Six potential threats to private timberlands were identified by the project team; 1) forest insects and disease infestations, 2) wildfire, 3) conversion of timberlands to a non-resource use, 4) juniper encroachment, 5) lack of a local wood products manufacturing infrastructure and 6) lack of a local logging/forest management infrastructure. Forest Insects and Disease Infestations Each year, the Oregon Department of Forestry (ODF) conducts an aerial survey of Oregon s forestlands to assess the location and level of forest insects and disease infestations. The results of the 2010 and 2011 surveys were aggregated and aligned with Grant County ownership information. Note: the ODF survey includes juniper forest acres. The ODF survey delineates between beetles that usually are borers that work under the bark of the tree and insects which are defoliators that consume the foliage/needles of the tree. ACRES PERCENT USFS/PRIV PRIVATE USFS PRIVATE USFS RATIO Beetles 1,268 27, % 1.741% 5.5 Disease % 0.006% 0.6 Insects 9, , % % 7.4 All Damage 10, , % % 7.1 No Damage 391,935 1,279, % % 0.8 Total 402,624 1,577, % % 1.0 Table 1.1 The data indicate that beetles and insects impact nearly 20% of the Forest Service lands while 2.6% of Grant County s private timberlands are similarly impacted. A review of past ODF surveys finds an increasing trend on Forest Service lands. 1

33 Wildfire Wildfire has always been a natural element in the forest ecosystems of the inland West. In the past century, society, for many reasons, decided to suppress wildfires, which is changing the dynamics of those forests. On federal lands--without fire and in the absence of active management--stocking levels have increased, drought has stressed the overstocked stands and beetles and insect infestations have significantly increased fuel loadings. This has resulted in trend of larger and more devastating wildfires. A recent report from the Oregon Forest Resources Institute (OFRI) states, The nature of wildfire has changed many of these eastern Oregon National Forests over the past 30 years. Due largely to fire suppression and past management practices, forests that would have experienced low intensity surface fires have become forests that commonly experience crown fire under extreme fire conditions. (OFRI- National Forest Health Restoration An Economic Assessment of Forest Restoration on Oregon s Eastside National Forests) Under some circumstances, this array of forest health conditions has resulted in large and catastrophic wildfires on federal lands. Recent data from the Forest Service indicate that from 2007 to 2011, fires in eastern Oregon greater than 100 acres (large fires) burned an estimated 279,000 acres of national forestland costing the agency $218 million ($780 per acre) in fire suppression costs. (OFRI- National Forest Health Restoration An Economic Assessment of Forest Restoration on Oregon s Eastside National Forests) From a recent report to Oregon Board of Forestry from the Committee on Family Forestlands, (CFF), overstocked and unhealthy neighboring federal forests and rangelands threaten family forestlands, spreading ecological and financial losses from wildfires, pests, disease, escaped prescribed fires, and invasive plants that originate on under-managed federal lands are growing threats to private land. (Committee for Family Forestlands-Oregon s Eastside Forests 2012: The Family Forestland Owner s Perspective). This financial cost of fire suppression on federal lands is only the tip of the iceberg. In a recent review of six wildfire case studies, the Western Forestry Leadership Coalition found that indirect and associated costs such as resource damage, public health impacts, rehabilitation costs for watersheds and other impacted areas, post-fire flooding mitigation and damage and infrastructure damage can exceed fire suppression costs by two to thirty 2

34 times. These costs continue long after the firefighters leave and, in many cases, are paid by local and/or state government. While private lands have the same history of fire control, these lands have generally been actively managed through harvest and other forest management practices that addressed both forest health conditions and fuel loadings. Although there certainly are examples of large fires originating on private lands, it is clear that the federal lands are at the highest risk of catastrophic wildfire. This trend line is steadily increasing and thus places nearby private timberlands at a high risk. In Grant County, this same historical situation has resulted in current conditions on Forest Service lands, i.e. 18.9% of those lands impacted by beetles and insects. An assessment of the timber data found the volume of standing dead timber on Forest Service lands the volume of dead timber on Forest Service lands is more than twice ( FIA data to FIA data) that of the total volume green merchantable timber on private forestlands. On Forest Service lands, standing dead volume is percent of live volume. Both these statistics are indicators of the heavy fuel loading on Forest Service lands. To evaluate the risk to private timberlands, an analysis of the adjacency those lands with Forest Service lands was conducted. Adjacency of Forest Service and Private Forestlands in Grant County Within 0.5 miles Within 1.0 miles Within 1.5 miles Within 2.0 miles 192,034 acres 250,274 acres 280,481 acres 298,038 acres 59% 78% 87% 92% Table 1.2 Risk of Insects and Disease Infestations and Wildfires In all forests, these two risk factors are linked. Over the past twenty years, reduced management activity and aggressive fire suppression on federal forestland has resulted in higher timber stocking and higher per-acre timber mortality than found on private forestland 3

35 in eastern Oregon. Insect and disease losses have also increased in these forests as a result of higher stocking, slower growth, and reduced vigor. The consequence is a higher potential for significant loss of key ecosystem components to a wildfire. The potential for crown fire on these forested acres is significant. Across the acres classified as available, about 78 percent have a moderate to high potential for crown fire, (OFRI- National Forest Health Restoration An Economic Assessment of Forest Restoration on Oregon s Eastside National Forests). Based upon this information and the experiences of the consulting team, the following conclusions pertain to Grant County s private timberlands. 1) With the severe beetles and insects infestations on Forest Service lands and the high rate of adjacency of Forest Service and private timberlands, the risk of these destructive elements to significantly impact Grant County s private timberlands is high. 2) Due to the low level of forest diseases and the lack of mobility for those pathogens, the risk of these destructive elements impacting Grant County s private timberlands is low. 3) Due to the 78% rate of adjacency within one mile for Forest Service and private timberlands coupled with the high potential of crown fires on Forest Service lands, the risk of catastrophic wildfire to those private timberlands is high. 4) For private timberlands with adjacency exceeding one mile (22% of total private timberlands), factors such as road access, ODF fire suppression actions and similar factors reduce the risk factor to medium. 5) A cautionary comment private landowners whose lands are more that one-mile from nearby Forest Service lands should not take great solace in that situation. Under certain weather and fuels conditions, ALL private timberlands in Grant County would be under a high risk of catastrophic wildfire. Conversion of Timberlands to a Non-resource Use A variety of factors influence the development of timberlands to non-resource uses including accessibility and the presence of water, governmental regulation and economics. 4

36 Development pressure will be higher on those lands that have better road access and/or are adjacent to water such as streams. For this report, roads in Grant County were divided into three classes; 1) State of Oregon or US highways, 2) state and county arterials or connectors and 3) all other roads. Water was also divided into three classes; 1) rivers and large streams 2) other perennial streams and 3) intermittent streams. Within a matrix, the development potential of private timberlands to both roads and streams was identified. Development Potential Matrix Water/Roads High High Medium 2 High Medium Low 3 Medium Low Low Table 1.3 The adjacency of private timberlands to this matrix was then assessed. Private timberlands within 1/8 mile of state or federal highway and within ¼ mile of a river or large stream were considered to be more desirable for development. On the other hand, private timberlands ½ mile from any road or water were considered to be less desirable for development. Private timberlands more than ½ mile from a road or water were excluded from development consideration. Acreage of Private Timberlands within Development Potential Matrix Water/Roads ,540 8,580 6, ,220 7,260 5, ,920 3,960 1,980 Table 1.4 Oregon has a long history of governmental land use regulations. Within statewide planning goals, local city and county governments zone lands and regulate use. Resource lands including private timberlands have significant limitations on the development of nonresource uses. While the zoning and uses of these lands are completed at the level of local 5

37 government, appeal processes have state government and, if necessary, the judiciary as the final decision makers. Economic factors and land ownership policies also influence the development of resource lands. If the resource values are reduced or eliminated by events such as wildfires, beetles, the loss of local manufacturing infrastructure, state or local taxing policy or similar factors, private landowners will seek other options including development to achieve an economic return from their lands. The CFF report noted that, forest policies can either encourage the likelihood that these acreages will remain productively forested or discourage it. Many existing policies inhibit rather than empower the desire and financial ability of these forest owners to retain their land and keep it forested. Risk of Conversion of Timberlands to a Non-resource Use Based upon the development potential assessment, less than 10% of Grant County s private timberlands are highly desirable for development. Coupled with Oregon s land use regulations and a soft real estate market, the risk to private timberlands from development is low. This view was validated by the private landowner survey data that indicate only 6% of the respondents were extremely likely to sell or develop their timberlands. Forty percent indicated it would extremely unlike that they would sell or develop their timberlands. However, if future events diminished private timberlands valuations, some landowners might seek conversion to other uses to recoup lost value. Western Juniper Encroachment There is not a standard definition for juniper forest or juniper savannah. The most accepted definition for juniper forest is lands with a western juniper stocking level of at least 5%. Juniper savannah is lands with less than a 5% stocking level of western juniper. In many cases, lands are transitioning from juniper savannah to juniper forest. 6

38 Regardless of the definition, it is clear that the extent of the western juniper resource is expanding throughout eastern Oregon and certainly in Grant County. Within a report titled The Western Juniper Resource in Eastern Oregon, the authors found juniper forests expanded at an annual rate of 80-85,000 acres per year. While there is little specific data for Grant County s private timberlands, anecdotal information from private landowners, local government officials and others clearly identified western juniper as an invasive species on private timberlands. The presence of western juniper creates several negative impacts. First, the species is a significant water user. In critical watershed situations, western juniper can reduce the amount of seasonal surface water flow to the detriment of fish, wildlife and downstream water uses. In addition, as western juniper occupies a forest site, it creates conditions that hinder or prevent the establishment of more desirable forest tree and understory vegetation species. As juniper better competes with other vegetation for water, ground cover is reduced and more bare ground is exposed. When run-off events occur, topsoil is lost through sediment deposition into streams. Risk of Western Juniper Encroachment Private timberlands in Grant County are already being subjected to western juniper encroachment. That risk is ongoing at a likely increasing rate. This is one of the key issues identified by the CFF in their report to the Oregon Board of Forestry. The problem of juniper encroachment is particularly acute on privately owned family forestlands, because these properties typically occupy the valuable lower-elevation sites that were formerly dominated by ponderosa pine and Douglas-fir. Impacts include changes in soil moisture regimes. When asked about the concern of juniper encroachment in Grant County, 67% of the respondents were concerned about the threat of invasion and 55% of the respondents already consider it a problem on their timberlands. The financial implications of this transition are as alarming as are the ecological implications; juniper control treatments are very costly and the species is rarely marketable. 7

39 (Committee for Family Forestlands-Oregon s Eastside Forests 2012: The Family Forestland Owner s Perspective) Due to the lack of a viable market for western juniper and the level of funding for juniper eradication, the risk of western juniper encroachment on private timberlands in Grant County is high. Lack of a Local Wood Products Manufacturing Infrastructure The loss of the single medium-sized operating sawmill in Grant County would have a significant impact on the county s private timberlands. This situation is examined in greater detail in the appendix titled Regional Timber Supply and Demand; A View from Grant County. The key points are that the Grant County timberlands are at a significant haul cost disadvantage for other sawlog markets when compared to out-of- county timberlands. This was emphasized in the report by the Committee on Family Forestlands, Only a handful of working sawmills and chip processors remain in Eastern Oregon. remaining facilities are specialized and accept only a few tree species and a specified range of sizes of material as a result most forestland owners face such long haul distances and commensurately high harvesting costs that harvesting wood from their forestlands has become impractical. When asked, in the landowner survey, How concerned are you about the possible loss of local sawmills & other infrastructure for maintaining a viable place to sell your timber?, 86% of the respondents were at least somewhat concerned and 47% were extremely concerned. If Malheur Lumber were to close, Grant County s private timberlands owners would experience an estimated drop in value of up to 50% for timber and, in turn, a decline in the value of their timberlands. There would be several ramifications. First, many landowners would significantly reduce or even eliminate forest management investments. This would result in a decline in forest health conditions on private timberlands and, therefore, increase the risk of beetles, wildfire and other destructive elements. Second, landowners and especially those at or beyond the viable economic reach of distant markets would seek other more economically stable land use options. Local government would be the initial 8

40 decision maker for applications for land use changes. Finally, without the local manufacturing facility, those 70 men and women currently employed would be without a job. Those impacts would severely impact not only the local economy, but also the social fabric of Grant County. Risk of Loss of a Local Wood Products Manufacturing Infrastructure It is not within the scope of this report to assess the ability of the medium-sized operating sawmill in Grant County to remain in business nor can we assess the possibility of any closed mill re-opening. However, it is crystal clear that the lack of a local wood products manufacturing infrastructure would have significant negative and long ranging impacts on Grant County s private timberlands. This point is strongly supported by the opinions surfaced in the survey of Grant County private timberlands owners. Lack of a Local Logging/Forest Management Infrastructure In Grant County, forest resource management was traditionally a key employment sector. The availability of logging and forest management i.e. tree planting, thinning and similar practices, is closely linked to the wood products manufacturing infrastructure. As shown in the Oregon Employment Department s graph, jobs in the logging and mining category declined from an average annual rate of 110 to 40 in The monthly data ranged from a high of 170 jobs to low of 20 jobs. The monthly data show a small increase in this sector s jobs data can be expected when the 2012 data is tabulated. Risk of Loss of Logging/Forestry Management Infrastructure It is not within the scope of this report to identify if, when or how many of these jobs may be loss to the local economy. However, it is likely that if the local manufacturing infrastructure were to close, some of these workers and/or the contractors would relocate to be closer to out-of-county manufacturing facilities. For the owners of Grant County s private timberlands, there could be fewer available contactors and higher costs, which, at least in the short term, would be another negative factor for managing their lands. 9

41 Figure 1.1. Source: Worksource Oregon Employment Department 10

42 Appendix #2 Projected Harvest from National Forests in Grant County This section provides a view of the timber supply estimates from Forest Service managed lands. The economics of that supply were not examined. Four different national forests have acreage within Grant County: Malheur, Ochoco, Umatilla and Wallowa-Whitman. Malheur Ochoco Umatilla Wallowa- Whitman National Forests Total National Forest Non-Reserved Forest Land Acres National Forest Total 1,252, , ,173 1,279,006 4,182, OR Grant 976,996 56, ,359 73,990 1,320,664 Percent in County 74% 4% 16% 6% 100% National Forest Non-Reserved Forest Land Distribution by County ID Adams 0% 0% 0% 0% 0% ID Idaho 0% 0% 0% 2% 1% OR Baker 3% 0% 0% 42% 14% OR Crook 0% 47% 0% 0% 8% OR Grant 78% 8% 23% 6% 32% OR Harney 19% 30% 0% 0% 11% OR Jefferson 0% 2% 0% 0% 0% OR Morrow 0% 0% 11% 0% 2% OR Umatilla 0% 0% 33% 1% 8% OR Union 0% 0% 6% 30% 11% OR Wallowa 0% 0% 5% 19% 7% OR Wheeler 0% 13% 4% 0% 3% WA Asotin 0% 0% 4% 0% 1% WA Columbia 0% 0% 6% 0% 1% WA Garfield 0% 0% 7% 0% 2% Total 100% 100% 100% 100% 100% 11

43 Federal Total Convertible Sales Softwood Sawtimber Sales Fiscal Malheur Ochoco Umatilla Wallowa- Total Malheur Ochoco Umatilla Wallowa- Year Whitman Whitman Total Million Board Feet Projected Data Sources: Historical Data from USFS Region Six Cut and Sales Reports, Projections based on Team Estimates 12

44 Historical and Projected USFS Softwood Sawtimber Harvest in Grant County 20 years backward and forward USFS Wallowa-Whitman 120 Umatilla Ochoco Million Board Feet Malheur e 2014p 2016p 2018p 2020p 2022p 2024p 2026p 2028p 2030p 2032p Sources: Historical harvest from ODF, estimated (e) and projected (p)) harvested Team estimates Figure 2.1 Forest Service timber sale volume in eastern Oregon and Grant County in particular, has plummeted from the levels routinely seen prior to However, since 2000, harvest levels appear to have stabilized and are creeping higher. The last forest plans for the four National Forests were filed during 1989 to 1991 on the cusp of the dramatic decline in the Forest Service timber sales program. During the mid and late 1990s, all the Forests initiated modifications to their plans to reflect changing policies. The four Forests initiated a new round of planning in 2005 that continues to this day. There appears to be little meaningful change contemplated for the timber sale program. The National Forests all openly acknowledge the forest health risk and related risk of wildfire, but there appears to be only limited acknowledgement of the pine beetle epidemic that has ravaged western Canada conifer forests and is moving southward into Montana and the potential risk to Grant County federal forestlands. A plausible supply estimate can be determined by extending the current trend of timber sales of all convertible volumes that includes sawtimber, posts, poles, biomass and firewood. Since 2000, this trend has generally been rising except on the Wallowa- Whitman. However, the percentage of conifer sawtimber within the convertible timber 13

45 sales volume has been generally falling over the same period. The net effect for Grant County is a modestly increasing trend in conifer sawtimber supply from about 15 MMBF sold in 2012 to about 28 MMBF sold by The elements of species composition and log size and quality and the economics of the federal timber supply were not within the scope of this study. 14

46 Appendix #3 Regional Timber Supply and Demand; A View from Grant County This section refines the focus from physical supply to measures of economic supply. As the full focus of the project was Grant County s private timberlands, a regional timber supply economic analysis is beyond the scope of this study. However, there are insights that can be gained that crystallize economic realities and offer insights into future options. This analysis has focused on manufacturing facilities that utilize sawlog-sized material. In the U.S. West, smaller-sized timber used for pulp chips or biomass does not generally garner payment to the timber owner. The principal benefits to the landowner of selling small sized material are to lower or remove the cost of pre-commercial thinning and/or post-harvest cleanup. With a biomass plant at Prairie City and at least two outlets for pulp fiber (Malheur Lumber whole tree chipping operation and Boise s Umatilla whole tree chipping operation), markets for small sized material are available for private timberlands when those facilities are operating. However, without a viable primary wood products facility that can pay for log stumpage, the motivation for landowners to manage their timberlands is greatly diminished. Traditionally, most forest products manufacturing investments are made with a long-term perspective in mind. The economic life of most investments is 15 years, but the expected term to run a mill is at least three times that length on average. With that type of time frame, it is instructive to see what has occurred over the past 25 years in the market area. 15

47 Eastern Oregon Timber Harvest Last Twenty-Five Years 1,200 1, Private Public Total Million Board Feet Last Twenty-Five Years, Five-Year Time Periods Source: Oregon Department of Forestry Figure 3.1 The reduction in eastern Oregon s timber supply over this time period has been dramatic; from an annual average harvest of 963 million board feet during the period 1987 to 1991 to 185 million board feet in the most recent five year period, 2007 to 2011 (Figure 3.1). Over the same time period, private harvest dropped from 268 million to 133 million board feet per year. Private harvest experienced significant fluctuations over the past 25 years as it jumped 43 percent from 1992 to 1996 in the aftermath of the implementation of the Northwest Forest Plan before sliding lower. Harvest was spurred as mills struggling to survive with the severe cutback in federal timber supply bid up private timber stumpage prices. (See Figure 3.2, Northern Spotted Owl Price Response) In addition, landowners were concerned with state and federal regulation that could render a landowner s timber holdings valueless and so, the logic went, better to harvest now then wait and see what might happen. 16

48 All Species Stumpage Price, Eastern Oregon and Eastern Washington 1980 to 2010 Northern Spotted Owl Market Response Market Attrition $'s per MBF Pre- Northern Spotted Owl 100 Figure 3.2. Nominal Stumpage Prices in Eastern Oregon and Washington, 1979 to Eastern Oregon Eastern Washington Source: USFS Production, Prices, Employment, and Trade for Northwest Forest Industries resource bulletins Average stumpage price of timber sold by Washinton and Oregon state forestry deparments

49 $'s per MBF Eastern Oregon All Species Stumpage Price and Quantity Demanded Trajectory, 1994 to 2010 The interaction of supply and demand curves over time traces the relationship between declining demand and declining stumpage price over time Historic high activity in U.S. construction market Note: Statistical model of Price = F(DEMAND) explains nearly 75 percent of price variability from 1994 to Demand 1999 Demand 1997 Demand - 100, , , , , ,000 Annual Volume Harvested, All Ownerships, Eastern Oregon (MBF) 1995 Demand Price/Quantity Demanded Trajectory Source: Eastern Oregon State Forestry Average Sales Prices from USFS Prices, Production, Employment & Trade Resource Bulletins, Volume harvested from Oregon Dept of Forestry, Team Analysis Figure 3.3 Eastern Oregon Stumpage Price and Annual Timber Harvest Volume, 1994 to 2010 Conventional wisdom for the most recent drop is two-fold. The private land base is recovering from extensive harvesting operations of the 1990s. Second, historically low construction markets in the aftermath of the burst housing market bubble reduced lumber demand forcing reduced mill shifts and declining stumpage prices. Lower stumpage prices prompted landowners to hold their timber, let it grow and wait for a better log prices. However, at least in Grant County, there appears to be the biological potential to increase private harvest above current harvest levels. As indicated, reduced milling capacity has accompanied this reduction in log supply in eastern Oregon. There are currently 20 log using mills within economically feasible transport miles. However, the ongoing reduction of milling capacity in eastern Oregon has not been felt uniformly across the region. The lack of uniformity has implications for Grant County. 18

50 Figure 3.4 displays eastern Oregon timber harvest by county for both private and public lands in five-year time periods over the past 25 years. Twenty-five years ago, Grant County was the epicenter of timber supply in eastern Oregon, representing 27 percent of total supply from both public and private sources (Table 3.1). In the most recent five-year period, the county s share has shrunk to ten percent of the total supply in eastern Oregon. If eastern Oregon counties are aggregated east and west (Table 3.1), the western share, which includes Grant County, has seen proportionately larger reductions in supply than the eastern share. From 1987 to 1991, the western counties represented 56 percent of the eastern Oregon supply while by the period the western counties represented only 33 percent of eastern Oregon s supply. This shift in timber supply resulted in a proportionately larger share of wood products mills closing in the western counties within eastern Oregon. However, despite the mill capacity curtailments across all of eastern Oregon, there is still more demand than supply. There are 20 log-using mills within 100 miles of Grant County representing about 300 million board feet (MMBF) of log demand. (See Figure 3.5) While some of that demand originates at the margins in Washington and Idaho, the vast majority is based in Oregon. Yet supply over the past five years in eastern Oregon is 185 MMBF or about 60 percent of the log consumption of these mills. 19

51 EAST or WEST GRANT WEST 27% 24% 19% 19% 10% UNION EAST 15% 17% 15% 23% 28% WALLOWA EAST 12% 10% 18% 25% 27% HARNEY WEST 10% 6% 2% 3% 5% CROOK WEST 9% 10% 11% 2% 4% UMATILLA EAST 9% 12% 10% 12% 6% BAKER EAST 8% 6% 8% 9% 6% MORROW WEST 5% 3% 6% 4% 12% WHEELER WEST 5% 10% 9% 5% 2% MALHEUR 0% 1% 0% 0% 0% TOTAL 100% 100% 100% 100% 100% EAST 44% 46% 52% 68% 67% WEST 56% 53% 48% 32% 33% Table 3.1. County Share of Total Eastern Oregon Timber Supply To continue operations, eastern Oregon mills have reached into adjoining geographies (mostly southwest and central Idaho and to a lesser extent central Oregon and central Washington) to satisfy their demand. Based upon extensive experience with eastern Oregon timber supply conditions, we know mills in this market area are extending their reach up to six-hour one-way haul to purchase quality timber. In doing this, mills in eastern Oregon are operating at a competitive disadvantage to competitors in other market areas that generally can supply their facilities within a 2.5-hour one-way haul. This situation becomes even more acute for any mill operating in or nearby Grant County. As the timber supply has shifted eastward in eastern Oregon, mills in Grant County have been forced to compete for that timber supply. Figure 3.6 shows the average haul-time for all mills accessing the timber supply in the eastern Oregon market area. The figure highlights the lower average haul-times for competing mills northeast of Grant County. 20

52 Eastern Oregon Timber Supply by County and Owner Class Eastern Oregon Counties by Five-Year Time Periods Baker Crook G R A N T Harney Malheur Morrow Umatilla Union Wallowa Wheeler Baker Crook G R A N T Harney Malheur Morrow Umatilla Union Wallowa Wheeler Baker Crook G R A N T Harney Malheur Morrow Umatilla Union Wallowa Wheeler Baker Crook G R A N T Harney Malheur Morrow Umatilla Union Wallowa Wheeler Baker Crook G R A N T Harney Malheur Morrow Umatilla Union Wallowa Wheeler Private Non-Federal Public Federal Public Million Board Feet Harvest Source: Oregon Department of Figure 3.4 Distribution of Eastern Oregon Timber Supply by County, Comparing the haul-time surfaces for an individual mill in the market area to the average haul-time based on the results from all mills results in a competitive advantage index for a specific mill. When a mill s haul-time is below the market s average haul-time, a value indicating the amount below the average is computed as the index value. Likewise, when a mill s haul-time is above the market s average haul-time, a value indicating how far above 21

53 the average is computed as the index value. The index is used to generate a new surface, indicating geographies where an individual mill holds a competitive advantage compared to the rest of the market (on average) and where it operates at a disadvantage to the rest of the market. An aggregated index was generated for Grant County mills as shown in Figure 3.8. For mills in Grant County, as they move to the east to acquire timber, they encounter a geographic band where many mills have economic access to timber and their haul-times are relatively low. As a result, competition for timber in those areas will be more intense. When mills are faced with this situation, a frequent strategy is to lightly procure logs in the more hotly contested areas and to find and utilize logs from less competitive areas. However, this usually extends the mill s haul-times and increases delivered log costs. The mills trade paying higher stumpage in more hotly contested areas for cheaper stumpage with higher haul costs in less competitive areas. On average, delivered log cost represents 75 percent of a mill s variable cost and 65 percent of its total cost. Thus, increasing log costs carries a heavy penalty on a mill s profitability. Species preference also plays an important role. For example, a mill using pine in eastern Oregon may find it advantageous to stretch into central Idaho for pine. While central Idaho is a very competitive log market, most of that log trade is for true firs, hemlock and Douglas-fir. Pine, a small component of the resource base, has a lower level of demand. Thus, it may be less costly to reach for that supply than pay higher stumpage prices for a closer supply. 22

54 Current Market Area Demand 13 mills, 257 MMBF annually 160 Million Board Feet Southwest Idaho Rest of E Oregon Grant County Ponderosa Pine Spruce & True Firs Doug-Fir & W Larch Source: Team Estimates Figure 3.5 Geographic Distribution of Eastern Oregon Region Mill Demand 23

55 Figure 3.6 Average Haul-Time for Mills Competing for Eastern Oregon Timber Supply Eastern Oregon Market Area 24

56 Figure 3.7 Average Haul-Time to All Mills in the Eastern Oregon Market Area by Hydrologic Units within Grant County 25

57 Figure 3.8 Competitive Advantage Index Surface for Grant County Mills 26

58 In the wood products industry, mills operate until they can no longer consistently report a profit. When the average manufacturing cost of acquiring logs, converting those logs into products and selling the products from that log exceeds the average sales price for the final product, the mill closes. However, logs don t all cost the same and generally, logs closer to the mill cost less than logs farther from the mill. Therefore, the average log cost does not represent the cost to acquire the highest priced logs. If the mill cannot show a profit at the average log cost, then it is certainly losing money on the highest priced logs. It is not unusual for mills to be losing money incrementally on 10 to 25 percent of the purchased logs. Many financial systems are designed to report only average log prices and are not structured to help mills recognize marginal profitability and loss. With consistent losses, a mill owner has two choices. Improve profitability by purchasing lower priced logs or reduce a shift so that the high priced logs are no longer needed. Fixed costs for sawmills are comparatively low, so running a single shift can return the mill to profitability. This overview of mill economics and market conditions in eastern Oregon highlights several realities that impact Grant County private timberlands. (1) With more demand than supply in the eastern Oregon market area, it is unlikely primary manufacturing capacity will increase in the foreseeable future. There may be capital dollars spent to improve the competitiveness and survivability of an existing mill that may incrementally expand mill demand, but Grant County should not anticipate any significant increases in log demand. (2) Adjoining market areas with less competition are currently serving as sources of supply for excess demand in the eastern Oregon market area. If mill expansion is to occur, these areas are more likely to attract expanded primary manufacturing capacity as there is relatively low competition and thus lower stumpage costs. If that occurs, some eastern Oregon mills will be faced with a new supply crisis with more curtailments and closures. 27

59 (3) Additional losses of manufacturing capacity will further jeopardize the ability to maintain healthy eastern Oregon private timberlands. With fewer markets, there is less capacity to conduct harvest operations to maintain those forests in a healthy, growing condition. With fewer markets, there is less capacity to harvest public timber, which increases the risk of pest, disease and wildfire. In addition, reductions in local mill capacity will be an additional drag on the Grant County economy. Finally, any reduction in mill demand will translate to lower stumpage prices for timber owners. Two dynamics are at play that will affect Grant County timber owners stumpage prices should further reductions in Grant County mill capacity occur. First, as is detailed below, Grant County s incremental haul-time between Grant County mills and other mills purchasing timber across eastern Oregon is substantial. Mills are concerned with keeping their delivered log cost, including transportation costs, low. Thus, an increase in transportation costs will generally result in a reduced stumpage price for the landowner. The second dynamic is market supply and demand. Simply stated, if a Grant County mill closes, there is lower overall demand in eastern Oregon and stumpages prices in general across eastern Oregon will tend to decline. To understand the magnitude of the possible risk to Grant County timber owners, if the Grant County mill capacity closed, stumpage prices will respond to these two dynamics. First and most significant, is the incremental transportation difference between Grant County mills and other mills in eastern Oregon. The market supply/demand balance was estimated by using the same mathematical relationship observed since 1994 between log harvest and price, reducing eastern Oregon log harvest for the mill closure and predicting the price change in light of the relationship. (See Figure 3.9) The two impacts are combined in Figure 3.10 and suggest stumpage prices could fall by as much as 50 percent. 28

60 $'s per MBF Eastern Oregon Stumpage Price Market Dynamics Historical relationships suggest a loss of 22 million board feet in demand in Eastern Oregon results in 10 percent drop in stumpage prices across all of Eastern Oregon. Market price with Grant County mills based on E Oregon demand level only Market price with Grant County mills based on E Oregon demand level only Historical Annual Price and Demand Pairs, 1994 to 2010 Price/Quantity Demanded Trajectory - 100, , , , , ,000 Annual Volume Harvested, All Ownerships, Eastern Oregon (MBF) Source: Eastern Oregon State Forestry Average Sales Prices from USFS Prices, Production, Employment & Trade Resource Bulletins, Volume harvested from Oregon Dept of Forestry, Team Analysis Figure 3.9 Estimated Eastern Oregon Market Response to Grant County Mill Closure Estimated Stumpage Price Impact of Grant County Mill Closure $'s per MBF Less Market Demand Greater Haul Stumpage Price 0 Current Mill Closure Source: Team Analysis Figure 3.10 Estimated Impact to Grant County Stumpage Prices from Grant County Mill Closure 29

61 Supply by species is an important factor in a mill s log procurement program. The supply of a given species can be found in a variety of forest types. These forest types are relatively fixed so it is possible to relate the location of forest types to mills via the transportation network. Figure 3.11 depicts Grant County s private timberlands supply relative to average haul-time conditions to mills in the eastern Oregon market area. The majority of Grant County s private timberlands fall within the 180 to 199 minute average haul-time. Market intelligence indicates that average haul time for the larger mills in the eastern Oregon market is about 3.5 hours so Grant County s private lands timber supply seems to fits into the average portion of the most mills supply curve. However, that average includes the haul-distance to both Grant County mills and mills outside of Grant County. Figure 3.12 displays the average haul to Grant County mills only is primarily in two haul-time categories: 40 to 59 minutes and 80 to 99 minutes. However, for mills outside of Grant County, Figure 3.13 shows that between 29 to 45 percent of the private Grant County forest type acres, depending on forest type, are minutes farther away from the mills outside of Grant County than to mills inside of Grant County and between 26 to 53 percent of the forest type acres are 140 to 159 minutes farther away from mills outside of Grant County than mills inside of Grant County. Figure 3.14 reinforces those results. The key point is 82 to 94 percent of the private forest type acres in Grant County are at least 100 haul-time minutes farther away from mills outside of Grant County than from mills within Grant County. This has serious implications for Grant County private timberlands. Based upon available data, an estimate of the distribution of the current (2011 and estimated 2012) timber supply from Grant County private timberlands to all eastern Oregon market mills is shown in Figure Ponderosa pine is the dominant species produced within the county from private timberlands and represents 57 percent of total supply or 2.35 MMBF per year. The distribution of ponderosa pine supply has a favorable haul-time to Grant County mills with nearly two-thirds of the supply less than 80 haul-time minutes away (Figure 3.16). 30

62 However, a different situation is revealed when the county s supply to mills outside of Grant County is considered (Figure 3.17). Depending on the species, 77 to 83 percent of Grant County s private timber supply is more than an additional two hours away from mills outside of Grant County. This presents private timber owners with significant volumes of Douglas-fir, western larch, spruce and true firs with low stumpage returns since most markets for those products are external to Grant County. The three supply scenarios show a significant increase in ponderosa pine supply from the current level. For all three of the private timberlands harvest scenarios, Grant County inventories are at least maintained and generally increase. Figure 3.18 depicts the distribution of supply by scenario, time period and haul-time class to Grant County mills. Figure 3.19 displays the pine supply scenarios to mills outside of Grant County in incremental haul classes. This graphic highlights the risk private timberlands in the Grant County face should the county s mill infrastructure, oriented to the consumption of ponderosa pine, discontinue operations. Figure 3.20 shows a similar graph for the combined supply of Douglas-fir, western larch, true firs and spruce to Grant County mills. Figure 3.17 shows the same supply conditions to mills outside of Grant County and reflects the current market conditions many Grant County s private timberlands. 31

63 80% Distribution of Grant County Private Timber Supply by Forest Type Average Haul-time to all Mills in Market Area Percent of Supply 64% 48% 32% 16% 0% DFWL 0% 14% 69% 13% 2% 3% POPN 1% 16% 50% 18% 9% 6% SPFR 14% 24% 56% 3% 2% 1% WJPR 0% 5% 52% 20% 12% 11% Haul-time in Minutes Source: Team Estimates Figure % Distribution of Grant County Private Timber Supply by Forest Type Average Haul-time to Grant County Mills Percent of Supply 45% 30% 15% 0% DFWL 23% 34% 2% 36% 2% 3% POPN 23% 31% 10% 32% 4% 0% SPFR 21% 55% 2% 16% 2% 3% WJPR 15% 30% 12% 38% 2% 4% Source: Team Estimates Haul-time in Minutes Figure

64 60% Distribution of Grant County Private Timber Supply by Forest Type Additional Average Haul-time to non-grant County Mills Percent of Supply 45% 30% 15% 0% DFWL 0% 1% 0% 16% 7% 45% 30% POPN 0% 0% 1% 11% 9% 29% 49% SPFR 3% 1% 11% 1% 3% 55% 26% WJPR 0% 0% 0% 6% 7% 34% 53% Haul-time in Minutes Source: Team Estimates Figure 3.13 Percent of Supply in Haul-time class or a higher Haul-time class 100% 84% 68% 52% 36% 20% Cumulative Grant County Private Timber Supply Forest Type by Haul-Class to non-grant County Mills Figure SPFR 100% 97% 96% 85% 84% 81% 26% DFWL 100% 100% 99% 98% 82% 75% 30% POPN 100% 100% 100% 99% 88% 78% 49% WJPR 100% 100% 100% 100% 94% 87% 53% Haul-time in Minutes Source: Team Estimates 33

65 2.500 Current Grant County Private Supply Species by Average Haul-time Class Million Board Feet WJPR SPFR DFWL POPN Average Haul-Time in Minutes Source: Team Estimates Figure 3.15 Current Grant County Private Supply Species by Haul-time Class to Grant County Mills Million Board Feet WJPR SPFR DFWL POPN Average Haul-Time in Minutes Source: Team Estimates Figure

66 2.000 Current Grant County Private Supply Species by Incremental Haul-time Class to Non-Grant County Mills Million Board Feet WJPR SPFR DFWL POPN Average Haul-Time in Minutes Source: Team Estimates Figure Estimates of Ponderosa Pine Supply Grant County Private Supply to Grant County Mills Note: See Chart Legend in Data Table below chart Millions of Boardfeet Current Current Current Probable Sustained Potential Scenarios and Time Periods Source: Team Estimates Figure

67 Millions of Boardfeet Estimates of Ponderosa Pine Supply Incremental Haul-Time of Grant County Private Supply to Mills Outside of Grant County Note: See Chart Legend in Data Table below chart 0.00 Current Current Figure Current Probable Sustained Potential Source: Team Estimates Scenarios and Time Periods 36

68 Estimates of Douglas-Fir, True Fir, Spruce, & W Larch Supply Grant County Private Supply to Grant County Mills Note: See Chart Legend in Data Table below chart Millions of Boardfeet Current Current Current Probable Sustained Potential Scenarios and Time Periods Source: Team Estimates Figure 3.20 Millions of Boardfeet Estimates of Douglas-Fir, True Fir, Spruce, & W Larch Supply Incremental Haul-Time of Grant County Private Supply to Mills Outside of Grant County Note: See Chart Legend in Data Table below chart 0.00 Current Current Figure Current Probable Sustained Potential Source: Team Estimates Scenarios and Time Periods 37

69 Appendix #4 The True Cost of Wildfires Sticker Shock The hidden costs of wildfire and who gets stuck with the tab By Molly Mowery NFPA Journal, January/February 2013 Recent wildfire seasons have provided mainstream media with plenty of material for dramatic images and attention-grabbing headlines, some more accurate than others. We often worry that misleading coverage can deliver the wrong message to the public, but it can also be a problem among wildfire professionals. Lately, I ve had to re-evaluate my own methods of understanding wildfire news and where it comes from, as well as how I transmit that information to colleagues and the public. Every year, the USDA Forest Service spends an extraordinary amount of money fighting wildfires. The budget for these activities in 2012 was nearly $2 billion dollars, the bulk of which went to fire suppression costs aviation, engines, firefighting crews, agency personnel, and more to protect threatened communities, people, and property. The federal government will soon announce its 2013 budget for wildfire management activities, and there is no reason to think that the price tag will be any less than it was last year. One of the problems associated with this very large number is that it s often interpreted as the cost of wildfire, when in fact it s more like the tip of the iceberg of what wildfire actually costs. Focusing solely on suppression costs can blind us to a long list of additional direct, indirect, and associated costs, including damages to utilities and other facilities, timber and agricultural losses, evacuation aid to displaced residents, long-term rehabilitation costs to watersheds and other affected areas, post-fire flooding mitigation and damage, business revenue and property tax losses, public health impacts from smoke, and, in some cases, the tragic loss of human life. Costs such as private property losses are often included in media coverage of fires, but even these figures can hide associated costs that are buried in the details or are difficult to calculate. Many of these unacknowledged costs are assumed by states and local communities, and continue long after the immediate impact of a wildfire. A 2009 report released by the Western Forestry Leadership Coalition looked at six different wildfire case studies between 2000 and 2003, and found that total expenses were anywhere from two to 30 times greater than the reported suppression costs. New Mexico s Cerro Grande Fire in 38

70 2000, for example, destroyed 260 residences and caused extensive damage to the area s cultural sites and utility infrastructure, and to equipment at the Department of Energy s Los Alamos National Laboratory. While the suppression bill was $33.5 million, estimates of the total cost, including immediate repairs, short-term rehabilitation, and long-term restoration, exceeded $970 million. Another example is Colorado s 2002 Hayman Fire, which burned nearly 138,000 acres (55,847 hectares) and destroyed hundreds of residences and outbuildings. Total suppression expenses were more than $42 million, but direct costs of property losses, utility losses, and Forest Service facility and resource losses brought the bill to more than $135 million. Adding other rehabilitation expenses, including tax revenue and business losses, reduced value of surviving structures, and other special costs such as losses to wilderness scenery, boosted the total to $207 million. Research conducted by the Wildland Fire Lessons Learned Center (wildfirelessons.net) finds that more comprehensive reporting is required to capture the full extent of wildfire s economic impact. (The center offers a cost-plus-loss checklist of 11 categories to account for these long-term community impacts.) This type of reporting should also be factored into budgeting and planning at all levels of government. If community leaders were more aware of these impacts, there would be a compelling argument to invest in up-front mitigation solutions that increase resilience to wildfire disasters. In an era that strives to be more fiscally responsible, decision makers must understand that costly wildfire disasters and long-term budget draining recoveries can be preempted by effective planning and pre-fire measures. Molly Mowery is program manager for Fire Adapted Communities and International Outreach. 39

71 Appendix #5 Community Forest Programs The Oregon Community Forest Authorities In 2005, the Oregon Legislature established the Community Forest Authorities (CFA). This legislation grants counties and cities the ability to form nonprofit forestry organizations that can issue and sell revenue bonds to finance the acquisition and operation of commercial forestlands. A sustainable timber harvest program finances bond repayment and operating expenses. The purposes of a community forest are to, Provide renewable commercial forest resources Promote community stability Support beneficial conservation practices This legislation provides specific direction on the composition and responsibilities of a Community Forest Authority. The city or county can establish the CFA by either ordinance or resolution that must identify the name of the governing authority, the number of directors (from 5 to 11) and the term of office for directors (no more than four years). One director must be an elected member of the city or county that established the CFA. Onethird of the board must represent business interests, one-third must represent conservation interests and the remaining members must represent the general public. The board of directors has the power to enter into contracts, leases and other agreements. They can borrow money to fund forestlands acquisition and CFA operations by issuing revenue bonds or notes. The board can lend funds to non-profit organizations for acquisition of forestlands and they have the ability to work with other CFA organizations. Finally, if there are excess revenues, the CFA can transfer those funds to the establishing city or county. 40

72 In Oregon, the CFA legislation was developed to address concerns regarding the growing pressure to reduce parcel size (fragmentation) and the resulting changes in land use particularly with respect to large blocks of working forest. The first community forest authority was established by Deschutes County in late 2005 to facilitate the acquisition and management of the Skyline Forest. In concert with the Deschutes Land Trust and the City of Bend, Deschutes County has been diligently working to resolve the many and complex issues involved in this acquisition. In 2009, the Oregon Legislature passed additional legislation to advance this acquisition project and those efforts continue to this day. To learn more on the Deschutes County effort, access this website. projects/skyline_forest Other state and local governments have legislation supporting publically owned community forests. If further information is needed, these websites detail actions by others to establish and maintain community forests try.pdf /newsroom/organizations-collaborate-on-forest-the-bulletin pdf

73 Grant County Community Forest Authority An Opportunity? A Community Forest Authority is an available option for Grant County as it could provide a vehicle to facilitate the acquisition and management of private timberlands. It could also develop a program of sustainable timber harvest for bond repayment and operating expenses while promoting some level of community stability while fostering beneficial conservation practices. However, in acquiring timberlands, Grant County would be assuming the risks of timberlands ownership. As previously reviewed, private timberlands in Grant County are generally subjected to a significant risk of forest pests such as bark beetles and other insects infestations spreading from federal lands. A similar situation exists with the threat of catastrophic wildfire. A county forest operation would also be at economic risk with evolving markets, possible manufacturing infrastructure changes and related issues. While private timberlands owners are a subset of the overall Grant County population, the fact that only 16% of those owners responding to the survey supported a county timberlands acquisition program would indicate that adding to the already very large publically owned timberlands base would not be viewed favorably in local communities. A CFA is but one tool for implementing Grant County s goal of maintaining and improving the forest and economic health of private timberlands. As presented in the action options section, there are alternative vehicles that have been successfully used in similar circumstances that may be more suitable for attaining Grant County s objectives. 42

74 Appendix 6 Estimated Timber Supply and Projected Harvest Levels for Grant County s Private Forestlands Methodology Current private timber supply for Grant County can be estimated by reviewing the recent harvest levels from private lands in the county. However, supply is more than physical volume. It also relates physical volume to the cost to deliver volume to manufacturing facilities. In addition, different manufacturing facilities produce different products. Those differences are often related to the traits of the timber being purchased by the facility and so it is necessary to differentiate physical volume by other traits like log size and species. Current harvest represents what is, but does not necessarily represent what could be or will be. Forests are generally long-lived assets with demographic underpinnings to their structure that allow conditions to be projected into the future. In some cases, forest conditions indicate that current harvest levels cannot be sustained into the future and would be expected to fall. In other cases, current harvest may represent a level that can be sustainably supplied under present forest conditions but changing forest conditions could sustainably support increased harvest levels in the future. Lastly, in some cases, the current harvest level is less than could be sustainably supplied from the forest, but due to lack of either market demand or market information, there is a gap between what is being harvested and what could be sustainably harvested. Assessing which of these situations is applicable to Grant County s private timber supply requires an understanding of current forest conditions and recent harvest levels. The forest conditions must be analyzed in a fashion to facilitate their projection into the future and that analysis must provide a reasonable basis to allocate physical supply geographically so economic estimates of supply can be developed. Highly detailed models and data to evaluate present and projected forest conditions are beyond the scope of this project, but there are options that can provide directional insights. 43

75 A perspective on private forested inventory within the county was based on a variety of sources. The objective was to construct a view of forest conditions by forest type. Forest type refers to the dominant forest tree species in an area and while other tree species may grow in association, the forest type species is the dominant species. Each forest type in Grant County was projected into the future using estimated diameter growth rates by the size of trees. This is a standard forestry methodology for projecting forested conditions called stand table projection. Harvest rules are applied by forest type to generate potential supply as well as depict future forested conditions by forest type across Grant County s private forestlands. The private forestland acreage by forest type is tabulated by hydrologic units. Hydrologic units are used to delineate specific areas within the county, as they tend to correlate well with road access networks. (See Figure 6.1) This is a more generalized approach than an extensive forestlands survey as the exact on the ground forest condition in any one location is unknown, but over time, the fiber/timber supply from a given forest type will occur where acres of that forest type occur. The estimate of annual fiber supply from a forest type in Grant County is allocated across the county in proportion to the private acres by forest type within each hydrologic unit. As the location of the hydrologic unit is fixed, the economics of location is assessed by relating haul-time (more accurate than distance) from a hydrologic unit to various manufacturing facilities. The estimated supply over time from the forest type acres within that hydrologic unit can then be transformed into economic supply to manufacturing facilities in the market region. 44

76 Figure 6.1 Hydrologic Units used for Grant County Supply Analysis Developing Estimates of Current Private Forest Land Conditions The USDA USFS Forest Inventory and Analysis (FIA) unit conducts comprehensive forest inventory estimates of the private and public forest resource in the United States. The data are the most widely available and consistent information regarding forest inventory conditions. Estimates of various forest attributes are developed by sampling methodologies to estimate both forested area and standing timber volume. Sampling methodologies are designed to produce reliable estimates of area and inventory by ownerships within survey units. Grant County is part of the Blue Mountain Oregon survey unit that also includes Baker, Harney, Malheur, Morrow, Umatilla, Union, and Wallowa counties. Given the purpose and the geographic extent of the FIA coverage, the precision of estimates for smaller geographies such as a single county can be wide ranging. Figure 6.1 Hydrologic Units Used for Grant County Timber Supply Analysis Other sources of information based on satellite coverage and interpretation of vegetation coverage are available including data used to develop the FIA estimates of forested area. Several of these sources were used to construct a geographic coverage of forests across Grant County. As described in the methodology section, a principal objective of this work was to develop a location-oriented view of forest types within Grant County to facilitate the subsequent economic analysis. However, it was important to retain a degree of correspondence with the FIA data since the timber data would have to be related to the area estimate by forest type to generate an estimate of timber supply. As shown in Table 6.1, the estimate of 336,000 acres of private forestlands in Grant County is close to the FIA estimate of 324,000 acres for the county s private forestlands. 45

77 The table also displays a wide range of possible private forestlands acreage in Grant County; 225,000 acres for private timbered or timbered & grazing fire patrol acres to 500,000 forested acres noted the fiber utilization study that included 250,000 acres of juniper forest. The FIA estimate has a sampling error of 13.23% based on 56 plots; at a 95 percent statistical confidence interval this would relate to a range of possible private forestland acreage in the Grant County from 239,000 to 410,000 acres. If the focus is solely on non-juniper acres, this study s estimate is 209,000 acres of private forestlands in Grant County. The FIA has a very specific definition of forestland. 1 Our examination of various data cover sources suggests that within Grant County there is a sizable acreage that has some juniper but falls below the threshold FIA uses to define timberland, the ten percent minimum stocking threshold. This project s supply analysis does not include any estimate of wood fiber from those acres that contain juniper trees, but are not classified as juniper forestland. The FIA has 56 sample plots that fall on private forestlands in Grant County. To improve the precision of the estimates to be used in the supply analysis, the per acre inventory estimates by forest type of nearby counties was analyzed and compared to the per acre estimates in Grant County. While it was possible to construct a per acre estimate by forest type comprised of five nearby counties (Baker, Crook, Morrow, Umatilla, and Wheeler), a more stringent criterion was selected and only those individual counties that were not statistically different from Grant County on a per acre basis by forest type were aggregated. As depicted in Figure 6.2, there were only two counties that met this criterion: Baker and Morrow. While this greatly reduced the potential sample size from the larger number of aggregated counties, it also reduced the likelihood of expanding sampling variation in the estimates. Aggregating sample plot data from those two counties with Grant County data 1 The FIA s definition of Forest land : Land at least 10-percent stocked by trees of any size, including land that formerly had such tree cover and that will be naturally or artificially regenerated. Forestland includes transition zones, such as areas between heavily forested and non-forested lands that are at least 10-percent stocked with trees and forest areas adjacent to urban and built-up lands. Also included are pinyon-juniper and chaparral areas in the West and afforested areas. The minimum area for classification of forestland is 1 acre and 120 feet wide measured stem-to-stem from the outer-most edge. Unimproved roads and trails, streams, and clearings in forest areas are classified as forest if less than 120 feet wide. This definition is more expansive than the FIA s definition of timberland. 46

78 increased the number of sample plots for forest-type per acre estimates from 56 to 91. Table 6. 2 depicts the FIA s Grant County only estimates, including statistical confidence intervals and the inventory estimates by forest type based on the study data. Figure 6.3 compares timber inventory estimates of the FIA dataa for Grant County only and the study data utilizing acreage by forest type estimates and three-county per acre estimates by forest type. Figure

79 Table 6.1 Private Forestland in Grant County Study Other Estimates of Forest Land in Grant County Private FIA FIA Image Inferred Grant County Forest Type Acres 1 Data Query 2 Elev Adj 3 Util Rpt 4 Fire Patrol Douglas-fir 37, , , ,551.8 Fir/Spruce/Mountain Hemlock 22, , , ,139.8 Lodgepole Pine 1, , Pinyon/Juniper 127, , , ,000.0 Ponderosa Pine 132, , , ,930.2 Grand Total 320, , , ,621.9 Non-Stocked 14, , ,910.6 Hardwood 7, ,466.3 Forested Fire Patrol acres reported by County 225,470.1 Forested not in Timbered Fire Patrol (Forest and Juniper cover on FIA Imagery) 177,969.5 Total 335, , , , ,439.6 Juniper Cover 242,313.8 <<< this is a continuum of land that has some juniper not forest land trees on it but falls below the threshold for FIA definition of forest land Total 578, Synthesis of supervised Landsat scene classification, FIA imagery, and Grant County tax lot coverage. 2 FIA data query based on 2010 data prior to 4Q2012 data updates. 3 Forested acres below 4000' elevation re-assigned to juniper forest type 4 Title III Wood Fiber Utilization Report ( ) reports 500,000 acres of private forest land with about 250,000 acres non-juniper and 250,000 acres juniper forest. Used the distribution of forest type acres based on sampled FIA data to allocate the 250,000 non-juniper acres in the report to forest types. In Table 6.2, the study estimates (219 thousand and 203 thousand cubic feet) straddle the FIA s Grant County estimate of 213 thousand cubic feet of sawlogs. This indicates the newly developed study data set does not introduce a radically different perspective on the total Grant County private timber inventory. The lower number of the two in Table 6.2 is the more correct figure as that estimate is adjusted for the weighting of forest type acres in Grant County. As shown in Figure 6.3, in most cases, the confidence intervals around the study estimates compared to the FIA per acre estimates have been narrowed. The single 48

80 exception to this reduction in variance is in the spruce-fir forest type. Given Grant County had only three FIA plots within the forest type, it is not surprising that plot data from the other two counties could increase observed variability within the forest type as only one plot in this forest type was gained by including the other two counties. 49

81 Table 6.2 Comparison of Sawlog Private Inventory by Forest Type to FIA Private Sawlog Inventory in Grant County 3-County FIA Private Forest Land Inventory 1 - GRANT COUNTY ONLY Study Strata Study Grant County Sampling No. of 95% 95% Confidence Interval Forest Type Acres Per Acre Inventory Acres Per Acre Inventory Error % Plots 2 T-Stat Minimum Maximum Sawlog cuft 000 cu ft Sawlog cuft 000 cu ft Douglas-fir 37, ,920 39,380 1,130 44, % (40,311) 129,307 Fir/Spruce/Mountain Hemlock 22,914 1,300 29,783 22,824 1,556 35, % (75,599) 146,636 Lodgepole Pine 3 1, Pinyon/Juniper 127, , , , % (542) 41,881 Ponderosa Pine 132, , , , % , ,200 Grand Total 320, , , ,105 Non-Stocked 14, , % (4,505) 5,312 Hardwood - 7, % All Acres - Sample Results 4 335, , , , % , ,508 Forest Type Totals 4 335, , , ,508 NOTES 1 FIA data queries to develop this data set were based on data collected through 2010 by the USFS FIA unit through early 4Q2012. Mid-way through 4Q 2012 USFS FIA released an update that added the 2011 field collection season as well as making revision to data through The changes made in the latest data showed slightly lower acreage of private forest land in Grant County, a slightly lower private inventory for 2010, and slightly higher private inventory for Acres 2010 Data prior to update 324, Data after update 319, Data 305,713 Sawlog Inventory 000's cu ft 212, , ,175 Sawlog per Acre cu ft / ac 2 The number of sample plots do not add to the total number of sample plots because each FIA sample plot is actually a combination of several sub-plots. Thus for any given "plot" there may be multiple "forest types" if the sub-plots fall into different forest types. 1 Lodgepole pine volume per acre is based on average volume per acre in Grant county on USFS land (169 thousand acres according to FIA query). 4 The three-county "All Acres" strata per acre esti mate (654 cu ft per acre) for all acres is the result of an FIA query for the ratio estimate of per acre volume in the three county area. As a result, the per acre average is comprised of weights based on FIA factors in the three counties. However, this estimate, while it provides a measure of statistical reliability, does not necessarily represent the distribution of forest types in Grant County. The Forest Type Totals makes this adjustment as it is the acres-weighted total of the fores t type groups using the study acres and three-county per acre estimates

82 Inventory on Grant County Private Forest Lands 56 sample plots in Grant County vs. 91 sample plots in Three-County Strata Sawlog Inventory, thousand cubic feet 240, , , ,000 80,000 2,400 2,000 1,600 1, Sawlog Volume per Acre, cubic feet 40, Inventory Minimum Maximum Estimate Figure 6.3 Comparison of Grant County Private Timber Inventory by Forest Type: FIA Compared to Study As noted earlier, frequently there are multiple tree species within a single forest type. Therefore, to understand the inventory by species, not just forest type, it is necessary to drill beneath total sawlog volumes to volumes by species. Table 6.3 summarizes those results by forest type using the three-county per acre estimates and study acres. The table indicates all of the study s estimates inventories are well within the confidence interval estimates of the FIA s private inventory estimates by species for Grant County. 51

83 Table 6.3 Grant County Study Private Sawlog Inventory by Forest Type and Tree Species Study Acres Estimate Forest Type Douglasfir Fir/Spruce/ Mountain Hemlock Lodgepole Pine 1 Pinyon/ Juniper Ponderosa Pine Non- Stocked Hardwood Total 2 37,041 22,914 1, , ,100 14, ,697 Study Volume per Acre Estimates by Species, sawlog cubic feet per acre ponderosa pine Douglas-fir western larch grand fir white fir subalpine fir western juniper lodgepole pine all species , Study Species Sawlog Volume, 000's cubic feet ponderosa pine 6, , , ,974 Douglas-fir 26,261 7, ,761-40,473 western larch - 6, ,077-8,935 grand fir , ,567 white fir 2,167 3, ,029-7,209 subalpine fir western juniper ,935 2, ,739 lodgepole pine all species 35,920 29, , , ,303 Grant county FIA Private Sawlog Inventory Estimates by Species, 95% Confidence Intervals and Mean Estimate, 000's cubic feet Minimum Maximum Estimate ponderosa pine 69, , ,350 Douglas-fir 15,318 65,845 40,582 western larch (86,976) 103,866 8,445 grand fir (14,924) 45,498 15,287 white fir (6,485) 25,477 9,496 subalpine fir western juniper 10,747 29,950 20,348 lodgepole pine all species 152, , ,508 NOTES 1 Lodgepole pine volume per acre is based on average volume per acre in Grant county on USFS land, (169 thousand acres according to FIA query). 2 Total is based on the sum total of the forest type results as the projection will be made by forest type. 52

84 Description of Current Grant County Forested Conditions Grant County has approximately 1.9 million acres of forestlands for both public and private ownership (see Figure 6.4). The predominant forest type in the county is ponderosa pine, comprising nearly 40 percent of the acreage. The spruce-true fir type is the second most dominant type at 19 percent followed closely by the Douglas-fir/western larch type at 16 percent. Western juniper, a major forest type on the private land base, represents 13 percent of the county s forestlands area across all ownership classes. Percent of Total Forest Land Acres in County 45% 36% 27% 18% 9% Grant County Forest Land Acreage Distribution Total Forest land, all owners is 1.9 million acres 0% Doug- Fir/ W Larch Ponderosa Pine Spruce & True Firs Western Juniper Lodgepole Pine Non- Stock All Other Private 2% 7% 1% 7% 0% 1% 0% State & County 0% 0% 0% 0% 0% 0% 0% Federal 14% 32% 18% 6% 9% 1% 1% Source: USDA Forest Service FIA Data Query and Team Analyhsis (Private land) Predominant Forest Types Figure 6.4 Grant County Forestland Acreage Distribution by Forest Type & Ownership Classes Over 80 percent of the forestlands in Grant County are owned by the federal government with the vast majority administered by the United States Forest Service (USFS). Four different National Forests Malheur, Umatilla, Wallowa-Whitman, and Ochoco manage forestland in the county. The Bureau of Land Management administers the balance of federal forestlands ownership. There is no appreciable county or state owned forestland in Grant County. Private owners including non-industrial, industrial and tribal, own the 53

85 balance of Grant County s forestlands. This study is focused on private forestlands options and potential so little time has been spent analyzing federal ownership forested conditions. However, given the size of the federal holdings in the county the topic cannot be entirely neglected. Subsequently, an estimate of future supply from Forest Service managed lands was developed. (See Appendix #2) Those projections are based on a review of recent harvest trends and planning documents. More recent events may influence future Forest Service harvest levels in Grant County. One issue regarding federal forestlands is very important to private landowners in Grant County their generally unhealthy condition. These conditions developed over decades of a management philosophy that limited the influence of fire; now recognized as a key component of the natural ecosystem in this geography. The planned exclusion of fire from federal forests has resulted in higher stand densities. While these elevated densities could be reduced through timber harvest, environmental activism has largely denied federal forest managers that forest management tool. Thus, tree vigor has been reduced and the overstocked forest trees are more susceptible to insect and disease infestations. The volume of dead timber on Forest Service lands is more than twice ( FIA data to FIA data) that of the total volume green merchantable timber on private forestlands. On Forest Service lands, standing dead volume is percent of live volume. Healthy forests are better able to withstand attacks by pests, but can be overcome by sheer numbers of pests. The extent of federal forests in unhealthy conditions within Grant County provides the ingredients for significant populations of forest pests that do not recognize property lines and are attacking private forestlands. The risk does not end there. Overstocked federal forestlands, burdened with significant volume of standing dead material, provide conditions for catastrophic wildfire. Wildfires pose a threat to all adjacent properties as well as the well being of communities in their vicinity. 54

86 Dry Tons (thousands) 60,000 50,000 40,000 30,000 20,000 10,000 Standing Live and Dead Timber Volume by Ownership Class Standing dead volume on Federal lands is 2.4 times the standing live volume on Private lands in Grant county 0 Federal State & County Private Dead 9, Live 43, ,981 Source: USDA Forest Service FIA Data Query Figure 6.5 Standing Live and Dead Timber Volume by Ownership Class in Grant County Distribution of Grant County Private Forest Land by Forest Types Non-Stocked, 14.9, 4% Lodgepole Pine, 1.7, 1% Doug -Fir / W Larch, 37.0, 11% Ponderosa Pine, 132.1, 39% Western Juniper, 127.0, 38% Data source: Team estimates and analysis Spruce & True Firs, 22.9, 7% LABEL - Forest type, thousands of acres, percent of total private forest land acreage Figure 6.6 Distribution of Private Forest Land in Grant County by Forest Type 55

87 As noted in the prior section, there are 336 thousand acres of private forestlands in Grant County with 209 thousand acres in non-juniper forest types. The ponderosa pine (39 percent) and western juniper (38 percent) forest types are the dominant forest conditions on private lands (Figure 6.6). Over two-thirds of the non-juniper private acreage is 61 years or older, with nearly half of all acres 81 years or older (See Figure 6.7). Figure 6.8 shows the proportionate acreage distribution by forest type for Grant County private forestlands. This chart indicates that there is a preponderance of older age classes and relatively few younger age classes on Grant County s private forestlands. Among the concepts of sustainability a distribution of forest conditions that supports the ongoing flow of products and services from the forest in perpetuity. An initial assessment of the current age class distribution by forest type against a balanced forest of age classes was developed. Figure 6.9 compares the current distribution to the idealized one and demonstrates that the younger age classes are under represented while the older age classes are generally over represented. Over the past 20 years, the declining timber harvest on federal lands has precipitated the decline of primary forest products manufacturing facilities. With reduced harvest demand, regeneration harvests on private forestlands also declined. While private landowners did harvest timber primarily by thinning stands, the older age classes were maintained. Forests in the Inland West have traditionally been managed with partial harvest and without regeneration harvests. This situation is confirmed by the landowner survey finding that very little tree planting was accomplished on private lands. Lacking regeneration harvests, forests will continue to grow, but a shift toward species such as white fir or Douglas fir that can better survive in partial shade. In the Inland West, such species shifts are generally harbingers to increased forest health concerns. When typical drought cycles occur, the more shade-tolerant species frequently struggle and become weaker and more susceptible to insect and disease attack. 56

88 Grant County Private Forest Age Class Distribution by Forest Type - Acres Thousands of Acres to to to to to Twenty-Year Age Classes Western Juniper Non-Stocked Douglas -Fir / W Larch Lodgepole Pine Spruce & True Firs Ponderosa Pine Sources: USDA Forest Service FIA Data Query (Distribution from Three-County Strata) & Team Analysis (Private Acres) Figure 6.7 Grant County Private Forestland Acres by Age Class and Forest Type Percent of Forest Type Acres 60% 40% 20% Grant County Private Forest Age Class Distribution by Forest Type - Percent Douglas -Fir / Western Larch Ponderosa Pine Spruce & True Firs Western Juniper 0% 0 to to to to to Twenty-Year Age Classes Sources: USDA Forest Service FIA Data Query (Distribution from Three-County Strata) & Team Analysis (Private Acres) Figure 6.8 Grant County Private Forest Age Class Distribution by Forest Type 57

89 Excess and Deficit Acres by Age Class and Forest Type versus "Balanced" Age Class Distribution Thousands of Acres Positive Values indicate Age Classes with Acres greater than "Balanced" Forest Threshold Negative Values indicate Age Classes with Acres below "Balanced" Forest Threshold (10) (20) (30) 0 to to to to to 100 Douglas -Fir / W Larch 105 (4.0) (6.5) (2.5) Ponderosa Pine 115 (22.0) (14.2) (2.3) Spruce & True Firs 110 (4.1) (4.2) 6.9 (4.2) Western Juniper 105 (17.3) (19.1) (2.1) 42.6 (4.1) 0.0 Twenty-Year Age Classes Sources: USDA Forest Service FIA Data Query (Distribution from Three- County Strata) & Team Analysis (Private Acres & Sustainability Analysis) Figure 6.9 Comparison of Current Age Class Structure to Idealized Balanced Age Class Structure by Forest Type for Grant County Private Forestland Table 6.4 depicts the distribution of trees by species and trees by forest type and the distribution of sawlog volume, again by tree species and forest type, on the private forestlands in Grant County. This data serves as a basis for the stand table projections used to develop projected sustainable harvest levels for Grant County s private forestlands. 58

90 Table 6.4 Grant County Private Forestland Stand & Stock Table by Forest Type & Tree Species Stand Table by Forest Type Stand Table by Tree Species DBH DFWL POPN SPFR WJPR TOTAL DFWL POPN SPFR WJPR TOTAL TREES TREES ,258,282 18,428,341 6,674,571 2,430,837 31,792,031 12,059,504 8,916,264 7,451,513 3,364,750 31,792, ,098 10,479,784 2,708,575 3,141,779 17,158,236 1,918,673 7,184,352 3,519,603 4,535,607 17,158, ,022,288 3,705,937 1,234,064 1,570,136 7,532,425 1,290,639 3,136,361 1,252,754 1,852,671 7,532, ,376 2,130, ,624 1,140,894 4,929,901 1,153,389 1,662, ,046 1,227,848 4,929, ,717 1,872, , ,341 3,857, ,684 1,520, , ,341 3,857, ,477 1,510, , ,979 2,918, ,667 1,265, , ,102 2,918, , , , ,711 1,482, , , , ,531 1,482, , , , ,399 1,208, , ,884 72, ,252 1,208, , ,252 94, , , , ,621 44, , , , ,379 37,953 38, ,645 77, ,678 37,953 38, , ,739 37,953 33, ,174 37, , , , , ,543 5, , , ,289 32,453-6,374 46,116-43,805 2,312-46, ,349 40,755 6,316-56,421 8,730 45,379 2,312-56, ,242 7, ,056 7,242 7, , ,726 8, ,379 2,414 10, , , ,802-8,432-5,370 13, , ,414 2, ,414 ALL TREES 8,556,641 40,530,598 12,877,324 10,541,281 72,505,844 18,921,131 26,004,650 14,222,618 13,357,446 72,505,844 Stock Table by Forest Type Stock Table by Tree Species DBH DFWL POPN SPFR WJPR TOTAL DFWL POPN SPFR WJPR TOTAL SAWLOG CUNITS SAWLOG CUNITS ,890 66,604 30,888 22, ,961 45,575 49,642 33,875 23, , , ,059 40,740 37, ,669 70,726 96,626 36,952 37, , , ,129 68,987 30, , , ,824 57,430 32, , , ,201 39,967 26, ,498 71, ,465 24,618 31, , , ,591 38,911 46, ,595 43, ,342 27,527 44, , , ,100 50,090 43, ,546 78, ,410 20,855 48, , ,907 97,778 20,469 6, ,764 32,780 97,905 20,469 6, , ,110 30,998 23, ,056 30,998 79, , ,330 89, ,772 5,666 86, , ,131 33,471-4,827 47,429-44,739 2,690-47, ,314 41,651 7,673-61,638 10,518 48,678 2,442-61, ,899 10, ,380 9,899 10, , ,462 14, ,779 3,285 19, , , ,265-14,415-2,850 17, , ,125 5, ,125 ALL TREES 363,891 1,204, , ,056 2,139, ,954 1,169, , ,871 2,139,867 Figure 6.10 compares the ratio of Douglas -fir trees on the private forest base to the ratio of trees growing within the Douglas-fir forest type by two-inch DBH classes. There are a variety of tree species in any specific forest type. Figure 6.10 also identifies trends in species composition by forest type across DBH classes. DBH and tree age are roughly correlated so smaller trees are more likely found in younger stands and larger trees are more likely found in older stands. 59

91 However, there are exceptions to this general rule. If a large tree in an older stand dies and falls down it can create a hole in the canopy and smaller trees begin to grow up into that hole. In this case, smaller trees are growing in an older stand. However, what often happens is the type of tree species that begin to grow under such circumstances are species that can grow in partial shade. The more shade tolerant species is expanding its presence within the forest type due to changing forest dynamics. Trees that can grow better in partial shade will increase relative to the sheer numbers of trees that occur within the forest type where they are the dominant species. It appears this process is underway on Grant County s private forestlands. For example, across Grant County s private forestlands within the 14-inch DBH class, there are about 329,000 Douglas-fir trees (see Table 6.4). However, on the Douglas-fir forest type there are about 258,000 trees of all species. In this case, the Douglas-fir ratio constructed for Figure 6.9 is 329,000 / 258,000 or For 14-inch Douglas-fir, there are more Douglas-fir trees outside the Douglas-fir forest type than within it. Since the trends for these ratios increase with smaller-sized trees for Douglas-fir, spruce and true fir and western juniper and decrease for ponderosa pine, the forest composition is likely changing as Grant County s private forestlands grow older. The analysis indicates this process in in its early stages. However, the trend will accelerate if steps are not taken to reduce the average age of the forest and to favor the re-establishment of ponderosa pine on the ponderosa pine forest type. 60

92 RATIO: Trees by Species / Trees by Forest Type Grant County Private Forest Land Forest Dynamics Ratio of Trees by Species to Trees by Forest Type Doug-Fir/ W Larch - Ratio Ponderosa Pine -Ratio Spruce & True Firs - Ratio W Juniper - Ratio Doug Fir/ W Larch - Trend Ponderosa Pine -Trend Spruce & True Firs - Trend W Juniper - Trend Two-Inch DBH Classes Figure 6.10 Changing ratio of number of trees by species compared to number of trees by forest type for that same species 61

93 Historical Timber Harvest in Grant County 350,000 Grant County Timber Harvest by Ownership Last Twenty-five Years ( ) Million Board Feet, Scribner 300, , , , ,000 BLM USFS Non-Federal Public Native American Other Private Industry 50, Figure 6.11 Five-year Time Periods Industry Other Private Table 6.5 Historic Harvest by Ownership Class Native American Private State County & Municipal Non- Federal Public USFS BLM Federal Grand Total Million Board Feet ,409 12,526-24, ,297 4, , , ,115 20,342-58, , , , ,029 19,168-47, , ,453 65, ,584 15,056-30, ,616 1,701 17,317 48, ,412 2,676-6, , ,077 18, YEAR AVERAGE 19,510 13,954-33, ,352 1,533 74, ,363 Data Source: Oregon Department of Forestry Forest Land Ownership Classes in Grant County 62

94 Projected Private Harvest in Grant County Private landowners have differing objectives in owning and managing their timberlands. Many times timber production (i.e. financial return) is not the primary objective for private landowners. However, as the landowner survey identified, timber harvest and financial returns are among the more important objectives of most landowners. Three scenarios were examined to develop a range of likely projected harvest levels. Probable Scenario. Among those that have recently harvested their property, there is generally a limited supply of available marketable timber in the near future. However, the survey of Grant County s private timberlands owners found that 33% are likely or extremely likely to harvest timber within the next five years. Another 19% may or may not harvest timber in the next five years. A majority of the owners of Grant County private timberlands could be bringing to timber to market in the next five years. With consideration for those factors, projected potential harvest in this scenario is approximately triple the current harvest level, but will fall below the longer term annual average private forestlands harvest level of 33 MMBF (million board feet). Projected potential average annual harvest from 2015 to 2032 is 15.6 MMBF. Achieving this level of annual harvest would necessitate the owners of private forestlands recognizing the longerterm financial benefit of maintaining a local manufacturing infrastructure. Sustainable Scenario. This scenario considers the application of forest management practices to maintain and improve forest health conditions and to improve growth rates with a fully sustainable level of harvest. Average annual harvest from 2015 to 2032 is 23.4 MMBF. Achieving this annual level of harvest would likely necessitate a sustained program of landowner technical and financial assistance so that effective forest management practices are applied. Potential Scenario. This scenario keeps inventories level over time. There is a small reduction in ponderosa pine species inventory, but a slight increase in total forest 63

95 inventory. The potential harvest case is roughly in line with the historical average harvested volume for the past 25 years from private forestlands in Grant County. The projected average annual harvest from 2015 to 2032 is 29.8 MMBF. Achieving this level of sustainable harvest would likely necessitate a coordinated program of harvest planning and forest management activities. Table 6.6 Average Annual Change in Inventory, Harvest to 2032 Forest Type Species Forest Type Species Average Total Harvest, e Case Species Probable Douglas-Fir / W Larch % 57% Ponderosa Pine % 25% Spruce & True Firs % 57% Western Juniper % 34% Total % 37% Sustained Douglas-Fir / W Larch % 38% Ponderosa Pine % 9% Spruce & True Firs % 31% Western Juniper % 32% Total % 20% Potential Douglas-Fir / W Larch % 23% Ponderosa Pine % -5% Spruce & True Firs % 9% Western Juniper % 29% Total % 7% 64

96 Harvest Case Projected Average, 2015 to 2032 Probable Harvest per Acre per Year Growth per Acre per Year Sustained Harvest per Acre per Year Growth per Acre per Year Potential Harvest per Acre per Year Growth per Acre per Year Table 6.7a Projected Private Forest Productivity Douglas-fir & W Larch Ponderosa Pine Spruce & True Firs Western Juniper Boardfeet per Acre per Year Non- Juniper Forest Types All Forest Types Table 6.7b Projected Harvest - All Species Probable Case Sustained Case Potential Case a a e a = actual e = estimated Actual source: Oregon Department of Forestry Estimated: Change in Inland West Lumber production YTD per WWPA 65

97 Probable Scenario MMBF average harvest 2015 to Projected Private Harvest by Species Million Board Feet Ponderosa Pine Douglas-fir & W Larch Spruce & True Firs Western Juniper Figure 6.12 Table 6.8 HARVEST - MMBF by Species Douglas-fir & W Larch Ponderosa Pine Spruce & True Firs Western Juniper TOTAL Million Board Feet, Scribner

98 Projected Private Harvest by Forest Type Million Board Feet Ponderosa Pine Douglas-fir & W Larch Spruce & True Firs Western Juniper Figure 6.13 Table 6.9 HARVEST - MMBF by Forest Type Douglas-fir & W Larch Ponderosa Pine Spruce & True Firs Western Juniper TOTAL Million Board Feet, Scribner

99 Table 6.10 MMBF by Species DBH Douglas-fir Ponderosa Spruce & Western TOTAL Period CLASS & W Larch Pine True Firs Juniper ALL SIZES See graphical portrayal of this table on next page 68

100 Million Board Feet Projected Grant County Private Harvest Species by Size and Time Period Western Juniper Spruce & True Firs Ponderosa Pine Douglas-fir & W Larch DBH CLASS and TIME PERIODS Figure 6.14 Table 6.11 HARVEST - BF/Acre/Year by Forest Type Douglas-fir & W Larch Ponderosa Pine Spruce & True Firs Western Juniper Non- Juniper Forest Types ALL FOREST TYPES Average, 2015 to 2032 Harvest Growth

101 3,000,000 Projected Private Sawlog Inventory in Grant County by Tree Species 2,500,000 Sawlog Inventory, Cunits 2,000,000 1,500,000 1,000, , Source: Team Estimates DFWL POPN SPFR WJPR Figure ,000,000 Projected Private Sawlog Inventory in Grant County by Forest Type Sawlog Inventory, Cunits 2,500,000 2,000,000 1,500,000 1,000, , Source: Team Estimates DFWL POPN SPFR WJPR Figure

102 Comparison of Species Inventory by DBH Classes 2015 versus , ,000 WJPR Sawlog, cunits 600, , ,000 SPFR POPN DFWL 300, , ,000 - Source: Team Estimates Figure

103 Sustainable Scenario 23.4 MMBF average harvest 2015 to Projected Private Harvest by Species 25.0 Million Board Feet Ponderosa Pine Douglas-fir & W Larch Spruce & True Firs Western Juniper Figure 6.18 Table 6.12 HARVEST - MMBF by Species Douglas-fir & W Larch Ponderosa Pine Spruce & True Firs Western Juniper TOTAL Million Board Feet, Scribner

104 Projected Private Harvest by Forest Type Million Board Feet Ponderosa Pine Douglas-fir & W Larch Spruce & True Firs Western Juniper Figure 6.19 Table 6.13 HARVEST - MMBF by Forest Type Douglas-fir & Ponderosa Spruce & Western W Larch Pine True Firs Juniper TOTAL Million Board Feet, Scribner

105 Table 6.14 MMBF by Species DBH Douglas-fir Ponderosa Spruce & Western Period CLASS & W Larch Pine True Firs Juniper ALL SPECIES ALL SIZES See graphical portrayal of this table on next page 74

106 Projected Grant County Private Harvest Species by Size and Time Period Million Board Feet Western Juniper Spruce & True Firs Ponderosa Pine Douglas-fir & W Larch DBH CLASS and TIME PERIODS Figure 6.20 Table 6.15 HARVEST - BF/Acre/Year by Forest Type Douglas-fir & W Larch Ponderosa Pine Spruce & True Firs Western Juniper Non- Juniper Forest Types ALL FOREST TYPES Average, 2015 to 2032 Harvest Growth

107 3,000,000 Projected Private Sawlog Inventory in Grant County by Tree Species 2,500,000 Sawlog Inventory, Cunits 2,000,000 1,500,000 1,000, , Source: Team Estimates DFWL POPN SPFR WJPR Figure ,000,000 Projected Private Sawlog Inventory in Grant County by Forest Type Sawlog Inventory, Cunits 2,500,000 2,000,000 1,500,000 1,000, , Source: Team Estimates DFWL POPN SPFR WJPR Figure

108 Comparison of Species Inventory by DBH Classes 2015 versus ,000 Sawlog, cunits 600, , , ,000 WJPR SPFR POPN DFWL 200, ,000 - Source: Team Estimates Figure

109 Potential Scenario MMBF average harvest 2015 to Projected Private Harvest by Species Million Board Feet Ponderosa Pine Douglas-fir & W Larch Spruce & True Firs Western Juniper Figure 6.24 Table 6.16 HARVEST - MMBF by Species Douglas-fir & W Larch Ponderosa Pine Spruce & True Firs Western Juniper TOTAL Million Board Feet, Scribner

110 Projected Private Harvest by Forest Type Million Board Feet Ponderosa Pine Douglas-fir & W Larch Spruce & True Firs Western Juniper Figure 6.25 Table 6.17 HARVEST - MMBF by Forest Type Douglas-fir & W Larch Ponderosa Pine Spruce & True Firs Western Juniper TOTAL Million Board Feet, Scribner

111 Table 6.18 MMBF by Species DBH Douglas-fir Ponderosa Spruce & Western TOTAL Period CLASS & W Larch Pine True Firs Juniper ALL SIZES See graphical portrayal of this table on next page 80

112 Projected Grant County Private Harvest Species by Size and Time Period Million Board Feet Western Juniper Spruce & True Firs Ponderosa Pine Douglas-fir & W Larch DBH CLASS and TIME PERIODS Figure 6.26 Table 6.19 HARVEST - BF/Acre/Year by Forest Type Douglas-fir & W Larch Ponderosa Pine Spruce & True Firs Western Juniper Non- Juniper Forest Types ALL FOREST TYPES Average, 2015 to 2032 Harvest Growth

113 2,500,000 Projected Private Sawlog Inventory in Grant County by Tree Species Sawlog Inventory, Cunits 2,000,000 1,500,000 1,000, , Source: Team Estimates DFWL POPN SPFR WJPR Figure ,500,000 Projected Private Sawlog Inventory in Grant County by Forest Type Sawlog Inventory, Cunits 2,000,000 1,500,000 1,000, , Source: Team Estimates DFWL POPN SPFR WJPR Figure

114 Comparison of Species Inventory by DBH Classes 2015 versus ,000 Sawlog, cunits 600, , , ,000 WJPR SPFR POPN DFWL 200, ,000 - Source: Team Estimates Figure

115 During the analysis of the potential harvest levels for Grant County s private forestlands, several questions that were not posed at the initial stages of this project surfaced and were addressed. Question #1. Is the merchantable inventory on private forestlands on steep slopes or other hard to access areas? Answer: The merchantable inventory appears to be generally located in areas accessible by current harvest systems. Sawlog Harvest as a Percentage of Currently Operable Inventory Percent SLOPE Inventory Total Forest Type Size Class Ft2+ BA Inventory cubic feet Large & Medium All Acres Sawlog Inventory - 80 FT2 BA and higher in Large and Medium Stand Size Classes Douglas-Fir Large - 22,710,859 6,520,756 Medium Ponderosa Pine Large 20,653,599 22,058,383 7,725,636 Medium 8,972,753 3,782,328 - Spruce-Fir Large 11,764,720 9,480,465 - Medium Total Large 32,418,319 54,249,707 14,246,392 Medium 8,972,753 3,782, ,669, ,694,030 Rate of Harvest Large 7.75% 5.81% 2.91% Factors Medium 3.88% 2.91% 1.45% Generating Sawlog Harvest ONLY from Sawlog Inventory of 80 FT2 BA and higher in Large and Medium Stand Size Classes Harvest Large 2,512, ,153, , HARVEST as a Medium 347, , PERCENT of INVENTORY Harvest Grand Total 6,537, % 3.16% MBF at x BF / CF ,072 MMBF Question #2. Is the merchantable inventory so dispersed across the landscape so that it is economically inoperable? Answer. Certainly some of the standing inventory on private forestlands is so dispersed as to make harvest uneconomical in most log market scenarios. However, 84

116 some private forestlands would biologically benefit from a regeneration harvest and this approach would reduce the impact of this concern. Appropriate regeneration harvests and harvests of 25 to 30 percent of standing inventory would generate sufficient volume to support economically viable harvest operations on Grant County s private timberlands. Sawlog Inventory per Acre - 80 FT2 BA and higher, Average MBF per Acre Sawlog Inventory - 80 FT2 BA and higher in Large and Medium Stand Size Classes Percent SLOPE Inventory Total Forest Type Size Class Ft2+ BA Inventory MBF per Acre Large & Medium All Acres Douglas-Fir Large Medium Ponderosa Pine Large Medium Spruce-Fir Large MBF Volume Per Acre Medium Total Inventory & Acres Grand Totals 7.11 on Large and Medium All Forest 2.98 Forestland, 0 to 60 percent slope (juniper included) 80+ FT2 BA Non-juniper only 4.35 Question #3. Will the species composition within higher harvest levels change? Answer. The volume for all species including ponderosa pine would increase with higher harvest levels. Distribution of Ponderosa Pine Inventory Percentage of Total Ponderosa Pine Inventory on 80 FT2 Basal Area and higher PONDEROSA PINE Percent SLOPE INVENTORY - MMBF Forest Type Size Class Ft2+ BA Inventory Percent of TOTAL Ponderosa Pine Inventory Large & Medium All Acres Douglas-Fir Lg & Med 7% 0% 0% Ponderosa Pine Lg & Med 24% 21% 6% Spruce-Fir Lg & Med 0% 0% 0% Western Juniper Lg & Med 0% 0% 0% Other Hardwood Lg & Med 0% 0% 0% - - Non-Stocked Lg & Med 0% 0% 0% - - Grand Totals Lg & Med 31% 21% 6% % of Total Data sources : Updated (during 4Q2012) FIA 2010 inventory NOTE: The updated FIA 2010 inventory, the basis of the analysis shown here, reports 319 thousand acres of private forest land (196 thousand acres of non-juniper forest land). The study acres estimates private forest land in the county at 335 thousand acres (209 thousand acres of non-juniper forest land). 85

117 Appendix #7 Economics of Grant County s Estimated Private Timber Supply The economic impacts to Grant County s private timberland owners are depicted in Table 1. The valuations presented are based on estimated timber cash flow. While the absolute valuation cannot be completely accurate due to the other market values inherent in land ownership, the differences due to changes in timber production are informative. As the various supply cases depict the average harvest, the implied timber production per acre is calculated by dividing the harvest by the non-juniper forest acres. The average cash flow loosely corresponds to stumpage less some annual management expenses. If the current harvest level is perpetuated for an extended period of time, the inherent value of the property declines due to the low cash flow level. In addition, a continuing low level of timber supply from Grant County s private timberlands increases the risk to an already vulnerable forest products infrastructure. A financial valuation of the timberlands would likely account for such a risk by applying a higher investment (discount) rate to the stream of cash flows resulting in a reduced value for the property. If the level of harvest from Grant County s private timberlands increased from current level to a level similar to the probable scenario, timberlands valuations increase by $105 to $165 per acre compared to valuations based on current harvest and market conditions. This increase is due to higher timber production and lower risk of local mill closures. In addition, there is a prospect of an increase in demand from outside of Grant County as those mills drop more distant and high cost timber for more plentiful Grant County timber. The increase in demand could increase stumpage prices, supporting even higher valuations as shown within the gray dotted lines. 86

118 If supply moves to the sustainable scenario, values increase due to higher timber production. The influence of lower market risk is minimal in this case, but there is additional upside for stumpage price valuation. Taking the center of the upside range as indicative of upside risk, this could represent an increase in value of $201 to $289 per acre. If supply increases to the potential scenario, supply valuations increase even further. Infrastructure risk is further reduced, timber production increases and heightened demand through competition provides greater improvement on stumpage returns. To illustrate how an expansion in supply could result in an increase in demand, an illustration of a hypothetical Grant County mill supply curve is provided in Figure 7.1. While the data is hypothetical, it does reflect current market conditions and portrays log supply market mechanics. The key point is that by increasing the log supply from private timberlands in Grant County, the risk to the local manufacturing infrastructure can be reduced, demand may rise as other eastern Oregon mills opt to purchase stumpage from Grant County s private timberlands and stumpage and land valuations can increase resulting in financial gains for both the landowners and mill owners. 87

119 Table 7.1. Illustrative Table of Forest Land Valuation Based Solely on Expected Timber Cash Flow Annual Per Acre Average Investment Rate Private Yield* Cash Flow 3% 4% 5% 6% 7% Harvest BF/AC/Yr $/MBF Harvest Cash flow Valuation - $'s per Acre 4, $ (Current) $ $ $ $ , $ (Probable) $ $ $ $ , $ (Sustain) $ $ $ $ , $ Potential $ $ $ $ *Harvest essentially on non-juniper acres only Table Formatting Legend Most Likely Range within the Harvest Scenario Possible Range within the Harvest Scenario Less Likely Range within the Harvest Scenario Potential Ups ide within the Harvest Scenario 88

120 Sawtimber Market Mechanics - Current Supply Curve 550 FOB Price under Current Conditions Price ($ / MBF) Corresponding Stumpage Price under Current Conditions Difference between these two lines is a combination of logging, loading and unloading, and hauling costs to transport logs to the mill Sawtimber - MMBF Figure 7.1 Figure 7.1 shows supply curve for hypothetical mill in Grant County. The red line shows the stumpage price received as a component of the delivered log price paid by the mill. 550 Sawtimber Market Mechanics - Modified Supply Curve FOB Price under Expanded Supply Conditions 440 Corresponding Stumpage Price under Expanded Supply Conditions Price ($ / MBF) Difference between these two lines is a combination of logging, loading and unloading, and hauling costs to transport logs to the mill Sawtimber - MMBF Figure 7.2 Figure 7.2 shows revised marginal cost curve with expanded supply from Grant County. 89

121 Price ($ / MBF) Sawtimber Market Mechanics - Shifting Supply Curves To acquire expanded timber supply a mill bids higher on closer timber and reduces purchased timber at greater distance. While this lifts the lower end of the supply curve the rest of the curve flattens. 110 FOB Price under Current Conditions FOB Price with Expanded Grant County Harvest Sawtimber - MMBF Figure 7.3 Figure 7.3 compares the two supply curves. The bottom end of the revised supply curve is slightly higher as increasing demand produces higher stumpage prices paid to Grant County timber owners. However, the back end of the supply curve is lower because the more distance sources of supply have been dropped. On net, the delivered cost for the highest costing 25% for the mill is down by 15 percent and the average cost is mill is down by seven percent. The competitiveness of the local mill infrastructure is improved. 90

122 Sawtimber Market Mechanics - Stumpage Price Impacts Price ($ / MBF) Grant County Private Supply: Increased supply results in Grant County mills bidding up stumpage to trade off higher delivered cost timber from farther away. Stumpage Price under Current Supply Conditions Stumpage Price under Expanded Supply Conditions Sawtimber - MMBF Figure 7. 4 Despite average mill costs declining, the stumpage price paid for Grant County private timber is seven percent higher due to increased competition as mills in eastern Oregon outside of Grant County seek to reduce their costs by purchasing Grant County logs with lower transportation costs. Also, even though Grant County stumpage prices are higher, the weighted cost of stumpage in the mill s supply curve is essentially unchanged as demand shifts in other areas of eastern Oregon impact stumpage prices. 91

123 Appendix 8 Opportunities for Non-Timber Revenue from Grant County s Private Timberlands It has long been recognized that timberlands provide a wide range of benefits beyond producing wood fiber. A variety of ecological structures and conditions provide habitat for many vertebrate and invertebrate species. Trees sequester carbon and produce oxygen. Forests reduce soil erosion and sediment deposition into water bodies thereby protecting water quality and regulating water quantity. Forests growing near riparian areas provide shade that reduces water temperature and improves habitat conditions for aquatic species. And forests provide aesthetic beauty supporting recreational opportunities as well as enhancing general quality of living. When forests are converted to other economic uses, some or all of these other benefits may be lost to both the local community and society. Increasingly, markets are being developed to compensate the timberland owner for providing these general societal benefits. This provides a countervailing financial incentive for the timberland owner to continue to provide these benefits in lieu of other traditional commercial alternatives. These types of markets are referred to in this report as Ecosystem Services; another common title is Environmental Markets. The PDF file entitled The Matrix and produced by Forest Trends and the Ecosystem Market Place illustrates the opportunities for Ecosystem Services payment. 2 Its companion document titled Payments for Ecosystem Services: Market Profiles provides details on several of these opportunities. 3 Another report authored by American Farmland Trust, Guide to Environmental Markets for OR.1.pdf 92

124 Farmers and Ranchers, provides an overview of opportunities for private landowners. 4 A document by the same organization tailored to the Pacific Northwest is also available. 5 Finally, there is a new office within the USDA specifically aimed at environmental market. Its mission is, to catalyze the development of markets for ecosystem services. OEM [Office of Environmental Markets] has a unique role in the federal government's efforts to develop uniform standards and market infrastructure that will facilitate market-based approaches to agriculture, forest, and rangeland conservation. 6 In addition to these ecosystem benefits, forests offer other opportunities for revenue generation outside more traditional extractive, albeit renewable, uses such as timber harvest. One emerging area of interest is in renewable energy. In addition to woody biomass energy, forestlands also offer other potential renewable energy options such as wind, solar and geothermal. The following pages identify and describe several of these opportunities. Assessing the potential for any of these opportunities in Grant County is beyond the scope of this project, but the listed opportunities are indicative of the types of activities others are pursuing which may have revenue generating potential for the owners of Grant County s private timberlands American-Farmland-Trust.asp

125 Ecosystem Services - Carbon One ecosystem service that has received considerable attention recently is carbon sequestration and carbon offsets. The motivation behind the carbon sequestration and carbon offsets is the view that both the developed and developing world s utilization of fossil fuels has significantly contributed to the increased production of greenhouse gases including carbon dioxide. The concern is that as concentrations of greenhouse gases increase in the earth s atmosphere, radiating energy from sunlight striking the earth is trapped within earth s atmosphere which causes the earth s surface temperature to rise resulting in deleterious impacts to global living conditions. Limiting the production of greenhouse gases, including carbon dioxide, has been proposed to mitigate this risk. An alternative to limiting actual production of greenhouse gases is for the producers of greenhouse gases to offset that production by paying others to employ management practices that boost carbon sequestration. Thus, additional carbon produced offsets a greenhouse gas emitter s production of green house gases. 7 While the concepts of carbon offsets seem simple, it is a complex situation. There are many differing protocols even within the same general category of forestry projects. In addition, some protocols (e.g. Climate Action Reserve Forest Protocols 8 ) include criteria that are not strictly related to carbon sequestration but instead a more holistic view of what constitutes good forest management. The report, Building Forest Carbon Projects: Step-by-Step Overview and Guide, provides useful information on evaluating and selecting an appropriate protocol to use. 9 Carbon sequestration occurs in carbon sinks. Landfills, agricultural crops, rangeland and forests are commonly recognized carbon sinks capable of producing

126 marketable carbon offsets. Many people think a carbon-offset project is foregoing the harvest of existing forest stands for an extended period of time. However, one of the more common types of forestry carbon offset projects is afforestation and reforestation that establish forest on areas currently without forest cover. Afforestation refers to establishing forest cover in an area where not previously common. Reforestation refers to establishing forest cover where forest cover previously was dominant. While national carbon trading legislation failed to pass Congress 10 and the voluntary Chicago Climate Exchange ( CCX ) market closed in 2010, 11 carbon trading in the United States is still being actively pursued. In early 2012, analysts at Point Carbon, a provider of news, analysis and consulting services for European and global power, gas and carbon markets, estimated U.S. carbon trading would reach $782 million in Ecosystem Marketplace s report, The State of Voluntary Carbon Markets, 2012 explains the voluntary market in this way: Carbon credits can be voluntarily purchased in one of two ways through a private exchange or on the decentralized over-the-counter (OTC) market, where buyers and sellers engage directly through a broker or online retail storefront. This report primarily focuses on OTC transactions, the source of most voluntary offset transactions and market value, as few transactions currently occur on an exchange. From 2004 to 2010, a significant volume of voluntary credit transactions were conducted on the Chicago Climate Exchange (CCX). The CCX was a cap-and-trade system that organizations joined voluntarily to track and reduce their GHG emissions. The exchange was launched as a pilot program and completed its final trades in The report also states, The voluntary carbon market remains illiquid meaning that ready buyers are not always at hand; one or a few market players can dramatically influence pricing; and prices are highly stratified and often unpredictable, even within similar classes of offset. The details of payment and offset delivery vary

127 tremendously from one project to the next, as do the projects design, risk, start date and other factors that contribute to their eventual price. 14 With the closure of the CCX, regional carbon exchanges provide a forum for interested parties to buy and sell carbon offsets in North America. One group, formed in December 2005, is the Regional Greenhouse Gas Initiative (RGGI), based in the northeastern and mid-atlantic states. A newer group, the Western Climate Initiative (WCI), was formed in February 2007 between Arizona, California, Oregon and Washington. Participants have continued to shift since its formation. In late 2011, six states pulled out of WCI: New Mexico, Arizona, Washington, Oregon, Montana and Utah. These six have announced plans to join a new organization, the North America 2050 Initiative. 15,16 California and the Canadian provinces of British Columbia, Manitoba, Ontario and Quebec are continuing their plans for the WCI trading bloc. 17 In November 2012, the State of California held its first carbon auction. 18 This carbon auction is part of the state s implementation of its AB32 climate legislation that targets reducing the state s CO2 emissions to 1990 levels by While some firms have voluntarily elected to purchase carbon allowances motivated by social concerns and/or for public relations, the more common driver of carbon markets is in conjunction with legislated or regulatory caps on carbon emissions. These programs are often referred to as cap and trade. The legislation includes caps on CO2 that can be released into the atmosphere from various sources and industries that release more than the legislated cap have to buy carbon allowances

128 California regulators proclaimed the first auction a success. The auction was well attended and all 2013 allowances were purchased with a 3:1 bid ratio. 20 However, the attendance and number of bids didn t translate into higher prices for carbon allowances. While average bid price was $13.75, the average 2013 purchase price settled for only $0.09 above the minimum reserve price of $ In addition, only 14 percent of the 2015 allowances were purchased and those purchased were at the minimum reserve price of $10. The world s largest carbon market remains the regulated EU market. Of the estimated US$176 billion in carbon offset transactions in 2011, 84 percent occurred in the EU market. In comparison, the voluntary carbon market represented three percent of the total global transactions. EU carbon prices have been plummeting recently due to expanding supply of offsets as well as reduced demand due to the recession gripping Europe. 22 In April 2012, prices fell to 5.99 euros per tonne of carbon dioxide emissions (approximately $7.40 per tonne). 23 In early August, prices moved above 7.00 euros per tonne (approximately $8.85 per tonne). The December 2013 delivery price for California Carbon Allowances Over-The-Counter market has been above $19 per carbon dioxide equivalent (CO2e) tonne for July 2012 (see graphic below) after dropping to $13 in January Based on the results of the recent California auction and these market reports, the price of carbon exhibits a fairly significant degree of volatility. It also appears that not all carbon tonnes are created equal, as there is some evidence of differential pricing between protocols. It s difficult to determine if the pricing differential is due

129 to buyer preference for a particular protocol or how a protocol is marketed (negotiated vs. over-the-counter vs. auction). 25 Figure 8.1 Figure 8.2 One unknown with carbon projects is the impact on land values when sequestered carbon on a carbon project is retired, i.e. management options for a particular

130 tract of land are permanently altered. 26 Once credits are purchased, that carbon needs to stay out of the atmosphere from that point forward. As a result, a project becomes an encumbrance on a property when it is sold. Due to the relatively short period of time such projects have been actively implemented, there is no track record for how land values are affected if carbon offsets have been sold. Finally, there may be a risk to carbon markets from a competing idea; a carbon tax. Experts differ on whether a carbon cap and trade approach is superior to a carbon tax as an instrument of public policy. However, the debate over the effectiveness of one versus the other may become moot as the U.S. federal government seeks to increase revenue to address both the annual fiscal deficit as well as indebtedness. Carbon taxes have emerged as one of the tools that might be used to increase revenues to the federal government. 27 If such a tax were enacted nationally it is unclear what impact that would have on landowners who sold carbon. For those interested in learning more about carbon trading, a good starting point would be the website: Carbon Trading: A Primer for Forest Landowners Disclaimer: we are not advocating the information on this site nor implying it is completely accurate by mentioning it. We offer it simply as a point at which interested landowners could begin to learn more about their options. Consulting with professionals in this area would be highly recommended if the landowner has a desire to pursue in greater depth. 99

131 Ecosystem Services: Water Quality and Quantity Forests can mitigate sediment delivery to streams and rivers, influence water flow, assist in water temperature control and maintain streambank integrity. This is a classic case where decisions by landowners can affect the quantity and quality of societal goods such clean water, moderated water flow (i.e. not dramatic swings in water flow), healthy habitat conditions for aquatic species and landform integrity. The common approach has been developing, monitoring and enforcing a regulatory framework that requires compliance by landowners to protect these societal benefits. However, such an approach carries its own set of challenges and problems. First, developing regulations and the regulatory framework to monitor and enforce compliance is expensive. Secondly, a regulatory approach can and frequently becomes a never-ending escalator of ever more stringent regulations. Landowners that do the right thing are penalized as a more stringent regulatory framework reduces the market value of the landowners property. This can lead to additional costs if a landowner contends the effect of a regulation has reduced the value of their property without just compensation. While laws have been passed to mitigate this risk, the reality is such issues are complex and can result in costly legal battles that escalate societal costs. 29 This issue was a catalyst for Oregon s Measure 37 (2004), later amended in Measure 49 (2007). 30 Given the contentious environment created by the regulatory development, monitoring, and compliance enforcement framework, an alternative approach is gaining traction. During the last decade, an increasing number of private and public (utilities and government agencies) initiatives are providing market based payments for watershed improvements. Similar to carbon markets, a market is

132 emerging to financially compensate landowners who manage their resources in a manner that maintains or enhances these societal goods. In the United States, the federal government through the federal Farm Bill pays the majority of funding for such approaches. 31 For example, in early 2012 the USDA announced available funding for up to $10 million in Conservation Innovation Grants (CIG) as part of its water trading initiative administered by the Natural Resources Conservation Service (NRCS). 32 There are now six different federal programs involved with funding market-based watershed improvement. Five of the six are administered within USDA s NRCS and the sixth is within EPA s Section 319 program. A seventh program area, focused on protection of drinking water, is administered through four programs administered by state- and local environmental health agencies. A 2010 report reports program funding has grown from $628 million in 2002 to $1.35 billion in When all programs are viewed collectively payments between 2002 and 2008 totaled $8.4 billion. 33 Based on the authors previous analysis for the U.S. Forestry and Community Endowment in 2011, partnership programs such as Oregon s own Willamette Partnership and the New York City Department of Sewer and Water are functioning examples of such initiatives. Another example of payments for watershed services is the City of Denver. The Willamette Partnership was established in and partners a number of regional public utilities, environmental groups and the USDA. The stated objectives of this partnership are: Integrated and strategic investment in ecosystems http://willamettepartnership.org/ 101

133 A fair and transparent system for people to buy and sell environmental restoration benefits Business models to move beyond compliance-based projects to stewardship of ecosystems In August of 2012, the Willamette Partnership received a $1.5 million dollar Conservation Innovation Grant from USDA 35 to eventually cover a three state region. As stated by the US Secretary of Agriculture, These grant awards will help develop projects that create new revenue streams for farmers and ranchers while they are helping to improve water quality. The New York City partnership is focused on annual payments for voluntary modifications to agricultural crop management within the utilities broader watershed. This program was recently recognized for its contributions to marketbased water quality improvement: The Whole Farm Agreement was signed in November of All relevant deadlines were met and ultimately 93% of all the farms in the New York City watershed chose to participate. Whole Farm planning is arguably the most successful non-point pollution control programs in the United States. Its success played a critical role in stabilizing and reducing watershed pollution loads and in enabling the City to avoid the multi-billion dollar cost of filtering the Cat-Del water supply. Perhaps the greatest testimony to its success has been the growing number of reports of farmers outside the watershed's boundaries who keep asking how they can become part of the New York City watershed program. Active watershed pilot projects in North Carolina and Maine are directly comparing the costs of green investment to gray infrastructure, performing beneficiary analysis and working to include payments for watershed services (PWS) into a Unified Development Ordinance. To date the pilot projects have shown marketbased solutions like PWS can play a large role in bringing flexibility and cost savings to public investment decision-making and communities land-use planning processes. For example, in Maine, preliminary results indicate that investing in

134 green infrastructure could represent a cost-savings of $68 - $72 million (or 51% - 76%) over a 20-year period. Clear demonstration of cost-savings and/or public benefits as well as documentation of water quality and quantity risks will elevate interest for initiating similar projects. The State of Washington enacted a program to promote watershed services market demonstration projects as part of a broader Ecosystems Services Market initiative for private forestland owners. Per the 2010 progress report to the State Legislature, the purpose of the demonstration project, is to take advantage of the opportunities presented by an as-yet untapped potential for the development of viable ecosystem service markets involving forest landowners and potential buyers of ecosystem services in Washington. The specific intent of the project is to create the necessary preconditions and attempt to stimulate a small set of real market or market-like transactions in one or more pilot watersheds in Washington. 36 The fundamental value-driver for the Ecosystem Services Market including PWS is risk mitigation. To have a risk there must be a threat. In the case of Grant County, the threat relative to water quality and quantity is evident: the John Day River and many of its tributaries have been listed by the Oregon Department of Environmental Quality as a Clean Water Act 303(d) listed river system for which total maximum daily loads limits are being established. Part of this listing in 2010 includes a requirement for stakeholders in the basin to develop a basin Water quality management plan 37 (Figure ) Pollution Limits and Water Quality Plan for the John Day River Basin - Oregon DEQ, Malheur Basin also encompasses a portion of Grant County:

135 Figure 8.3 There may be several opportunities for private timberlands and rangeland owners to participate in market-based partnerships for watershed services. Reducing the reversion of prairie lands to juniper savannahs and forests thus enhancing stream water yields Increasing the number of small seasonal water impoundment structures in order to increase late summer and autumn stream flows. Note: this activity is currently being promoted and funded in western Colorado. Reducing private road and tracks erosion Increasing stream riparian tree planting to increase stream shade and reduce summer stream temperatures Increasing noncommercial and commercial forest thinning in order to improve forest health and increase summer watershed water yields While such partnerships will not likely produce significant net revenue to private timberlands owners, they can potentially provide funding for road improvements, pre-commercial thinning and juniper removal. 104

136 Western Juniper Management and Control Defining what constitutes juniper forest is as much about art as science. The following selections from The Western Juniper Resource of Eastern Oregon 39 provide background into the challenges and methods employed to classify the western juniper resource in eastern Oregon. (Emphasis added) Western juniper grows on xeric lands across eastern Oregon with the majority of stands growing where precipitation is between 10 and 20 inches per year and at elevations between 3,000 and 5, Crown closure in juniper stands ranges from 60 percent to very sparse with only one to a few trees per acre. The definition of juniper forest for the 1988 inventory was 10 percent or greater crown cover on the plot interpreted from aerial photography. The crown cover definition was a surrogate for the area occupancy of juniper or other trees. Because of their relative size, the [juniper] seedlings and saplings contribute almost nothing to a definition that considers only crown cover. The persistence of juniper seedlings and saplings suggests that these junipers should be accounted for when defining forestland 40. We used stocking of 5 percent or greater (meaning 5 percent of full stocking), which includes the contribution of the seedlings and saplings, to define juniper forest. We defined juniper savanna as land with juniper trees growing on it but less than 5 percent stocking. Despite their low current stocking, such lands may well transition to juniper forest With the exception of the ponderosa pine type, which covers 4.9 million acres, juniper forests occupy more area than any other forest type in eastern Oregon, over 3.5 million acres. If the crown density of juniper trees continues to increase on these savanna lands, juniper forests may become the forest type with the most acres in eastern Oregon 39 Azuma, David L.; Hiserote, Bruce A.; Dunham, Paul A The western juniper resource of eastern Oregon, Resour. Bull. PNW-RB-249. Portland, OR: U.S. Department of Agriculture, Forest Service, Pacific Northwest Research Station. 18 p. 40 Further explanation: There were enough juniper stems and seedlings that, if it was a typical forest tree species, would have been sufficient to contribute to percent crown cover calculations and classify the land as forestland; however, because of how juniper grows it did not and so under the 10 percent rule would not have been classed as forest land. Thus, a new rule for juniper was developed to classify juniper forestland, the 5 percent rule. 105

137 The definition of juniper forest is somewhat in the eye of the beholder. For this study, lands that meet a minimum stocking threshold of five percent are classified as juniper forest while lands that have western juniper as the dominant tree species but are below the minimum stocking threshold are classified as juniper savanna. Based upon comparing various sources and consulting satellite imagery, an estimate of juniper forestland and what is referred to in this report as juniper habitat, the equivalent of juniper savanna, within Grant County was developed. Lands classed as juniper forest have increased over the last 60 years from 420 thousand acres in 1936 to 3.3 million acres in If lands with juniper cover (not forest only) are considered, the change is 1.5 million acres in 1936 to 6.5 million acres in A portion of the change is due to definitional changes, but it is clear the extent of the juniper resource in eastern Oregon is rapidly expanding. It is also likely that a significant proportion of the lands currently classified as juniper savanna will grow into juniper forest; making the juniper forest the most prevalent forest type in eastern Oregon. Changes like this have significant ramifications on grazing capacity, precipitation interception and wildlife habitat conditions. Lack of market outlets for juniper wood has hampered attempts to effectively manage the resource. 41 Phil Chang reported the results of a western juniper commercialization feasibility study for the Prineville Area in The study found, there is significant market demand and market opportunity for juniper products that are currently being produced in Central Oregon (house logs, dimensional lumber for flooring and paneling, and firewood). However, despite the existence of both demand and opportunity, the development of a cluster of businesses that can treat juniper-encroached Central Oregon watersheds and utilize Western Juniper Commercialization Feasibility Study for the Prineville Area Local Innovation Fund Project Completion Report, Project No , Prepared by Phil Chang, Central Oregon Intergovernmental Council on behalf of the Juniper Working Group, 106

138 the by-product material is not a certain future outcome. The challenges to developing a western juniper industry were listed in this study. High cost of processing juniper and delivering juniper products to market relative to the market value. The cost of processing and transporting juniper from stump to market is very expensive relative to its price in the market place. The principal reason for this is the proportion of the volume that can be used for higher value uses (house logs, dimensional lumber) is very small, meaning the balance of the material harvested and processed will need to be directed toward lower value uses such as hog fuel. Because of this, the market value alone is generally insufficient to cover the full cost. The proposed solution was cost subsidies, either from private landowners or government sources, to make up the cost differential. Lack of economic stability in the juniper supply chain. The study notes, juniper material is not reliably available and businesses face the real concern of building demand for a juniper product and then not being able to supply that demand because the material is not available. The lack of stable supply is a recurring theme. This comment is from Oregon State s Western Juniper site s fact sheet 43 (emphasis added): To date, the most significant hurdles to a "booming" juniper industry are high harvest costs (short, highly-tapered and very limby trees combined with few trees per acre) and lack of a steady supply of raw material to the manufacturers. Oregon Solutions November 2011 statement 44 regarding the status of addressing issues related to use of juniper as a feedstock for biomass projects in

139 Oregon cited the lack of supply and more particularly supply information as challenges. (Emphasis added) The issue of supply has consistently arisen as a primary concern for parties interested in utilizing juniper resources in Oregon. At present there is not a comprehensive detailed inventory of where juniper is located and at what densities on either public or privately-owned lands. A new method for a comprehensive study was completed in 2007 and focused on juniper in the vicinity of Prineville (see Phil Chang, Western Juniper Commercialization Feasibility Study for the Prineville Area Relatively few businesses engaged in juniper harvest, transport, and processing. Chang reports 45 : There are currently relatively few businesses engaged in juniper harvest, transport, primary processing, secondary processing and manufacturing, marketing, and product sales in Central Oregon. For forest products based on other materials the cluster of involved businesses has more players and is more robust. Because the juniper cluster is so sparsely populated right now the few existing businesses feel tremendous pressure to vertically integrate to be loggers, be truckers, run mills, run kilns, make deliveries, build markets for finished products, and on and on. There are at least two key issues identified in these comments. First, there is limited infrastructure to harvest and transport juniper to primary processors. Much work has been done to look at harvesting methods and systems suited to harvest juniper, but to date no configuration has emerged as a definitive solution. 46 Debarking juniper is also a challenge but methods exist to cope with at least some of the challenges. 47 Second, the variable stem form creates both the challenge as well as opportunity for efficiently sorting material to its highest value use. However, the harvesting and product market issues are hopelessly intertwined. 48 Without sufficient market size there is no financial incentive for as an index. The following are representative of work done to develop an optimal harvest equipment configuration:

140 entrepreneurs to invest in equipment and labor to produce sufficient levels of juniper volume. Without sufficient logging and forest product delivery capacity, entrepreneurs will not invest in a business where there is no assurance of a reliable raw material supply. Need to establish juniper-based niche product markets. Chang observed that juniper s greatest market potential lies in the area of niche marketing, not commodity marketing. 49 Other studies 50 have come to the same conclusion. Green utilization practices including all aspects of sustainable forestry and environmental restoration appear to be important factors in the choice of juniper in the markets surveyed. Efforts by the Western Juniper Commercialization Steering Committee to highlight the environmental benefits of juniper utilization are commendable. Smartwood or similar certification of sustainable forestry practices will enhance the appeal of juniper in the marketplace. Niche marketing requires understanding the unique traits of a tree species and then finding how those traits can be profitably manufactured to better satisfy existing consumer needs and preferences. One trait that is fairly well known is juniper heartwood naturally resists decay and so offers possibilities as landscape and garden products including fencing, posts, landscape timbers grape and hop poles and decorative pieces. The challenge is finding a profitable use for the sapwood, as only the heartwood is decay resistant. 51,52 An evaluation performed in 1996 for the Klamath County Economic Development Association ; 109

141 in conjunction with the Western Juniper Commercialization Industry Steering Committee had the following observations regarding western juniper: 53 Western Juniper has some rather unique characteristics. First noticeable is its great visual appeal. The wood is multicolored with dramatic heart and sapwood variations. There are often knots and bark pockets which are especially pleasing is a rustic uses. It is highly aromatic so it could be used for hangers, blanket chests, even potpourri. It is also fairly limited in range (Eastern Oregon, Northeastern California, and Owyhee County in Idaho), which means a distinctive western style and brand awareness could be created. Western Juniper is a strong wood, yet is on the softer side of the hardwood scale. It has great flexibility; it can be bent and even woven! The wood glues well. Many fasteners have been tested and holding ability is superior in some cases to other woods. The wood appears to be hydrophobic, or moisture retardant, and pest resistant. It is highly resistant to rot and could be used for exterior uses, such as posts or flower boxes. Finally, the wood takes a stain and finish consistently, but it should be noted that it is also good-looking unfinished and will then retain its scent this way. (When filling small knots and voids in surfaces before finishing my recommendation is a water base wood filler by Famowood in the color Cherry/Dark Mahogany. The wood machines relatively well. However, there are a few manufacturing disadvantages - hidden, longitudinal cracks in some of the wood can cause weak grain structure and radical problems with machining. When shaping or routing edge grain, curved or serpentine shapes should be avoided (the grain will tear and fray). Another solution is to form a two-ply glue lamination panel. (Take two boards of equal thickness and bond together their longitudinal facegrain parallel to one another.) Finger-jointed panels can also help to strengthen and stabilize Western Juniper. Finally, large, clear and solid stock pieces are rare. Boards thicker than 1" and wider than 3 1/2" usually have knots and bark pockets in lengths over 18"

142 There are juniper manufacturers pursuing the niche marketing strategy including leveraging the environmental benefits generated by utilizing juniper as a product for watershed improvement and vegetation diversity. 54 However, some commodity applications are possible for juniper. For example, Collins Pine s hardboard mill has utilized clean juniper chips generated as part of a BLM stewardship contract for a portion of its wood furnish. 55 The following table is a compilation of mill directory sources in eastern Oregon utilizing western juniper

143 Facilitites in Eastern and Central Oregon that Process Western Juniper County Company Name OFID WJO City Species of Interest Baker Elkhorn Biomass Baker City Pulp logs (All species), Douglas-fir, Fir, white, Juniper, western, Larch, western (tamarack), Pine, lodgepole, Pine, ponderosa Crook Juniper Firewood L.L.C. Prineville Juniper, western Crook Line Shack Log Structures LLC Prineville Fir, white, Juniper, western, Larch, western (tamarack), Pine, ponderosa Crook Prineville Sawmill Company, Inc. Prineville Pine, blue-stained, Exotic Hardwood, Douglas-fir, Juniper, western, Pine, lodgepole, Pine, ponderosa, Pine, s. yellow Crook Central Oregon Juniper Prineville Juniper, western Crook Burls by Burleigh Powell Butte Juniper, western Deschutes MoreWood Products Bend Alder, Red, Ash, white, Birch, white, Walnut, black, Cherry, Maple, bigleaf (western), Maple, hard, Myrtlewood, Oregon, Oak, Oregon white, Oak, red, Oak, white (eastern U.S.), Madrone, Pacific, Douglas-fir, Hemlock, western, Juniper, western, Pine, lodgepole, Pine, ponderosa Deschutes Central Oregon Firewood, Inc Bend Juniper, western, Larch, western (tamarack), Pine, lodgepole Deschutes BH Horseworks Sisters Pine, blue-stained, Juniper, western, Pine, lodgepole Deschutes Ranch City Furnishings~Cowboy Creations Terrebonne Juniper, western Deschutes Rockey Pine Custom Milling Terrebonne Pine, blue-stained, Juniper, western, Pine, ponderosa Deschutes Sisters Forest Products, LLC Sisters Douglas-fir, Juniper, western, Pine, lodgepole, Pine, ponderosa Deschutes Rocky Mountain Timber Products Sisters Juniper, western Grant Storm Carpenter Log Homes John Day Douglas-fir, Juniper, western, Larch, western (tamarack), Pine, lodgepole, Pine, ponderosa, Spruce, Engelmann Grant Daves Custom Log Furniture Prairie City Pine, blue-stained, Juniper, western, Pine, lodgepole, Pine, ponderosa Grant Juniper Plus Inc. Mt Vernon Juniper, western Grant Roy Peterson Monument Custom logging and milling on your property using a portable (Mobile Dimension) sawmill. -- continued on next page -- Disclaimer: No attempt has been made to verify this list is a comprehensive listing of all western juniper processors in eastern and central Oregon or if companies included on this list are still operating. Inclusion on this list does not imply endorsement. Business es and/or individuals included on this list from sources deemed to be reliable. Before entering into a business transaction of any type standard due diligence business practices should be exercised. Sources: OFID = Oregon Forest Industries Directory website search; data search on 1/24/2013 Search Criteria: Species = Juniper, western Counties = Gilliam; Hood River; Sherman; Wasco; Wheeler; Baker; Grant; Morrow; Umatilla; Union; Wallowa; Crook; Deschutes; Jefferson; Klamath; Lake; Harney; Malheur WJO = Western Juniper Organization website, Lumber and Log Homes; website data updated as of 7/23/

144 Facilitites in Eastern and Central Oregon that Process Western Juniper - continued County Company Name OFID WJO City Species of Interest Harney Creations by Joseph Burns Pine, blue-stained, Douglas-fir, Juniper, western, Larch, western (tamarack), Pine, ponderosa Harney Soldier Creek Custom Juniper and Pine Burns Juniper, western, Pine, ponderosa Harney Steve Basey Burns Green or air-dried landscape timbers, fence posts, and special orders Harney Mac Runnels Burns Custom logging and milling on your property. Air-dried lumber and special orders. Jefferson Juniper Wood Products Madras Juniper, western Klamath Vintage Woodworks Dorris Juniper, western Klamath Woods Of The West Gallery Crescent Alder, Red, Chinkapin, Exotic Hardwood, Juniper, western, Pine, lodgepole, Pine, ponderosa Klamath Southern Oregon Round Stock Inc. Worden Juniper, western, Pine, lodgepole, Pine, ponderosa Klamath Old 7 Inc. Keno Juniper, western Klamath JMAR (Juniper Mill at REACH Inc.) Klamath Falls Post, poles, lumber products, landscaping bark, firewood, decking, and paneling. Lake Northwest Forest Industries Paisley Juniper, western, Pine, ponderosa Malheur WoodshopWonders, LLC Vale Pine, blue-stained, Juniper, western Wallowa JayZee Lumber Inc Joseph Walnut, black, Douglas-fir, Fir, white, Juniper, western, Larch, western (tamarack), Pine, lodgepole, Pine, ponderosa, Spruce, Engelmann, Spruce, Sitka, Pine, radiata Wheeler In The Sticks Juniper Sawmill Fossil Pine, blue-stained, Juniper, western, Pine, ponderosa Wheeler Juniper Log Homes Mitchell Juniper, western Wheeler Redwood Bench & Table Co. Mitchell Juniper, western Disclaimer: No attempt has been made to verify this list is a comprehensive listing of all western juniper processors in eastern and central Oregon or if companies included on this list are still operating. Inclusion on this list does not imply endorsement. Business es and/or individuals included on this list from sources deemed to be reliable. Before entering into a business transaction of any type standard due diligence business practices should be exercised. Sources: OFID = Oregon Forest Industries Directory website search; data search on 1/24/2013 Search Criteria: Species = Juniper, western Counties = Gilliam; Hood River; Sherman; Wasco; Wheeler; Baker; Grant; Morrow; Umatilla; Union; Wallowa; Crook; Deschutes; Jefferson; Klamath; Lake; Harney; Malheur WJO = Western Juniper Organization website, Lumber and Log Homes; website data updated as of 7/23/2012 Table

145 Oregon State s Scott Leavengood comments on developing markets for species like western juniper. Full utilization -- for a wood species with unique characteristics (e.g., color, odor, etc.), generating sufficient demand from secondary manufacturers for high-value lumber is likely to be far less of a challenge than generating demand for low-value materials. That is, the real challenge is to establish viable markets for mid- to lower grades of lumber as well as residues such as bark, chips, sawdust, and hog fuel. Lessons learned with western juniper suggest that a good approach is to focus first on assessing standing timber inventory and accessibility and harvest systems and costs. For species where there will be large volumes of residues (e.g., a species with poorly-formed stems), it is recommended to pursue markets that can use high volumes of residues before focusing on markets for lumber. Markets for secondary/ value-added products may develop without significant effort. The low volume per acre for harvesting juniper makes it paramount to generate maximum revenue per acre for profitable operations. Even when a juniper product is commodity-oriented, the goal should be to differentiate the product by using its unique characteristics to command a price premium. The premium may only be willing to be paid by a small slice of the market, but juniper will likely remain a niche market product. A simple example highlights the opportunity to leverage juniper s characteristics even when being utilized as a commodity-oriented product: commercial firewood. As this figure indicates, western juniper has one of the highest heating values of tree species likely to be used as firewood. This is differentiation Heating Value of Common Inland West Tree Species Millions BTUs per Cord Source: Figure 8.4 High Average Low 114

146 advantage #1. advantage #2. The aroma given off by burning juniper is differentiation The environmental benefits of utilizing western juniper to improve watershed conditions and promote native vegetation diversity on the landscape are differentiation advantage #3. The target market is a firewood purchaser who would pay more if they were educated to see the benefits of buying western juniper firewood. The key to building a successful juniper industry is finding profitable markets for the fall-down and residual products as these value-added markets will only add to profitability. For juniper those fall down uses may be augmented by emerging technologies of the energy sector as well as providing positive environmental benefits. 56 Harvesting and grinding conventional hog fuel for commercial biomass energy generation is likely to make a project non-economic owing to the dispersed nature of the western juniper resource. An alternative may be small-scale community heating projects where the transportation costs to collect western juniper biomass feedstock could be better contained. 57 Torrefaction, the processing of biomass as a substitute for coal, may be one possible commercial energy market for western juniper. 58 However, it too may suffer from having to reach across a significant area to provide sufficient feedstock for a commercial scale facility. If torrefaction facilities can be economically scaled to operate on western juniper such that the transport cost to acquire biomass feedstock doesn t overwhelm the project, the positive environmental benefits of watershed and range improvement could still be part of a marketing program. 56 Report funded by the National Association of Forest Owners (NAFO):

147 Yet another option on the near-horizon may be cellulosic ethanol or other types of liquid biofuels made from wood biomass. There are indications the day of commercial biofuels from woody biomass is fast approaching. A biofuels industry report details projects in 20 different U.S. states, several Canadian provinces, as well as China, Denmark, Italy, Germany, and Spain. 59 Included in the project list is ZeaChem s project with Greenwood Resources in Washington to utilize hybrid poplar as a biofuel stock. 60 In December 2012, a Canadian company, Woodland Biofuels, announced it was on track to begin producing cellulosic ethanol early in 2013 at a demonstration plant in Sarnia, Ontario. 61 Another Canadian company, Ensyn, has various demonstration facilities in Ontario Canada, Wisconsin, California and Texas utilizing pyrolysis techniques to develop liquid fuels such as biodiesel. 62 Among the biomass sources listed in the Western Governors Association strategic assessment of biofuels development in the Western States was treatment of pinyon/juniper lands. 63 As can be seen in the table below from the Western States Assessment report, treatments of pinyon-juniper woodland (this would include what was earlier referred to as both juniper forestland and juniper savanna) represent the single largest biomass opportunity category in the U.S. West in terms of volume: 37 percent in the Base case and 41 percent in the High case EDC48D7B/3443/1Zerpa.pdf

148 Source: A strategic assessment of biofuels development in the Western States 64 Table 8.2 The study assumed a stumpage cost of $2 per oven dry ton would be paid for juniper biomass harvested from private lands. Estimated roadside cost in the study for this biomass source was roughly $73 per oven dry ton and this is before the cost to transport it to a biofuel conversion facility. In the High Case scenario the report assumed costs would be subsidized at $20 per oven dry ton based on proposed legislation. Even with subsidies, these high costs would render such a project non-economic. In some biofuels processes, extractives are isolated and processed to produce value-added products in addition to the biofuels. Since juniper has unique extractives, the marketing of these other products could mitigate some of the higher cost of harvest and processing. The environmental benefits accruing 64 Skog, Kenneth E.; Rummer, Robert; Jenkins, Brian; Parker, Nathan; Tittman, Peter; Hart, Quinn; Nelson, Richard; Gray, Ed; Schmidt, Anneliese; Patton-Mallory, Marcia; Gordan, Gayle A strategic assessment of biofuels development in the Western States. In: McWilliams, Will; Moisen, Gretchen; Czaplewski, Ray, comps. Forest inventory and analysis (FIA) symposium 2008; 2008 October 21-23; Park City, UT. Pro. RMRS-P-56CD. Fort Collins, CO: U.S. Department of Agriculture, Forest service Rocky Mountain Research Station. 13 p

149 from juniper treatments would be a plus when marketing a biofuel product made from juniper. The biofuel plant scale size will also be a key variable due to the low volume per acre of juniper. In summary, emerging energy technologies may offer some opportunities for commercial juniper applications in the future. However, none of them at present the silver bullet that solves lack of consistent commercial markets for western juniper. Maintaining awareness of developments within the state is an important step to take advantage of these developing technologies. Renewable Energy The most commonly evaluated form of renewable energy is biomass-based (woody biomass or agricultural biomass). Since Grant County recently completed a study addressing woody biomass as an energy source, that topic will not be addressed in this report. However, landowners may have opportunity to participate in other renewable energy sectors. Wind Energy. Wind energy can be used to provide electricity for local farm and ranch needs or to sell to the commercial power grid. Commercial wind farms require access to transmission grids, locations where wind is reliable and sufficient land area. The Farmers Legal Action Group website provides access to useful materials for those interested in learning more about wind energy. 65 A cursory review of the following maps suggests opportunities for wind power generation in Grant County are limited. The maps on the next page are for estimated wind power density at and meters above the ground, respectively. This is not to

150 suggest localized opportunities do not exist for Grant County private landowners, only that wind energy is not a high priority for further evaluation. Figure 8.5 Oregon Wind Density at 50 meters above Ground

151 Figure 8.6 Oregon Wind Density at 50 meters above Ground Solar Energy. According to the NREL solar resource maps, solar energy collected through photovoltaic panel68 could offer some potential for Grant County. As with wind energy, access to the transmission grid and sufficient land area are important considerations

152 Grant County may also offer some potential for newer Concentrating Solar Power (CSP) technology. 69 The NREL map shows the solar resource for CSP. As with photovoltaic technology, the Grant County region is not the best area in terms of solar energy reception. However, it still offers distinct possibilities. Geothermal Energy. Geothermal energy may offer the greatest potential for Grant County landowners. As can be seen in Figure 8.7, the western U.S. including eastern Oregon contains most of the thermal resources in the United States. Despite significant potential, geothermal energy generation has not been widely developed in eastern Oregon. 70 In 2004, the Oregon Department of Energy developed the Oregon Geothermal Working Group to better understand the potential for geothermal energy in and%20alone-01.jpg 121

153 central and eastern Oregon. 71 The working group has developed a number of informational resources to assist and facilitate geothermal energy development. 72 Source: Figure and and 122

154 Figure 8.8 Ecosystem Services: Ecotourism Another means of generating non-timber revenue from private lands that has gained market traction in some areas is ecotourism. Payment is received for providing access for recreationists to unique ecological, cultural and/or historical environments. 73 A successful ecotourism program would require active marketing, by individual landowners or a public-private collaborative effort. 74 In some cases, the ecotourism opportunity may have to be developed. An opportunity may be BLM s program to locate eco-sanctuaries for wild horses and burros on private lands. This past year, grants totaling $300,000 were approved for See and for examples and information. 123

155 projects to improve western rangeland habitat for wild horses and burros with eight of the twelve projects in Nevada and Northern California. Sage grouse habitat restoration and enhancement may offer additional opportunities for private forest and range landowners in Grant County. 75 Conservation Easements Throughout the United States including Oregon, a well-developed market for conservation easements has been operating for decades. 76 Major environmental groups such as Trust for Public Lands, The Nature Conservancy, Conservation Fund and Rocky Mountain Elk Foundation have acquired conservation easements on private lands. 77 The conservation easement is a common element for many ecosystem market strategies and can be employed either as a single effort or in conjunction with other conservation programs and mechanisms. Common environmental values that may be monetized and protected under a conservation easement include: Improving watershed quality Protecting critical river and stream riparian areas and wetlands including mitigation banking 78 Providing for critical species habitat 79 ( species banking 80 or conservation banking ) age_name=uswet_market 79 and ersity_market&eod=1 124

156 Allowing public access for recreation and/or hunting Protecting aesthetic values Designing forest management activities Limiting and/or prohibiting the development of forest lands into other nonforest uses e.g. commercial properties or residential subdivisions Conservation easements can be a diverse range of legal structures. 81 The landowner retains title to the property, but surrenders specific ownership rights in exchange for the conservation easement payment. The easement is then legally attached to the property. The concept is similar to paying a landowner for permanent right-ofway for access. Organizations acquiring conservation easements typically generate funding for landowner compensation through a combination of private funding and government grants. The value of a conservation easement is usually determined by the threat, perceived or real, posed to the conservation resource. 82 Since conservation organizations have limited funds, conservation efforts are prioritized based in part on the imminence of the threat to conservation values. These factors, as well as the threatened alternative use, are important considerations in determining the value of the conservation easement. As an example and only as an example, since Grant County lies along a key migratory bird flyway (see Figure ), conservation easements to protect wetlands, riparian areas and similar resources may be an opportunity. Any such action should be preceded by a feasibility study that includes an assessment of the s_articles&eod=

157 federal and state tax implications, reviews the impacts on land values and other significant issues. Figure 8.9 Ecosystem Services: Biodiversity and Species Banking If there is interest in this new opportunity for revenue from ecosystems services, the following websites should be examined. State of Biodiversity Markets State_Biodiversity_Mkt-2011(doc_2848).pdf Supporting document to State of Biodiversity Markets 2011 Methods Update - State of Biodiversity Markets State_Biodiversity_Mkt-2011(methods.doc_2849).pdf Biodiversity 126

158 Species Banking US Conservation Banking me=uscon_market US Wetland Banking me=uswet_market The Rise of Candidate Species: Good News For Conservation Banking? s&eod=1 127

159 Appendix #9 Cross Laminated Lumber Following an unprecedented downturn, in terms of both length and depth, it appears U.S. housing is finally turning the corner. The Federal Reserve Bank of Philadelphia s recent survey of professional business forecasters reported a projected average housing start level of 0.91 million units from all respondents, 84 up from the 2012 level of 0.78 million units. 85 By way of comparison, the forecasted average for 2012 made in November 2011 was 0.67 million units. 86 Blue Chip Economic Indicators consensus housing start forecast from January 2013 for January is similar to the Philadelphia Federal Reserve survey, but also provides a 2014 forecast as well: 0.95 million units for 2013 and 1.16 million units for Figure 9.1 U.S. Housing Starts: Single Family and Multi-Family, Delphi Advisors is joint venture company of one of the consulting team s members. 128

160 The projected level for 2013 represents an increase of 17 to 22 percent over 2012 housing start activity. Although the forecasted gain is impressive, that pace represents a slowdown in terms of rate of change compared to an improvement of over 28 percent between 2011 and Percentage changes can be misleading when coming off such a low base. It takes relatively little improvement to register a large percentage increase in such cases. Despite these significant consecutive yearover-year gains, if the forecasts are accurate, 2013 housing starts will still be approximately 38 percent below the historical average of 1.5 million units. There is growing sentiment that the wood products sector is about to enter a super cycle with growth and perhaps explosive growth spurred by an increasing global demand for wood products, a recovering battered wood products supply chain and an array of tightening supply conditions. 89 If the demographic factors alone are considered, the Echo Boomer demographic in the U.S. could support a return to two million plus housing starts before the start of the next decade. For example, Harvard s Joint Center for Housing Studies published a working paper that concluded the demographic underpinnings in the U.S. will support an average annual housing start level during the time period 2010 to 2020 of to million units. 90 Given that three years of that time period are in the past and with housing start levels well below one million, the demographics are present to push housing start levels up substantially during the balance of the decade if the projected levels are to be achieved. The principal demographic driver for this is the Echo Boomer cohort --- children of the Baby Boomers is nine percent larger than the Baby Boomer cohort when compared for comparable ages today and 35 years ago. Most of that %20Press%20Release%20FINAL.pdf

161 difference is focused in the leading age of the Echo Boomer cohort, which is now in their late 20s. Figure 9.2 Comparison of Baby Boomer and Echo Boomer Cohorts However, there are other issues that are like to moderate the impact of pure demographics. While these issues will not overrule demographic forces, it is likely they will affect both the timing as well as the magnitude of impact on the U.S. housing market. These are the counter-balancing considerations to Echo Boomer demographic pressures. The stock of excess unsold homes including shadow inventory The pace of household formation both currently and coming out of the current recession Home affordability and income levels particularly for the Echo Boomer cohort 130

162 Credit worthiness and debt levels, i.e. student debt, for potential home buyers; The interaction of housing supply and demand with the transition of the Baby Boomer cohort into other living accommodations and the Echo Boomer cohort into starter homes The potential changes in societal preference that may make home ownership less desirable The last point above was one of the findings of recent work by the Cleveland Federal Reserve Bank that found an emerging preference on the part of this Echo Boomer cohort towards renting rather than purchasing a home. 91 If these results are truly indicative and persistent, it could indicate a shift in housing preference. This potentially affects the composition of total housing starts with a higher mix of multifamily units than single-family units than has been seen in the past. Traditionally, wood structures have captured less than 11% of the multi-family (and more broadly, commercial construction) market since a lower percentage of the building materials in multi-family units are wood products. However, with the increasing application of green building standards and the evolving building codes that better recognize the benefits and capabilities of wood, there are significant opportunities for engineered wood products for these markets. 92 There is an evolution occurring in the United States residential and commercial building industry. Multi-story wood buildings are gaining popularity. 93 Green building certification programs are expanding. The use of engineered wood products for both residential and commercial construction is on the rise

163 The quality of slow growing Inland West softwood species and the potential availability of smaller diameter logs from both federal and private lands combined with European secondary engineered wood products manufacturing technologies could provide Grant County an economic opportunity; the development of a small to medium-size cross laminated lumber (CLL; also referred to as cross laminated timber or CUT) manufacturing facility. Utilizing existing regionally manufactured lumber, such a mill could potentially ad significant value and profitability to the local timber supplies while also supporting the existing primary lumber manufacturing facility. Why cross laminated lumber? While the US residential building demand will likely remain below historic levels in the near future, the construction of residential and commercial multi-story wood structures is increasing. In the last three years, construction of multi-family residential structures and commercial buildings has increased more rapidly than traditional single story residential homes (Figure 9.4). From 2000 to 2006, multi-family units represented 19 percent of total starts. Since 2007, multi-family units have represented 26 percent of total starts. As previously noted, there is some evidence this trend is not an anomaly but likely the start of a more fundamental change in consumer preference toward shelter. CLL was developed in Europe in the 1990s and is increasingly used in EU markets. Unlike structural lumber, plywood or laminated veneer lumber manufacturing, CLL does not require large supplies of lumber, energy or capital investment. As energy costs have escalated, CLL use has increased in Germany and the United Kingdom especially in the construction of smaller commercial buildings and residential homes. CLL production is particularly well-suited to regions having relatively strong softwood species, but faced with higher yields of knotty shop grade lumber the current timber supply situation in Grant County. Medium scale CLL manufacturing plants (30,000 sq. ft. building space) have been recently built in Europe that 132

164 annually produce about 350,000 ft.³ of product using million board feet of shop lumber. Figure

165 Figurre 9.4 Figurre

166 Some other CLL information sources (1) The Case for Tall Wood Buildings - (2) CLT Solid Advantages (3) CLT Milestone in Montana - (4) Cross Laminated Timber (CLT) coming soon to North America -- CBYQFjAG&client=internal-uds-cse&usg=AFQjCNEIDVaLV3Xb2fGckXN2Pm1R55pQNA 135

167 Appendix #10 Grant County Timberlands Real Estate Investment Trust Private timberlands owners in Grant County share many challenges. Generational transition of timberlands assets in a costly and complicated federal tax environment Tax deferral or avoidance when timber harvest income dramatically increases personal tax rates Affordable professional forest management consulting and timber marketing services for small acreages Sufficient cash flow to support necessary and beneficial forest management investments In 1963, Congress passed tax legislation allowing multi-party ownership of real estate within the framework of a Real Estate Investment Trust (REIT). In addition to providing a mechanism for multi-party and/or multi-generational ownership, REITs offer a reduced federal tax rate of 15% and the opportunity for an annual cash flow to REIT owners. Today, billions of dollars of assets including commercial real estate, condominiums and similar properties are held and managed by both private and publicly traded REITs. For timberlands ownership, REITs are a frequently used option for large timber investment organizations (TIMOs) as they invest and manage pension funds and insurance company assets. Families owning timberlands, rangelands, farms and other real estate assets are also taking advantage of REITs. The REIT structure can be utilized by a collaborative group of smaller landowners seeking to: Convert future timber related income into annual REIT share dividends Transfer ownership to heirs though the distribution of REIT shares 136

168 Reduce the direct cost of forest management investments Reduce the annual or periodic tax implications of personal ownership Maintain ownership rights for access, personal use and related activities The challenges of creating a private REIT in Grant County include: Recruiting the qualifying number of like-minded timberlands owners Recruiting sufficient acreage to warrant the costs for establishing and operating a private REIT Understanding the risk of timber markets and those impacts on REIT share values and future REIT dividends Maintaining ownership rights for access, personal use and related activities A private timber REIT of Grant County landowners could address the risks to private timberlands with some opportunities. Single-source of timber supply could facilitate timber market transactions within Grant County to support maintaining the existing mill infrastructure. The REIT dividend share structure mitigates that risk of landowners selling timber in low markets or missing high market opportunities as REIT owners can receive REIT dividends from both current harvest as well as future harvest. For an individual landowner, a wildfire could eliminate or greatly reduce their timberland asset value. However, by owning equivalent value in REIT shares, that exposure to catastrophic loss is spread over more acres, and reduces the exposure of any single landowner. A REIT structure could easily be extended beyond Grant County. This would potentially provide greater organizationally efficiency and effectiveness while capitalizing on the advantages and benefits. 137

169 Appendix #11 Assembled Land Exchanges Assembled land exchanges are equal value, concurrent large or small real estate exchanges between two or more property owners including public lands agencies. Over the last thirty years, assembled land exchanges have been successfully completed in Oregon, Washington, Idaho and Montana. Transactions are based on willing parties that are seeking to consolidate ownership, reduce risk or management costs and/or assist public agencies in acquiring critical watersheds, wildlife habitat, unique sites or similar resources. A preliminary analysis of Grant County lands identified 75,900 acres of isolated private lands, those lands surrounded or largely surrounded by public lands. This acreage includes 57,282 acres on non-forested lands and 4,086 acres of juniper forested lands. Within these lands, it is likely that some owners are experiencing low productivity (AUMs per annum), limited or no access, minimal positive or negative cash returns and no prospect of changing these factors. An assembled land exchange can potentially increase the private ownership of timberlands in Grant County, reduce the risk of wildfire and insect infestations to private lands and reduce forest management costs for both private and federal landowners. The Malheur National Forest has 526, 811 acres classified as suitable for commercial timber production. Some of these lands are in close proximity to private timberlands and could be part of an assembled exchange. The success of assembled land exchange in Grant County is dependent upon a commitment by the Forest Service to participate and assist in funding the project. Political support from Oregon s governor and Congressional delegation would facilitate an exchange. Each successful assembled exchange has unique elements, but all share some basic steps. For Grant County, these include; 138

170 Utilizing an experienced assembled land exchange consultant to explain the exchange process in detail the Grant County Court, local foresters and interested private landowners Securing the support of Forest Service s local forest supervisors and regional forester Securing the support of state government, relevant state agencies and Oregon s Congressional representatives Developing Memorandums of Agreement with willing private landowners for potential candidate lands for an exchange Identifying acceptable candidate lands with all landowners and the Forest Service Developing indicative appraisals for properties and timber assets Gaining approval of all parties to proceed with third party appraisals of candidate lands Negotiating for final approval of all parties to identify lands for exchange Closing the real estate transactions to complete the exchange 139

171 Figure e

172 Figure