S E C T I O N. six. Environment

S E C T I O N six Environment

202 VOLUME 15: EXAMPLES OF SUCCESSFUL PUBLIC-PRIVATE PARTNERSHIPS

23 Chesapeake Forest, Maryland, United States P R O J E C T S U M M A R Y The Chesapeake Bay is the largest estuary in the United States and a major area of both recreational and commercial fishing for the State of Maryland. The environmental quality of the Bay has been seriously threatened by wastewater discharges from growing population centres and minimal controls of agricultural runoff (both fertilizers and animal byproducts). In response, area governments have made restoration of the Bay an environmental priority, including an increased interest in land and wetlands management. However, both State and local governments lack the financial and personnel capability to address many of the concerns. It was in this situation that the Chesapeake Forest Project was created. In 1999, a private company sought to divest its holdings in the forested areas of the Eastern Shore of the Bay, but the State of Maryland lacked both the funding to acquire the land and the personnel resources to manage the land once purchased. In addition, the cessation of timber harvesting on the offered lands would have caused an unacceptable loss of employment in the region. Recognizing its fiscal and personnel limitations, the State entered into a phased-in public-private partnership (PPP) to purchase and manage the land. A pilot phase tested the concept of the partnership and ultimately fully implemented this 203

204 VOLUME 15: EXAMPLES OF SUCCESSFUL PUBLIC-PRIVATE PARTNERSHIPS contractual relationship that allows the private-sector partner to harvest timber in a limited portion of the lands and manage the entire property according to environmental standards closely monitored and supervised by the public sector. The revenues from the timber harvest generate the necessary income to make the project completely economically selfsustained and at the same time generate revenues for both the State of Maryland and local governments. P R O J E C T O B J E C T I V E S The broad vision for the Chesapeake Forest Project was the creation of an active, working, certified sustainable forestry on the Eastern Shore of the Chesapeake Bay that would not only pay for itself but also help to support local communities. To this end, the State and non-profit environmental groups sought to achieve the following specific objectives: provide a steady flow of economic activity and employment to support local businesses and communities; prevent the conversion of forested lands to non-forested uses; contribute to improvements in water quality, as part of the larger Chesapeake Bay restoration effort; protect and enhance habitat for threatened and endangered species; maintain soil and forest productivity and health; and, protect visual quality and site of special ecological, cultural and historical interest. P R O J E C T PA R T N E R S D E S C R I P T I O N The Chesapeake Forest Partnership (CFP) was developed in a two-stage process, with varying partners at the different stages. The State of Maryland Department of Natural Resources (DNR) is the public agency with direct responsibility for oversight of the management of all phases of the CFP. The wide objective of the DNR includes ensuring the following: sustainable populations of living resource and aquatic habitat; healthy Maryland watershed lands, streams and non-tidal rivers; natural resources stewardship opportunities for Maryland's urban and rural citizens; a conserved and managed Statewide network of ecologically valuable private and public lands; diverse outdoor recreation opportunities for Maryland citizens and visitors; and a diverse workforce and efficient operations. A major philanthropic foundation aided in the initial acquisition of a portion of the property. This foundation has a focus on environmental concerns and accordingly makes grants for such purposes as will be "in the public interest". Priorities include regional economic development, land preservation and watershed restoration and protection, all of which are compatible with the objectives of the CFP.

Chesapeake Forest, Maryland, United States 205 A non-profit public interest group with its primary purpose as environmental concerns was another participant in the process of developing and operating the CFP. The final partner is a for-profit consulting forestry firm that carries out the forestry management under the implemented PPP. I M P L E M E N TAT I O N E N V I R O N M E N T L E G I S L AT I V E A N D A D M I N I S T R AT I V E The properties that become the Chesapeake Forest Partnership were originally the land holdings of a private lumber company that chose to terminate its operations in Maryland. The land consisted of 238 parcels totalling more than 58,000 acres in five counties on the Eastern Shore of the Bay; these parcels make up 12 per cent of the productive forests in the region. Significant portions of these lands are also wetlands and include 23 separate watersheds, many of which have been given a high priority for conservation action under the Maryland Clean Water Action Plan. The State regarded the potential to safeguard these lands from development and protect the forest as a unique environmental opportunity. Local governments, however, were concerned that cessation of lumber operations would have a negative economic impact. The original private owners of the property paid about $85,000 in annual property taxes to county governments and produced approximately 15 to 20 per cent of the fiber utilized by the local pulp and timber mills. Accordingly, many of the local communities were concerned with the potential loss of this tax base and the employment related to the lumber operations. This combination of State and local government concerns created the political environment that made the CFP possible. The Maryland State Legislature authorized the funds for a partial acquisition of the land and has remained actively involved in oversight of the CFP. F I N A N C I A L A G R E E M E N T For the initial land acquisition that ultimately led to the partnership, the State of Maryland provided $16.5 million in order to purchase half of the 58,000 acres. The non-profit public interest group, acting on behalf of the philanthropic foundation, purchased the remaining 29,000 acres for $16.5 million with the intent to later gift the land to the State. This gifting, done in December 2000, carried with it a number of stipulations about terms that would become a key part of the CFP agreement. The initial phase in development of this partnership covered only the 29,000 acres provided by the non-profit group. Terms of the non-profit group s gifting of the land included commissioning of a detailed Sustainable Forest Management Plan, to be implemented over a threeyear transition period. A private firm was contracted to manage the Chesapeake Forest lands (fig. 1) in conformance with the State's environmental standards and regulations and based the Sustainable Forest Management Plan. The contract also provided the firm with the option for

206 VOLUME 15: EXAMPLES OF SUCCESSFUL PUBLIC-PRIVATE PARTNERSHIPS Figure 1 Chesapeake Forest lands. participation in the final partnership agreement, when implemented. The unique aspect of this PPP, however, was that is was self-funded. The Sustainable Forest Management Plan included identification of the areas in the forest where wood products could be harvested without negative environmental impact and at an environmentally sustainable level of harvesting. The private partner managed the harvesting operations, the revenues from which pay for the contract and provide additional funds to both the State and local governments. In addition, the controlled continuation of timber harvesting activities addressed the economic concerns of the local communities. Due to concerns about the partner viability of this model, the State agreed to cover any losses incurred by the private partner in the first two years; after that, the private partner would assume the risks associated with the partnership s profitability. However, the partnership succeeded in generating a profit in its first two years and in each subsequent year. With professional management of the lands, profitability will increase over time. Implementation of the transition plan was overseen by a group, the Chesapeake Forest Advisory Committee, that included non-profit environmental groups, private citizens, local government representatives, DNR and private-sector representatives. During the public planning process, an assessment of all the resources on the property was conducted and restoration opportunities were identified. In the summer of 2004, DNR conducted a resource inventory of the entire 58,000-acre forest, collecting information on everything from timber volumes and growth rates to sensitive species. In addition, the Department took the Sustainable Forest Management Plan that covered the gifted half of the property and redeveloped the plan to cover the entire forest. Based on this review of the field experience and input provided by the Advisory Committee, combined with updated resource information from DNR professionals, the original plan was revised. This revised plan became the basis of the final PPP that was implemented in January 2005. Costs for this transition and planning process were shared by DNR and the non-profit group. C O N T R A C T P R O V I S I O N S Based upon the success of the PPP for management of the initial 29,000 acres, the terms of the final contract for this PPP between the State of Maryland and a private company cover the entire 58,000- acre forest tract. The private partner is the same company initially contracted to manage the non-profit's portion of the forest, with the award based on performance during the transition period.

Chesapeake Forest, Maryland, United States 207 Under this partnership, the private company is responsible for all land management, based on an annual per-acre fee for basic management services, including harvesting timber (fig. 2). The private partner is responsible for subcontracting all fieldwork (e.g., cutting trees, transporting wood products to the mill and replanting) and paying all subcontractor bills. Receipts from the sale of timber products are paid directly to the State and the State does the financial management of the accounts. The first 15 per cent of the revenues each year are dispersed to the local counties. The private partner is assuming substantial risks in that only once this payment to the local counties has been made may the private manager be paid its management fee. The contractor gets paid an annual "base fee" paid out in monthly instalments for implementing the requirements of the contract for the management of the 58,000-acre forest. This includes implementation of the annual work plan, which involves approximately 2,500 acres of forestry harvesting annually. The contractor receives a secondary payment based on a per-acre fee at the end of each quarter based on the actual acres of work completed over the quarter. For both payments, the contractor must submit an invoice that details the work completed, and the work accomplishments are verified by the Forest Manager and the local Regional Manager prior to the payment of fees out of the State's Chesapeake Forest Fund. The private manager must generate enough income from timber harvests each fiscal year in order to cover the 15 per cent payment to the localities and an independent forest management fee defined by the contract. All fees and expenses incurred by the contractor during the fiscal year must be paid from income generated off the Chesapeake Forest during that fiscal year. The contractor assumes a great deal of risk since there is no carry-over of capital from year to year and no other source of funds is available to pay the contractor should it fail to generate sufficient income to pay its fees in any given year. All of this provides a strong incentive to keep the project economically self-supporting. Since its implementation, the partnership has been profitable, with revenues increasing annually. An independent annual audit also provides a layer of objective third-party review of the financial aspects of the project. The forest certification is done under the Sustainable Forestry Initiative as well as the Forest Stewardship Council and qualifies under the stringent sustainability criteria as a well-managed plantation. Figure 2 Harvested timber.

208 VOLUME 15: EXAMPLES OF SUCCESSFUL PUBLIC-PRIVATE PARTNERSHIPS The innovation of this partnership lies in the fact that it uses a renewable natural resource, the Chesapeake Forest's wood products, to fund environmental services needed by the State. Instead of having to hire professional foresters and support staff to manage these lands to its standards, the State has the land managed by its private partner. The State avoids expending public funds and, instead, generates revenue while ensuring the sustainable management of the forest. I M P L E M E N TAT I O N M E T R I C S To meet the goal of creating an environmentally sound, sustainable managed forest that contributes to local and regional economies, the State of Maryland and the nonprofit environmental group committed to maintaining these forests as a viable, ecologically sound and economically viable resource on the Eastern Shore. The comprehensive forest management plan reflects this commitment. Several constraints were placed on the project to preserve the ecological balance of the reserve. No actions on the land would be allowed to impair the quality of water flowing through the area and watershed improvement practices would strive to actually improve the quality of water entering Chesapeake Bay. The Department would also identify locations of rare, threatened and endangered species and take into consideration the habitat requirements of these species in their forest management activities; forest harvest levels would comply with targets established by a long-term sustainable harvest plan. The forest harvest levels are set to comply with targets established by a long-term sustainable harvest plan that would produce a reasonably uniform flow of products and contractor activities. While short-term departures from the set norms due to natural disturbances are anticipated, any exceptions that remain for an extended period require re-evaluation of the sustainable harvest level. Spatial and timing constraints will prevent thinning or harvesting operations from concentrating impacts in any areas that are ecologically sensitive and all operations will be according to the greenup requirements imposed by the Sustainable Forestry Initiative (SFI) Standard. DNR also makes use of the best available data to determine what activity levels are consistent with the sustainability of the forest ecosystems so that the harvests do not decrease the ability of the forests to continue that average level of yield. Ecosystem sustainability also means that there must be no net loss in soil fertility due to on-site forestry practices. C O M M E N T A R Y M E T H O D S F O R O V E R C O M I N G I M P E D I M E N T S There were several challenges to the successful implementation of the plan. The plan's initial management guidelines were contractually connected to the 29,000 acres being given to the State by the nonprofit group. However the guidelines needed to operate within the context of the entire 58,000-acre forest as part of the

Chesapeake Forest, Maryland, United States 209 long-term objective to develop the management system for the forest as a whole. There was also a short-term absence of timber harvesting opportunities, coupled with concern in the local communities regarding the State's ability to manage such a large and complex project while continuing to produce a flow of timber and economic activity in the region. In addition to these challenges, the limited data and the lack of adequate information on the soil all proved to be impediments to the development of the project. The management plan formulated used the experience and counsel of the foresters who had managed the lands for the original owner (a forest products company) for over two decades, as well as the resources of the Maryland DNR and the Fish and Wildlife Service as well as the expertise of local people. The resulting management plan contains an extensive resource assessment of the entire 58,000 acres, including attention to landscape and regional issues that provide an important context for the management of these lands. The outcomebased plan establishes specific objectives for management while leaving out rigid prescriptions. Relying on performance goals allows the private company to offer the most cost-effective answer to individual challenges and assure the financial viability of the entire project. K E Y P O I N T S O F S U C C E S S O R FA I L U R E The most challenging aspect of modern forest management is the need to balance environmental, social and economic goals to achieve a sustainable forest reserve, and the Chesapeake Forest plan addresses this need with guidelines based on the nature of the land itself. The available knowledge and information on the soil, water resources, vegetation and wildlife have allowed the identification of key areas for water quality, wildlife habitat and other values. The plan also allowed the identification of key areas where the production of economic timber harvests under modern management is both economically rewarding and environmentally sound. Specific areas are managed with intensive and ongoing fieldwork and an emphasis on key environmental values in order to produce both timber for local industry and jobs for local workers as well as opportunities for public recreation and enjoyment. The transition plan utilized a modern forest management model that allows different options to be compared in a variety of ways, including costs and economic returns and the production of wildlife habitat values. This plan continues to serve as a model for the management of the forest and informs the annual work plans developed by DNR as well as the day-to-day management decisions of the private-sector partner. Possible political resistance was reduced through compliance with State laws that required that the financial management of the project be done by the State agency. This ensured full and open transparency throughout the entire process from transition to final implementation of the partnership.

210 VOLUME 15: EXAMPLES OF SUCCESSFUL PUBLIC-PRIVATE PARTNERSHIPS The most important aspect of the project is to retain the focus on the desired outcomes and results, which requires an adaptive management system with information, feedback and response to change. The plan continuously monitors and collects data, refines assumptions and improves the dynamic management model that results in the successful implementation of the process and is likely to achieve the original vision of the partnership. This in turn requires that the public agency fully appreciate the economic factors in this project. The partnership was the result of efforts to retain the property as a working forest that would be managed in a conservation-centric way to provide forest products, local employment and recreation opportunities while protecting or improving the water quality and habitat of the lower Chesapeake Bay watershed. The successful implementation of the plan and the continuing PPP have demonstrated that an environmentally sound, economically sustainable managed forest can contribute to local and regional economies. The end product is a State-owned public forest, managed on a daily basis by a private forestry firm, carrying out a conservation-oriented sustainable forestry plan. The lessons learned from this successful project may transfer well to other similar natural resource partnerships.