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County and Public Interests

Impact of Purchaser Credits on County Revenues

Federal law provides that 25 per cent of the money received from each National Forest is to be paid to the states within which the Forests are located, to be used for the benefit of public schools and public roads of the counties in which the Forests are located, in a manner to be prescribed by each state legislature. The states have provided a variety of distribution plans. In some states the payments are used mainly for schools, while in others they are used mainly for roads.

Whether earmarked for schools or roads, the base against which the 25 per cent is computed is the amount of money received by the federal government. When this amount is reduced by allowing timber purchasers credit for the cost of roads built and maintained in connection with timber sales, the counties' 25 per cent receipts are reduced commensurately. At present program levels, counties and school districts throughout the country are losing approximately $50 million annually by virtue of purchaser credits.

Public Interest Considerations

While it is indisputable that financing through purchaser credits involves substantial revenue losses for counties and school districts, it may be that from a general public interest standpoint there are some offsetting advantages in continuing to use the purchaser credit method of financing.

One consideration in this respect is that there may be circumstances under which the choice is between purchaser credit roads or no roads at all. This can occur when short range concerns about the level of direct federal expenditures supersede long range concerns about the quality of the National Forest transportation system, maximizing economy in the use of roads, and other public interest considerations. One great virtue of purchaser credit financing, from the standpoint of the Office of Management and Budget and others concerned primarily with the federal government's fiscal position, is that it reduces direct federal outlays, even though it also reduces the revenues the Treasury would otherwise receive for the timber. Purchaser credit financing is also attractive in the short run because the effect is immediate; the government avoids a cash outlay for road construction which must be substantially completed prior to harvest, while the revenue reductions it suffers occur over a longer time frame, during the period of harvest. Finally, federal budgeteers cannot be unaware of the fact that under purchaser credit financing, local governments are financing 25 per cent of the costs of

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the roads, even though, as noted below, direct government financing might create conditions under which competition for federal timber would increase and raise the price enough to offset the loss of this involuntary local government contribution.

Another type of consideration favoring maintenance of some level of purchaser credit financing is that some type of spur road construction and maintenance is operationally inseparable from the purchaser's harvest operations themselves. Many purchasers build and maintain these roads with the same personnel and equipment they already have in the sale area for their harvest operations, and they also need to control the timing and to some extent the location of such road work to coordinate their total operations.

While considerations of the federal fiscal position and the operational requirements of timber purchasers suggest that some level of purchaser credit financing will have to be maintained indefinitely, there are several reasons to believe that the ratio of direct government financing to purchaser credit financing should be considerably higher than it is now. Among these are reasons relating to road standards, competition for timber, road locations, and the public interest in effective Congressional oversight of agency operations.

Road Standards

As indicated above, federal law provides that purchasers are not required to bear that part of the road costs necessary to meet a higher standard than that needed in harvesting the particular sale timber harvest. roads are generally single-laned with temporary drainage facilities, surfacing and structures. Roads of this type would be inadequate to serve the multiple uses to which our National Forests are put today, including general public recreation use, as well as uses for forest protection and management. Since under law the extra cost of multiple use roads cannot be borne by the purchaser, 1 some direct government funding is required to assure that timber sale roads (which will inevitably be used for multiple purposes regardless of their actual standard or condition) are built to adequate standards.

Another aspect of the temporary v. permanent multiple use road issue is that long range transportation economies often favor construction of high standard roads, the added cost of which is offset over a long period of time by reduced per-mile user costs. A 1962 study by engineering personnel of the Forest Service's Region 6 concluded that if access roads in Region 6 could be built to planned standards from 1962 to 1983,

1. Many purchasers allege, however, that they are in fact required to build roads to higher standards than the minimum necessary for the particular sale. Although the Forest Service does not require the purchaser to bear the cost of double laning or paving, differences may arise over base requirements, environmental protection facilities, etc.

savings in maintenance and hauling costs alone would amount to $329.5 million, as compared with construction costs of $282 million.1

Effect on Competition

As commercial timber available for sale is found to a greater and greater extent in the more remote areas of the National Forests and in more rugged terrains, the relative cost of road building increases, and larger and larger sales must be put up to insure that there will be sufficient revenue to offset the cost of the roads. While this is probably only one of several factors which has produced the observed decline in the number of small mills and logging firms, it may be a significant one. Small operators experience great difficulty in obtaining even the short range capital necessary to finance large road construction expenditures prior to the time when they begin to realize a return on the sale of their logs or lumber products. This not only forecloses opportunities for small businessmen, but it may in the long run have an adverse effect on the price the government can command for its timber.2

Effect of Improved Access on Management

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So long as road construction must be financed primarily through purchaser credits, it seems axiomatic that roads will be located in areas where the most promising opportunities exist for commercial timber harvesting. virtually precludes the possibility of advance roading a policy generally favored by professional foresters which calls for development of a permanent road network throughout a forest, designed and built without the constraints of "prudent operator" standards but with an eye toward full utilization of forest potentials and maximum long range economy. Several advantages are claimed for an advance roading approach, including the possibility of salvaging mortality from fire, wind and insect or diseases (estimated at about two billion board feet annually for the National Forests); the increased fiber production that can be obtained through intensive management practices such as pre-commercial thinning; and the dispersal of recreation usage to avoid overcrowding of established recreation areas. Direct government funding of road construction will be re3 quired if these objectives are to be achieved.

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2. See, Walter J. Mead, "Memorandum on Competitive Bidding for National Forest Timber in the Douglas-Fir Subregion," (prepared for the U.S. Department of Interior, Bureau of Land Management), September 17, 1965, p. 8. See also the extended questioning and discussion of the effect of road requirements on small operators in House Appropriations Committee, Hearings, Department of Interior and Related Agencies Appropriations for 1975, Part 3, PP. 103-109, 93rd Congress, second session).

3. Appendix A of this report excerpts a brief discussion of advance roading from a paper prepared by Carl Newport, a forest economist with the Portland firm of Mason, Bruce and Girard, for the President's Advisory Panel on Timber and the Environment.

Accountability

There is, finally, an apparent public interest in having funding decisions applicable to government programs made by responsible organs of the Congress. The present method of programming National Forest road construction and maintenance with purchaser credits avoids Congressional scrutiny and constitutes what some have called "back door financing." The new Resources Planning Act will greatly reduce this problem beginning with fiscal year 1976. However, some related problems will remain. For example, 23 USC 205 requires the Forest Service to contract road work estimated at more than $15,000 per mile, but this does not apply to roads built by timber purchasers. Many purchasers are now having road contractors do their road work (especially as the complexity of construction increases in rugged terrain and with pressure for higher standards from the Forest Service), but these contracts are not necessarily let under the competitive bid procedures required by public contracting laws.

Finally, there may be something of a problem of accountability in assuring that purchasers required to build roads do not make windfall profits on the road work in addition to their normal profits on the timber operation itself. At the present time, the purchaser credits are allowed on the basis of estimates made at the time the project is engineered, and there appears to be no way for the Forest Service to audit actual costs experienced by the operator with an eye toward adjusting the allowances made on the basis of the estimate.

Toward a NACO Policy on Forest Road Financing

The National Association of Counties has been aware for a good many years that counties are losing substantial amounts of revenue as a result of purchaser credit financing of National Forest Development Roads. During the mid-1960's, NACO concentrated on trying to persuade the Congress to increase the Roads and Trails authorization in the Federal Aid Highway Act, assuming that such increases would be followed by a shift from purchaser credit financing to direct government financing of access roads. While the data presented above indicate that some such shift did take place for a few years, it seems clear that increasing the authorization alone does not insure that the drains on county funds will cease, as is amply illustrated by events of the early 1970's.

Enactment of the Resources Planning Act of 1974 does appear to set the stage, however, for a reconsideration of this issue, and now the members and staffs of the relevant Congressional committees will be directly involved in the choice of financing methods. It would appear to be a good time for NACO to review its policies on National Forest Development Road financing and perhaps to take the leadership in suggesting an approach that would be beneficial not only to county government, but

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