National Forest Timber Sale Receipts and Costs

No surprise at all is the fact that all of the other forests lost money. While many could make money, the Forest Service has responded to declining timber sales by keeping larger shares of the receipts in the Knutson-Vandenberg, salvage sale, and other funds. In 1988, the agency kept less than a third of timber receipts in these funds; in 1995 it was nearly 60 percent. Since counties get a quarter, that doesn't leave much left over for the Treasury.

In addition, even though sales fell by nearly two-thirds between 1990 and 1995, the Forest Service's timber sale budget fell by less than 30 percent. Congress has been so eager to get timber out of the forests that it has more than doubled the Forest Service's expenses per thousand board feet. This also makes it harder to earn a profit for the Treasury.

Of course, it is important to understand that when we say a forest loses money, we mean it is losing the taxpayers' money. It isn't losing money itself; it gets both the tax dollars appropriated by Congress and the timber receipts it keeps in the K-V, salvage sale, and other funds. Thus, the Forest Service wins twice--once out of tax dollars, once out of receipts--when taxpayers lose.

Our calculations of net receipts are based on the simple criteria of comparing returns to the Treasury with costs to the Treasury. The Forest Service accounting system, known as the Timber Sale Program Information Reporting System (TSPIRS), uses the somewhat more liberal criteria of comparing all receipts--even those that don't go to the Treasury--with only some of the costs. But even TSPIRS concludes that 75 out of 120 forests lost money in 1995.

The Forest Service has published TSPIRS every year for nearly a decade. The results generally come out in the May after the fiscal year in question. The 1995 results were held up for nine months by the Clinton administration, which insists on micromanaging the agency even though it doesn't have time to do so (which is true of all micromanagers). Our analysis was held up even longer by the Forest Service's insistence that we file a freedom of information request for data not included in the TSPIRS files.

What Does It All Mean?

Actual losses were much higher because TSPIRS greatly underestimates the actual losses to taxpayers. The Thoreau Institute's reanalysis says that in reality the losses from all money-losing forests totalled nearly $400 million.

But once you admit there are losses the actual numbers are mere quibbles. The question that is still being debated is: Do these losses represent subsidies to the timber industry? In large part, the answer is "no." In fact, most of the losses represent subsidies to the Forest Service bureaucracy.

The timber industry may get two kinds of subsidies from below-cost timber sales.

First, the Forest Service appraisal process notoriously underestimates fair market value. This does not matter when there is competition for timber, since the competition drives the price up to true market value. But when there is no competition, such as in the recently ended fifty-year contracts for timber on the Tongass National Forest, valuable trees are given to timber purchasers at rock-bottom prices.

Second, the Forest Service budget rewards managers for losing money on timber sales. So they often sell more timber than they would sell if they were only rewarded for making money on timber. The extra timber sales mean that timber companies cut more timber. This isn't exactly a subsidy, however, because the extra timber is pretty worthless. It does translate to more environmental damage.

So in general, the losses in the sale program more reflect a bloated bureaucracy than corporate welfare. The timber sale losses are symptoms of serious problems with the Forest Service. Demonizing the industry, however, is probably not a constructive response.

General Methodology

• The financial account, which supposedly represents the cash flow produced by timber sales;
• The economic account, which supposedly represents the returns on investments in national forest timber; and
• The income and employment account, which supposedly describes the number of jobs and personal earnings due to national forest timber.

• The financial account doesn't display the cash flowing in and out of the Treasury because it mixes dollars paid by the Treasury with dollars paid out of timber receipts.
• The economic account doesn't accurately show returns on investments because it mixes receipts today with investments in future timber growth.
• The employment account doesn't accurately show jobs from national forest timber sales because it includes inappropriate multipliers for secondary employment. Primary jobs are only about a third of the numbers shown in TSPIRS.

The Institute's reanalysis requires four steps:

1. Identifying the unamortized costs, all of which are displayed on a computer printout titled "TPIR01." Receipts are also on this form.
2. Distinguishing the costs paid by the Treasury from the costs paid out of the KV, salvage sale, or other Forest Service fund. The TPIR01s distinquish KV, brush disposal, and road maintenance funds, but not salvage sale funds. So the Forest Service provided the Institute with data showing how much each national forest spent out of the salvage sale fund on each line item in TSPIRS.
3. Distinguishing the receipts paid into the Treasury from the receipts paid into the KV, salvage sale, or another Forest Service fund. TSPIRS never distinguishes this information. So the the Forest Service provided the Institute with data showing how much of each national forests' receipts went into the KV and other funds.
4. Allocating the regional and Washington office (including experiment station) timber program costs to the individual forests. Although TSPIRS counts these costs, it doesn't count them against receipts. The Institute divides these costs up according to the volume of timber sold by each forest.

Forest-by-forest results are posted on the web in four files:

1. A "key data" spreadsheet shows TSPIRS results and the Institute's calculations of actual returns and costs to the Treasury as well as volume and acres cut.
2. A "detailed data" spreadsheet shows TSPIRS costs for dozens of different line items.
3. A "supplemental data" spreadsheet breaks down receipts by the fund they went into and shows the line-item costs paid by the salvage sale fund.
4. A description file describes every row and column in the spreadsheets.

The key data spreadsheet, at http://www.ti.org/~rot/key95.html, has all the basic data most people will need, including a listing of exactly how much each national forest made or lost on timber sales both according to TSPIRS and according to the Institute's calculations.

The detailed data spreadsheet, at http://www.ti.org/~rot/detail95.html, is based on a Forest Service computer data file known as TPIR01. This lists the actual receipts and costs by line item and then shows how TSPIRS manipulates those items. Our spreadsheet includes only the unmanipulated numbers, based on the column in the TPIR01 called "DATA FROM TPIR MST."

TPIR01s distinguish costs paid out of K-V, brush disposal, and road maintenance funds from costs paid out of tax dollars. But they do not distinguish costs paid out of the salvage sale fund from costs paid out of tax dollars. They also do not break down receipts by the fund they go into.

The supplemental data spreadsheet remedies these defects. The first part of the spreadsheet breaks down receipts by fund (KV, SSF, etc.). The second part shows how each forest spent salvage sale funds. The salvage sale line items can be subtracted from the same line items in the detailed spreadsheet to get spending out of tax dollars.

The supplemental spreadsheet, at http://www.ti.org/~rot/supplement95.html, is based on computer files provided by the Forest Service's fiscal analysts in Ft. Collins. It uses the same accrual accounting system as TSPIRS so the data are exactly comparable.

1996 Results Will Be Worse

As a result, 1996 TSPIRS results are likely to be even worse than 1995's, if that is possible. Just as a guess, the Allegheny and Umpqua may turn out to be the only forests that make money.

We hope to expedite 1996 results so that we will have them much sooner than 18 months after the end of the fiscal year. We will let you know as soon as they are available.