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Reforestation of Timberlands Board Meeting Minutes
DOF Office, Sandston, VA
September 29, 2004

Phil Grimm, RT Program Manager, called the meeting to order at 10:09 a.m. Board members present were: Charles Rose, Grant Cosner, Earl Pickett, Ann Duff and Kenneth Morgan. Department of Forestry personnel in attendance were Assistant State Forester James Bowen, Forest Management Chief James Starr, Regional Forester David Slack, Assistant Regional Forester Dean Cumbia, and Research Manager John Scrivani.

Mr. Grimm began the meeting by announcing the requirement for all RT Board members to attend an orientation seminar on the Conflict of Interest Act. This meeting will be announced in the near future by the Attorney General’s office as a requirement for all persons who must disclose their financial interests.

As the former Chairman and Vice-Chairman are no longer sitting on the Board, Mr. Grimm opened the floor for nominations for these two positions for the current fiscal year. For the position of Chairman Mr. Morgan nominated Ms. Duff; seconded by Mr. Rose. As there was no further discussion her nomination was approved unanimously. Ms. Duff nominated Mr. Jefferson for the position of Vice-Chair; seconded by Mr. Rose. As there was no further discussion the nomination was unanimously approved.

Chairperson Duff reviewed the Sherman Anti-Trust Act requirements forbidding discussion of prices and markets between attendees at the meeting.

Minutes of the May 18, 2004 Board meeting were reviewed. Mr. Morgan moved to approve the minutes as submitted; Mr. Pickett seconded the motion which was carried unanimously.

Annual Report

Mr. Grimm reviewed highlights of the 2003-04 fiscal year. Last year the forest products tax revenue rebounded slightly after a downward trend begun in1997-98.

In 2004 39.9 million pine seedlings were planted on 72,000 acres of which 58,000 were non-industrial private acres. The RT program cost-shared 25,000 acres of planting. A total of 29,000 acres were planted without any cost-share.

The RT Program for the first time provided no cost-share for herbicide application due to the low funding.

An audit of 2004 non-industrial private tree planting indicated an average of 498 seedlings planted per acre.

An audit of completed projects for compliance with the Virginia Best Management Practices (BMPs) for water quality protection initiated in 1999-2000 indicates that on 12% or about 1 in 10 projects some sediment from surface runoff exists due to BMP technical specs not met.

Cost-Share Discussion

2003-04 was the first year of flat-rate payment. The flat-rate is intended to maintain cost-share at roughly 35% of average project costs, based on the 2002-03 year when cost-share was 35% of total cost not to exceed $60 per acre.

Payment on a flat-rate negated the sign-up by practice type as was done in the past. Cost-sharing by practice type on a percent of total cost basis resulted in higher payments to landowners for some practices such as chopping, burning and planting and less for others such as straight planting without site preparation.

The $61.93 average total cost per acre for 2003-04, down from $93.40 in 2002-03 is a soft figure according to Mr. Grimm. The figure reflects the probability that not all costs were reported for projects due to the change to a flat-rate payment basis. Under the percent of total cost basis, landowners were required to report all costs.

Of the $667,000 budgeted for cost-share in 2003-04, $96,000 remained unspent at the end of the year. In discussion of the lack of full budget expenditure, Mr. Rose reported comments from his clients stating that some of them are choosing to regenerate mixed stands of pine and hardwood, rather than reforest to pine, as stumpage for hardwood sawtimber is higher than for pine saw timber.

Mr. Starr added that planting throughout the South has declined somewhat. Ms. Duff confirmed this trend in terms of forest industry which is experiencing sell-off of forest land formerly committed to intensive pine management.

Mr. Morgan suggested a strategy of promoting tree planting on cutover lands similar to the Arbor Day Program. Mr. Pickett added that in his experience as a horticulturalist he has seen the Arbor Day celebration result in increased urban tree planting. He supported Mr. Morgan’s suggestion.

Ms. Duff suggested preparation of a press release promoting reforestation as a follow-up to Mr. Morgan’s suggestion. Mr.Grimm will follow-up with Ms. Duff.

2004-05 Budget

Mr. Grimm stated the $1,415,675 forest products tax revenue is a projection for the year in the state budget. Based on experience of not realizing the projection, the Department of Forestry has built a revenue shortfall in the budget of $277,000. The General Fund appropriation was reinstated this year as $125,000 after a year of no funding.

A carryover of funds from 2003-04 of $303,000 will be used to cover escrow requirements. In 2003-04 the escrow was $137,000.

In an attempt to reduce carryover at the end of 2004-05, the cost-share allocated to the Regions is set at $960,000, 17% higher than the budget amount. It is estimated that the added buffer will be absorbed in project cancellations which typically occur near the end of the fiscal year.

Forest Products Tax Task Force

At their March 2004 meeting, the RT Board initiated a call for a volunteer task force to review the forest products tax and make recommendations to the State Forester for modernization of the tax, originally authorized in 1950.

Following a mailing in early July of approximately 3,000 invitations to forest industry addresses maintained at the Department of Forestry, a sub-committee of volunteers was formed. Listed below are the names of sub-committee members:

The sub-committee met on September 16. They reviewed information submitted by the Tax Department which reveals:

The sub-committee reviewed the forest products tax code and reported the following observations.

As for pine lumber and other lumber, the option of payment by weight is a measurement of input whereas the option for payment by MBF of lumber is a measurement of output. It was noted that this dichotomy could be confusing to some taxpayers.

It was also noted that payment for logs is based on the International ¼ Inch Rule. Mr. Green of VDACS noted that typically log exports are measured in the Doyle Rule rather than the International Rule.

The sub-committee confirmed that excelsior wood, chemical wood, bolts and billets, tanbark products are archaic products. That is to say, significant quantities of these products are no longer produced in the industry.

It was noted that numerous units of tax payment are enumerated in the law: tons, cubic feet, pieces, cords, thousand board feet, percent of invoice value for poles and piling, bundles, and 100 lb.units in reference to chips produced in the woods.

The sub-committee arrived at three options for consideration in making recommendation for change to the State Forester.

  1. Leave the rates as they are currently established intact; qualify whether tax payment is based on raw material input or product output; and delete reference to products for which taxes are no longer paid.
  2. Pay the tax by weight on raw material input with one rate for pine and one rate for hardwood or other species, and establish a conversion table for all products for use by companies continuing to purchase on a non-weight basis.
  3. Leave the tax code in its current format.

The sub-committee prefers option #2.

Board Discussion of Task Force Findings

Mr. Rose inquired as to who will be responsible to pay the forest products tax. Ms. Duff responded the consuming mill must pay the tax, and when logs leave Virginia the shipper must pay the tax. She added that taxpayers must continue to identify the county of origin.

Ms. Duff went on to ask Mr. Morgan and Mr. Rose their opinions as members of the sawmill industry regarding option 2. Mr. Rose responded that his company has no preference, that all they will need is direction from the state as to what to do. Mr. Morgan stated that education of taxpayers on any changes is important. He stated in his opinion changes are long overdue. He stated that payment on a weight basis would be his preference, and he stated that more mills are installing weight scales.

Mr. Rose added that the law should clearly identify the end user as the tax payer.

Ms. Duff inquired of the Board how to measure the response of industry to the sub-committee recommendations. Mr. Morgan suggested the Virginia Forest Products Association and the Virginia Forestry Association should be asked for input.

In further clarification of the end user Mr. Rose stated that at sawmills, bark and chips are sold to other users. He inquired should tax be paid on these products. Ms. Duff stated that under the law pulp mills do not pay tax on chips purchased from sawmills.

Mr. Rose added that much timber is purchased by North Carolina companies. He inquired as to the probability that taxes are paid on these quantities of logs. Mr. Bowen responded that many years ago the Department of Taxation employed a person to check on companies for payment of
the forest products tax. That employee has not been on board for a number of years. He stated if you look at the tax and you look at what is being cut, probably not all the tax is being paid.

Ms. Duff recommended that the minutes of the September 16 be attached to these RT Board minutes (the minutes are appended.) She suggested that the Board discuss this topic again at the next Board meeting in March 2005 hopefully with a full Board in attendance.

Mr. Grimm stated that in the March 2004 Board meeting the Board had requested a press release to report the outcome of the task force activity. Mr. Bowen suggested delaying a press release until more definitive recommendations are developed at the next RT Board meeting.

Ms. Duff suggested a full discussion of needed changes will result with members of the task force in attendance at the next RT Board meeting. She emphasized that full Board member attendance is very important. Mr. Rose and Mr. Morgan agreed to consult with their associations for input. Ms. Duff will discuss the topic with her Sustainable Forest Initiative contacts.

Mr. Rose suggested Department of Forestry personnel hand out forest products tax flyers to loggers when conducting harvesting inspections.

As there was no further discussion Mr. Rose moved to table the discussion until the next meeting; Mr. Pickett seconded, with unanimous approval.

Alternate Approaches to Severance Tax Allocations

Mr. Slack discussed his idea for alternate use of RT Program funding. He suggested diverting dollars from traditional cost-share funding for reforestation to purchase of development rights, or to purchase of conservation easements, or for funding DOF personnel.

He stated that population growth and parcelization of the forest land base is placing pressure on prospects for long term forest land use. He suggested the current policy of cost-sharing is encouraging reforestation which in some locations will not grow to yield forest products due to these pressures.

He stated that leveraging RT funds with other monies such as occurs in the US Forest Service Forest Legacy Program would increase the amount of funds available for purchase of conservation easements. He stated that use of the funds for this purpose would promote longer term forestland conservation, and potentially offer a more stable source of fiber for industrial needs.

He believes other benefits of purchased easements would be direct economic incentive for private landowners; public benefits of green space; air and water pollution abatement; storm water management and quality of life. With conversion pressure reduced, industry investment in severance taxes would be more likely to bear returns; and politically, forest industry could benefit by showing commitment to long term conservation.

He added that in suburban areas continuation of cost-share investments will have several negative points including tying up funds in plantations that may become unavailable for extraction in the next rotation cycle, and establishing flammable fuel types close to residential areas. He stated in lieu of cost-share payments to these surbanizing areas, satisfy their severance tax reimbursement in the form of DOF personnel. He suggested such an employee would offer a broader array of benefits to all residents of a given community, including technical assistance to citizens and government agencies; resource protection and enforcement of water quality and fire laws. A full-time position in his opinion should offer more tangible benefits for far longer than the 10 year maintenance required for current cost-share agreements.

In response Ms. Duff stated conservation easements can also become preservation oriented without good forest management. She added that the RT money should be used for tangible benefits such as planting trees. Mr. Slack responded that language would be needed to ensure the land remains in a working forest.

Mr. Rose stated that as land develops, RT funding in heavily populated counties will decline making less severance tax dollars available for easements in those counties.

Ms. Duff thanked Mr. Slack for his presentation and suggested further discussion would be needed to draw any conclusions or recommendations in response to his ideas.

Forest Inventory Analysis

Mr. Scrivani provided forest inventory comparison from 1940 to 2002. He stated that only 8% of agricultural land reverting to forest is going to pine plantations; but that 54% of ag land reverting to forest is going to hardwood cover.

He stated that in 1940 50% of the forest land was in sawtimber, averaging 3,000 board feet per acre. In 2002 forestland in sawtimber had increased to 72%, averaging 8,000 board feet per acre. He stated that the amount of wood volume has nearly doubled since 1940.

Discussion of Planting Density

Mr. Starr made a presentation on planting density with recommendations to consider planting fewer seedlings per acre on reforestation projects. He stated the results of one research study indicates that planting as few as 350 trees per acre will result in a better financial strategy for non-industrial private landowners.

He suggested the March 2005 Board meeting be held at the Holiday Lake 4-H Center in Appomattox. The Department can provide a field tour to show the comparison of growth between densely planted and less densely planted pine trees. There being a consensus among the Board members for this meeting location, the next meeting was tentatively scheduled for March 16, 2005.

There being no further discussion the meeting was adjourned at 1:40 p.m.

James Bowen, Acting State Forester

Last modified: Monday, 19-Oct-2009 14:57:50 EDT

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