HOUSE BILL REPORT

SB 6313

BYSenators McDonald, Gaspard, Bailey, Zimmerman, Kreidler and Lee

Providing for retirement of loans from the resource management cost account to the forest development account.

House Committe on Natural Resources

Majority Report:  Do pass.  (19)

      Signed by Representatives Sutherland, Chair; K. Wilson, Vice Chair; Amondson, Basich, Beck, Belcher, Bumgarner, Butterfield, Cole, Dorn, Fuhrman, Hargrove, Haugen, Meyers, Sayan, Schmidt, C. Smith, Spanel and S. Wilson.

House Staff:Bill Koss (786-7129)

AS PASSED HOUSE MARCH 3, 1988

BACKGROUND:

The Department of Natural Resources manages two broad classes of forest lands:  Granted Trusts, and Forest Board Trusts.  The Granted Trusts came to the state when Washington joined the Union. Currently, Granted Trust acreage totals about 2.2 million acres.

The Forest Board Trusts, established by 1927 and 1935 state legislation, are made up of two units:  the Forest Board Transfer Lands, and the Forest Board Purchase Lands.

For the most part, the state acquired Forest Board Transfer Lands due to properties' tax delinquent status.  During the 1920's and 1930's, large quantities of land reverted to counties when the landowner did not pay the taxes.  The counties, unwillingly or unable to manage the land, asked the state to accept management. The state obtained about 544,000 acres through transfer.  The state bought Forest Board Purchase Lands during the 1920's and 1930's.  In all, approximately 80,000 acres of land in eighteen counties were acquired through purchase.

Management of DNR lands is on a self-funding basis.  For Granted Trusts and Forest Board Transfer Lands, the Department retains twenty-five percent of revenues from the sale and lease of property with the balance going to the appropriate trust.  On Purchase Lands, the Department retains fifty percent with the balance allocated almost equally between the State General Fund and the county.  The proceeds from the Granted Trusts earmarked for state land management enter the Resource Management Cost Account (RMCA).  Proceeds from the Forest Board Trusts earmarked for land management enter the Forest Development Account (FDA).

The land acquired for the Forest Board Transfer and Purchase Trusts often required immediate management -- often needing planting or complete rehabilitation, i.e. removal of brush and replanting.  The FDA had an insufficient cash flow to finance the investments.  Beginning in 1964, the Legislature began appropriating money from the RMCA for the Department to use on Forest Board Lands.  The RMCA funds used on Forest Board lands were deemed a loan, to be repaid with interest.  If not repaid, the loan constituted a lien against the Forest Board Lands.

Original plans called for the Forest Board Lands to gradually repay the loan with final payments expected by the mid-1990's. Timing of the loan repayment was based on two factors:  steadily rising timber prices, and an increasing sales program as Forest Board timber reached maturity.  The Forest Board Lands' debt $71.9 million at the end of fiscal year 1986.  The income from the Forest Board Lands would not be sufficient to repay the debt.

SUMMARY:

In order to repay the existing loan between the Forest Development Account and the Resource Management Account, the Department of Natural Resources is authorized to take certain actions:  (1) to determine the amount of the interfund loan, including interest; and (2) with the approval of the Board of Natural Resources, transfer cutting rights from Forest Board Purchase Lands to the federal grant trusts in an amount sufficient to fully repay the interfund loan.

The Board of Natural Resources receives authority to alter the existing distribution of proceeds from the sale of timber on Forest Board Purchase Lands until such time as the federally granted trusts have been repaid in full.  The revenue earmarked for the county (approximately 26.5 percent of the sale value) and for the General Fund (approximately 23.5 percent of the sale value) remains the same.  The revenue earmarked for the Forest Development Account, currently 50 percent of the sale proceeds, is diminished to an amount of less than 16.7 percent of the sale value.  The remaining portion of the sale value, not more than 33.3 percent, shall be distributed to the federally granted trusts in proportion to the trusts' equity in the debt.  However, as authorized by current law, the Resource Management Cost Account may deduct up to 25 percent of the proceeds going to the federally granted trusts in order to defray future management expenses.

In the event the Forest Development Account obtains funds in excess of those necessary for management, the State Treasurer, at the request of the Department of Natural Resources, is authorized to transfer those funds to the Resource Management Cost Account to repay the loan from the Forest Development Account.

Fiscal Note:      Available.

House Committee ‑ Testified For:    Art Stearns, Department of Natural Resources; and Jim Metcalf, Washington Association of Counties.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    The concept of transferring timber cutting rights retains the integrity of the county's and General Fund's cash flow.  It also allows the trusts and the Resource Management Cost Account (RMCA) to receive full compensation for the debt.  By each trust sharing equally the risk of fire or disease affecting the forest, no trust should be hurt by a catastrophe.  The plan offers sufficient flexibility to meet everyone's needs.  Without this plan, the counties stand to loose a great deal of revenue.

House Committee - Testimony Against:      None Presented.