Did the Forest Service make $412 million on timber sales in 1993, and $214 million in 1994, as it claims? Or did it lose $442 million in 1993 and $309 million in 1994, as cash-flow figures show? If it lost money, were the losses a subsidy to the timber industry--or to someone else?
These questions are raised by a Forest Service accounting system known as the Timber Sale Program Information Reporting System (TSPIRS). Each year, usually in March, the Forest Service publishes TSPIRS results for every national forest, accompanied by numerous press releases claiming that the agency made hundreds of millions of dollars in profits on timber sales.
TSPIRS is one program that hasn't been touched by reinvention. To understand this system, it is most important to understand what it is not:
The team's method was simple. It picked the forest that it thought had the worst cash flow of any in the country, which turned out to be the Black Hills Forest. It then designed a system that would make it appear that the Black Hills Forest makes money.
Not surprisingly, then, TSPIRS claims that the Black Hills Forest makes money. It also reports that other perennial money-losers, such as the Tongass Forest, make money. But if the team's mission was to prove that all forests made money, it failed. In every year since TSPIRS was first published in 1988, it concluded that a majority of the 122 forests lost money.
(For the purposes of counting, the Tongass is counted as three forests; for 1994 the count increases to 124 with the creation of the Columbia River Gorge as a separate counting unit and the division of the Wayne and Hoosier into two units.)
Nevertheless, Forest Service watchdogs such as Robert Wolf, the Wilderness Society, and CHEC (now the Thoreau Institute) took strong exception to TSPIRS's results. After reducing revenues to account for only those going to the Treasury and restoring the costs left out by TSPIRS, their results typically showed that 80 percent or more of all national forests lost money.
Different Drummer's predecessor, Forest Watch published TSPIRS results for every year from 1989 through 1992. We didn't publish results for 1993 for various reasons, so to be complete this issue includes results for both 1993 and 1994. The data in the tables on pages 32 through 35 come from three Forest Service computer files:
1989 1990 1991 1992 1993 1994 Average Numbers According to TSPIRS TSPIRS Revenues 1,518 1,376 1,157 1,077 1,017 885 1,172 TSPIRS Costs 664 746 685 601 717 672 681 Net to Treasury 855 630 472 475 412 214 510 Number of Forests Losing 64 65 71 68 74 68 68 Losses of Forests Losing -47 -48 -159 -66 -80 -60 -76 Numbers According to Cash Flow Revenues to Treasury 872 798 641 482 443 393 605 Costs to Treasury 661 327 655 630 597 421 549 County Payments 339 516 301 306 288 280 338 Net to Treasury -128 -46 -315 -453 -442 -309 -282 Number of Forests Losing 104 101 109 109 115 104 107 Losses of Forests Losing -366 -296 -437 -499 -501 -364 -410
For example, between 50 and 60 percent of all road costs go into what the Forest Service calls the "prism," which includes all the work of excavating and grading the road. These costs are not counted in TSPIRS because, the Forest Service says, they "add to the capital value of the forest." But just because money is spent doesn't mean land is more valuable. If it did, a homeowner with a backyard swimming pool could increase the home's value by spending money to fill the pool with concrete.
The policy of neglecting prism costs meant that $54 million in appropriated funds were left out of the 1993 TSPIRS results and $24 million were left out in 1994. In addition, TSPIRS counts purchaser road credits among the receipts, but left out $43 million in road credit prism costs in 1993 and $63 million in 1994, greatly improving apparent profitability. The neglect of prism costs alone meant that TSPIRS overestimated profitability by $184 million for 1993 and 1994 together.
Reforestation and related costs are supposed to be amortized over a rotation, but the formula used miscalculates rotation ages. According to the formula, the average rotation age for acres reforested in 1994 is 137 years--far longer than realistic. In both 1993 and 1994, ten forests use rotation ages greater than 400 years and 35 use rotations more than 200 years. Actual rotations average under 100.
Environmentalists usually describe these results as direct subsidies to the industry. But these losses do not measure subsidies to the industry. Instead, they are mainly subsidies to the Forest Service bureaucracy. Agency managers have learned that a pork-hungry Congress will spend just about anything to convince managers to get out the cut. So the agency has run up most timber-related costs to levels that are far greater than any private landowner--or even any state agency--would spend.
The TSPIRS data show that a phenomenal share of the costs--more than $150 million per year, or nearly 40 percent of 1994's total timber-related costs--are overhead. Half of this is "general administration"--salaries of line officers and office support--at the forest level. The rest is money spent by the regional and Washington offices, including $25 to $35 million spent out of timber sale line items, $7 to $13 million spent out of road items, and $6 to $9 million from reforestation line items.
These overhead costs also appear to be rather inflexible. Although direct timber-related costs to the Treasury declined by 40 percent between 1993 and 1994, overhead costs declined by less than 3 percent. Thus, as the timber sale program shrinks, the Forest Service's bloated bureaucracy makes that program appear increasingly unprofitable.
In addition, some $280 million of payments to counties each year represent subsidies to a few counties. These payments are supposed to replace the property taxes that the counties would get if the lands were private. But many counties get less than property tax equivalency, while a few--mainly those in Pacific coast states--get far more.
The timber industry does receive some subsidies, but they are impossible to calculate with Forest Service data. The industry gets two different subsidies. First, due to limited competition, purchasers in some areas get to buy timber for well below the market value for similar timber in areas with competition. Forest Service timber pricing should, but does not, account for this. This subsidy is probably in the tens of millions of dollars per year.
The second subsidy is represented by the timber that the Forest Service wouldn't sell if it managed the national forests sensibly--which means for a profit and with due regard for the values of other resources. This subsidy is much more difficult to estimate but is probably larger than the first.
How do timber subsidies compare with subsidies to other resources? Table two compares subsidies estimated in two different ways. First is the subsidy based on costs to the Treasury minus receipts to the Treasury. The table's numbers are based on the Forest Service's 1994 budget, not TSPIRS, and do not include overhead or indirect expenses, so the numbers for timber differ from TSPIRS. The table shows that the subsidy to recreation is comparable to that for timber, while the wildlife subsidy is significantly greater than the grazing subsidy.
But subsidies based on costs are, as noted above, subsidies to the bureaucracy, not to the users. A good measure of user subisidies is the market value of the use minus the actual payments made by users. According to the Forest Service's 1990 RPA Program, the subsidies to recreation and wildlife when measured this way are overwhelmingly larger than the subsidies to timber and grazing.
The RPA Program probably overestimates the market value of recreation and underestimates the timber revenues lost due to lack of competition. But if the timber subsidy were 100 times greater and the recreation-wildlife subsidy were ten times smaller, the latter would still be six times greater than the former.
By Cost By Lost Revenue Timber $222 $1 Grazing 13 40 Recreation 220 3,955 Fish & Wildlife 84 2,664Subsidies by cost measure the 1994 returns to the Treasury minus the 1994 costs to the Treasury, not counting overhead. Subsidies by lost revenue measure total market value minus actual payments by resource users and are based on the Forest Service's 1990 RPA Program, p. 6-53, using projections for 1995. When measured by cost, amenity subsidies are comparable to commodity subsidies. When measured by lost revenue, amenity subsidies are overwhelmingly larger.