The Montana Legacy Project: Worth the Price?
by Dave Skinner
In late June 2008 U.S. Senator Max S. Baucus (D-MT), along with representatives of Plum Creek Timber (PCL), the Trust for Public Land (TPL), and the Nature Conservancy (TNC), announced the “Montana Legacy Project” or MLP.
The Project covers 312,000 acres of “non-core” Plum Creek commercial forest in several western Montana counties: Missoula (223,400 acres), Mineral (42,800 acres), Lake (35,500 acres), Lincoln (13,800 acres) and Powell (3,900 acres). MLP plans to allocate proportions of roughly a third each to: The U.S Forest Service, Montana Department of Natural Resources and Conservation (DNRC), and private owners.
In general, the asking price for MLP is $510 million, an average of $1,634 per acre. $250 million in Federal funds is set aside for the Forest Service to buy 112,000 acres (roughly $2,232 per acre), while the Montana state legislature is considering a general issue of $21.5 million in bonds for 27,000 acres south of Potomac, around $796 per acre.
Is that price fair? Should the State of Montana obligate its citizens to a bond issue and other spending that may or may not retain 36 jobs, for $10 million per job? Should Montana buy forest lands when current information indicates the price is five to twelve times what the land is worth? Is this project truly a “legacy”?
Before purchasing forest lands, especially so much land with so much money, rational buyers undertake due diligence, seeking information relevant to the decision, in this case timber inventories, growth potential indices, species composition, mineral estate issues, taxation and other issues, before buying.
Lack of disclosure on the part of a seller warrants caution on the buyer’s part, the less disclosure, the more caution. In short, caveat emptor – buyer beware.
In the case of MLP, which involves a half-billion dollars in what history indicates will be a 90% publicly-financed scheme, one would expect troves of information freely available to not only public officials, but also the citizens who will ultimately fund MLP.
Instead, “hard” information from MLP proponents has been nonexistent. While there have been plenty of buzzwords bruited about, relevant numbers have been released only sparingly, or totally held back as “proprietary business information.”
The minimal information that has somehow managed to escape MLP’s “cone of silence” has been less than reassuring – alarming would be more apt.
Timber Value
While MLP is being pitched as a “conservation” deal, Montana’s recent fire seasons have proved the truism that forest land is best-off managed. Management costs money. The primary way to pay for forest management costs is by producing forest products.
Well-managed forests provide not only timber and associated employment, but the full range of “conservation” and recreation “values” the multiple-use public desires.
To support a simple six-percent mortgage on MLP’s “buy” of $510 million, an investor would need to realize at least $30.6 million in cash flow each year, and more to pay off the principal. How much wood needs to be on MLP to support its price?
Using Plum Creek’s rule-of-thumb of 6 to 7 percent growth aggregation, assuming a price range of $175 to $265 per thousand board feet of harvest, and further ensuring that sustainable harvest does not eat into the standing forest inventory “principal,” MLP would have to have, at a minimum, between 2 and 2.9 billion board feet of standing timber today, yielding between 115 and 174 million board feet of harvest each year.
Does it? Plum Creek CEO Rick Holley told the Flathead Beacon he “does not know” how much wood MLP lands contain, only that the MLP land trust partners conducted an inventory and were “satisfied.” Other company and land trust representatives have repeatedly said inventory information was “proprietary” or otherwise restricted.
The only information that gives even a glimpse of actual MLP ground conditions is a September 5, 2008 “Fiber Supply Agreement” (FSA). The FSA gives Plum Creek a first right of refusal to harvest 92 million board feet in ten years, an average of 28.5 board feet per acre per year. The FSA further states that MLP is growing 29 million feet of wood per year, or 93 board feet/acre/year – a figure oddly above DNRC’s production average of 63 feet/acre/year.
The first number, if based on sustained yield from actual inventory, implies a timber base of only 153 million board feet, worth only $26.8 million, or $86 per acre. The second number, if based on actual growing stock, implies a “base” of 483 million feet worth $84.5 million, or $271 per acre. Both figures are far below MLP’s “ask” of $1,634.
Montana DNRC has conducted an appraisal on MLP’s Potomac parcel. Over the next 60 years, DNRC expects to harvest 44.2 million feet from Potomac’s 27,000 acres, an average of 27.2 board feet/acre/year. This productivity appears somewhat lower than MLP’s at-large productivity of 28.5 feet/acre/year.
Such marginal productivity may explains why the price for Potomac is “discounted.” But the price, $796 per acre, remains far above the apparent value. In constant dollars, discounted at 6 percent, DNRC’s planned Potomac harvest is only worth $2.33 million, or about $86 per acre.
Adding in the net present value of a 10,000 foot/acre harvest in year 60 ($53.05), the range of values for MLP based on proponent information run from a low of $139 to a high of $324 per acre. This in turn forces the conclusion that MLP’s asking price is from five to twelve times (not percent, times) the ability of the forests to pay for themselves.
Jobs
Montanans concerned about losing the timber “leg” of Montana’s economic-diversification “stool” might be willing to pay a premium if the premium could be made up by a positive jobs impact from MLP. MLP partner Trust for Public Lands has registered a website to promote the Legacy Project as a source of employment (www.montanaworkingforests.org). However, the site makes no direct claims of how many “working forest jobs” MLP may or may not create. Why not?
Using the data from FSA and DNRC’s Potomac appraisal as well as an industry rule-of-thumb for primary forest jobs around 5.5 jobs per million feet of harvest (one logger for three millworkers), MLP looks to have insignificant employment impact.
The planned FSA harvest level is only a bit over one percent of Montana’s recent harvest levels of around 800 or so million board feet, a yield already well below historic yields now that the Forest Service has left the arena.
Rounding the FSA annual harvest up to an even ten million feet gives MLP an impact of 55 jobs, meaning MLP would “buy” jobs at over $9 million each. But after the FSA expires, many expect the Forest Service will cease routine harvests on its “share” of MLP, reducing MLP’s total impact to around 36 jobs, and increasing job “price” to $14.1 million each. Breaking out the Potomac parcel separately, the slightly more than four jobs “bought” come in at $6.67 million each.
Nonetheless, management activities will always be necessary on MLP no matter the ownership. In other words, claims that an “investment” in MLP will create jobs, or retain existing jobs, cannot be credibly made.
Note: author Dave Skinner is a Montana freelance journalist who has written for Evergreen Foundation and Range Magazine, and is a frequent contributor to SOS Forests. He doesn’t like being ripped off by large corporations making sweetheart deals with on-the-take Senators and lying multinational “enviro” consortia. Nor do we.
See also The Great Montana Land Swindle of 2008 [here]
