SOS Forests

Cost-Plus-Loss Catching Fire

Oregon State Senator Ted Ferrioli (John Day) has written a letter to the Oregon Board of Forestry recommending that they adopt cost-plus-loss accounting procedures for evaluating the true costs of forest fires and the efficiency and value of fire suppression efforts made by ODF.

February 24, 2011

To: Mr. John Blackwell, Chair
Oregon State Board of Forestry
4708 SW Fairview Blvd.
Portland, Oregon 97221

Mr. Blackwell,

While the Department of Forestry does a good job of capturing and reporting data on the cost of wildfire suppression in Oregon, it can be argued that the current methodology captures only the actual costs of fire suppression which may reflect a fraction of the actual losses sustained by communities and individuals.

It has been suggested that Oregon Department of Forestry revise it method of capturing data on the value of losses sustained during wildfire by utilizing the “Cost-Plus-Loss” method.

Reporting under-such an expanded methodology would present a more accurate picture of the total values lost during wildfire and make citizens more accurately aware of the true cost of wildfire.

This methodology should reflect the value of property damage including the loss of timber and forage, short and long-term health effects, loss of wildlife and habitat, damage to watersheds and water related improvements, carbon emissions, degradation of soils, loss of recreational opportunities, and damage to transportation communication and energy infrastructure.

Attached is a recent white paper [here] that makes a compelling case for adoption of this methodology. I am requesting the Board of Forestry to adopt this methodology for capturing and reporting data on the true cost of wildfire to Oregonians.

Senator Ted Ferrioli
Oregon State Senate
John Day, Oregon

Some background would be helpful to assist the Board of Forestry in consideration of Sen. Ferrioli’s request.

The 2006 fire season was the worst in the U.S. in over fifty years. Nearly 10,000,000 acres burned in wildfires with suppression costs approaching $1.85 billion. The 2006 fire season was the third record-setter in six years. Seven of the worst ten fire seasons since the 1950’s occurred in between 1996 and 2006.

In response, the USDA Office of the Inspector General issued an Audit Report: Forest Service Large Fire Suppression Costs (Report No. 08601-44-SF). That report was the worst piece of fire cost accounting ever produced, and it inspired me to write an An Open Letter to the US Senate Regarding Fire Suppression Costs [here].

I am a professional consulting forester and I have done many fire damage appraisals. By dint of my training, experience, and common sense, I know that forest fires inflict monetary damages far in excess of the expense of putting the fires out.

But the USDA OIG report was oblivious to the damages wrought by fires. Instead their sole concern was how much money the Feds expended on fire suppression. Even worse, the USDA OIG report recommended allowing fires to burn into large conflagrations in order to reduce the per acre cost of fire suppression.

The report was so cockeyed and illogical that it spurred me to write to Congress and point out all the flaws.

First, reducing per acre costs by allowing fires to get large doesn’t save money; it’s the total cost that taxpayers foot, not the per acre costs. Keeping fires small reduces total costs, even if the per acre costs are relatively large.

Second, the true costs of forest fires are mainly the damages they inflict, not the suppression expenses. Fires damage trees, wildlife, soils, water, air, and all natural resources. Those resources have monetary value. The reason we as a society establish fire departments and fund them is to reduce the damages caused by fires.

We could reduce the government budget by eliminating fire departments entirely, but that would lead to massive losses caused by unfought fires. Community-funded firefighting is one of the original purposes of government, dating back to the Stone Age.

But nobody listened. The Feds decided instead to promulgate Let It Burn, allowing forest fires to rage on for months while fire suppression crews looked on uselessly. The Powers That Be invented whoofoos (wildfire “use”) and hammer (”appropriate” management response). That led to (duh!) more megafires and more total suppression costs, as well as $tens of billions in fire damages, growing ever larger every year.

The gross stupidity of Congress and the utter futility and destruction of Let It Burn policies really rankled me and many others. The old SOS Forests morphed in the Western Institute for Study of the Environment and we (now a cadre of foresters and resource professionals) continued our belly-aching.

Beside almost daily barbs fired from SOS Forests, in 2009 a group of us produced a paper (the one cited by Sen. Ferrioli in his letter above) [here]:

Zybach, Bob, Michael Dubrasich, Gregory Brenner, and John Marker. 2009. U.S. Wildfire Cost-Plus-Loss Economics Project: The “One-Pager” Checklist. Wildland Fire Lessons Learned Center, Advances in Fire Practices, Fall 2009.

We also created the U.S. Wildfire Cost-Plus-Loss Economics Project website [here].

That paper laid out the basic fundamentals of fire accounting — the cost-plus-loss methodology. We didn’t invent it; cost-plus-loss is a system that has been used since the earliest days of the insurance industry, as practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC [here]. The phrase “cost-plus-loss” was first applied to forest fire damage appraisal in the U.S. in 1925.

Our paper cited much historical literature on forest fire damage appraisal as well as more recent studies such as:

Dale, Lisa. 2009. The True Cost of Wildfire in the Western U.S., Western Forestry Leadership Coalition, Lakewood, Colorado [here].

One point we made was that the true measure of fire suppression expenditures should be the efficiency of reducing damages. The purpose of fire suppression is to reduce damages and to do so efficiently. It would not be wise to spend $billions on fire suppression technology and manpower while actually increasing the damages — which unbelievably is exactly the course the Feds have embarked upon.

Many state fire agencies were dismayed and repulsed by the Fed Let It Burn policies, including ODF which produced a Perspective on 2009 Federal Wildfire Policy Guidance in 2009 [here]. They wrote:

[C]urrent and past guidelines for federal wildfire policy that allow wildfires to grow large over peak burning conditions during the summer months without full suppression efforts impact the state. These impacts include loss of ODF protected landowner’s resources, increased state preparedness costs, the possibility of increased suppression costs, competition for firefighting resources, and increased safety risks for all firefighters through additional exposure.

Federal Wildfire Policy guideline changes made in 2009 further complicate the issues by allowing the use of multiple resource objectives within one fire. Actions such as these further complicate state fire management activities, cost share agreements, and the use and coordination of firefighting resources. …

Safety and least cost objectives seem to be used synonymously [by the Feds] for resource benefit. However, what may be least cost for the jurisdictional agency that has the fire may be most costly for the neighbor. For true “least cost”, the focus should be on increased and aggressive initial attack. …

When the federal fire management objective is to increase the amount of wildfire acres burned across the landscape, through the use of multiple resource objectives, it becomes unclear what decision making is driving when aggressive initial attack is implemented. In other words when is the agency really trying to catch the wildfire at IA versus increasing the amount of wildfire acres burned across the landscape? …

Through discussions last spring and this fall, Forest Service managers have been communicating their intent to continue, and to expand their use of indirect attack and encourage the use of fire for resource benefit to accomplish land management objectives. It is ODF’s opinion this will result in larger, more expensive fires with the likelihood of increased impacts to the Oregon Department of Forestry and Oregon’s forest landowners.

Those statements clearly convey the concerns ODF has regarding Federal Let It Burn policies. They also touch on fire damage accounting; the consideration of damages as well as suppression expenses, i.e. cost-plus-loss.

The U.S. Wildfire Cost-Plus-Loss Economics Project: The “One-Pager” Checklist, recommended by Sen. Ferrioli to the Board of Forestry, was designed as a ledger to be used to account for cost-plus-loss from forest fires. Thus, it is precisely the tool that ODF needs to quantify damages and make the case to the Feds that Let It Burn is a bad idea economically as well as endangering public safety.

If there are any “benefits” to Let It Burn, those should also be quantified using accepted accounting procedures so that defensible cost/benefit analyses can be made. The method outlined in our paper does not exclude such “benefit” accounting. We merely put comprehensive accounting for fires into a proper format (a ledger), such as might be used in any professional appraisal analysis.

We are very pleased that Sen. Ferrioli is now on board with all that, and strongly encourage the Board of Forestry to adopt proper cost-plus-loss fire accounting. That’s the professional way to do it, and it will yield useful insights regarding fire damages and suppression expenses. Those insights will hopefully make forest firefighting more efficient and true to founding purposes. They will also help ODF to communicate common sense to the Feds.