168 



other than a few corporate executives, no one actually knows 

 if the pulp mills in southeast Alaska are profitable or not. For 

 example, the 1986 Louisiana Pacific Corporation Annual Report 

 acknowledged concerns over the viability of its Ketchikan 

 operations, but was no more specific than to mention "major 

 losses over the past several years." This is consistent with 

 these corporations' efforts, for years, to depict themselves as 

 "an industry in crisis." Given the current pricing mechanisms 

 under which cost increases and sale price decreases are absorbed 

 by the raw material supplier, the federal government, this is 

 very rational behavior indeed. 



The crisis argviment took on new meaning in January, 1987 

 when the Alaska Pulp Company filed an $85 million contract claim 

 against the Forest Service for the 1980 through 1985 operating 

 period. Alleging several Forest Service breaches of long-term 

 agreement, the company's complaint, among other things, suggests 

 that the Forest Service's role in Southeast Alaska is that of an 

 "economic development" agency rather than a custodian of an 

 important national resource. Indeed, the company's complaint 

 suggests that it "guaranteed" a profit regardless of economic 

 conditions , market demand, or competition. Significantly, if 

 these claims are adjudged to be true, taxpayer losses from the 

 Tongass timber program under Section 705 of the Alaska Lands Act 

 could soar to more than $70 million per year. 



It clearly serves the interests of the company to 

 "negotiate" the largest possible transfer from the federal 

 treasury. Whether the svibsidy is paid through very low stumpage 

 fees, logging roads built by the Forest Service or guaranteed 

 profits makes little difference. Furthermore, a highly 

 concentrated market structure creates an ideal opportunity to 

 argue that new environmental controls will be the "final straw," 

 that labor unions must be eliminated and wages must be reduced, 

 or else corporate earning will be invested elsewhere. 



Tzucpayer and Employaen't Consequences 



Over the years, the Forest Service has lost millions of 

 dollars selling timber from the Tongass. Due to deteriorated 

 market conditions and increased Forest Service expenditures for 

 "roads to nowhere," underutilized facilities and timber sales 

 without buyers under Section 705 of the Alaska Lands Act, 

 taxpayer losses have grown sharply. And, guaranteed timber sales 

 and other supply-side incentives have not brought stability to 

 employment in southeast Alaska. 



Table 2 summarizes Tongass timber program receipts and 

 expenditures for 1977 through 1988. Net timber receipts are 

 negative over the entire eleven-year period, resulting in a total 

 loss of $487.4 million (in 1984 dollars). 



13 



