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alternative is to terminate the contracts as quickly as possible. 



Federal Tiaber Pricing 



First among the reasons why the long-term timber sale 

 contracts prevent a fair return to the United States' treasury are 

 the timber pricing provisions. As the House Interior Committee 

 correctly stated in its report accompanying H.R. 1516, the 

 pricing advantages of the long-term timber contract holders on 

 the Tongass are no longer justifiable public policy, promote 

 wasteful logging practices, and prevent both the federal 

 government and the State of Alaska from receiving a fair share 

 from the use of a pxiblic resource. The Society strongly agrees. 



The continued reliance on the residual value appraisal and 

 pricing system is not necessary. It is complex and badly 

 outdated. In fact, Mr. Chairman, the residual value appraisal 

 and pricing system is a structure that has not changed since the 

 first federal timber sale in 1899. 



This pricing structure is obsolete because it completely 

 ignores the government's cost of growing and selling trees, and 

 it includes incentives that foster unnecessary road building and 

 intensive management. Furthermore, it results in unnecessary 

 paperwork and expense as Forest service officials strive to 

 calculate with unrealistic precision the minimum bid that a 

 hypothetical buyer of "average" efficiency can afford to pay and 

 make a reasonable profit. 



Future timber sales should be advertised for competitive 

 bidding at the Forest Service's "break-even price" — the minimum 

 acceptable bid required to recover the government's costs 

 attributable to growing and selling the trees. Such costs 

 include surveying, scaling, sale preparation and administration, 

 road building, environmental mitigation, slash deposit, 

 reforestation, and payments to state and county governments in- 

 lieu-of -property taxes. Timber sale costs should also include s 

 portion of joint costs that result from activities that can be 

 attributed to timber production as well as other forest outputs. 

 Joint timber costs czui be estimated with readily available 

 forest-wide data. 



Administering federal timber sales on break-even pricing 

 offers two important advantages over obsolete residual value 

 pricing. First, the minimum price that the government needs to 

 recover the costs of growing and selling timber and making timber 

 sales will be explicit. Second, the Forest Service's ability to 

 use the timber sale contract to finance purchaser built roads and 

 acquire land management services will be curtailed. This will 

 eliminate a built-in institutional incentive to road and manage 

 all available forestland. 



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