Small Business Timber Sale Set-Aside Program Share Recomputation

AGENCY:

Forest Service, USDA.

ACTION:

Notice of final policy.

SUMMARY:

This final policy revises the formula used for calculating timber sale set-aside market shares. The recomputation formula has been revised to use only purchased timber sale volume data. Purchased timber sale data from the past 5-year period is to be used to determine the shares for the next 5-year period. This change is needed to make the recomputation process as fair, accurate, and simple as possible.

DATES:

This policy is effective August 7, 2000.

FOR FURTHER INFORMATION CONTACT:

Rod Sallee, Small Business Timber Sale Set-aside Program Manager, Forest Management Staff, by telephone at (202) 205-1766 or by internet at rsallee@fs.fed.us.

SUPPLEMENTARY INFORMATION:

Developed in cooperation with the Small Business Administration, the Forest Service Small Business Timber Sale Set-aside Program is designed to ensure that qualifying small business timber purchasers have the opportunity to purchase a fair proportion of National Forest System timber offered for sale. The current Small Business Timber Sale Set-aside Program was adopted July 26, 1990 (55 FR 30485). Direction that guides Forest Service employees in administering the Small Business Timber Sale Set-aside Program is issued in the Forest Service Manual, Chapter 2430, and in Chapter 90 of the Forest Service Timber Sale Preparation Handbook (FSH 2409.18).

According to the guidelines of the set-aside program, the Forest Service recomputes the shares of timber sales to be set aside for qualifying small businesses every 5 years. The share percentage is based on the actual volume of sawtimber that has been purchased and/or harvested by small businesses. In addition to the 5-year requirement, shares must be recomputed whenever manufacturing capability changes, purchaser class size changes, or when certain purchasers discontinue operations. On May 28, 1999, the agency published in the Federal Register (64 FR 28969) a proposed policy to modify several provisions of the recomputation procedures.

Response to Comments Received

Twenty-six responses were received on the proposed policy. Comments were received from 22 purchasers, 3 organizations representing member companies and log processing facilities, and the Small Business Administration. A summary of the comments and the agency's response follows.

Comments Specific to the Proposed Policy

Remove the harvest volume from the recomputation formula. The proposal to remove the harvest volume would affect recomputations of shares for the upcoming and future 5-year recomputations of the small business share of timber sales as well as recalculation of shares after a structural change occurs. The volume purchased would be the measurement used in the formula for the recomputations.

Comment. Twenty-one of the respondents, including the U.S. Small Business Administration, supported dropping the harvest volume and using only the volume purchased. Most of these respondents indicated that dropping the harvest volume would serve both the forest products industry and the agencies by eliminating unnecessary record keeping and undue complexities in the calculation procedures.

One respondent also noted that the Forest Service would be able to achieve a much higher degree of accuracy in calculating normal and structural recomputations. That respondent claimed that most errors found in 5-year recomputations were made by Forest Service field officers in keeping and interpreting harvest records.

The respondents, favoring the change, also indicated that the purchase/harvest ratio was developed to respond to a situation that no longer exists, that is, to prevent purchasers from buying and holding volume to artificially drive a recomputation to a desired outcome. They noted that the Forest Service is now selling so little timber that purchasers are unable to accumulate large federal portfolios and seldom are able to hold their sale volume longer than 3 years. They concluded that it is nearly impossible for a purchaser to purchase and hold a sufficient quantity of volume long enough to affect the Small Business Timber Sale Set-aside Program share recomputations. Furthermore, they noted that the shift away from scaled sales and the inability of the recomputation process to deal with under runs further reduced the need for the purchase/harvest ratio. One respondent also supported dropping the harvest volume from the calculation because of the uncertainty of harvest scheduling, which is interrupted by consultation and litigation concerning threatened, endangered and sensitive species, making it impossible for any small business to match harvest levels to sale purchase in a given time period. Another respondent noted that the term of the timber sale contract is shorter now than in the past, which reduces the importance of accounting for harvest volume in the formula.

Three respondents, including one organization that represents large forest product companies in the West, expressed opposition to dropping the harvest data from the formula for calculating shares. One respondent commented that a period of unstable timber supply and markets is simply a poor time to make changes in a long established criteria used in calculating shares for the set-aside program. They noted that the proposed change seemed to allow small businesses to have an unfair ability to manipulate the program in their favor by carrying excess share volumes of unharvested timber into the next 5-year period. Similarly, another respondent felt that the proposed change would allow small businesses to purchase and hoard excessive amounts of unharvested volumes into the future 5-year periods.

One respondent commented that an aggressive, relatively large, small business sawmill owner would have an unfair advantage over the smallest size operator. This respondent also expressed a belief that this unfair advantage would lead to fewer operations and could hurt the economic viability of the smallest owners. This respondent stated that there would be no reason for a qualifying small sawmill to use federal timber in a timely manner without the purchase-to-harvest ratio minimum. In addition, using only the purchased timber sale data would tie up resource areas for longer time periods and lead to the displacement of the smallest “Mom and Pop” sawmills by the larger mills, even though the larger mills still qualified as small businesses.

Response. The arguments for dropping the harvest volumes from the recomputation formula are persuasive. Available data concerning timber volume under contract does not provide evidence of the hoarding of large amounts of timber under contract. The competition for federal timber, as well as increasing prices for quality timber, indicate an increased demand for timber sales from federal lands. Furthermore, since July 1991, timber sale contracts require periodic payments, which discourages the hoarding of any timber under contract and provides an incentive for prompt harvest. Including harvest data in the formula is no longer necessary, given the current size of the timber program, the length of the timber sale contracts, and new timber sale contract provisions. The agency agrees with the argument that dropping the harvest volume from the formula would serve both the forest products industry and the agencies by eliminating unnecessary recordkeeping and undue complexities in the calculation procedures.

Finally, the Small Business Administration, which administers the Small Business Set-aside Program cooperatively with the Forest Service, supports this formula change. Therefore, the formula included in the final policy reflects the removal of the harvest volume from the recomputation of shares and relies, instead, only on the amount of timber purchased. This change is reflected in the revised instructions given in Chapter 90 of the Forest Service Timber Sale Preparation Handbook (FSH 2409.18).

Change the time period for a structural change recomputation from 36 months to 18 months. The proposed policy asked for comment on reducing the implementation time of a structural change from 36 months to 18 months.

Comments. Three respondents supported the proposal to shorten the timeframe for a structural change recomputation; one was a large business and the other two were small businesses. One respondent stated that since the rate of change in business, in general, and in the timber industry, in particular, seemed to be continually accelerating, the proposed change would allow for share changes to be better-timed following business changes.

One respondent, who supported the proposal, noted that because of the drastic changes in the industry in the last 2 years, many companies were getting out of the sawmill business. The respondent stated that if a structural change was not made quickly, an imbalance in the marketplace would occur. Likewise, another respondent felt that the 18-month period would allow the Forest Service to be more responsive to the needs of small businesses in an ever-changing market situation.

Twenty-three respondents, including the Small Business Administration, opposed this proposal to shorten the time period for a structural change recomputation. These respondents included two organizations representing small businesses and one organization representing large businesses. The other 19 respondents were individual small businesses.

The Small Business Administration noted that structural changes are rapidly occurring in market areas where the number and volume of sales have decreased dramatically over the past few years. They stated that only by retaining the 36-month analysis period would there be adequate time to allow the small business set-aside share percentage to reflect the actual purchase patterns that would develop after a major purchaser has discontinued operations or changed its business size status. They suggested that it might be more effective to revise the qualified purchased volume amount that is needed to meet the definition for structural change. A respondent stated that a structural change should not be implemented until the entire small business set-aside program is analyzed in accordance with current market conditions.

One of the respondents opposed the proposed reduction in time stating that 18 months is not long enough time to yield an appropriate number of sales or amount of timber volume on which to make an accurate recomputation. This respondent provided examples where the proposal would not work; such as, when a forest went for more than 18 months without selling a qualifying timber sale or when forests offered large salvage sales with logging requirements that effectively precluded smaller companies form bidding on the sales. The respondent also noted that since current regulations on structural change recomputation allow the set-aside share to vary between the original share level and 80 percent of the original, there are too many instances where one or two large salvage sales, which have expensive logging system requirements, are the only sales sold in a market area during a recomputation period. The respondent noted that this situation is unfair to smaller purchasers because they have no legitimate opportunity to purchase the volume needed to maintain the set-aside share.

Similarly, another respondent representing small businesses, provided a chart of 18 national forests in Oregon and Washington, depicting low sale volumes and an erratic timber sale program from 1995 to 1998. The respondent suggested that under an 18-month base period, one or two sales on those example forests often constituted 50 to 75 percent of the entire sale program during that period. The respondent noted that shortening the recomputation time period created opportunities to manipulate the program and, as such, would be a substantial risk to small businesses.

One respondent commented that the joint circumstances of only a few timber sales making it through the gauntlet of litigation and the more traditional type of timber sale program changing to include the vastly different types of “sales,” such as salvage, stewardship, and forest health, make the proposed change to an 18-month period a poor choice. Another respondent noted that if the 18-month proposal was adopted only six sales likely would be offered in their area in 18 months. The respondent stated that the proposed timeframe simply is not long enough to yield an appropriate number of sales or an amount of timber volume with which to make an accurate recomputation.

Another respondent, opposed to the reduced timeframe, noted that because the timber program is erratic, the reduction in time might produce some unintended results. This respondent suggested that the agency consider extending the base period from 36 months to a full 5-year period. Another a stated that the time reduction would be adverse to the interests of small businesses and suggested that the structural recomputation procedure be eliminated completely.

The remaining respondents, opposed to the reduction of the structural change time period to 18 months, identified the same reasons previously noted by the other respondents. Most indicated that the timber sale program is too erratic and that too few sales would be offered in the 18-month period for a fair recomputation of small business shares.

Response. The arguments against proceeding with the proposal to reduce the time period for recomputing the shares and the evidence presented by the as are sufficient to convince the agency that there are too many negative factors to proceed with implementation of this part of the proposed policy. The negative factors that were especially noteworthy include Small Business Administration's concern that there needs to be adequate time to provide the opportunity for the share percentage to reflect the actual purchase patterns that develop after a major purchaser has discontinued operations or changed size status and the fact that most of the respondents expressed opposition to the proposal to reduce the time period. Respondents noted that the reduced number of sales in most market areas would be an inadequate representation of the timber sale program. The agency agrees that this could be a negative factor in the structural change consideration. Also, the agency is especially concerned about the potential impact of changing the time period on small businesses and the potential for manipulation of the share computation under a 18-month base timeframe. A 18-month base time period may not give small businesses adequate opportunity to show interest in a sale. Therefore, the proposal to reduce the recomputation period from 36 months to 18 months will not be adopted.

Other structural change related proposals suggested by the respondents, such as, revising the qualified purchased volume amount needed to trigger a structural change, dropping the structural change procedure completely, or changing the period to 5 years, are not being pursued at this time. However, the agency continues to monitor the effects of structural changes and to work with the Small Business Administration to determine what future policy changes may be needed to provide fair adjustments for both small and large timber businesses.

Other Comments. A number of the respondents commented on what they thought was a part of the agency's proposal, that is, to change the small business set-aside policy to allow only the timber sales sold on a tree measurement basis to be counted in the set-aside program.

Response. While the proposal, as presented in the May 1999, Federal Register notice, could be interpreted to suggest that the agency was proposing to allow only timber sales sold on a tree measurement basis to be counted in the set-aside program, this was not the intention of the agency. As one of the respondents noted, a recent study, required by Congress to assess whether scaled or tree measurement sales provided the best results concluded that a mix of these methods was the most appropriate procedure. The agency will continue to allow sales from both tree measurement and scaled sales to be included.

Summary

The formula to be used for the recomputation of the small business shares of the timber sale set-aside program has been modified to remove the harvest volume data from the recomputation of shares. The recomputation formula will now use only the amount of timber purchased. This change is reflected in the revised instructions given in Chapter 90 of the Forest Service Timber Sale Preparation Handbook (FSH 2409.18). No other substantive policy changes were made to this chapter of the handbook. Copies may be obtained from the Forest Service website at Directives under the Administration pull-down menu at the worldwide web at fs.fed.us or by contacting the person listed under the For Further Information Contact section of this notice.

Regulatory Impact

This final policy has been reviewed under USDA procedures and Executive Order 12866 on Regulatory and Review. It has been determined that this is not a significant policy. This final policy will not have an annual effect of $100 million or more on the economy nor adversely affect productivity, competition, jobs, the environment, public health or safety, nor State or local governments. This final policy will not interfere with an action taken or planned by another agency nor raise new legal or policy issues. Finally, this action will not alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients of such programs. Accordingly, this final policy is not subject to OMB review under Executive Order 12866.

Moreover, this final policy has been considered in light of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and it has been determined that this action will not have a significant economic impact on a substantial number of small entities as defined by that Act. The agency received comments primarily from small businesses and complied with most of the suggestions made by those entities.

Environmental Impact

Section 31.1b of Forest Service Handbook 1909.15 (57 FR 43180; September 18, 1992) excludes from documentation in an environmental assessment or impact statement “rules, regulations, or policies to establish Service-wide administrative procedures, program processes, or instructions.” The agency's assessment is that this final policy falls within this category of actions and that no extraordinary circumstances exist which would require preparation of an environmental assessment or environmental impact statement.

Unfunded Mandates Reform

Pursuant to Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538), which the President signed into law on March 22, 1995, the Department has assessed the effects of this final policy on state, local, and tribal governments and the private sector. This final policy does not compel the expenditure of $100 million or more by any State, local, or tribal governments, or anyone in the private sector. Therefore, a statement under section 202 of the Act is not required.

Controlling Paperwork Burdens on the Public

This final policy does not contain any record keeping or reporting requirements or other information collection requirements as defined in 5 CFR 1320 and, therefore, imposes no paperwork burden on the public. Accordingly, the review provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) and implementing regulations at 5 CFR 1320 do not apply.