Timber Sale Contracts; Change in Stumpage Rate Adjustment Procedure

DEPARTMENT OF AGRICULTURE

Forest Service

Timber Sale Contracts; Change in Stumpage Rate Adjustment

Procedure

AGENCY: Forest Service, USDA.

ACTION: Proposed policy; request for comment.

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SUMMARY: The Forest Service is proposing to eliminate the stumpage rate

adjustment procedure used to adjust timber sale contract tentative

rates (bid rates) on most timber sales held in the western states,

except for Alaska. Under current stumpage rate adjustment procedures,

50 percent of the difference between current and base lumber price

indices is added to tentative rates during periods of increasing lumber

prices and 100 percent of the difference is subtracted from tentative

rates during periods of declining prices. The Forest Service is

proposing to eliminate the procedure for stumpage rate adjustment

entirely. The effect of this proposal would be to equalize the risk of

lumber price fluctuations between purchasers and the Forest Service on

future timber sale contracts. This proposal will also satisfy Office of

Inspector General audit recommendations.

DATES: Comments must be received in writing by October 7, 1996.

ADDRESSES: Send written comments to Director, Timber Management Staff

(2400), Forest Service, USDA, P.O. Box 96090, Washington, DC 20090-

6090.

The public may inspect comments received on this proposed policy in

the Office of the Director of Timber Management Staff, 3rd Floor NW,

Auditor's Building, 14th & Independence, S.W., Washington, DC, between

the hours of 8:00 AM and 4:00 PM. Those wishing to inspect comments are

encouraged to call ahead (202) 205-0893 to facilitate entry into the

building.

FOR FURTHER INFORMATION CONTACT:

Rex Baumback, Timber Management Staff, (202) 205-0855,

SUPPLEMENTARY INFORMATION:

Background

The Forest Service sells timber to private purchasers through

competitive bidding. The Agency awards the timber sale contract to the

responsible bidder submitting the highest qualified bid.

Title 36, Code of Federal Regulations, Part 223 allows for the

adjustment of contract (stumpage) rates during the term of a timber

sale contract. These regulations state that:

Timber may be appraised and sold at a lump-sum value or at a

rate per unit of measure which rate may be adjusted during the

period of the contract and as therein specified in accordance with

formulas or other equivalent specifications for the following

reasons: (a) Variations in lumber or other product value indices

between the price index base specified in the contract and the price

index actually experienced during the cutting of the timber. * * *

The Western Wood Products Association is the Forest Service's

contractor to supply the lumber price indices used for stumpage rate

adjustment.

In the western states, except Alaska, most timber sales with

contract terms exceeding 1 year include a provision which allows

contract rates to be adjusted during the term of the contract by the

use of lumber price indices. The purpose of the stumpage rate

adjustment procedure is to allow a timber sale purchaser's stumpage

payments to follow the price trends of the primary forest product

(lumber) manufactured from National Forest System timber. This

procedure helps reduce the risk of loss to a timber purchase holding a

timber sale contract during periods of declining lumber prices and

benefits the Government by increasing stumpage receipts during periods

of rising lumber prices.

The stumpage rate adjustment procedure was established by the

Forest Service in the 1950's to reduce the risk, both to industry and

the Government, of holding long-term timber sale contracts. In the

1950's and 1960's, timber sale contract periods often exceeded 10 years

and the procedure was a means to reduce the risk to both parties due to

price fluctuations in the lumber market. During this era, stumpage

rates would vary, either up or down, by 50 percent of the change in

lumber prices.

In 1971, with the introduction of Forest Service Form 2400-6 Timber

Sale

[[Page 41125]]

Contract, the initial stumpage rate adjustment procedure was changed to

the current formula which provides for stumpage prices to increase by

50 percent of the change in lumber prices when lumber prices are rising

and to decrease by 100 percent of the change in lumber prices when

lumber prices are falling. The purpose of this new adjustment was to

account for increased costs to timber sale purchasers during the course

of the contract term.

Originally, the use of the stumpage rate adjustment procedure was

not used in western Washington and Oregon. On March 31, 1983, it was

expanded to include western Washington and Oregon, as a means of

reducing a purchaser's risk from excessive bidding and to adjust for

decreases in lumber prices during the term of timber sales contracts.

In September 1991, the Department of Agriculture Office of

Inspector General, issued a report (Audit Report No. 08099-122-SF dated

9/91--Stumpage Rate Adjustment on Timber Sales) which states that the

50 percent upwards and 100 percent downwards stumpage rate adjustment

procedure lowers the risk of market fluctuations to the purchaser at

the monetary expense of the Government. The audit recommended either

eliminating the stumpage rate adjustment procedure or modifying it so

that adjustments to stumpage are the same percentage for both periods

of rising and falling lumber prices.

In response to the Office of Inspector General audit, the Forest

Service is proposing to eliminate the stumpage rate adjustment

procedure by amending internal agency direction. Under this proposal,

timber sale contracts would be advertised and awarded with fixed (flat)

stumpage rates in the future, and the lumber price indices currently

used by the Forest Service would not be used after December 31, 1996.

In accordance with contract provision C(T)3.21--Unavailable Index,

purchasers with stumpage rate adjustment contracts still in effect when

the policy is adopted would be offered the opportunity to convert to

flat rates or to a suitable replacement index for lumber prices

developed from the Bureau of Labor Statistics' Producer Price Index or

appropriate trade journals.

Summary

The Forest Service is seeking comment on the following proposed

direction that would be issued to agency personnel in chapter 2430 of

the Forest Service Manual:

FSM 2431.34-Stumpage Rate Adjustment. Stumpage rate adjustment

procedures are no longer to be included in Forest Service timber

sale contracts. Instead, advertise all timber sales on a flat rate

basis.

Comments received on this proposed policy will be considered in

adoption of the final policy, notice of which will be published in the

Federal Register.

Regulatory Impact

This proposed policy has been reviewed under USDA procedures and

Executive Order 12866 on Regulatory Planning and Review. It has been

determined that this is not a significant policy. This 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 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 proposed policy is not subject to OMB review under

Executive Order 12866.

Moreover, this proposed policy has been considered in light of the

Regulatory Flexibility Act (5 U.S.C. 601 et seq.), and it is hereby

certified that this action will not have a significant economic impact

on a substantial number of small entities as defined by that act.

Pursuant to Title II of the Unfunded Mandates Reform Act of 1995,

which the President signed into law on March 22, 1995, the Department

has assessed the effects of this policy on State, local, and tribal

governments and the private sectors. This action 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.

Environmental Impact

This proposed action falls within a category of actions excluded

from documentation in an Environmental Impact Statement and an

Environmental Assessment. 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

preliminary assessment is that this 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. A final determination will be made upon adoption of

the final policy.

Controlling Paperwork Burdens on the Public

The proposed policy does not require any recordkeeping or reporting

requirements or other information collection requirements as defined in

5 CFR part 1320 not already approved for use and, therefore, imposes no

additional 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

part 1320 do not apply.

Comments Invited

The Forest Service invites written comments on the proposed policy.

The agency will analyze and consider comments received in adopting the

final policy. Notice of the final policy, including discussion of

comments received, will be published in the Federal Register.

Dated: August 1, 1996.

David G. Unger,

Associate Chief.

[FR Doc. 96-20099 Filed 8-6-96; 8:45 am]

BILLING CODE 3410-11-M