C I N T R A F O R
Special Paper Abstract
Three State Impact of Spotted Owl Conservation and Other Timber Harvest Reductions:
A Cooperative Evaluation of the Economic and Social Impacts Based on Independent Studies at University of
Washington, University of California, and Oregon State University.
Based on Independent Studies at University of Washington, University of California, and Oregon State University. (43 pp.) SP08 $7.50
The economic and social impacts of conservation efforts to preserve the northern spotted owl are centered on Oregon, Washington, and Northern California. In response to the interagency Scientific Committee's (ISC) proposed conservation strategy and the need to determine the economic impacts that might be expected, the governors of Washington and Oregon requested that a review team of appropriate state agencies and researchers at the University of Washington, Oregon State University, and the University of California at Berkeley be assembled. The team was asked to evaluate the numerous studies currently underway and to summarize the impact of the proposed spotted owl conservation efforts on the three-state region.
Individual evaluations were already in process at each university and these were compared for consistency. The team developed an integrated assessment approach and a methodology for reporting the impacts on harvest levels, jobs, income, government payments, asset losses, and wealth transfers. It also examined the social effects of conservation measures. This report focuses on the consequences of conservation efforts in terms of impacts important to policy formulation, rather than policy recommendations. The review team has made no attempt to evaluate the impacts of specific programs of assistance that might be introduced in response to changing harvest levels or economic impacts.
The implementation of owl preservation programs will ultimately be determined by the conservation strategies adopted by the federal government, the states' enforcement of national standards on the state and private lands under their respective forest practices acts, and interpretations by the courts. It is unclear whether the legal interpretation of "taking" or "harming,' as defined in the endangered species legislation, will ultimately result in uniform implementation on federal, state, private industrial, and nonindustrial private owners and managers. State regulatory agencies were already implementing conservation strategies on state and private forest land prior to the issuance of U.S. Fish and wildlife Service regulations on July 13, 1990.
Harvest Reduction Estimates
The evaluation team's midrange estimate includes full implementation of the ISC recommendations on federal lands (adding to the impact of earlier conservation plans) and limited implementation on state and private lands. A 1.2 billion board foot reduction is expected from the pre-ISC proposed Forest Service management plans, with a 0.3 billion board foot reduction in the projected harvests for state and private owners. If the ISC recommendations for federal lands are implemented, there would be an additional 1.7 billion board foot decrease, and limited implementation on state and private lands would reduce the harvest another 1.0 billion board feet. The total midrange estimate of a 4.2 billion board foot harvest reduction represents a 24 percent decrease for the three-state region, compared to the total for 1983-1987 the five-year base period before litigation on conservation issues began to reduce the volume of Forest Service sales. The harvest reduction in many rural timber-dependent communities will range from 30 percent to 50 percent.
If the ISC strategy's guidelines are strictly applied through the states' forest management practices acts and the courts, and therefore fully implemented on state and private lands, the total impact would be a decrease of 8 billion board feet. The harvest reduction in many timber-dependent rural communities would be more than 50 percent.
Timber Price Instability
By late 1989, Forest Service timber bid prices on the west side of Regions 6 had increased 85 percent with the declining sales volumes as a consequence of conservation litigation. Such high bid prices will preclude competitive processing, except in very tight markets with high product prices. Until sufficient processing capacity is shut down to reduce timber demand to a level consistent with sustainable supply and prices return to competitive levels, a substantial portion of the federal timber sales may not be harvested. High prices may also serve to accelerate the timber harvest on the private lands that are not influenced by conservation restrictions.
Job Loss Estimates
Job losses will be substantial, even considering worker absorption by other industries, and rural timber-dependent communities will face persistent unemployment. In the three-state region, 48,000 direct, indirect, and induced jobs are likely to be lost (using the midrange assumption), compared to the level that would have existed if the base period harvest were continued. Almost 23,000 direct timber industry jobs would be lost.
Unemployment rates are currently as high as 10 to 15 percent in many rural communities. When added job losses of between 5 and 15 percent at the multi-country regional level, severe long-term unemployment problems would be likely in rural areas.
These job loss figures include an estimate for labor force absorption in the economy, such as increased retirements, out-migration, and other adaptations. These estimates are 25 percent lower than the number that are provided by state level input/output models, which exclude measures of absorption. while the number of wage earners who would be affected is greater than the estimate of job losses, the workers who would be absorbed back into the labor force are primarily in the urban areas, where employment alternatives are generally available.
If the ISC's proposed guidelines are implemented on federal lands and extended to other public and private lands, job losses could reach 97,000, but this degree of implementation seems unlikely and should be considered as an upper bound in the range of possible governmental actions.
A Decline In Income and Local Government Receipts
Wage payments for the three-state region could be reduced by more than $1.1 billion annually (based on the midrange estimate of direct, indirect, and induced Job losses). The impact is likely to be considerably larger given the pressure to lowering wages in a weak economy. Most of this decline would occur in rural communities. Federal forest payments and severance taxes which provide receipts for local governments would become unstable, although the declining volume could potentially be offset by higher prices. If there is a substantial drop in timber bid prices which could restore the competitiveness of the remaining harvest, payments may be reduced by more than $1 00 million. This decrease would come at a time when adjustment assistance needs are high, and those counties that have few alternative revenues would face a substantial drop in receipts.
With a sustained employment decrease in heavily affected rural communities, home prices could fall by as much as 10 to 20 percent. A family's opportunity to sell without substantial losses, or its ability to use home equity for establishing a new business in the community, would then become difficult. The market value of home assets in timber-dependent communities could decline by as much as $3.5 billion, based an the midrange estimate of harvest reductions. Local lenders may experience substantial loan losses and liquidity problems somewhat similar to those reported in New England and parts of the Southwest.
The losses in asset values suffered by homeowners would be mirrored by similar devaluations and liquidation losses in capital assets, both within the forest products industry and other community businesses. A rough estimate of the market value of the surplus in forest products capital facilities (which is essentially obsolete for the midrange estimate in harvest declines) is 1.6 billion. Since the product demand is not reduced but merely shifted to other suppliers, this capacity would, over time, be replaced by foreign suppliers at a cost of $4.3 billion.
The Consumer Will Pay
Consumers will not stop using forest products, but they will be forced to pay increased prices for products that come from other regions. During the supply adjustment period, these costs could exceed $1 billion annually (based on the midrange harvest estimate), then would decline somewhat after several decades. The consumers standard of living would show a modest decline, and, since the suppliers will largely be foreign, it will contribute to an increase in the trade deficit and, possibly, further erosion in the purchasing power of U.S. consumers.
The income losses discounted to an asset value and combined with the other asset losses are a measure of the wealth transfers between the groups that must absorb the cost of harvest reductions and groups that benefit. While the estimates are incomplete and imprecise they result in a midrange figure of $25 billion of wealth transferred from the consumers of wood products to other producers, most of which would be foreign. The asset loss in the forest products sector is estimated at more than $30 billion, and the total for rural communities and supporting business infrastructure is likely to be as large. Rapid absorption of the labor force into other income producing activities could greatly reduce these losses.
Compounding Social Impacts
The severe unemployment, income losses, and wealth transfers are causing the affected groups to feel that they are being discriminated against. It will be hard for wood products workers, local retailers, service workers, and bankers to see any justice in carrying the entire burden of a change in national policy. The psychological and social trauma experienced by these individuals will result in increased substance abuse, family problems, and divorce and suicide rates. These social impacts would compound the economic difficulties and make it harder for communities to pursue the few economic options, such as increased secondary manufacturing, that are actually open to them. At the same time that social service needs are burgeoning, the funding sources for local agencies and schools may be declining.
The Public Policy Considerations
This report quantifies the economic and social impacts that policy-makers should be aware of in developing public policy. Regional unemployment rates in many of the affected counties are already high, and the local economies have limited potential to absorb additional displaced workers. Financial limitations will constrain the expansion of needed social services, unless alternative support channels are developed. The depressed local asset values and related financial stresses will make it difficult for investors to develop alternative business opportunities without assistance.
The greatest opportunity for creating new lobs in rural communities still lies within the forest resources sector; the states' forests represent a valuable rural asset. investments in value-added wood products, such as furniture, moldings, prefabricated construction assemblies, and customized export products, could provide a considerable increase in jobs and rural wealth restoration. Adding value to second-growth forests through precommercial and commercial thinning would provide jobs now and expand the timber supply for the long term. Workers with a proud history in wood products should be less resistant to retraining in these areas. value-added investments, more intensive forest management, and worker retraining are some of the suggested areas for further research and policy consideration.
PART I. THE APPROACH
The Interagency Scientific Committee (ISC) was chartered to develop a scientifically credible conservation strategy for the northern spotted owl Thomas et al, 1990). The task of analyzing the effects of the strategy on the timber supply, other natural resources, and the economic and social costs and benefits was to be addressed separately.
Because the major economic impacts would be centered on Washington and Oregon, the two governors commissioned independent studies at Oregon State University and the University of Washington. They subsequently asked that a review team (Gardner, 1990) be assembled to evaluate the various studies and summarize the impact of the ISO's proposed spotted owl conservation strategy on the states of Washington, Oregon, and California. This report outlines the findings of the three-state review team.
The Economic and Social Impact Team
The evaluation team is composed of experienced analysts in economic and social impact assessment and the forest products industry from the University of Washington and the University of California with informational support and review by representatives of several state agencies and Oregon State University (see References, Reviewers and Resumes). Given the short time period available for assembling such an analysis, the team has restricted its methodology to an evaluation of the available studies performed by other organizations and independent evaluations of each state conducted by several of the team members. In those instances for which the adequacy of the available information is questionable, the team noted the need for further research.
Although the review team, collectively, has a thorough knowledge of the regional; timber supply, the structure of the forest products industry, macroeconomic impact analysis, social impact analysis, and environmental issues, it acknowledges that there is considerable uncertainty in forecasting the results of implementing a conservation strategy. Hence, the team used a range of scenarios to depict the possible outcomes and offers a discussion of likely outcomes.
Evaluation Process Issues
An evaluation of impacts for policy analysis frequently attempts to show the results of various alternatives. The extensive effort that would be required to break the conservation proposals into a number of structural elements constrained the study team's focus to how the proposal might be implemented, under different regulatory authorities, on the various landowners in each state. Different levels of implementation were evaluated relative to a five-year base period, from 1983 to 1987, which preceded most conservation efforts.
The impact of the ISC's conservation strategy on federal lands is compounded by the owl conservation efforts already being implemented in forest plans. Some uncertainty also exists as to the status of spotted owl habitat areas (SOHAs), which were originally designated for conservation in proposed forest plans, but are not considered in the ISC report. Not all SOHAs are included in the proposed SOHAs, but those that are excluded still may be subject to management restrictions.
Since the economy has been operating above the average level of the business cycle for the last several years, some reductions in forest industry activity might be expected with or without the proposed conservation restrictions.
The Team's Approach and Sources
Since economic impact assessments were already underway in each of the three states and an interagency team including BLM and the Forest Service (Hamilton et al, 1990) had conducted a partial study of economic impacts, the first step was to establish the key assumptions that would make the results technically comparable. The second was to agree on the scenarios that would be needed to show the possible range of impacts under different assumptions or policy alternatives. The third step was to list the impacts that should be measured recognizing that some of the estimates would be somewhat speculative, given the lack of both hard evidence and time.
Each state study team completed its own separate analysis of harvest and economic impacts and published separate studies; Brian Greber for Oregon (Greber et al 1990), Paul Sommers for Washington (Sommers et al, 1990), and Keith Gilless for California (Gilless, 1990). To integrate the results of these studies, some simplifying assumptions were agreed on to resolve model and time-frame differences.
The integration team leader, Bruce Lippke, provided an integration of the studies, supplementary information on national and international impacts and wealth transfer implications to show how changes in the three states could produce substantial national and international impacts. Finally, Bob Lee's ongoing research into the social impacts of economic dislocation in timber-dependent communities was incorporated into the report, focusing on the effect on state services, and family and community adjustment problems. Participants of the state study teams provided an advisory review role for these sections.
Review Groups
The analyses that were conducted in each state had their own separate study teams and review groups. This integrated report was submitted for review to a group of 11 experienced practitioners. The state study team participants participated in formulating the integration assumptions, and reviewed the extensions that went beyond the state studies and the social impacts.