Oregon State Bar Bulletin — JULY 2013







With over 53 percent of its land owned by the federal government, Oregon is clearly a public land state. Many of these lands — especially those west of the peak of Cascades — are heavily forested and historically were harvested heavily for their timber. Today, these lands are essential habitat for salmon strongholds, provide clean water at low cost for domestic use, and are home to economically valuable recreational pursuits.

Conflict over the preservation value versus the timber value of federal forest lands has been especially acute over those lands known as the Oregon and California (O&C) lands, which might be considered accidental public lands, since they are the fruit of a failed 19th century railroad grant. The current controversy over these lands is the consequence of a long history characterized by high-minded federal promises, local land fraud, public scandal and fierce disagreement over the purposes of public lands. The latter continues to this day.

The 1866 statute that produced the O&C lands was part of a generation of federal land grants aimed not only at encouraging railroad construction but also at producing Western land settlement, widespread ownership of land and democratic participation in government. But implementation of the land grant soon resulted in widespread graft, corruption and jail sentences that ultimately saw the lands revest in the federal government in 1915. The government eventually countenanced dominant timber harvesting, encouraged by local counties who shared in timber receipts much higher than on neighboring national forest lands. The “spotted owl wars” of the 1980s and 1990s ended the dominant-use era and began an era of controversy, marked by the promulgation of the Northwest Forest Plan (NWFP) of 1994, the timber salvage rider of 1995, federal payments to timber-dependent counties suffering from cutbacks due to implementation of the NWFP in 2000, and the George W. Bush administration’s unsuccessful attempts to amend the NWFP in the early years of the 21st century. Recently, declines in timber harvesting and federal payments have brought Oregon timber counties to the brink of insolvency and prompted two current congressional proposals aimed at increasing harvests on the O&C lands to bolster flagging county economies.

In this article we examine the tortuous history of the O&C lands, and show how numerous court decisions over the past 20 years restricting timber harvests raise tough questions that have been evaded for over a century. We also explain why recent congressional proposals suffer from significant economic and environmental flaws. Instead of continuing to avoid the tough questions, we suggest pursuing a multifaceted approach, including several alternative revenue-producing options that could at last provide long-term economic security and diversity to the O&C counties while at the same time upholding key federal environmental protections.

Origins

To encourage Western settlement in the 19th century, Congress often offered public lands to railroads in exchange for development of the infrastructure to lure Americans westward. These land grants often came with conditions. Among the largest of Congress’ railroad grants was a grant made to the Oregon & California Railroad (O&C R.R.) in 1866 to build a line from Portland to San Francisco. The grant specified that failure to follow the terms of the grant would result in reversion of the granted lands to the United States government. In an 1869 amendment to the original grant, Congress added three conditions that would prove fateful in later years: 1) the railroad could sell its patented land only to actual settlers; 2) these parcels could be no larger than one-quarter sections (160 acres); and 3) the parcels could not be sold for more than $2.50 an acre. Settlement, however, was slow on many of the rocky, mountainous lands that were the subject of the grant.

This grant was controversial from the outset, as two companies wrangled in both Congress and the Oregon legislature for the right to build the railroad. Even after the Oregon legislature settled this dispute, the line remained incomplete until the late 1880s due to financial problems. When the railroad finally became operational in 1888, Southern Pacific (which earlier had purchased the O&C R.R. in a receivership sale) had earned some 3.7 million acres of land due to construction of the line. Despite “owning” this land, the railroad had a property tax incentive not to patent its lands, and it was largely unsuccessful in selling land to settlers. Thus, by 1890, Southern Pacific had patented only just over 300,000 acres under the 1866 grant, less than 10 percent of its entitlement.

By the mid-1890s, the situation changed materially when the Great Lakes timber industry began to exhaust its supply of timber, shifting the national timber industry to the Northwest, and thereby greatly increasing the value of the O&C grant land. This shift motivated Southern Pacific to sell large tracts of land to speculators and nonsettlers in violation of the terms of the federal grant. By 1903, Southern Pacific sold over 820,000 acres — the majority of which was sold in large chunks greatly exceeding 160 acres each — and in 1906, stopped selling land altogether in an effort to drive up prices. Scandal on the O&C lands was, however, just one part of the Oregon Land Fraud Scandal; a gripping series of public scandals in the first decade of the twentieth century ultimately led to more than a thousand indictments, and over a hundred convictions, including a number of high government officials.

All of this scuttlebutt eventually prompted the federal government to act. In 1908, the federal government filed suit against Southern Pacific, seeking forfeiture of all unsold O&C lands for violating the terms of the 1866 grant. Three years later, in 1911, the federal circuit court in Oregon & Cal. R.R. Co. v. United States, 186 F. 861 (D.Or. 1911), ruled that the whole 1866 grant was subject to forfeiture. In response, Southern Pacific stopped paying property taxes to the counties while it appealed the case. In 1915, the railroad managed to convince the Supreme Court to modify the result. 238 U.S. 393 (1915). Although the Court enjoined the railroad from further disposing of O&C lands or cutting any timber from them, it disagreed that the violations of the 1869 conditions constituted forfeiture. Instead, the Court decided that the grants contained enforceable covenants that, when breached, warranted injunctive relief, stopping further land sales. Thus, the Supreme Court in effect remanded the land disposition and compensation issues to Congress.

In 1916, Congress determined that all remaining unsold land should revest to the federal government. This act, as well as another in 1926, however, failed to define the purpose of the lands, or to facilitate the income generation promies, thus continuing to leave the O&C counties without the revenue they had lost when the lands stopped producing tax income. So in 1937, Congress againt took action, enacting the Oregon & California Lands Act (OCLA). This act stated that all timberlands “shall be managed … for permanent forest production … [consistent] with … sustained yield for the purpose of providing a permanent source of timber supply, protecting watersheds, regulating stream flow, and contributing to the economic stability of local communities and industries, and providing recreational facilities.” (43 U.S.C. Sect. 1181(a)). The act distributed 50 percent of timber sales revenue to the counties, 25 percent to the federal treasury and 25 percent for administration costs.

Relying only on the timber-focused language of the OCLA, from 1937 until the 1980s, the General Land Office and its successor, the BLM, managed the O&C lands exclusively for timber with nearly unchallenged administrative discretion. Although the OCLA endorsed multiple-use and sustained yield management, BLM consistently maintained that the statute established a “dominant use” timber regime. BLM’s timber-first policy was popular with many Oregonians because harvesting produced considerable revenue for the 18 O&C counties. Some commentators have even suggested that OCLA revenues played a large role in Oregon’s consistent rejection of a state sales tax. Although the income generated from the BLM’s timber-first policy satiated the O&C counties’ revenue concerns, it cloaked the inability of decision-makers to arrive at a balanced and sustainable management solution — a problem that has plagued these lands from their inception. Moreover, the forest environment simply could not keep up under dominant timber production management.

Seeds of the Current Crisis: Environmental Degradation of the O & C Lands

In the late 1980s, environmentalists focused on spotted owl protection and began to question whether BLM was complying with statutes like the Federal Land Policy and Management Act (FLPMA), the National Environmental Policy Act (NEPA) and the Endangered Species Act (ESA). Two congressional appropriations riders temporarily exempted Northwest timber harvests from judicial review, but in Portland Audubon Society v. Lujan, 795 F.Supp. 1489 (D. Or. 1992), aff’d 998 F.2d 705 (9th Cir. 1993), Judge Helen Frye decided that nothing in the OCLA authorized BLM to exempt the O&C lands from NEPA, and thus enjoined all sales in suitable spotted owl habitat. This case followed on the heels of a decision by the federal court in Washington that enjoined logging on all suitable spotted owl habitat on national forest lands for violating the National Forest Management Act. Seattle Audubon Soc’y v. Evans, 771 F.Supp. 1081 (W.D. Wash. 1991), aff’d952 F.2d 297 (9th Cir. 1991).

Although George W. Bush’s BLM initially obtained a “God Squad” exemption from the ESA for several timber sales in Oregon around the same time as the Portland Audubon Society NEPA injunction, the Clinton administration withdrew the exemption request after environmentalists convinced a court that the Bush administration might have exerted undue influence on the God Squad in Portland Audubon Soc’y v. Endangered Species Comm., 984 F.2d 1534 (9th Cir. 1993). Shortly after the Clinton administration withdrew the exemption request, the 9th Circuit affirmed the district court decision in Portland Audubon Soc’y, obligating BLM to supplement its timber sale environmental impact statements.

A year later, in Seattle Audubon Society v. Lyons, 871 F.Supp. 1291 (W.D. Wash. 1994), aff’d 80 F.3d 1401 (9th Cir. 1996),Judge William Dwyer held that the ESA required all federal agencies to ensure that all of their activities are not likely to “jeopardize” ESA-listed species or cause the destruction or modification of their critical habitat. That decision also explicitly recognized that the BLM had to fulfill conservation duties imposed by statutes such as NEPA and the ESA in managing the O&C lands. Judge Dwyer also concluded that the OCLA required BLM to manage the O&C lands for all values listed in the statute, including watershed protection, streamflow regulation and recreation. The effect of these decisions was to largely halt timber production in the Northwest.

The Northwest Forest Plan

In 1993, in response to the initial timber harvesting injunctions issued in Portland Audubon Soc’y and Seattle Audubon Soc’y, high-level members of the newly elected Clinton administration convened a nationally televised Northwest Forest Conference in Portland to attempt to resolve the spotted owl controversy. As the conference wore on, its goals expanded from owl habitat protection to include salmon protection and achieving ecosystem management for the whole of the federally managed forest ecosystem in Western Oregon/Washington and Northern California. This conference also established a Forest Ecosystem Management Assessment Team (FEMAT), tasked with developing management options that would comply with federal environmental laws, promote biological diversity and produce a sufficient amount of timber. FEMAT produced 10 options ranging from 0.1 to 1.8 billion board feet of annual timber harvest, ultimately settling on Option 9, which called for a nearly 75 percent reduction in logging from the annual harvest between 1980-1989. Option 9, now known as the NWFP, covered 24.5 million acres of federal Northwest forestland and was touted as the first systematic, broad scale attempt to apply an ecosystem approach to resolve a natural resource management issue.

The plan consisted of extensive standards, guidelines and land allocations meant to achieve President Clinton’s multifaceted management goals. The NWFP created three primary categories of land: reserves, “matrix” lands available for timber harvesting and adaptive management areas (AMAs). First, the plan recognized 8.8 million acres of existing congressional and administrative reserves (like national parks and wilderness areas). Next, the plan set aside 7.4 million acres of “late-successional reserves” to enhance old-growth forest conditions, and 2.63 million acres of “riparian reserves” meant to protect aquatic systems and species. Finally, the NWFP created 1.5 million acres of AMAs where land managers could explore alternative management techniques. Of the total plan area, approximately 77 percent of the land is in reserves, 16 percent is in matrix lands and 6 percent is in AMAs.

In addition to zoning land into these categories, the NWFP also added several important mitigation measures to protect vulnerable species. The first, known as “survey & manage” (S&M), requires the agency conduct broad landscape level surveys to identify and protect rare organisms before conducting timber sales. The S&M requirements go well beyond protections under the ESA. Largely due to the S&M requirements, the amount of timber available for commercial harvest has plummeted from 4.5 billion board-feet per year in the late 1980s to less than one billion board-feet per year in the 2000s.

The second major mitigation measure in the NWFP is the “aquatic conservation strategy” (ACS), which calls for the restoration of ecological health of watersheds and aquatic ecosystems. The ACS includes riparian reserves, establishes key watersheds, and calls for watershed restoration. The ACS requires: 1) 100-300 foot harvest buffers around riparian areas; 2) protection of adjacent vegetation and sensitive areas; and 3) a watershed analysis to precede all management activities within key watersheds, inventoried roadless areas and riparian reserves.

Almost immediately after the NWFP became effective, it provoked a number of challenges from both environmentalists and the timber industry. In 1994, Judge Dwyer upheld the NWFP in Seattle Audubon Soc’y v. Lyons, 871 F.Supp. 1291, 1300 (W.D. Wash. aff’d 80 F.3d 1401 (9th Cir. 1996), determining that “any more logging sales than the plan contemplates would probably violate the laws.”

Congress, however, responded by passing the 1995 Timber Salvage Rider. The rider allowed federal land managers to use pre-existing environmental review documents, restricted the scope and timing of judicial review, and gave timber contracts priority until its expiration at the end of 1996. The rider also authorized a number of sales contrary to NWFP protections. As a result of the rider, the BLM completed a number of hastily planned sales.

Once the salvage rider expired, environmentalists began to use the NWFP to challenge timber sales. For example, in Oregon Natural Resource Council Action v. USFS, 59 F.Supp.2d 1085 (W.D. Wash. 1999),Judge Dwyer enjoined 100 million board feet of timber sales because the agencies failed to meet their S&M requirements prior to undertaking ground-disturbing actions. Thus, by the end of the 1990s, the force and effect of the NWFP was becoming clear, which drew the attention of the incoming Bush administration.

During the next eight years, the Bush administration repeatedly tried to weaken the NWFP. Ultimately, these efforts failed to survive judicial review under NEPA, the Administrative Procedure Act (APA) and the ESA. See, e.g., Conservation N.W. v. Rey, 674 F.Supp.2d 1232 (W.D. Wash. 2009); Pac. Coast Fed’n Assn’s v. Nat’l Marine Fisheries Serv., 482 F.Supp.2d 1248 (W.D. Wash. 2007); N.W. Ecosystem Alliance v. Rey, 380 F.Supp.2d 1175 (W.D. Wash. 2005). Consequently, despite years of administrative efforts and court challenges, the protections imposed by the NWFP remain intact, largely because of the scientifically justified positions articulated in the original NWFP and the inability of the government to cogently explain reasons for dismantling aspects of the plan.

The County Revenue Crisis and Proposed Congressional Responses

The NWFP remains quite controversial because the sharp decrease in timber harvests reduced payments to O&C counties. As a result, O&C county budgets suffered because they had relied heavily on timber harvests following the federal revesture. In recent years, Congress has authorized special payments to help the O&C counties cope with their financial uncertainty. Moreover, a longstanding program under the Payment In Lieu of Taxes Act (PILT) provides the O&C counties with payments per acre of land managed by BLM or the Forest Service to reimburse them for revenues lost because of the tax exempt status of federal lands. In Fiscal Year 2011, Oregon counties received over $13 million in PILT funding and some $15.5 million in FY 2013; Josephine County received $580,000 and Curry received $208,000 in FY 2013, for example. See www.doi.gov/pilt/index.cfm.

A more recent subsidy program is the 2000 Secure Rural Schools and Community Self-Determination Act (SRSA). The SRSA provides federal payments to rural counties adversely affected by declining federal timber harvests. In 2008, Congress passed an emergency, short-term reauthorization of the SRSA through 2011. Congress also recently extended SRSA funding through FY 2012 and PILT funding through FY 2013. Despite these short-term fixes, the end of federal funding for the counties looms ominously.

As a result of the county funding crisis, the O&C lands are once again a center of major controversy, just as they were a century ago. This time, the O&C counties face a serious fiscal crisis as a result of diminished timber harvests (as required by the NWFP) and curtailed federal funding under the SRSA and PILT. The O&C counties estimate that they need $110 million annually to sustain county services. Recently, the sense of urgency has intensified as several counties — notably Curry and Josephine counties — face the prospect of insolvency.

In response to this crisis, federal legislators have proposed two solutions — both of which fail to truly address the same core problems that have existed for over a century. First, U.S. Reps Peter DeFazio (D.-Ore.), Kurt Schrader (D.-Ore.), and Greg Walden (R.-Ore.) proposed privatization of most of the O&C lands into large scale timber-dominant areas (the OCTA “trust” proposal) that would be exempt from the NWFP and other federal laws, while also increasing timber harvests significantly. Proponents claim that the bill will create 12,000 jobs and prevent the loss of $350 million in Oregon business sales. Critics think this proposal reflects short-term political expediency and will return to clearcutting of public lands instead of charting a sustainable, long-term course.

A second proposal — sponsored by Rep. Doc Hastings (R-Wash.) — would increase harvesting to arguably unsustainable levels in order to increase county revenues. Although the Hastings bill is not as extreme as the 1995 salvage rider, it includes similar provisions — such as precluding judicial review and declaring all sales compliant with existing federal environmental laws — and promises to raise timber harvests in the region to a level not seen since the 1980s. The OCTA “trust” proposal, on the other hand, would place about one-third of the O&C lands in a “conservation” trust (including new wilderness and wild river designations) — but provides no protections beyond the NWFP — in exchange for the significant harvest increases on the remaining two-thirds of the O&C lands.

Although neither proposal is likely to pass both houses of Congress in the near term, the urgency of the counties’ financial situation is likely to breed more legislative proposals in the future. Both of the current proposals suffer from serious environmental and economic flaws.

First, they both rely on the Oregon Forest Practices Act (FPA) to protect forested ecosystems exempted from federal environmental protections. The FPA is hardly up to the task, since it allows the 120-acre clearcuts, limits riparian buffers to 20 feet and requires no watershed analysis prior to harvesting.

Second, both congressional proposals fail to assess adverse water quality effects due to increased harvesting, despite the fact that Oregon streams regularly violate Clean Water Act standards.

Third, given the changed Northwest timber landscape, the alleged employment and economic benefits of both proposals are overblown unless there are huge increases in logging and timber prices, which is quite unlikely given the contraction of Oregon’s timber products industry, depressed housing prices and influx of cheap subequatorial lumber.

Fourth, after decades of aggressive logging, including much of the old-growth forest, the O&C lands may simply not have enough timber volume to support the proposed harvest levels. Moreover, much of the O&C forest is in small, difficult-to- access, checkerboard parcels (i.e., inconsistent ownership) and may not be economical to harvest. These deficiencies suggest that both congressional proposals are ill-advised, a reflection of the outmoded paradigm that has dominated management of the O&C lands for over a century.

An Alternative Approach

We instead suggest an approach that addresses some of the hard questions left unanswered since the revesting of lands to the United States and would help to avoid the dramatic swings and uncertainty witness on these lands over the last 150 years. Our proposal upholds the integrity of the hard-fought, time- tested NWFP yet offers the O&C counties hope for long-term fiscal and economic security. The O&C counties clearly need additional revenue, but this funding increase should not be achieved by sacrificing environmental protections that, for example, protect drinking water and salmon spawning habitat. Moreover, although some harvest increases might be part of the solution, privatization and/or liquidation of the O&C counties’ greatest asset — the forests themselves — will not likely provide the counties the long-term economic security that they seek.

Any viable solution must provide long-term economic growth and security for the O&C counties, protect environmental values and fairly distribute the burdens of achieving these twin goals among the various stakeholders. The current congressional proposals assume that these principles cannot coexist, but we think that a combination of policies can allow environmental integrity and economic growth to both coexist and thrive.

The first step toward is to recognize and monetize the ecosystem services provided by the O&C lands. Healthy forested watersheds provide clean, cool drinking water without sediments and improved salmon and aquatic habitat. Capturing and monetizing these values could provide the O&C counties with a consistent source of revenue (from municipalities and other entities benefiting from the ecosystem services provided by O&C lands that may have regulatory obligations anyway) without liquidating the forest, especially if programs take advantage of drinking water and Clean Water Act regulatory frameworks.

Second, the counties can capture out-of-town and tourist revenues through properly structured sales taxes, such as those now exiting in the cities of Ashland and Yachats. In fact, Curry County seems poised to submit a 3 percent sales tax to a vote in September 2013.

Third, despite the recent votes in Josephine and Curry counties rejecting property tax increases, the state’s threat of imposing an income tax necessary to pay for basic county services may cause those counties to reconsider. Moreover, Sen. Ron Wyden (D-Ore.) has indicated that future federal payments to the counties may be measured in part on county tax rates. Congress should go further and condition future long-term reauthorization of both SRSA and PILT funding on county implementation of the measures suggested here.

Fourth, the state could also supplement these revenues by changing its tax structure to provide incentives for logging companies to mill timber in rural Oregon instead of exporting raw logs.

Fifth, the federal government should consider the cost savings associated with consolidating some or all of the O&C lands into adjacent national forests managed by the U.S. Forest Service.

Finally, Congress should restructure the SRSA and PILT revenue distribution formulas to provide the most support to the neediest counties.

Although none of these initiatives contain a silver bullet, they would spread burdens of supporting county revenues more broadly among stakeholders over the long term and provide all stakeholders more certainty moving forward. They would also preserve the O&C lands’ unique environmental and cultural legacy, while providing a balanced solution to the difficult questions that have plagued these lands in the 150 years since the original railroad grant.

Michael C. Blumm is Jeffrey Bain Faculty Scholar and professor of law at Lewis & Clark Law School. Tim Wigington is the business and legal analyst at The Freshwater Trust and a 2012 magna cum laude graduate of Lewis & Clark Law School. The full article, with more detailed citations and commentary, was published at 40 Boston College Environmental Affairs Law Review 1 (2013), and is available at http://ssrn.com/abstract=2039155.

 

ABOUT THE AUTHOR
Karen McGlone is a freelance writer who writes frequently about the legal industry.

© 2013 Karen McGlone


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