Halted Contracts May Cost Forest Service Taxpayers May Be Liable For $250 Million In Damages To Timber Industry

The U.S. Forest Service could be liable for more than $250 million in damages to timber contract holders if substitute timber isn’t provided where logging has been canceled due to environmental concerns, a government audit said Thursday.

Sen. Larry Craig, R-Idaho, said the agency should not terminate any more logging contracts until it comes up with a plan to “fix this crisis.”

Craig pointed to suspension of the Mackey-Day timber sale in the Nez Perce National Forest, saying it was “suspended for no clear reason. This sale should be released back to the contractor.”

But a Nez Perce forest official said that sale was suspended to allow a review of how it would affect steelhead, which have been proposed for endangered-species listing, and said the sale is unlikely to be canceled.

“We don’t have any that have been canceled as a result of the Endangered Species Act or other environmental laws on this forest,” said Ihor Mereszczak, staff officer.

Officials of the Nez Perce and Panhandle National Forests said they’ve had no canceled sales, although environmental laws have forced some modifications in sales and have affected planning for future sales.

As far as the millions in claims for canceled sales, “probably most of them are over in Washington, Oregon, Northern California, with the spotted-owl situation,” said Andy Anding of the Panhandle National Forests.

Jim Riley, of the Intermountain Forest Industry Association, called modifications and cancellations of contracted sales “a disturbing trend.”

“It used to be you could usually count on the fact that people were going to live by the terms of the contract,” he said.

The Forest Service paid $6.5 million in claims for 48 contracts that were signed but later suspended or canceled to protect threatened or endangered species between October 1992 and June 1996, the General Accounting Office said.

As of last month, nearly $61 million in such claims was pending at the Forest Service and another $2.2 million at the Bureau of Land Management, the GAO said.

Purchasers have filed claims for such expenses as property taxes and insurance, salaries of officers and watchmen, depreciation, idle equipment, interest and the value of replacement timber, the audit said.

Craig, chairman of the Senate Energy and Natural Resources subcommittee on forests and public lands, said the audit confirmed his suspicions that taxpayers could end up footing the bill for canceled logging contracts.

“I am alarmed at the potential liability these canceled sales have created and the fact that taxpayers are now at risk,” he said.

“My advice to the Forest Service is that they take no further action to terminate contracts until they have a strategy to fix this crisis.”

Craig requested the GAO audit in May.

Purchasers’ claims could rise dramatically in future years because the Clinton administration has made a priority of trading substitute timber for key old-growth stands that had been slated for logging in the Pacific Northwest.

Those stands were sold for harvest in 1989 and 1990, but were put on hold when new scientific data showed sharp declines in northern spotted owl and marbled murrelet populations.

Congress, as part of a controversial salvage logging bill last year, had directed many of those stands be logged anyway, but allowed for the timber substitution where trees of like kind and value could be found.

As a result, “any estimate of future liability must be viewed with uncertainty,” the GAO said Thursday.

“The outcome of ongoing and future litigation is unpredictable and could result in the award of more or less in damages than the purchasers claim.

“When pending claims, the agencies’ ‘best estimates’ of potential future liability, and other information are considered, the Forest Service’s potential future liability as of October 1996 could be at least $259 million,” the GAO said.

BLM’s liability could be between $37 million and $42 million, the audit said.

“According to Forest Service officials, the agency may not have the funds to settle pending and future claims,” the GAO said.

Clinton administration officials said they were confident replacement timber would be found and few if any payments would be necessary, citing a recent agreement with Northwest timber companies they expect to settle about $170 million of the potential claims.

“We are working with the industry to avoid the necessity of any payments,” said Assistant Agriculture Secretary James Lyons, who oversees the Forest Service.

Lyons criticized Craig, saying, “Senator Craig’s comments and speculation with regard to settlement agreements tend to exacerbate the situation.”

, DataTimes MEMO: Cut in the Spokane edition.

The following fields overflowed: CREDIT = From staff and wire reports Staff writer Betsy Z. Russell contributed to this report.