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Spokane, Washington  Est. May 19, 1883

Formula reached on forest value

Betsy Z. Russell Staff writer

BOISE – After more than a year of negotiation, the timber industry, counties and the state Tax Commission have settled on a new way to determine the value of forest land for property taxes.

In the end, the new formula won’t change timber values by a huge amount – which was a worry for rural counties like Boundary County with lots of forest land. That’s because when one property taxpayer’s value drops, everyone else in the county has to pay more to make up the difference.

Boundary County residents “have very high tax bills right now, and they’re not happy campers,” said county Assessor Tim Ryals. The impact of the new formula, he said, is “so much better than we thought it would be.”

It’ll mean more stability, and fewer big swings, both for timberland owners and for rural school districts, which suffered when the old formula made for ups and downs. Unlike most taxing districts, school districts have fixed tax rates, so if values drop, they collect less in taxes.

State Tax Commissioner Larry Watson, a former state legislator from the Silver Valley, chaired the negotiating committee, which met over the past year and a half and enlisted the services of expert forest economist William E. Schlosser. The committee was established by state law five years ago, when lawmakers imposed an interim plan that dropped forest land values by 11 percent a year until a new formula could be developed.

“Five years ago, when they put me in charge of this thing, I was scared to death, with the history we had on both sides,” Watson said.

That history has been tumultuous. Historically, timberland was valued just like agricultural land. But the model didn’t fit – farmland generally sells a crop each year, while timber producers can grow their trees for 60 years or more before they harvest them.

In the 1980s, the timber industry sought a new formula, but the one that was developed had a flaw. No one saw it right away, because of economic conditions. But under that formula, when timber prices rose and interest rates dropped, values could skyrocket.

That happened in the 1990s. Timber “stumpage” values, or the price cut timber sold for, shot up, in part because of decreased timber harvesting on national forest lands. Short-term interest rates dropped for unrelated economic reasons. That interplay caused timberland values, as set for property taxes, to triple in seven years and quadruple in nine years.

In 2000, the Legislature passed HB 513, which set up an either-or plan until a new formula could be negotiated: Each year for five years, timberland would be valued at either the amount the existing formula set, or at 11 percent less than the previous year, whichever was lower. For the first two years, the formula figure actually was lower. But for the past three years, timberland values have dropped by 11 percent a year.

Boundary County taxpayers have felt the effect. This year, Ryals said, total land values in the county dropped for the first time in his memory. That wasn’t all because of the timber change – there was also a major mill closure – but it was a big factor.

Under the new formula, if lawmakers approve it and apply it retroactively to Jan. 1, timberland values in Boundary County will go down by about half a percent this year, Ryals said. “It’s better than the 11 percent we would have seen, so we’re very pleased with it, and we’re very surprised,” he said. “I have to commend the group.”

Throughout its negotiations, the group focused on which factors really were appropriate to determine forest land values. That debate took place without anyone knowing what figures the formula would produce in the end, as far as increases or decreases in values.

“There was a lot of nervousness about not running the numbers until the end,” said Jane Gorsuch, vice president of Idaho affairs for the Intermountain Forest Association. When the numbers finally came out, she said timber interests were “relieved.”

“We were relieved and surprised that we could reach agreement with the counties,” she said.

Said Ryals, “I think they were mostly hoping it didn’t go up, and the counties were hoping it didn’t take a big tumble.”

Schlosser, the forest economist, said, “I think all of us, including the rural school districts, were surprised at how small the impact was. We weren’t there to bust any school districts. We were there to make something much more stable.”

Dan Chadwick, head of the Idaho Association of Counties, said: “I’m pleased at where we are. We worked long and hard to get here. It started out what I thought could be very contentious.”

The formula divides the state’s forest lands into productivity zones. In the Panhandle, zones 1 and 2, values went up a little, Watson said, while in parts of the state like Boise and Gem counties with lower timber growth rates, values went down. Overall, there’s a reduction in the values from last year, Watson said, “but it’s not down as far as HB 513 would’ve put it.”

Added Watson, “There are some winners and losers among the counties, but it’s mostly a win-win.”

Gorsuch said the new approach gives forest land owners more certainty, so they’re more likely to keep their lands in timber.

“It goes a long way to addressing what we view as a pretty major change in the way we do business,” she said. “We have companies that just own forest land. … They need to be able to afford to keep that land in timber production. They have a lot of pressure in some areas of the state to develop it into a subdivision, or develop it into estates.”

Schlosser said the overall goal of the new formula is to value timberland based on its ability to produce forest products, not necessarily what the highest and best use for the property might be. “It benefits Idaho’s economy, and maintains Idaho’s natural environment,” he said. “A lot of states do that.”

Kootenai County Assessor Mike McDowell said, “From our perspective, it looks like the impacts make sense. It produces an answer that is going to be a lot more predictable and consistent over the long term.”

The new approach was unveiled in briefings for lawmakers in recent days. Now, it will be written into legislation and introduced in the House Revenue and Taxation Committee.

Ryals said he thinks Boundary County taxpayers “will be very happy with it.”

“We’re certainly hopeful that the Legislature passes it and makes it retroactive to January 1,” he said. “We feel good about it and want to see it go.”