March 10, 2005
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On the cover:
Redwood log deck on Waterfront Drive in Eureka.
Big Muddy: Pacific Lumber,
water quality board spar over timber and watershed recovery
by HANK
SIMS
ON FEB. 23, KRISTI WRIGLEY [photo below left]
sat before employees of the North Coast Regional Water Quality
Control Board and told her tale, as she has done many times over.
Her family farm on the North Fork of the Elk River has been ruined
by Pacific Lumber logging upstream, she said. Her apple trees
don't produce anymore and her water supply is trashed.
Once more,
she asked the water board staff to help her and other residents
of the Elk River and Freshwater Creek watersheds, many of whom
also testified at the hearing in Eureka the same day. They said
that their rivers had become choked with silt, causing endemic
flooding that threatened their property and cut them off from
the outside world.
"We have nowhere else to
go," Wrigley told the water board's staff. "You are
our only resource." Her family has worked the farm for more
than 100 years.
The stories were not new, but
the circumstances were. A few weeks earlier, the Los Angeles
Times reported that the Pacific Lumber Co. had quietly held
meetings in Sacramento with members of Gov. Schwarzenegger's
staff and officials from the California Environmental Protection
Agency. At the meeting, Palco management reportedly declared
that it would likely go bankrupt unless the water board got off
its back. The board is the only thing holding up the company's
timber harvest plans in Freshwater and Elk. The THPs -- formal
proposals for timber cuts that must be filed with the state --
have been approved by the California Department of Forestry.
In mid-February, Palco arranged
a series of meetings with water board staff through Gorton Moore,
a Sacramento lobbying firm. The purpose was to hammer out an
interim deal for logging in the two watersheds while the board
staff finishes its guidelines for new regulations -- known as
"watershed-wide waste discharge requirements." Timber
harvesting inevitably leads to dirt washing downstream; the question
before the board's staff is how much timber harvesting can occur
in the two watersheds if the sediment-choked rivers are to recover.
The meetings were unsuccessful
from the company's point of view. Two days after the Eureka hearing
Catherine Kuhlman [photo
at right], water board's executive
officer, announced that she would allow the company to log only
half what the CDF has permitted in the two watersheds -- in other
words, about 300 "clear-cut equivalent" acres in Elk
River and 250 in Freshwater. (Several acres of selective harvesting
equal one clear-cut-equivalent acre). Palco was not pleased.
The company and its opponents
will make their cases again Wednesday at a meeting of the agency's
governing body --the water board proper. Residents of the watersheds,
supported by the Humboldt Watershed Council, will petition the
board to hold firm and support its staff in the face of political
pressure. Pacific Lumber will be on hand, perhaps with some of
its employees in tow, to ask the board to immediately release
the rest of its timber harvest plans or accept responsibility
for destroying the company financially.
Despite the pressure from both
sides, Kuhlman appears to be keeping a level head. "I think
the situation is a really tough one -- there is no easy answer,"
she said last week. "There is no compromise that makes everyone
happy. There are winners and losers in this one, and that makes
it really tough to find answers."
Palco
vents frustration
Sitting in the company's redwood-lined
conference room last week, Palco President and CEO Robert Manne [photo below left] vented his frustration at the water board's intransigence.
Manne said he believed that the water board's scientific staff
is holding up the company's timber harvest plans not so much
out of concern for residents, but because of an anti-Palco bias.
If the staff were truly concerned for the residents, he said,
they'd be more willing to sit down and listen to the company's
proposals.
"We have an extremely positive
relationship with every other agency -- CDF, Fish and Game, NOAA
Fisheries, the U.S. Fish and Wildlife Service," Manne said
last week. "If we were in this same kind of discussion with
any one of those agencies, we'd have all of our scientists in
a room -- trying to seek out and find the truth, to seek out
and find the balance point. That's our relationship with every
other agency but this one."
Manne and the company are fighting
the board on several fronts. First, and perhaps most fundamentally,
Palco believes that the water board has overstepped its jurisdiction
-- that it has no legal right to hold up THPs already approved
by the California Department of Forestry. The CDF, the company
claims, is -- or should be -- ultimately responsible for assuring
that timber harvesting complies with environmental regulations.
The state Supreme Court is scheduled to hear a legal challenge
based on this argument sometime this year. In March 2004, a lower
court disagreed with the company, saying that the CDF and the
water board had overlapping jurisdiction.
Second, the company believes
that it can prove that the majority of the new sediment going
into the streams is from "legacy logging," which the
company defines as logging that took place before the adoption
of its Habitat Conservation Plan, part of the Headwaters Agreement,
in 1998. The company insists the plan, a set of operational standards
that is supposed to minimize the impact of logging on endangered
and threatened species, ensures that new logging operations produce
very little sediment.
Finally, the company is challenging
head-on the idea that the water board's staff has the right idea
when it comes to solving the flooding problems in Freshwater
and Elk. Even the board's scientists admit that it will take
a good deal of time for a lower rate of harvest to affect the
sediment-filled riverbeds in Elk River and Freshwater Creek.
It will take several winters for Mother Nature to flush any significant
portion of the dirt downstream.
"There's a set of expectations,
now, that this water board has set up for the residents in Freshwater
and Elk that they can't deliver on," Manne said.
He said that the company believes
it can solve the problem much more quickly and effectively though
engineering. By removing brush and woody debris from the stream
beds, for instance, the company believes it can make water flow
through the streams more quickly and efficiently. The company
has proposed building flood walls at especially problematic low
spots along the two rivers, and doing additional cleanup around
"legacy" timber harvest sites.
But the company can only do
those things, Manne said, if it is allowed to log enough to stay
financially solvent. Right now, Manne said, that means getting
all its THPs in Freshwater and Elk, as soon as possible. If the
company goes under, it wouldn't be able to do any environmental
cleanup work for the residents' benefit, he said.
Robert Klamt [photo at right],
the water board scientist leading the work on Pacific Lumber's
THPs, denied last week that the board's scientific staff had
it in for the company. In fact, he said, the board had signed
off on the vast majority of Palco THPs that had come before it
since last September -- a total of 51 in all, compared to the
relative few it is now waiting on.
But the fact that Freshwater
and Elk River were impaired watersheds, and that residents were
suffering from floods, made the process more difficult.
"We are absolutely committed
to reaching a resolution to this, and I can understand Palco's
financial concerns 100 percent," he said. "But we also
have a charge to protect the environment and to protect resources
for the public at large." While Klamt said that the company's
Habitat Conservation Plan was a good, important document, it
did not specifically address the questions of watershed restoration
that his agency is mandated to enforce.
Klamt said that engineering
solutions, such as those proposed by the company, had the potential
to be part of the solution. However, he said that he had not
yet seen the details of the company's proposals and so could
not evaluate their potential effectiveness. He held that the
best science available indicated recovery of the streams -- the
water board's particular mandate, under California law -- would
depend on a lower rate of logging.
Money
woes mount
The company says that that's
something it simply can't afford. Manne said that the remaining
CDF-approved Freshwater and Elk timber harvest plans still blocked
by the water board amount to 48 percent of its first quarter
harvest for 2005, or 38 percent of the first half of its year.
The fact that the company can't get at those trees is already
taking its toll, Manne said.
"I'm in financial default,"
he said. He said that since the beginning of the year, the company
has been unable to make regular service to a short-term line
of Bank of America credit that the company uses for working capital.
"We've been working with the Bank of America to refinance
that part of the business, and see what it's willing to do."
More critically, later this summer a $20 million
payment on the company's timber bonds will come due. Pacific
Lumber sold the bonds in 1998; they were used to refinance the
debt left over from the company's 1986 takeover by Charles Hurwitz's
Maxxam Corp. In the bond offering, the company promised its investors
that it could log a certain amount each year, an amount roughly
equivalent to what the company was allowed under the Headwaters
Agreement -- the landmark $480 million deal between the company
and the state and federal government that preserves about 10,000
acres of woodland, including vast areas of old-growth. Manne
said the slowdown in Freshwater and Elk increases concern that
the company might not be able to make the upcoming payment.
"I'm negotiating with every
financial institution I have to try to save this company,"
Manne said. "I've already laid off 38 people and I've got
plans in place to lay off more. As the logs diminish, we're taking
shifts off each of the sawmills, one at a time."
If the company were to default
on its notes, and be forced into bankruptcy, the effect on the
county's economy would be enormous. Palco is one of the largest
private employers in the county, and those jobs pay salaries
well above the local average.
Photo above left:
Rex Perkes, 50, Scotia resident, PL employee
Company
bluff?
But skeptics wonder whether
the company, which has a well-earned reputation for hard-ball
political strategizing, might be bluffing in an attempt to force
the water board into acceding to its demands to release the additional
timber. Or, similarly, whether the company has no intention of
pulling itself out of debt, whether it receives the timber or
not -- whether the company is aiming to go bankrupt sooner or
later.
At last month's hearing in Eureka,
Bill Bertain [photo at
right] -- a Eureka attorney who
has sued the company on behalf of the residents of Freshwater
and Elk -- pointed out that nearly 20 years after Maxxam bought
the company, it had paid down very little debt. Maxxam loaded
over $800 million in debt onto Pacific Lumber when it bought
the company; today, the company still owes around $750 million
(as it acknowledges) -- this after 20 years of operation and
the sale of hundreds of millions worth of assets, including the
Headwaters Forest.
In fact, the company does not
claim to be making a dent in its debt. According to Manne, the
company's current bonds are interest-only; the company is not
paying down any principal. Manne said that this debt structure
was a good one for the company, as it meant low rates and smaller
payments, but it does feed the argument made by Bertain and others
-- that chronic debt is part of the business plan.
"Basically, what's happened
in the last 19 years is that Maxxam and Hurwitz have externalized
the costs, they've corporatized the debt, and Hurwitz has personalized
the profits," Bertain said. He called on Hurwitz to reinvest
some of these alleged profits -- which, belonging to the world
of high finance, are hard to quantify -- rather than close the
company down.
Mark Lovelace of the Humboldt
Watershed Council, one of the company's most persistent critics,
said that he believed that the company was aiming for "bankruptcy
for profit" in any case, and beseeched the water board's
staff to base its decisions on the protection of watersheds,
not economic factors.
After the staff's decision to
limit harvests came through, Lovelace was cautiously optimistic.
"We think it's great that
the board staff is implementing this reduction in the rate of
harvest, but we're really concerned," he said. "On
[March] 16, the board needs to back them up on this."
As Lovelace noted, the battle
now moves to the water quality board itself. The North Coast
Regional Water Quality Control Board is composed of political
appointees. Four new members were just appointed by Gov. Schwarzenegger
-- among them Lyle Marshall, chairman of the Hoopa Valley Tribe,
Ferndale dairyman Dennis Leonardi and Heidi Harris, a lecturer
in rangeland resources at HSU.
The new members will be sworn
in at the Wednesday meeting where Pacific Lumber's renewed demands
for full logging rights in Freshwater and Elk will be among the
first orders of business. Theoretically, the new board could
direct its staff to summarily release the remaining THPs.
Catherine Kuhlman, the head
of the board's staff, said that the company's past efforts --
the meetings with political appointees in the capital, the Sacramento
lobbyists, the lawsuits, the shows of force at board meetings
-- demonstrates that it is remarkably able when it came to making
its case.
"Pacific Lumber is in a
class by itself," she said.
RELATED STORIES:
Jan. 27, 2005: IN THE NEWS: "Pacific Lumber
cries near-bankruptcy
Secret meeting seeks easing of logging restrictions"
Oct. 17, 2002 IN THE NEWS: "Kristi Wrigley's
long fight"
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