County governments receive substantially less revenue from private timber companies after a string of changes, Coast Range Association points out
Chuck Willer is on a one-man mission, sporadically traveling across Western Oregon to give his PowerPoint presentation to small groups of people gathered at local libraries, colleges and other community hubs.
Each time, he tells his audience, with a degree of hyperbole, that Wall Street’s influence and changes to state tax laws have created a scenario where the timber industry is paying mere pittance in taxes to county governments for the privilege of ravaging local lands at an unsustainable rate.
He points out that while timber company executives are raking in millions of dollars, public budgets in the counties where they harvest their trees are dwindling to the point of crises.
“Why is that?” Willer recently asked an audience of community rights activists in Eugene. He answered this question by chronicling changes to timber and property tax laws over the past four decades, showing how at each step, changes were made that – either by design or happenstance – deflated timber industry taxes.
In 1992, Willer quit his job as a contractor in Florence to become the first employee of the Coast Range Association, a nonprofit that was born out of concerns over logging in the Oregon Coast Range, where he lives.
For the past 20 years, Willer said, he’s been monitoring the private timber industry on the west side of the state, in part through state finance reports.
“I would have to admit, in the late ’90s, early 2000s, I didn’t understand, really, what it meant,” he said. “It’s only now that we’re seeing enough data to see: Here’s where we ended up, this is what it means – and the crisis of county revenues has, in the past five years, intensified.”
The crux of Willer’s findings is this: Oregon’s west-side county governments are collecting 85 percent less in tax revenue from private timber companies than they were in the early 1990s, while logging on private lands has remained largely unchanged.
He came to this conclusion after analyzing Oregon Department of Revenue reports and adjusting the numbers for inflation.
Whereas from 1990 to 1995, Oregon’s west-side county governments received 2016’s equivalent of $119 million from private timber companies each year, that number dropped to $18 million per year between 2007 and 2012, according to Willer’s calculations.
During that same period, logging volume on private lands had only decreased 15 percent.
Street Roots calculated private timber payments to counties statewide during the same time periods. When adjusted to 2018 dollars, we found payments dropped from an average of $134 million per year to $21 million per year.
“There’s this constant narrative of this crisis in the counties, which varies from county to county, and no one ever mentions the change in private forest payments,” Willer said. “That’s what was on my mind when I was like, let’s just take a look at taxation. They say they don’t get enough money; let’s see how much they used to get, what they currently get, from private forest property.”
Street Roots spoke with tax experts and number crunchers at the Oregon Department of Revenue, Legislative Revenue Office and Oregon State University and examined historical tax records and other public documents to figure out how Oregon got here.
We discovered that the state’s system for taxing timber and forestland is complex and the result of a long chain of changes to tax laws over the years.
We won’t attempt to explain every minutia of the timber tax system as it applies to every level of government, but we will take a closer look at how the state’s property tax overhaul and tax laws that were written by the timber industry itself have benefited big timber while leaving Oregon’s timber-rich, rural counties behind.
Dirt cheap
Oregon’s western counties saw the most significant dive in revenue from logging after the Northwest Forest Plan was enacted in 1994, dropping the volume harvested from public lands.
But as logging dropped off on public lands, ongoing shifts in tax law lowered taxes on private timber so significantly that when the money from logging on public lands dried up, counties weren’t left with much.
While some changes to tax law, such as those to property tax rates, were coincidently a boon to the industry, others, such as steep drops in harvest, or severance taxes, were the direct result of timber industry lobbying efforts.
In the early 1990s, Oregon homeowners were becoming frustrated with increasingly high property taxes. They were going up, but wages weren’t going up to match. This led to a series of successful ballot measures aimed at reeling those taxes in.
First, with the support of the Oregon Homeowners Association, voters passed Measure 5 in 1990. It set constitutional limits on the dollar amount that could be taxed per $1,000 of property value and made up for the loss in revenue by shifting much of the school-funding burden to the state.
Associations representing librarians, educators, firefighters and seniors, as well as then-Gov. Neil Goldschmidt and Secretary of State Barbara Roberts, all raised arguments in opposition, saying the measure would unfairly benefit businesses while causing irreparable damage to public-services funding.
They were right. In this upcoming legislative session, finding a way to replace revenue lost nearly 30 years ago is a top priority among lawmakers who are looking for a way to fix Oregon’s schools.
After Measure 5 came Measure 47 in 1996, which voters passed to correct a perceived flaw in Measure 5 that was allowing property values, on which taxes were based, to continue to increase rapidly. Two years later, voters passed Measure 50 to fix problems with Measure 47.
Essentially, these two measures rolled back and froze property values at 90 percent of their 1995 assessments, and then limited annual increases to 3 percent. They also fundamentally changed the property tax system in Oregon by moving away from real market value as a base for property tax, to an assessed value for tax purposes instead.
Those in opposition to the first of these two measures, Measure 47, included a slew of politicians such as then-Gov. John Kitzhaber and State Treasurer Jim Hill, groups representing police, educators and other public employees, veterans, health providers and many others. They argued it would solidify the damage Measure 5 had already caused and put a greater strain on schools, cities and counties.
When Measure 50 came along in 1998, it garnered much wider support than Measure 47 – although most arguments in favor centered on the notion that while it wasn’t great, it was better than Measure 47.
All nine “Arguments in Favor” for Measure 47 in the 1996 Oregon Voters Pamphlet were furnished by the same person: Bill Sizemore.
Sizemore, a two-time Republican candidate for Oregon governor, has been credited with the overhaul of Oregon’s property tax system in the 1990s and as the leader of the Oregon tax revolt.
Years later, in 2011, he pleaded guilty to felony state tax evasion and was sentenced to 30 days in jail and 36 months’ probation.
According to The Oregonian, the charges stemmed from a 2002 lawsuit the teachers unions filed against him, alleging his initiative petition operations amounted to racketeering. The teachers won. At a later court hearing, it was revealed that Sizemore spent hundreds of thousands of dollars from a nonprofit under his control for personal use.
Willer likes to point out that Measure 47 was passed with just 54 percent of the vote. And because voter turnout was low that election, 22 percent of Oregon’s voters “radically transformed the property tax regime in Oregon,” he said.
These property tax laws have come under fire in Portland in recent years, as property owners across the city shoulder vastly different property tax burdens that have more to do with what part of the city they live in than the real value of their home. While housing prices skyrocket, the assessment values do not. And a key element of Measure 50 is that the maximum assessed value stays with a property, even when ownership changes.
But how does this affect the timber industry?
When the property tax overhaul came about, logging counties were relying on a two-tiered tax system to garner forestry tax revenue.
In 1977, Oregon Legislature exempted the value of standing timber from property tax rates, imposing a “severance” tax on that timber when it was severed from the land, or harvested, instead. That money, like property taxes, would be returned to local taxing districts.
When a tax is placed on standing trees, landowners are incentivized to cut them down to avoid paying taxes on them, so taxing the trees at the time of harvest makes more sense. It also makes more sense for small forest owners, who are more likely to have the money to pay those taxes when they harvest.
But bidding wars between counties, in some cases, led to even lower property evaluations as a way to entice timber companies into bringing jobs to their jurisdictions.
So when Measures 47 and 50 locked in property values, the assessed property values they locked in for timberland were artificially lower.
This meant, explained Jaime McGovern at the nonpartisan Legislative Revenue Office, that the property taxes being charged were also very low.
In Oregon, the assessed value of forestland added up to $2.3 billion while the real market value was $11.5 billion during the 2017-18 fiscal year, according to Oregon Department of Revenue data.
We took a look at the property taxes Weyerhaeuser paid per acre on five properties in timber-rich Douglas County. The tax burden per acre fell between $2.09 and $4.87 in our random sample, with the price varying depending on the state’s evaluation of the timberland quality.
When we ran these numbers by Willer, he pointed out that Weyerhaeuser paid about $30,000 per year in property taxes for a plot of land the size of Beaverton in one of the examples we sent to him.
According to Weyerhaeuser’s most recent quarterly report, it did $3.9 billion in sales during the first six months of this year, with profits of $586 million.
Severing the severance tax
Not long before voters overhauled property tax rates and the Northwest Forest Plan overhauled public lands management, the Oregon State Legislature was changing the severance taxes that companies paid when trees are cut from the land.
In 1992, lawmakers considered three taxing options, and all three were proposed by Oregon Forest and Industries Council – the trade association representing private timber companies in Oregon.
The winning option lowered the severance tax from 6.5 percent of the cut timber’s value to 3.2 percent in Western Oregon and to 1.8 percent in Eastern Oregon. It also phased-out the additional tax on reforestation lands, according to a Legislative Revenue Office research report on Oregon’s timber-tax history.
Seven years later, in 1999, the Legislature passed a bill outlining a new system for taxing forestland, which phased out the severance tax paid by larger timber companies altogether over the course of three years. Again, Oregon Forest and Industries Council was at the table, helping the Oregon Department of Revenue to write the new tax law, according House Revenue Committee records.
Between 1995 and 1999, the state had collected an average of $41 million in severance taxes each year. But by 2003-04, that number had scaled down to less than $4 million, while logging volume remained relatively steady, according to the Legislative Revenue Office’s 2017 financial report.
Foresters belonging to the voluntary Small Tract Forestland program still pay the severance tax, amounting to a total of $560,000 to the state during the 2016-17 tax collection year. In exchange for paying a severance tax when they harvest, members of this program pay only 20 percent of their property taxes.
Meanwhile, all timber harvesters pay a “Harvest Tax,” which is often confused with the now-mostly-obsolete severance tax, but this money only goes to pay for programs that benefit the wood products industry, such as forestry programs at Oregon State University, firefighting and prevention on forestland, and the Oregon Forest Resources Institutes.
Forestland owners, however, still get the property tax discount. Their land assessments are based on what someone would be expected to pay for a piece of land if the intent is to grow timber, not develop it, minus the value of the trees.
According to the Oregon Department of Revenue, forestland owners continue to get this property tax discount to encourage them to keep the land in timber production and slow urban sprawl, because as development encroaches on their land, it becomes more valuable.
The shakedown
While statewide property taxes are frozen and capped, local governments can increase regional property taxes if they can get voters to approve a local option on the ballot.
But in poorer, rural timber counties, that’s not so easy.
“Let’s face it,” McGovern said, “if you think about the demographics in these logging communities – they’ve been hit hard by logging, the people are relatively strapped, and so when the local option comes up and it says, ‘We’re going to double your property taxes, we’re going to pass this measure, do you voluntarily support it?’ They say no, then the police services and the emergency services shut down, and its this bad situation that they’re in.”
But the rhetoric around foundering county budgets always seems to circle back to the need to cut more timber on public lands with no mention of increasing taxes on the private timber operators still doing big business locally.
That may be because local governments get a much bigger slice of the pie when timber is cut on public lands, but recapturing lost tax revenue from private companies could be beneficial, and it wouldn’t require changes to forest management.
“It wouldn’t be the total solution, but at the rate the industrial timber has been cut, there is a lot of money missing,” said Joseph “Pat” Quinn, who serves on the boards of Umpqua Watershed and Coquille Watershed Association.
He said that with the rising price of Douglas fir and more than $2 million in timber receipts in Douglas County alone, instead of spending money to lobby Congress to log federal lands, it would be better to drive to Salem and lobby lawmakers to reinstate reasonable severance taxes on private timber companies.
Andy Kerr, the longtime conservation director at Oregon Natural Resources Council (now Oregon Wild), has made similar arguments. He wrote a series of papers on Oregon timber taxes about six years ago, and concluded that private timber companies aren’t paying their fair share of local, state or federal taxes.
“You can make a dent in the county revenue general fiscal crisis if there was a reasonable severance tax on timber that went to the state coffers,” Kerr said. “And if there was a fair property tax system that applied to all land owners, and especially the timber industry.”
While Oregon continues to lead the nation in softwood lumber and plywood, many of the paper, pulp and lumber mills that once processed Oregon trees have closed, with much of the production happening in places such as China. Since January of this year, Oregon has shipped $132.5 million in primarily un-milled, raw logs to Asia, according to U.S. Census Bureau trade data.
This means residents of timber counties aren’t just missing out on tax revenue, they’re missing out on lumber and paper processing jobs as well. According to the Oregon Office of Economic Analysis, the timber sector employed 80,000 people during the 1970s, but today employs about 30,000.
The closure of Oregon mills and advances in automation are not the only big changes to the industry. During the past decade, many large timber companies, including Oregon’s largest, Weyerhaeuser, have converted to Real Estate Investment Trusts (REITs) and Timber Investment Management Organizations (TIMOs).
The reason for the switch is financial. REITs don’t pay federal income taxes on profit paid out to shareholders, and can essentially eliminate income taxes at the firm level, according to a technical report from Linda Wang, a timber tax specialist for the U.S. Forest Service.
The conversion of companies to REIT and TIMO structures is another point of contention for Willer.
He argues that when a timber company is beholden to stockholders – who expect ongoing returns on their investments – it affects the company’s harvesting cycles. He said the result is shortened crop rotations that yield smaller volumes of lumber and keep far less standing timber, which equals carbon storage, on the land.
While investor-prompted short rotations is a theory she’s heard, Tamara Cushing, a forestry tax expert with Oregon State University’s College of Forestry, said it’s likely based more on fear of the unknown than actual data.
She said that while crop rotations have shortened overall among forestland operators, it’s not necessarily based on whether or not a company has transitioned to a REIT or TIMO. In cases like Weyerhaeuser, “it’s the same company underneath,” she said. “Their management hasn’t really changed, at the end of the day, it’s the same people working the ground.”
While Wall Street “sounds really far away,” she explained, the beneficiaries of many TIMOs, in actuality, may be a lot closer to home. They might be Oregonians who have their retirement or pension funds wrapped up in an investment firm that’s working with a TIMO to diversify its portfolio with forestry. In some cases, she said a TIMO can achieve payout through appreciation in land values alone.
Authors of a long-running, forestry-school textbook staple, “Ecological Forest Management,” however, pointed to several studies outlining how the conversion of many forests to REITs and TIMOs has shifted the primary focus of corporate forest landowners to achieving a competitive rate of return.
“An individual tree passes financial maturity generally much earlier than at the age which the tree would be considered ecologically mature,” they state. “Not surprisingly, this approach to decision making provides little incentive to maintain legacy trees during harvest, unless income is received for keeping those trees around.”
According to a 2014 study, 20 percent of U.S. forestland is corporate.
Willer’s research shows that at least 65 percent of western Oregon’s private forests are investor-owned. It could be as much as 90 percent, he said, but he was unable to paint a complete picture because he was unable to obtain Tillamook County ownership records due to records fees exceeding $1,500.
Cost to counties
Roy Keene works as a timber broker and private forest consultant in Lane County, and, like Willer, he’s delved into county revenue issues as they relate to big timber taxes over the years.
“I discovered that industry was pretty much writing their own tax policy,” he said.
In 2012, he put together a memo for Lane County Commissioner Rob Handy, outlining what he called “numerous subsidies given to Oregon’s private forest owners,” and how they directly affect Lane County’s revenue.
Because standing timber is exempted from property value assessments, he estimated biennial impact of lost tax revenue to Lane County was roughly $136 million in the late 1990s. In more recent years, due to declining timber volume in forests, the impact is closer to $41 million in lost revenue to Lane County every two years.
Oregon isn’t unique in assessing forestland as if it has no valuable timber attached to it for property tax purposes.
While Washington and Oregon both charge timber companies similarly low property taxes based on productivity levels and other variables, only Washington is recapturing some of the lost county revenue for omitting the value of trees from the land.
Washington charges a severance tax of 5 percent, with 4 percent going to the county where the timber was cut, and the other 1 percent going to the state. In California, all 2.9 percent of its harvest tax goes to the county of origin.
But in Oregon, a flat fee of $4.32 per thousand board feet is charged, and that revenue, as Ernie Niemi of Natural Resource Economics, put it, “goes from the industry’s left pocket and into their right pocket” because it only pays for programs that benefit the industry.
But is this flat fee of $4.32 on par with 5 percent? Not even close. Douglas fir sales in western Oregon during 2017 yielded receipts ranging from $322 per thousand board feet to $453 per thousand board feet. Five percent of those sales ranges from $16 to $22 per thousand board feet – far more than $4.32. Even when you calculate 5 percent of the value of Douglas fir that was salvaged after a fire, it still amounts to more than what Oregon charges as a harvest tax.
Niemi examined the amount of severance taxes Oregon could have collected in its timber heavy counties over the years if it applied Washington or California’s system of taxation. With Washington’s system, counties would have collected about $50 million in 2011, the most recent year he analyzed. With California’s system, they would have collected about $30 million. But instead, they collected about $10 million, with none benefitting county budgets.
“I’m really not covering anything new here,” Willer said of his presentation. “It’s all been explored and seldom talked about in polite political circles in Oregon.”
Willer said he plans to continue his cross-state crusade, educating activists and other interested parties about Oregon timberland ownership and taxes.
“He got people’s blood boiling,” said Roger Dorband, who saw Willer’s presentation at Clatsop Community College in November. “It’s been a topic with our group ever since.”
When Willer gave a presentation at the Tillamook County Library last summer, he said seven forest industry representatives attended. We were able to track down one of them, but he declined to comment for this story.
The Oregon Forest Industries Council also declined to comment, and no timber company we contacted – small or large – was willing to go on the record to talk about their tax burden.
“The timber industry is responding,” Willer said. “They’re trying to put out fires. My job is to fan the flames.”
Email Senior Staff Reporter Emily Green at emily@streetroots.org . Follow her on Twitter @greenwrites .
Street Roots is an award-winning, nonprofit, weekly newspaper focusing on economic, environmental and social justice issues. Our newspaper is sold in Portland, Oregon, by people experiencing homelessness and/or extreme poverty as means of earning an income with dignity. Learn more about Street Roots
