MAY 14, 1975. Mr. R. E. WORTHINGTON, Director of Timber Management, U.S. Forest Service, South Agriculture Building, Washington, D.C. DEAR DICK: We are in receipt of a Forest Service Discussion Paper, under cover of your April 8, 1975 cover letter, which pertained to many of the significant factors in the current SBA Set-Aside Program. In my opinion, however, it fails to address itself to some of the most important factors which adversely affects our company, Duke City Lumber Company, Inc. Under separate cover, Mr. Carl Hakenson of our company has written to you regarding your solicitation of comments and it would be appreciated if the following were also considered and given recognition in the deliberations that you contemplate to possibly recompute procedures in developing operating instructions for the 1976-80 period. At the outset I would strongly urge, or perhaps, better stated, we would demand that the Forest Service institute rule making procedures under the Administrative Procedure Act and, accordingly, it is the position of Duke City Lumber Company that the Forest Service is required to consider revisions to the Set-Aside Program pursuant to the public participation provisions of the Administrative Procedure Act (5 USC § 553) and that any regulatory action taken without compliance therewith would be invalid. Our following letter of comment should not be deemed to constitute a waiver of our rights under the aforesaid public participation provisions. From the very outset of the SBA Set-Aside Program we have attempted to point out the inequity of the Small Business base share that was established for the Carson National Forest and we raised significant questions with both the Forest Supervisor and the Regional Forester. We pointed out in great detail that during the computation period, being considered for the establishment of the base share for small business that Duke City Lumber Company had bid the Sierra Unit with an estimated appraised volume of 5,400,000 board feet. The actual volume cut and scaled by the U.S. Forest Service was 16,636,000 board feet. It is a matter of additional interest that the 16,636,000 board feet was ultimately cut from the Sierra Unit that was originally estimated to yield 5,400,000 board feet, did not represent the total volume of timber that was available from that sale. By mutual agreement, the Sierra Unit was ultimately terminated, however, a review of the record will disclose that Duke City Lumber Company subsequently bid Sierra No. 2 and Sierra No. 3 at later dates. Our efforts to point out to the Forest Service that very substantial over cuts, amounting to more than three times the estimated volume, would have profound effects upon the base share determinations that were being considered, were of no avail. In addition to the overcut on the Sierra Unit there was an additional overcut on the Yeso Unit, which was cut during the same period of base shared determination. The Yeso Unit had an estimated appraised volume of 15,400,000 ft. and the actual volume cut and scaled by the U.S. Forest Service was 21,087,000 bd. ft., and this volume too was not considered in base share computation. On November 29, 1971, a letter from the Supervisor of the Carson National Forest advised us that, "the Regional Forester and Mr. Ken Meister of the Small Business Administration have agreed to 64% of the timber volume offered on the Carson National Forest as the base share for small business." In answer to our many requests for information and further requests that we be permitted to provide some opportunity for input into the base share determination, we were advised by the Supervisor of the Carson National Forest on April 14, 1972, “At a joint meeting of the SBA and the U.S. Forest Service, held in San Francisco, the Carson National Forest Sale Program for the 1966-70 was presented for discussion. It was a joint agreement that sales which were made as long-term sales could be considered. Sales that became long-term sales through extensions and overcuts would not be considered." On April 24th we wrote to the Supervisor and requested a re-evaluation of the base share analysis for the Carson National Forest. On April 28th, 1972, we received a response from the Regional Forester, who said in part, "as you are aware, our personnel has spent considerable time and effort evaluating and reevaluating the base shares Region-wide. At this point, I see no opportunity for changing the base shares as now established." Dick, I submit that a meeting between the Regional Forester and Mr. Ken Meister of the Small Business Administration, that resulted in an agreement of 64% of the timber volume offered on the Carson National Forest should be the base share for small business and completely overlooking and unwilling to recognize the facts that were submitted, might be considered by some to be arbitrary, unreasonable, and perhaps an abuse of their authority. It must be pointed out and borne in mind that the very substantial overcuts, were estimated timber sales volume of 5,400,000 ft. that ultimately yielded an excess of 16,000,000 bd. ft., cannot be attributed to any mismanagement or any incompetence on the part of Duke City Lumber Company but rather that any effort toward establishing equity in the determination of base shares would give proper consideration to the actual volumes cut in the determination of allocations for the period under consideration. While I was very concerned by the inequities that were presented at that time, these concerns are only magnified and multiplied because it would appear that this base share determination has now become cast in concrete. As the program is set up, any further considerations following this same line of reasoning, can only result in an ever-decreasing share for the non-small or large business sector of the industry. The current structuring of the Set-Aside Program, inevitably, will further erode the large business share and in successive five-year periods, will result in increasing base shares on any Forest where small business has bid aggressively on open sales. This very real and inescapable result, undoubtedly, will carry the SetAside Program far beyond the authorization, and the intent of the Small Business Act, which presumably was to assure small business it's "fair share". Dick, I am certain that you can understand that a frustration that has festered for four years can be a overwhelming and somewhat consuming thing and that coupled with a structuring of the Set-Aside Program that inevitably results in increasing base share in successive five-year periods where small business has bid aggressively, has generated within us a real concern as to the ultimate fate of our company. Any forum or hearing that you are able to give our company regarding these two important factors would be greatly appreciated. In further comment, on your Discussion Paper I would like to state the following: A. I feel relatively certain that a careful review of the Set-Aside Program, as it has been carried out since its inception, would disclose a substantial divergence in bid premiums on Set-Aside versus non-set-aside sales. It further appears to be inescapably evident that the Set-Aside Program provides for an open season for aggressive small businesses to move in and out of the market and bid on open sales that are available to large business and sit under the protective cover of their Set-Aside Programs. B. The size standard is unreasonably high for our industry. The present size standard applicable to sales of government owned timber permits all businesses having 500 employees or less to qualify as small business concerns. Originally the small business criterion was limited to businesses having 100 employees or less. This employee size limitation was later increased to 250 employees in 1959 and to 500 employees in 1964. As you recall, in August of 1974, there was testimony submitted before Senator Allan Cranston's committee and SBA Administrator Kleppe indicated that his agency was in the process of making a size standard analysis and review. We feel that the present size standard is much too high and we have yet to hear anything regarding SBA's follow up on their program of evaluation and review. We believe that a proper objective analysis of the size of concerns in the forest products industry would inevitably lead one to the conclusion that Set-Asides should be limited in the West to sawmills which employ fewer than 100 persons. C. For sales that are Third Partied by an original purchaser who either remains in business or gets out of business, it is our viewpoint that the volumes effected by the assignment, regardless of when the sale was bought by the original purchaser, should be placed in the size category of the assignee. D. We are now facing a problem wherein some effort may be made to designate Set-Asides during the last six month period of our present five year cycle. We believe that it is improper to designate Set-Asides during the last six month period of the five-year cycle when they have not otherwise been triggered. There is, after all, no corresponding mechanism for restoring large business to it's original base share position if it had failed to purchase all open sales during the five-year corresponding period. Consideration of the above would be greatly appreciated and further opportunity to participate in the rule making procedures under the terms of the Administrative Procedure Act we believe is necessary and mandatory if equitable policies are to be established. Very sincerely yours, Mr. R. E. WORTHINGTON, DIRECTOR, South Building, Washington, D.C. DUKE CITY LUMBER CO., INC., MAY 15, 1975. DEAR MR. WORTHINGTON: We received a letter dated April 8, 1975 from your office, to interested National Forest timber purchasers, regarding review of possible changes in Forest Service Timber Sale Set-Aside Programs. You have asked for comments. Our company is not Small Business, per the terms which have been set up by the S.B.A. and the Forest Service. We are extremely interested and wish to have input for the record, since our stake in this whole matter is extremely critical. It seems unbelievable that our government has the power and control which stifles competition, although the Forest Service has in the past been known as a productive agency. Your remarks are prefaced on Page One that, "all is well since field personnel have supplied you with input that the Program is operating satisfactorily.” This certainly can be disputed from those of us who are adversely affected by the Small Business Administration Set-Aside Program. I think a good example is close at home, here in Northern New Mexico, where the Carson National Forest has stated that they will sell, during the period of January 1 thru Dec. 31, 1975, a total of 33.5 million board feet. The Carson National Forest Timber Sale Plan only shows one Sale that we can definitely plan on bidding and this is the Mestenas Timber Sale. The Lookout Timber Sale is a designated Sale for the Vallecitos Federal Sustained Yield Unit. I am enclosing a copy of the Sales Program for your study. You will note that the Madera, Ranchos, Cow and Top Pot are all SBA set-asides. The Gravey, Maquinita, Tonita II and Lakes are tentatively designated as set-asides if the Set-Aside Program is triggered. What would you do if you had a sawmill, employing 150 people and considered large business, right in the middle of this Forest? There is absolutely no way to plan an operation under the terms outlined above. Several years ago our company built a modern mill in a depressed area with the assumption that a substantial amount of our production would come from the Carson National Forest. Only an organization such as SBA could come up with a proposal which has the net effect of putting Duke City Lumber Company's mill at Espanola out of business or, at least, on a very curtailed production rate within the next few years. With curtailed production there will be loss of jobs and, of course, this can only mean more people jumping on the bandwagon for more dole and handouts from Washington. I cannot stress strongly enough that our Company's very life is predicated on purchasing National timber and the report that I have here in front of me is nothing but a blueprint and plan between the Forest Service and the SBA to; (1) put certain companies out of business; (2) to enlarge the scope of regulation of our government to an already over-regulated industry and society. SBA is stifling the open bidding process of selling federal timber to the extent that fair market values are not being realized for federal timber. I refer to a Sale called the Madera Sale on the Carson Forest, which is right in the middle of an area which has been historically logged by Duke City over the past years. Duke City was interested in this Sale but because of SBA restrictions the Sale was sold at advertised rates, even though Duke City Lumber Company did place a bid on the Sale but it was rejected. As usual, the taxpayers are losing out in this game of discrimination and guaranteeing volume and low stumpage prices for a select few in our industry, who happen to be "small business." There were many Sales, including SBA designated Sales, that did not sell during the third and fourth quarters of 1974. When Sales designated as SBA Sales do not sell, it means to me that SBA mills are not interested in the timber for many reasons. The fact remains that if an SBA Sale does not sell it should not continue to be held in perpetuity as part of the SBA base share. Your item No. 4 is basically untrue. It talks about mutual agreement between the Forest Service and SBA representatives after a consultation with local industry. We finished a Timber Sale two years ago that our company spent several years logging, containing large volumes of dead and dying spruce, in an attempt to control the Englemann Spruce Beetle. I can assure you that we would have rather been in areas other than this high altitude spruce type to fulfill the production needs of our mill, but because we are a company interested in the wellbeing of our forests, we dedicated ourselves to complete the job in hand and, subsequently, have been penalized by SBA and the U.S. Forest Service for the efforts undertaken through the Set-Aside Program. The main point that I wish to make is that up to now we have never been contacted regarding our part in prospective Salvage Sale Programs. Your Item No. 5 certainly doesn't cover a situation that has happened here in Northern New Mexico in the last two years. There have been two small business mills in our area which have gone out of busines for reasons which are all too obvious; their costs exceeded their realizations. Both of these mills contacted Duke City and offered the timber that they had under contract to our company. I can assure you that we will make every effort possible to see to it that the volume that these companies ask us to Third Party will be considered as our share of the allocation of timber during the 1976-80 period. One important item that could be covered in your dissertation is regarding plant size. Presently contract loggers delivering to SBA mills are not considered as part of an employee number compilation in determining size classification. If a mill employing 499 employees is a wholly owned subsidiary of a conglomerate, whose main business is the manufacture of panty hose, the sawmill is considered as large business. We should also expect that all affiliates of all lumber manufacturing businesses, whether they be considered large or small, be included in the compilation of size classification. There are, no doubt, small businesses that have Boards of Directors who are principals of other companies and, by all means, these affiliates should be considered in the size determination of the SBA classification. After having read and re-read the report, "Review of Possible Changes in Forest Service Timber Sale Set-Aside Program, I am all the more confused about the subject in hand. Having talked to many Forest Service officials about the interpretation of administration of this Program, it is little wonder that SBA has grown to the giant that it has become, which can manipulate the future and destiny of our industry with the stroke of a pen. I appreciate being able to offer our candid opinion of the changes that are being proposed and I would hope that somehow this report can get into the hands of those who can see the social and economic problems that this whole mess of SBA set-asides has caused. Yours very truly, DUKE CITY LUMBER CO., INC., CARL HAKENSON. M EDFORD CORPORATION P.O. BOX 550. MEDFORD, OREGON 97501 ★ TELEPHONE 503-773-7491 November 7, 1975 Honorable Bob Packwood 6327 Dirksen Senate Office Building Dear Bob: We sincerely appreciate your efforts in bringing about a review of the S.B.A. timber set-aside program by the Senate Select Committee cn Small Business. I'm sorry that I cannot testify personally before your committee as the set-aside issue is a bread and butter gut issue with us. Enclosed is the testimony we prepared for delivery at the Bob, this program as it is currently structured is really Again, thank you for your interest in our problems. Warmest regards, W Newbry Government Affairs LWN/d1 Enclosure |