Houston Chron - Timber war may live longer than redwoods

Timber war may live longer than redwoods
By LOREN STEFFY
Copyright 2005 Houston Chronicle June 16, 2005, 9:37PM

SACRAMENTO, CALIF. — The timber wars were supposed to be over.
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The peace accord came in 1999, when the federal government and the state of California bought 7,500 acres of old-growth redwood trees from Pacific Lumber for more than $400 million. The lumber company agreed to new environmental and logging restrictions.

That, Pacific Lumber officials figured, would allow it to make a profit for its parent company, Houston-based Maxxam, and meet its obligations to employees.

"It all made sense in 1999," says Robert Manne, Pacific Lumber's president, sitting in his office in the company-owned town of Scotia. It was a balance among "the environmental, the economic and the social aspects of what we were doing."

These days, it's hard to believe there was a truce. Just this week, Palco, as the company is known, was in court in Eureka, where the district attorney had accused it of fraud. The DA claimed Palco submitted a misleading landslide study to a regional water board. A judge threw out the case on Tuesday.

By Thursday, Manne and other Palco officials were here in the state capital, five hours southeast of Scotia, arguing against state water board restrictions on logging in several key watersheds that Palco claims it has the right to cut under the 1999 agreement.

The water board disagreed. In public filings, Palco has said the restrictions may force it or its subsidiary, Scotia Pacific, into bankruptcy.

Environmentalists, cheering what they see as a significant victory, dismissed that notion.

"They deliberately keep themselves on the brink of bankruptcy," says Paul Mason, a legislative representative with the Sierra Club, which has battled Palco for years. "It's a shell game by very clever financial minds."

There are few things both sides agree on, but one is that the whole battle is probably headed to court. That would have to happen before July 19, which is the deadline for the next debt payments due on Scotia Pacific's publicly traded bonds. Those bonds are backed by the value of the company's timberland. Based on Thursday's ruling, the company can't log enough to make the interest payment, Manne says.

It's the latest twist in a 20-year battle that began when Houston financier Charles Hurwitz bought the company in a 1986 leveraged buyout. The deal made Hurwitz a villain to environmentalists, who portray him as a greedy corporate raider who wants to fell every redwood in the region for a quick buck.

Revisiting agreement

The water boards are, in essence, revisiting the 1999 agreement, which created the federal Headwaters Reserve of old-growth redwoods.

"That duplicative review process is killing us," Manne says. In the past five years, Palco's employment has fallen by half, to 800 from 1,600, and Manne says those declines may continue. The company has closed mills, and Manne says the log decks in Scotia, where the freshly cut trees arrive for processing, are "an embarrassment" because they're so empty.

Under the 1999 agreement with the state, Palco agreed to limit logging to 178 million board feet a year, down from more than 220 board feet before the deal was signed. With the water board restrictions, it's cutting about 100 million.

Mismanagement charged

In its review of Palco's operations, released in April, a member of the water board's staff said Maxxam has mismanaged Palco, burdening the company with debt and logging at unsustainable rates.

"It was almost juvenile in its analysis," Manne says.

Mason, with the Sierra Club, argues that Palco is hiding behind the Headwaters agreement, using it as a blanket exemption from all environmental restrictions.

Hurwitz has never been one to run from a fight, and he may enjoy testing the limits of government regulation. But no one's ever proven that he's broken it, and that is part of what galls his opponents.

As one told me after the hearing, what they find so upsetting about Palco is that everything it's done is legal.

Both sides determined

After years of following the Maxxam-Palco-redwoods saga, one thing is clear: The environmentalists are as determined to stop Palco from cutting trees as Hurwitz is to keep doing it.

The Headwaters agreement was supposed to end the timber wars. The activists came down from the trees. The company sold or set aside most of its old-growth timber and invested $30 million in a new mill here designed to handle younger trees.
It was part of a plan that was supposed to push Palco to forefront of the industry and make it an example of environmental responsibility.

"It never happened," Manne says.

The timber wars never ended. Sometimes, the battle is so divisive that a truce is unattainable.

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays.