3.26.2008

One-on-one with Mark Lovelace

One-on-one with Mark Lovelace
by Glenn Franco Simmons

The Eureka Reporter

(Editor’s note: In last week’s Eureka Reporter, there was a story about
The Pacific Lumber Co. that featured an interview with PALCO President
and Chief Executive Officer Robert Manne. This week’s story features an
interview with Mark Lovelace of the Humboldt Watershed Council.)

The Humboldt Watershed Council said it would like to support The Pacific
Lumber Co., but it finds itself unable to do that.

“We would love to see PL be a company that we could support and get
behind,” said watershed council President Mark Lovelace, “because timber
is an important part of our economy up here. Unfortunately, there are
some long-standing issues with Pacific Lumber Co. that make that an
uphill battle.”

Part of the problem, Lovelace said, is flooding in the Freshwater and
Elk River watersheds.

“The watershed council and residents of Elk River and Freshwater have
been dealing for years with the impacts (of logging),” he said. “There
have been the damages caused by flooding that these residents have been
suffering from. There are people in these watersheds who have boats who
only use them for getting around when it floods.”

Lovelace said it takes about 1.24 inches in a 24-hour period to flood
some areas of these watersheds — and, it causes significant problems for
some residents.

“It causes damage to people’s homes, their foundations, vehicles, septic
systems and wells,” he said. “When a septic tank is flooded and you have
a well on your property, then you have just got septic contamination in
your well. People have been told by the (county) Health Department that
any time it floods, they need to put on waders, rubber gloves and masks
and scrub their whole house out because they have septic contamination
in it.

“And there are people in these watersheds who have taken to keeping a
Sharpie around so that every time it floods, on their door jam they keep
track of the height of the flood.”

Lovelace said there is one house that is more than 100 years old that
has recordings of floods in it.

“It has markings from the whole 100-year history,” he said. “Almost all
the marks have been from the last 15 years, so it (flooding) is a real
serious problem.”

Lovelace said the cause of the flooding is overlogging.

“The watershed council and residents of Elk River and Freshwater have
been dealing for years with the impacts: the flooding and damages caused
by the flooding,” he said. “They first started noticing problems with
the river and Freshwater Creek in the early 1990s and formed a group
called the Friends of Freshwater.

“It wasn’t until 1996 that things really got to be too bad. At that
point, residents in both of these watersheds started forming, in
conjunction with some other people, what became the Humboldt Watershed
Council, in 1997.”

The organization started going to various agencies involved in the
timber harvest approval process.

“They started going to the Board of Forestry, with an emergency petition
that went no where,” Lovelace said. “They went to CDF, likewise, which
didn’t do anything about it (flooding). They really had a huge learning
curve about what these agencies will or won’t do. And they started going
to the regional water board.”

The water board began looking at watersheds in total and said there were
problems from cumulative logging that caused increased sedimentation
but it wasn’t only in Freshwater and Elk River watersheds, Lovelace
said.

“It was Freshwater, Elk River, and Bear, Stitz and Jordan creeks,” he
said. “They called them the five watersheds. Along with being impacted,
what these five watersheds have in common is that they are all owned in
the majority or completely by The Pacific Lumber Co.

“Flooding used to happen, on average, maybe twice a decade. It is now
happening as often as four or five times a year. Over all these years,
they have yet to get any relief from this flooding. The agencies have
studied the issue, they have looked at it for many years. The water
board has an appointed board that presides over the staff, and the board
has been convinced by PL and others that their (water board) staff was
out of line. Their staff was saying the problem was that there was too
much timber harvesting, and the board didn’t believe them for a long
time.

“It took years and years of research,” Lovelace said. “The board had
lots of independent studies done. They commissioned independent
scientific review panel reports and they tried to facilitate mediation
between the residents and PL, which failed because PL said they would
not allow any discussion of the rate-of-harvest issue. The rate of
harvest was just off-limits.”

The flooding, Lovelace said, can be traced back to when PALCO was first
acquired by MAXXAM.

“MAXXAM was an investment company,” he said. “They had no background in
timber. They knew nothing about timber harvesting, so one of the first
things they did after acquiring PL was to hire a consultant called
Pacific Meridian Resources to study what they had acquired and how they
should run the business.”

Lovelace said PALCO then became a company that would start liquidating
its timber resource with heavy logging and high employment. He claimed
PALCO knew that down the line, its rate of harvest would lead to less
logging and less employment, meaning mills would have to shutdown and
employees be laid off.

“After the 1985 takeover by MAXXAM, PL’s rate of harvest increased
dramatically,” according to a handout Lovelace gave The Eureka Reporter.
“By 1999, it had skyrocketed to 10 times PL’s historic average, and
three times PL’s previous highest rate ever.

“CDF later reduced that rate somewhat to the current 500- and 600-acre
caps in Freshwater and Elk River, respectively, but those rates are
still four times the historic average and 50 percent greater than PL’s
highest-ever pre-MAXXAM rate.”

The watershed council said the current timber harvest rate is high and
comes “on top of the devastation already caused by the even-higher rates
of the 1990s.”

“Effectively, CDF responded to the designation of these watersheds as
impaired by granting PL a rate of harvest that was higher than they had
ever been subjected to in the 135 years before MAXXAM took over,”
according to the handout. “This rate of harvest was driven by a plan to
maintain not pay off the debt that had been incurred through
MAXXAM’s leveraged buyout of the company.

“Since 1986, a steady ‘upstreaming’ of $100 million per year to MAXXAM
kept PL bordering on the brink of bankruptcy. The only significant
payment towards principal occurred when MAXXAM sold off PL’s cutting and
welding division and gutted the employee retirement plan, netting some
$431 million. Even then, the majority of this profit went straight to
MAXXAM.”

In 1993, the council said, MAXXAM refinanced its debt, taking hundreds
of millions of dollars out of the company while returning the debt to
its 1985 level.

“In 1998, MAXXAM refinanced again,” the handout stated. “This time they
mortgaged all of the company’s timberlands, leaving PL in as much debt
as ever, but minus its greatest asset.

“The significance of this arrangement is two-fold: First MAXXAM used its
increased rate of cut as a way to show a track record of growth before
making a public offering. At the same time, MAXXAM lobbied CDF that they
need a high rate of harvest to meet their outstanding financial
obligations.”

The council said PALCO is structured so that its profits flow to MAXXAM
“while (it) remains on the edge of bankruptcy.”

Lovelace said the net result is that MAXXAM has intentionally
manipulated PL into a precarious financial situation so as to guarantee
a steady income stream and to ensure that state regulatory agencies
won’t curtail PALCO’s rate of harvest, for fear of economic hardship.

“You’ve got a resource that is renewable but it only renews at a certain
rate,” he said. “Trees only grow so fast. If you log in excess of that,
you can’t sustain it. The more you log upfront, the more of a decline
you are going to have further down the line.”

Lovelace said PL is cutting too much by selectively logging an area and
then going in 15 years later and harvesting the rest of the lumber.

“When you are talking about trees that should have a lifecycle of around
600 years, the idea that a 15-year difference in age qualifies for
uneven-aged harvest (is incorrect),” Lovelace said.

He said the net effect of such logging “means there is little
harvestable timber” that PALCO is logging.

And it’s the cumulative impact of logging on multiple timber harvest
plans in single watersheds that has Lovelace and others concerned. He
said CDF looks at each harvest plan as an isolated plan, rather than
contributing to a cumulative effect in a watershed.

“They (CDF) keep approving each timber harvest plan based on one timber
harvest plan; meanwhile, their stack of plans to approve keeps growing
and they are not looking cumulatively at all of these timber harvest
plans having an impact. They claim to, but they simply don’t have a
mechanism to do that. CDF does not even have a desire to look at
cumulative impact.

“CDF is supposed to regulate the impact of timber harvesting and they
have to protect the public interest, but at the same time they are
supposed to be advocates for and facilitate timber harvest plans. You
can’t really do both, so they typically, consistently, opt for
facilitating and advocating for timber harvesting.”

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