BILL ANALYSIS
SB 557
Page 1
Date of Hearing: June 21, 2004
ASSEMBLY COMMITTEE ON NATURAL RESOURCES
Hannah-Beth Jackson, Chair
SB 557 (Kuehl) - As Amended: June 15, 2004
SENATE VOTE : 21-14
SUBJECT : Timber harvesting: funding.
SUMMARY : This bill imposes an excise tax of two cents for each
board foot, or board foot equivalent, of timber products, or
composite products, to be used for the administration and review
timber harvesting plans (THP).
EXISTING LAW :
1)Pursuant to the Z'berg-Nejedly Forest Practice Act of 1973
(commencing with 4511 of the Public Resources Code)(Act),
prohibits any person from conducting timber operations unless
the person has submitted a THP to the California Department of
Forestry and Fire Protection (CDF) and received approval of
the plan from the Director of CDF. THPs must comply with the
Act and forest practice rules adopted by the State Board of
Forestry and Fire Protection (Board) for the area of the
proposed harvest. Further, a THP that may result in a
sediment discharge into an impaired watercourse is also
subject to review and approval by the appropriate regional
water quality control board.
2)Allows money in the Forest Resources Improvement Fund to be
expended, upon appropriation by the Legislature, for specified
purposes relating to forest resources and to reimburse the
General Fund for the costs of operation of state forests
administered by CDF.
THIS BILL :
1)Defines, solely for purposes of the Timber Harvest Review,
Fire Protection, and Forest Restoration Account (Account):
a) "Account" to mean the Timber Harvest Review, Fire
Protection, and Restoration Account;
SB 557
Page 2
b) "Board" to mean the State Board of Equalization (BOE);
c) "Board foot" to mean the cubic volume of sawn lumber
equal to 144 cubic inches;
d) "Board foot equivalent" to mean the calculated board
foot volume of wood fiber within various non-sawn wood
products;
e) "Distribution" to mean any of the following:
i) The sale, or donation, of timber products in
California;
ii) The importing of timber products into California,
unless prohibited by the U.S. Constitution;
iii) The receiving, in California, by a distributor of
timber products, absent prior taxable distribution;
f) "Distributor" to mean a person who distributes timber
products;
g) "Redistribution" to mean the sale, donation or use,
within California by a distributor on which the tax has
been imposed;
h) "Engineered wood product" to mean any panel product
where wood is a component part;
i) "Nominal size" to mean the dimensions used within the
forest practices industry by which lumber volume is
calculated and sold;
j) "Person" to mean an individual, firm, partnership or
another group or combination acting as a unit; and,
aa) "Timber product" to mean a product sold in California in
which wood or wood fiber is a principal component part.
2)Establishes the Account within the General Fund and requires
the funds of this account be used only for the uses designated
in this bill.
3)Requires BOE to collect an excise tax on all of the timber
SB 557
Page 3
products, described by this bill, that are sold for
consumption in California and deposit these tax funds into the
Account.
4)Requires a distributor to pay an excise tax of two cents for
each board foot, or board foot equivalent, of timber products,
or composite products, distributed by that distributor.
5)Requires this excise tax to be due to BOE quarterly on or
before the 25th day of the calendar month following the
quarterly period for which the tax is due.
6)Requires BOE to reimburse its administrative costs, not to
exceed 3 percent of the Account per fiscal year.
7)Requires BOE to prescribe a method by which a timber product
distributor shall calculate the board foot or board foot
equivalent.
8)Requires the funds in the Account to be spent solely:
a) To pay refunds for erroneous overpayment;
b) To administer and review operations directly connected
with the review of THPs;
c) For transfer to the Forest Resources Improvement Fund
within CDF; and,
d) To provide grants to local agencies responsible for fire
protection and voluntary associations to undertake
hazardous fuel reduction projects.
9)Allows CDF to borrow, interest free, against anticipated
revenues to the Account to meet cash flow needs.
10)Requires an unspecified amount of money be appropriated to
BOE, in the 2004-05 fiscal year, to implement this program.
11)Makes various findings and declarations, regarding timber
harvesting.
FISCAL EFFECT : Unknown
COMMENTS :
SB 557
Page 4
1)Background
According to the author's office, this bill provides funding for
valuable forestry management programs by spreading a small tax
across a large number of lumber users. While many have argued
for a fee on timber operators, the author's office contends
that such a fee could impose too great a burden on the
industry. The author's office states that it is important to
improve the environmental performance of the industry but
equally important to maintain timberlands, which provide
important habitat as well as an economic base for many rural
communities. Given the current fiscal crunch in the state,
this bill will improve the current THP review programs.
2)2 Cent Tax
According to the author's office, this bill creates a 2 cents
per board foot wholesale tax on raw and engineered timber
product, and not manufactured goods, to generate revenues for
the following three purposes:
a) Fully fund the review of THPs by the present reviewing
agencies: Department of Forestry, Department of Fish and
Game, Department of Conservation, and regional water
boards, which costs approximately $25 million per year;
b) Fully fund the Forest Resources Improvement Fund (FRIF)
within CDF. This is an important program for habitat and
for incentives to landowners to improve their logging
practices. It is presently budgeted only for about $4.4
million in the Governor's budget. It recently had revenues
closer to $12 million; and,
c) To fund a new grant program at CDF for fuel reduction
efforts on private lands. The current situation is
unacceptable for communities, the future of the timber
industry, landowners, fire departments and environmental
organizations. The state needs a way to fund fuel
reduction efforts, especially in the wildland-urban
interface, that protects communities and implements the
California Fire Plan. The author's office hopes to create
dedicated funding source of approximately $30 million per
year to help reduce fuel loading on private lands.
SB 557
Page 5
3)Governor's Proposal
According to the author's office, this bill is a sharp contrast
to the Governor's proposal which would impose a $10 million
fee on the timber industry for the review of THPs. This would
be collected as a surcharge on the timber yield tax.
According to the author's office, the California timber
industry is facing strong price pressures from global
importers and would be damaged by another substantial new fee.
Faced with a choice of an increase in the timber yield tax or
a tax on those who purchase timber products, proponents
believe that the more broadly-based tax is more fair and
equitable. The 2 cents per board foot approach would amount
to an approximate $200 increase in the price of an average new
home, which is modest compared to the effects of a $10 million
fee on those who harvest timber. Also, the Governor's
proposal does not take into account the full funding of FRIF
or the need for fuel reduction efforts. If implemented, the
bill would be administered by BOE, which estimates that the
fee would generate about $60 million per year.
Proponents argue that agencies with reviewing responsibilities
currently review in the field only 10-15% of THPs received,
despite the fact that forestry practices have a significant
impact on California's environment. Proponents also argue
that mitigation which has been required is often insufficient.
Supporters state that the program would bring in up to $100
million annually and feel that this amount will help begin to
reverse the negative legacy of the forestry industry on the
environment.
4)Suggested Amendments
To further clarify the definition of "timber products," on page
7, line 27, after "product." add,
Timber products do not include products sold at wholesale
or retail which require no further manufacturing.
To target the proper distributors, on page 8, line 14,
after "distributor." add,
Saw mills, that generate $100,000 year annual gross or
less, that would otherwise be subject to this bill are
exempt.
SB 557
Page 6
5)Opposition Concerns
Opponents argue that a new tax would be a tremendous accounting
and implementation burden to lumber retailers. According to
opponents, there is no system or method currently in place to
calculate how this tax should be collected. Opponents also
question how California will collect the tax from out of state
mills that ship directly to a California job site.
6)Vote Required
This bill requires a 2/3 vote because it changes state taxes
within the meaning of Article XIIIA of the Constitution
(Proposition 13 of 1978).
REGISTERED SUPPORT / OPPOSITION, AS OF JANUARY 7, 2004 :
Support
Californians Against Waste
Defenders of Wildlife
Harwood Products
Sierra Club California
Opposition
American Forest & Paper Association
Bruce Bauer Lumber & Supply
Burnett & Sons Planing and Lumber Co. Inc.
California Building Industry Association
California Business Properties Association
California Chapter of the American Fence Contractors'
Association
California Chamber of Commerce
California Fence Contractors' Association
California Manufacturing and Technology Association
California Retailers Association
California Taxpayers Association
Colonial Lumber Company
Engineering Contractors' Association
SB 557
Page 7
Lumber Association of California and Nevada
Marin Builders' Association
National Federation of Independent Business
Novato Builders Supply, Inc.
Topanga Lumber & Hardware
Western Wood Preservers Institute
Analysis Prepared by : Manuel Valencia / NAT. RES. / (916)
319-2092