The Hardwood Federation Newsletter

Tall Wood Buildings Really Growing

July 2016

The heat index is soaring in D.C. and Congress has left town.   Both the Democrats and the Republicans have wrapped up their respective conventions nominating their presidential candidates - anyone out there hear anything about either of these over the past few weeks?? You would think that things were on the quiet side in Washington D.C., but that is far from the truth.  We are just warming up for the fall Congressional schedule and are well into planning this year's Fall Fly-In which will be held Sept. 20-22.  Hopefully you are planning to attend and the dates are on your calendar.  (If it isn't, you can register at HF Fly-In 2016.)  One very big issue we will be covering in the fall will be the Tall Wood Buildings legislation currently circulating within the Capitol corridors.
 
Before breaking for recess, the House and Senate introduced nearly identical "Timber Innovation Act" (TIA) bills.  (S. 2892 and HR. 5628).  Senators Debbie Stabenow (D-MI) and Mike Crapo (R-ID) introduced S. 2892; Representatives Suzan DelBene (D-WA), Glenn Thompson (R-PA), Derek Kilmer (D-WA) and Cathy McMorris-Rodgers (R-WA) introduced the House companion version of the bill.  The Hardwood Federation was instrumental in securing the co-sponsorship of Congressman Thompson. The bills would create opportunities to use wood products, including mass timber, in the construction of tall wood buildings. The TIA would do the following:

• Establish performance driven research and development program for advancing tall wood building construction in the United States;
• Authorize the Tall Wood Building Prize Competition through the U.S. Department of Agriculture (USDA) annually for the next five years;
• Codify the Forest Service's Wood Innovation Grant program and expand it to facilitate Centers of Excellence and provide grants to states to fund education, outreach, research and development, including education and assistance for architects and builders, which will accelerate the use of wood in tall buildings.
• Additionally, the House bill (H.R. 5628) has a provision which would incentivize retrofitting existing facilities located in areas with high unemployment rates.

Anti-Forestry Amendment Defeated
An anti-forestry amendment to the House of Representatives Interior Appropriations Bill presented by Rep. Debbie Dingell (D-MI, 12) was defeated on a bipartisan vote of 170-256.  The amendment  sought to strike a provision in the underlying bill which authorizes the Forest Service to use a targeted, 3,000-acre "categorical exclusion" for projects specifically intended to address an insect or disease infestation; reduce hazardous fuel loads; protect a municipal water source; maintain, enhance, or modify critical habitat to protect it from catastrophic disturbances; or increase water yield. The Forest Service is already using a similar tool, and this broader authority would streamline projects intended to improve watersheds and habitat anywhere on the National Forest system where active management is allowed.  These kinds of provisions aimed at facilitating forest management on our overgrown, diseased and insect-infested federal lands are exactly what we are trying to enact as part of more comprehensive federal forest management reform.  
 
A special thank you to those on the Democratic side of the aisle who voted against this amendment despite pressure from leadership.  They re Ami Bera (D-CA), Jim Costa (D-CA), Henry Cuellar (D-TX), Peter DeFazio (D-OR), John Garamendi (D-CA), Gwen Graham (D-FL), Denny Heck (D-WA), Derek Kilmer (D-WA), Ann Kuster (D-NH), Jim McDermott (D-WA), Rick Nolan (D-MN), Collin Peterson (D-MN), Kurt Schrader (D-OR), Kyrsten Sinema (D-AZ) and Tim Walz (D-MN).

House Interior & EPA Spending Bill
The U.S. House of Representatives has passed a funding bill which would cut spending for the Department of Interior, the Environmental Protection Agency (EPA), and other programs by $64 billion over current levels, and is $1 billion less than what President Obama requested. The President has already issued a veto-threat, should the measure be sent to him for signature. The Senate has yet to approve its version of the Interior/EPA funding measure.
 
There are several provisions in the House bill supported by the wood products industry, including:

·         Recognizing the carbon neutrality of forest biomass

·         Blocking funding for implementation of EPA's Clean Power Plan

·         Blocking EPA from proceeding with new Ozone/NAAQS standards

·         Blocking EPA's Clean Water Rule, and,

·         Funding for the USFS National Forest Lab

Feedback from UK importers in the aftermath of the referendum vote is that their most immediate concern is the exchange rate. The value of sterling, which increased from $1.41 to $1.50 in the days leading up to the referendum on the expectation that "Remain" would win, fell sharply to a 30-year low of $1.32 on June 27 after the result. By the beginning of July it had recovered only slightly to $1.33.
 
UK import prices for American hardwoods have therefore increased and a prolonged hiatus in purchasing is now expected. Merchants and manufacturers already appear to be hunting for landed stock before looking to order from overseas. The extent to which prices for stock already landed in the UK now also rise depends on availability and the extent to which consumption slows in response to wider economic uncertainty. For now, UK importers report there is good availability of landed stock with no shortages on the ground in the main species - oak, tulipwood, ash and walnut. Overall there is probably enough stock on the ground in these species to tide the bulk of the UK market over the summer months. There's therefore likely to be a sharp slowdown in orders from UK importers at least until September and probably longer.
 
There was a sense of shock amongst UK hardwood importers in the week immediately after the referendum, but also a strong feeling that the trade will simply have to adapt and make the most of the new circumstances. Importers report that sales to manufacturers and merchants did not dry up after the referendum, although buying was quiet for the last week of June when there would usually be an uptick in activity. There were reports of some UK customers, while not placing new orders, sending out long lists of requirements during the week. As one agent commented, "it looks like they are fishing for new price structures as nobody is yet sure where the market will settle".

European Market Report, AHEC, June 2016

On Thursday June 16^th the Senate Appropriations Committee passed an FY17 Interior, Environment, and Related Agencies Spending Bill with language directing U.S. Federal Departments and Agencies to recognize that forest biomass carbon dioxide emissions from energy producing facilities using biomass as a feedstock do not require regulation or control.  The language effectively recognizes the carbon neutrality of forest biomass.  In a year that is half over, full of political ups and downs, rulings and non-starters, and an all encompassing presidential race, it was a welcome and impressive sight.  The Hardwood Federation and our forest products industry allies have been educating Members of Congress and fighting for such a ruling out of EPA for more than six years.  This is but one step in a long legislative slog, but a positive step and we deeply thank all of those involved in the process.
 
Senators Jeff Merkley (D-OR) and Susan Collins (R-ME) led the efforts in the Senate to secure this language in the Interior Appropriations bill.   We have been working with Senate offices where we have good relationships to build support for this provision.   The language is different than that included in the House Interior Appropriations bill, which may be on the House floor for consideration next week.  Differences would have to be worked out in the coming months before a final spending deal is forged likely near the end of the year.  The Senate language is legally tighter and more binding on EPA so we are working toward an outcome-either through appropriations or through an energy bill-where this provision becomes law this year.  
 
The Senate language that HF and our forest products industry associates will be supporting as the process goes to committee includes the following:
 

• Regulatory certainty within EPA on biomass energy carbon emissions based on well-established and broadly applied science data and analysis.

• Recognition that biomass energy does not increase atmospheric levels of carbon dioxide so long as timberland carbon stocks are stable or increasing based on data and analysis from the Forest Service's Forest Inventory and Analysis (FIA) program.

• Requires that changes in timberland carbon stocks be tracked in four FIA program regions with an adjustment to ensure that ID and MT, which have similar forests and markets to the Pacific Northwest states, are tracked along with them. Alaska and Hawaii, which are not currently measured by the FIA program, are treated individually.

• Recognition that certain feedstocks - forest products mill manufacturing residuals, harvest residues, biowastes, and material from forest management activities conducted to increase yield or maintain or enhance forest health - do not increase carbon dioxide in the atmosphere. 

ISSUES

Safety of Life at Sea (SOLAS)
With the July 1 implementation deadline for the Container Weight Amendment just around the corner, the Federal Maritime Commission's (FMC) Chairman Michael Cordero put out a statement on June 16 to further reiterate points from the U.S. Coast Guard's (USCG) bulletin on the container weight implementation and enforcement. This statement is a positive step forward in response to shipper concerns.   What was vexing to shippers is that the USCG was signaling that it would allow flexibility and that any current procedures for reporting weight would be a valid way to comply, but it had not guaranteed that ports and carriers would not have new requirements imposed upon them, like different cut off times or changes to how weights are reported by shippers. The FMC statement clarifies that if the status quo for reporting weights in the U.S. is considered compliant with this new amendment, then there should be no reason to implement new requirements or fees on shippers, and that to do so would invite the Commission's scrutiny. Information is also available in the recently released updated Frequently Asked Questions document as prepared by the World Shipping Council.
 
In addition to this development, on Friday, June 24, 2016 the Ocean Carrier Equipment Management Association (OCEMA) indicated that it is close to finalizing a common approach for U.S. port terminals to weigh containers so that exporters can meet the new international requirement.  OCEMA exists to coordinate intermodal and over-the-road equipment interchanges and transportation among 19 ocean carriers engaged in international trade.

The effort is aimed at creating a universal approach for accepting containers without a certified container weight filed by the exporter in advance, weighing the containers, and transmitting the data to the ocean carrier and the shipper in a way that complies with the shipper's responsibility to certify the accuracy of the container weight, rather than having different processes at each port.  Friday's OCEMA statement spelled out that ports and marine terminal operators would forward the gross container weights directly to the ship master at each container line, after subtracting the weight of the truck and chassis.
 
Leaders of the Agriculture Transportation Coalition (AgTC) said they were pleased that ocean carriers are moving towards acceptance of using weights from terminal scales to help shippers meet the requirement to provide the verified gross mass (VGM) of containers before they are loaded on ships. The AgTC had been critical of past suggestions, for example, that the only way for shippers to meet the VGM requirement was to weigh loaded containers at scales away from the port or that shippers would have to calculate the weight by adding the weight of cargo and dunnage to the tare weight of a container to comply with the SOLAS requirement.  Despite these efforts, the National Association of Waterfront Employers, which represents 18 marine terminal operators is criticizing suggestions that they should be responsible for providing certified container weights to shippers, saying the plan places an undue burden on marine terminal operators.
 
Pest Appropriations
The House and Senate Appropriations Committees have adopted bills to fund both US Department of Agriculture Animal and Plant Health Inspection Service (APHIS) and the US Forest Service (USFS)  in FY17.  The two houses of Congress differ substantially in their funding allocations.  For both agencies, one house or the other offers a valuable increase in funding for certain pest-response programs. 
 
APHIS Funding - Of the approximately $21 billion in total funding for APHIS, approximately $310 million is allocated to the plant health program.  The Senate increased the "tree and wood pest" account to $54 million, while the House held this account to the $45.9 million requested by the Administration.  On the other hand, the House bill provides $167.5 million for the "specialty crops" account while the Senate provides only $158 million.
 
USFS Forest Health Funding - Total funding for the USFS is about $5 billion.  In making its request for $4.9 billion, the Administration allocated only $92 million to countering threats to forest health (on both federal and non-federal lands).  The House of Representatives' Appropriations bill provides $114.6 million for forest health protection.  This is $15 million above the FY16 level and $22.55 million above the Administration's request.  The Senate bill follows the Administration in allocating only $92 million for forest health protection.
 
USFS Research Funding - The House appropriations bill provides just under $292 million for research - the amount requested by the Administration.   The Senate bill cut funding for research to $280 million - a cut of $11 million from the FY16 level.  When combined with the Senate-mandated $2 increase in funding for forest inventory, this could mean severe cuts to research in other areas, including non-native pests and urban forestry.
 
Federal Forestry
On June 23, 2016 the Senate Energy and Natural Resource Committee held a hearing on the discussion draft bill regarding fire suppression funding. Committee Chair Lisa Murkowski (R-AK) released the draft and it has support from Democratic Senators Ron Wyden (OR) and Maria Cantwell (WA).  The draft would provide a budget cap adjustment for when the cost of wildfires exceeds a 10-year rolling average. The plan aims to prevent the Forest Service from dipping into other accounts to cover rising fire costs, which now consume slightly more than half the agency's budget.  The draft also contains some management reform measures, including easing environmental reviews for certain forest-thinning and logging operations. In addition, Chairman Murkowski included language to slow the move away from old growth logging on the Tongass National Forest until adequate forest inventories could be completed on the land.

Obama Administration officials are concerned that the draft bill does not adequately addresses the rising 10-year average cost of wildfire suppression and about some of the environmental provisions.  Industry advocates were supportive of efforts to more efficiently finalize timber harvests plans to support both business needs and the declining health of the federal forests.

The Hardwood Federation submitted comments on the draft bill.
 
In addition to this hearing, Senate Agriculture Committee Chairman Pat Roberts (R-KS) introduced his own fire funding and forest management bill on Wednesday night.  The bill is very similar to the House passed Westerman Bill (HR 2647) and is intended to reduce administrative burdens and provide greater efficiencies for collaborative forest management activities through a variety of authorities including: 

• Expediting environmental analysis for forest management activities;
• Encouraging cross boundary management of federal, state, and private forested land;
• Promoting large scale landscape forest management projects on federal land; and
• Streamlining efficiencies for environmental review, analysis, and compliance with the National Environmental Policy Act.    

Chairman Roberts' bill addresses fire funding by allowing the Administration to use a disaster declaration once appropriated funds to fight fire equal to the 10-year average have been expended.  It also prohibits transfers of other forest program funds to the suppression budget.      

It is unclear how the two similar, yet competing bills will be resolved and if one or the other will move forward into a conference with the Westerman bill sometime this fall.  The most probably outcome is that some compromise language derived from all three bills will be rolled up for potential inclusion in a year end Omnibus bill.  Our focus remains on final language that addresses both management and appropriate fire suppression funding levels.  We will definitely be working with our forest industry allies and friends in Congress to move something forward by the end of 2016. 
   
GOP Tax Plan
On June 24th House Republicans released a 35-page report on tax reform that, in brief, proposes to lower corporate and pass-through business tax rates, reduce individual tax rates, provide full expensing for business costs (with no deduction for net business interest expense), and move the United States from a worldwide international tax system to a "territorial" dividend-exemption system.

The report was prepared by a House Republican task force on tax reform, led by Ways and Means Committee Chairman Kevin BRady (R-TX).  House Speaker Paul Ryan (R-WI) in January announced the creation of six task forces to develop policy recommendations to address poverty, national security, regulatory reforms, the US Constitution, health care, and tax reform.

Under the House Republican plan, the top US corporate income tax rate will be reduced from 35 percent to 20 percent.  A new pass-through business income tax system with a top rate of 25 percent is proposed for non-C corporation business entities, including S corporations, limited liability companies, partnerships, and sole proprietorships.

This blueprint will also repeal the estate and generation-skipping transfer taxes currently on the books.  This will eliminate the Death Tax, which can result in couble, and potentially even triple, taxation on small business and family farms.