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    Economic Report Auggie Creek Restoration/Fuels Project

    Ivy Kostick, East Zone Forester March 24, 2009

    3.x Project Feasibility, Financial Efficiency, Economic Impact and Social Analysis 3.x.1 Introduction This report will analyze the economic effects of the Auggie Creek Restoration/Fuels Project. This analysis will include project feasibility, financial efficiency, economic impacts, and the social welfare effects of the project on the surrounding area. 3.x.2 Regulatory Framework A. National Environmental Policy Act The preparation of NEPA documents is guided by CEQ regulations for implementing NEPA (40 CFR 1500-1508). NEPA requires that consequences to the human environment be analyzed and disclosed. The extent of analysis required is related to the nature of public comments received during scoping. NEPA does not require a monetary benefit-cost analysis. If an economic efficiency analysis is prepared, then it must be prepared and displayed for all alternatives (40 CFR 1502.23). The Federal Office of Management and Budget (OMB) Circular A-94 promotes efficient resource use through well-informed decision making by the federal government. It suggests the preparation of an economic efficiency analysis as part of decision making, and also prescribes present net value (PNV) as the measure for analysis. B. Forest Service Manual and Handbook Timber sales and programs are guided by agency direction in Forest Service Manual (FSM) 2430. Forest Service Handbook (FSH) 2409.18 gives instruction for financial and economic efficiency analysis for the sale of timber. C. Lolo Forest Plan The Lolo National Forest Plan includes Forest-wide goals and standards that govern project design. One of the goals is to Provide a sustained yield of timber and other outputs at a level that will support the economic structure of local communities and provide for regional and national needs (Forest Plan page II-1). Timber outputs would be provided while maintaining and improving wildlife and aquatic habitat, protecting threatened and endangered species, maintaining dispersed recreation opportunities, and improving overall ecosystem function and forest health. The Civil Rights Act of 1964 provides for nondiscrimination in voting, public accommodations, public facilities, public education, federally-assisted programs, and equal employment opportunity. Title VI of the Act, Nondiscrimination in Federally Assisted Programs, as amended (42 U.S.C. 2004d through 2000d-6) prohibits discrimination based on race, color, or national origin.

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    3.x.3 Existing Condition The project area is located in Missoula County, Montana. The estimated population of the county in 2007 was 105,650 people ( The population of Missoula County has grown an estimated 10.3% from 2000 to 2007. Missoula is the trade center hub for the Lolo National Forest economic impact area, as described below. Missoula County extends to Ravalli County to the south and Lake County to the north. Missoula County employment was estimated at 53,808 during 2005. While the project area is in Missoula County, the Lolo National Forest economic impact area includes Granite, Lake, Mineral, Missoula, Powell, Ravalli, and Sanders counties, Montana. The effects presented later in this analysis are for the seven-county economic impact area. 3.x.4 Effects Analysis Methods A. Project Feasibility Project feasibility for vegetation management projects relies on the Region 1 Transaction Evidence Appraisal System (TEA). The TEA uses regression analysis of recently sold timber sales to predict bid prices. The most recent appraisal model for the area of interest (2008, quarter 4) was used to estimate the stumpage value (expected high bid per unit volume (CCF) resulting from the timber sale auction multiplied with volume) for the commercial portion of the vegetation management activities for each alternative. The estimated sale price for the project is compared to the base rates (revenue required to cover essential regeneration plus the minimum return to the federal treasury) for the project. If the estimated selling price exceeds the base rate, the project is considered feasible. If the estimated selling price is less that the base rate, the project is considered commercially infeasible and should be modified, supplemented with additional funds if funds are available, or postponed until market conditions are more favorable (36 CFR 223.61 and FSM 2430.2). The estimation of project feasibility for commercial vegetation management and associated activities was based on the most recent transaction evidence appraisal model. The model takes into account the logging system, timber species and quality, estimated volume removed per acre (one CCF is one hundred cubic feet), and lumber market trends. Associated activities considered in the model are costs for slash treatment, specified and temporary road construction or reconstruction, road maintenance, and treating noxious weeds on haul routes. B. Financial Efficiency Financial efficiency for this analysis is measured using present net value (PNV). Financial efficiency considers anticipated costs and revenues that are part of Forest Service monetary transactions. Present net value (PNV) is used as an indicator of financial efficiency and is one tool used in conjunction with many other factors in the decision-making process. The PNV combines benefits and costs that occur at different

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    times and discounts them into an amount that is equivalent to all economic activity in a single year. A positive PNV indicates that the alternative is financially efficient. Financial efficiency analysis is not intended to be a comprehensive analysis that incorporates monetary expressions of all known market and non-market benefits and costs. Many of the values associated with natural resource management are best handled apart from, but in conjunction with, a more limited financial efficiency framework. Non-market benefits and costs associated with the alternatives are discussed throughout this document. C. Economic Impacts (Jobs and Labor Income) The analytical technique used by the Forest Service to estimate employment and income impacts is "input-output" analysis using the IMPLAN Pro software system (MIG, 2003). Input-output analysis (Miernyk, 1965) is a way to examine relationships within an economy both between businesses and between businesses and final consumers. It captures all monetary market transactions for consumption in a given time period. The resulting mathematical model allows one to examine the effect of a change in one or several economic activities on an economic impact area, all else constant. This examination is called economic impact analysis. The IMPLAN modeling system allows one to build regional economic models that include one or more counties for a particular year. The regional model for this analysis uses the 2006 IMPLAN data for the seven-county Lolo National Forest economic impact area to generate response coefficients for each one million dollars worth of demand for relevant IMPLAN sectors. The IMPLAN model and some locally specific direct forest product harvest and processing response coefficients, provided by the University of Montanas Bureau of Business and Economic Research, are used to estimate direct, indirect and induced (multiplier), and total economic effects. Economic impact effects are measured by estimating jobs (full and part-time jobs) and the labor income generated from harvesting and processing of commercial timber volume as well as additional government expenditures associated with the restoration activities for each alternative. Timber volume and cost information for restoration activities were estimated by the Auggie Creek Restoration/Fuels interdisciplinary team. These estimates are based on Lolo National Forest and/or project level averages. D. Environmental Justice Environmental justice effects will report what, if any, effects might occur to ethnic or disadvantaged peoples. Of particular concern is whether job or income discrimination might occur to these citizens in the area as a result of the proposed project. 3.x.5 Direct and Indirect Effects A. Project Feasibility The predicted high bid for Alternative 2 is $41.52/CCF. The base rate, which is the minimum rate the Forest Service is allowed to sell timber for (FSM 2431.31b), is $3.00/CCF. When the predicted high bid is higher than the base rate, it indicates the timber sale portion of the project is economically viable under current market conditions.

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    B. Financial Efficiency Financial efficiency for the project was evaluated based on assumptions about project implementation costs and timing, commercial timber valuation, and expected units of work (miles of road or acres treated for example) (see Table 3.x.1). Assumptions on cost and timing of work are based on experienced results from similar work on the Lolo National Forest, and treatment units are derived from information gathered in the field and from GIS data. Table 3.x.1 Cost Estimates Used in Analysis of Financial Efficiency Project Units Average Cost

    per Unit Contracted?

    Sale Preparation and Administration CCF $13.9 no

    Precommercial Thinning Acre $300 yes

    Roadwork CCF $37 to $45 yes

    Noxious weed Treatments Acre $45.00 yes

    Fish passage improvements Culvert $47,500 yes

    This financial efficiency analysis provides a comparison of expected revenue from the sale of timber with design criteria costs and additional ecosystem restoration treatment costs. Table 3.x.2 summarizes the present net value (PNV) for each alternative, based on all land management activities included in the alternative. Monetary benefits were estimated from expected timbe


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