Mr. Chairman and members of the committee, on behalf of FSEEE’s 10,000 members, including its 600 Forest Service members, I appreciate this opportunity to address several administrative problems with the agency’s five off–budget funds, including use of these funds for overhead or indirect expenses.

I do so with an admitted bias. FSEEE believes that national forest stewardship requires the Forest Service redirect dollars that now feed middle and upper bureaucratic levels to funding the agency’s district ranger units. The problems I will discuss with the agency’s management of these five funds are but the tip of a much bigger bureaucratic iceberg, one that eats up more than half of every agency dollar before it reaches the ground where the real job of forest stewardship takes place. I urge the committee to work with USDA and Chief Dombeck to ensure that “the man on the ground who actually carries out the program” has the needed financial resources (see Kaufmann, The Forest Ranger, A Study in Administrative Behavior).

I will focus on three problems with the off–budget funds. First, the Knutson–Vandenberg fund overhead charges are preventing on–the–ground forest stewardship work from getting done. Second, with the exception of the reforestation trust fund, any overhead charges made against these funds exceeds the agency’s statutory authority. Third, the Forest Service exacerbates its on–the–ground problems by failing to charge for Knutson–Vandenberg deposits over and above the timber sale price.

Knutson–Vandenberg Overhead Charges Foreclose Needed On–the–Ground Work

The substantial percentage of K–V funds devoted to overhead expenses has two direct consequences for the forest environment. First, the overhead allocation contributes to the inability to accomplish full reforestation and renewable resource work on many timber sales. Quoting from the Forest Service’s K–V Indirect Costs and Accounting Methods Task Force Report, increased withdrawals for indirect costs "can result in a drain affecting numerous projects on the SAI [sale area improvement] Plans for these sales." Former regional forester Zane Grey Smith, Jr., a third–generation Forest Service employee, wrote "It is accurate to say that needed post timber sale restoration work failed to have adequate funding simply because the overhead eroded the practical limits of resources available at the site." His concerns are echoed by former Nez Perce National Forest supervisor Tom Kovalicky: "The appetite of the Regional Forester and the Chief’s office required most of our field–generated funds to keep those organizations fully financed." Less artfully worded, an anonymous Forest Service employee wrote in the SAI plan for the Superior National Forest’s Sheep Ranch timber sale: "It is painfully obvious our overhead cost (sic) are extremely to (sic) high."

FSEEE has audited the SAI plans of half a dozen national forests during the past two years. Our findings are summarized in the attached report, "Who Says Money Doesn’t Grow in Trees?" The Stanislaus National Forest in California is a good example of the problems caused by overhead withdrawals from K–V deposits. Of the 57 timber sales for which K–V funds were collected during fiscal years 1994 to 1996, at least 26 collected insufficient K–V deposits to cover the replanting and sale area improvement needs identified in the plans. The SAI plans for these sales identified total direct project costs of $10,063,454, of which only $6,426,272 was covered by K–V collections. By comparison, $3,259,029 in K–V collections were allocated to overhead expenses. Unfunded activities included both reforestation projects and treatments to protect other resources, such as, bird, fish, and wildlife habitat. But for the overhead rake–off, almost all of the direct project needs could have been paid for by K–V collections ($6,426,272 + $3,259,029 = $9,685,301, which is pretty close to the needed $10,063,454).

The five funds specifically state the purposes on which deposits may be spent. Only one of those funds, the Reforestation Trust Fund, includes indirect or administrative costs as one of those purposes. All five require that deposits beyond those required to meet the specific purposes for which they are provided are to be returned to the treasury. The table below itemizes the specific statutory purposes for each fund.

Congress has enumerated the uses to which these funds can be put. As the Reforestation Trust Fund demonstrates, Congress has also shown its ability to discriminate for, and by omission, against the use of these funds for indirect or overhead purposes. Enumeration of specific purposes for appropriations excludes use of the funds for all other purposes. E.g., 53 Comp. Gen. 328 (1973) (where appropriation authorized use of funds for road "construction" and "maintenance," Forest Service could not use funds for road closure or obliteration). "The established rule is that the expenditure of public funds is proper only when authorized by Congress, not that public funds may be expended unless prohibited by Congress." United States v. MacCollom, 426 U.S. 317, 321, 96 S.Ct. 2086, 2089 (1976).

In 1987, the Department of Agriculture’s Office of Inspector General criticized the direct expenditure of Knutson–Vandenberg funds on items such as furniture, rent, supplies, and so forth that are not encompassed by the indirect cost assessment:

After the enactment of the 1976 amendment to the K–V Act, FS management encouraged 'imaginative and innovative management practices’ in the use of K–V funds. . . . [L]iberal interpretations were employed in the actual allocation of costs to K–V funds. For example, the purchase of furniture was funded from K–V because it was used by timber and silviculture personnel whose salaries were all, or primarily, funded by K–V monies. Also, the vehicles, utilities, supplies, rent, magazine subscriptions, books, uniforms, etc., purchased or used by these personnel were considered legitimate direct assessments to K–V funds as defined by FS personnel. . . . This practice was employed at the RO, FSO, and RD levels of the FS. There appeared to be no established limitations as to how far this concept could be carried.

This criticism should apply equally whether such unauthorized costs are assessed against K–V funds as direct or indirect expenses. No matter what you call them, these expenses do not relate to reforestation and sale area improvements, the only authorized purposes for funds under the K–V Act. These indirect costs also bear little or no relation to the actual “costs to the United States” of reforestation and sale area improvement because they are tied to the size and expenses of the agency’s overall bureaucracy rather than the costs associated with restoration of cut–over forest stands.

In sum, if a private person or corporation defrauded the treasury of funds otherwise due to it by law, as the Forest Service does by expending these funds on indirect expenditures, that person would be subject to treble damages and a $10,000 per fraudulent transaction penalty under the federal False Claims Act. However, because it is a federal agency that profits from the fraud, the only legal remedy appears to be injunctive relief under the Administrative Procedures Act for actions taken “not in accordance with law” or “in excess of statutory . . . authority . . . ” 5 U.S.C. § 706(2). FSEEE has filed three cases in federal court seeking to stop this illegal diversion of K–V funds to indirect expenses and overhead.

The K–V Act defines K–V funds as “deposits of money in addition to the payments for the timber.” 16 U.S.C. § 576b. Nonetheless, the Forest Service currently derives K–V funds directly from the payments for the timber and routinely expands K–V plans to capture unexpectedly high timber receipts. This practice is contrary to the plain language of the law, judicial precedent, and past agency practice.

Near contemporaneous Forest Service guidance on implementation of the K–V Act indicates that one of the understood purposes of the Act was to avoid reductions in treasury receipts as a result of the K–V collections. See Affidavit of Paul Neff filed in State of Alabama v. United States, 461 F.2d 1324 (Ct. Cl. 1972) (K–V deposits would be required from timber purchasers “only … [w]here the receipts from the sale will not be reduced …”). The 1976 amendment to the K–V Act retained the statutory language “in addition to the payments for the timber” largely without comment. The conference report accompanying the amendment specifically described K–V funds as a “deposits requirement of timber sale contracts,” rather than as deductions or allocations from the bid price.

By contrast, the legislation authorizing creation of the Salvage Sale Fund, which was part of the same public law as the 1976 amendments to the K–V Act, provides for financing from the timber payments. Under 16 U.S.C. 痗 472(h), Congress directed that money for the Salvage Sale Fund comes “as a part of the payment for the timber.” Thus, Congress simultaneously addressed two distinct purchaser–financed funds, the K–V fund and the Salvage Sale Fund, and directed them to be handled in different ways.

The Forest Service’s failure to collect K–V deposits “in addition to the payments for the timber” results in some sales sold for less than the identified post–sale replanting and sale area improvement needs. This is particularly acute on sales with only a single bidder sold at base rates. Separate identification of needed K–V deposits would avoid this result or, at a minimum, clearly disclose that a sale will not cover the costs of restoring renewable resources adversely affected by the logging.

When a timber sale receives an unexpectedly high bid, the Forest Service routinely expands the SAI plan and K–V collections to capture the unanticipated proceeds from the sale. This post hoc expansion would not be possible if K–V funds were collected “in addition to the payments for the timber” as required by the Act.

The expansion of SAI plans after the sale is made is also contrary to the fundamental concept underlying the K–V Act, that the deposits are an alternative to the timber purchaser itself performing the reforestation and sale area improvement practices. As one of the Forest Service’s own lawyers explained to Congress, “[T]he expression ’in addition to the payments for the use’[sic] was put in the Knutson–Vandenberg Act to show that that deposit was not to be considered as a timber sales receipt which would go into the forest reserve fund, but that it was a deposit actually to cover one of the operating costs, just as much as felling the trees and transporting the logs to the mill is an operating cost.” Hearings on H.R. 2968 before Subcomm. No. 3 of the Comm. on Ag., 81st Cong., 1st Sess. 23 (1949).

Clearly, no timber purchaser would constantly expand its operating costs simply because it found itself in possession of a more valuable set of timber that it had anticipated. Just as clearly, by identifying reforestation and renewable resource protection as “operating costs” of a timber sale to be paid by a purchaser, Congress did not intend either to saddle the purchaser with a share of the agency’s overhead costs or to reduce timber sales receipts to the national treasury. The Forest Service has impermissibly converted the K–V Act from a mechanism for covering the environmental and natural resource costs of a particular logging operation to an unauthorized means of augmenting the agency’s own revenues and budget.

Finally, where timber receipts are allocated to both the K–V fund and the Salvage Sale Fund, the K–V fund gets the short end of the stick. Money that could and should go to needed K–V projects is instead diverted to the Salvage Sale fund used to prepare additional timber sales. The result, as found in a Washington Office review, is that "[o]n many Sierra forests, SSF is being over collected at the expense of the K–V program, including K–V essential reforestation." November 14, 1994 letter from Deputy Chief to R–5 Regional Forester. Adherence to the plain language of the law would avoid this shifting of funds because K–V deposits must be collected “in addition to the payments for the timber,” while salvage sale fund deposits are “a part of the payment for the timber.”

The Forest Service’s abuse of its statutory authority did not begin with this Administration. These problems evolved over a 50–year period as the agency bureaucracy sought creative ways to keep for its own purposes the increasing receipts from active timber management following World War II. Reform will require that the Forest Service do something radical — it must follow the law.