Who says money doesn't grow on trees?
The Knutson-Vandenberg Act: How the U.S. Forest Service misuses a little-known law to siphon millions of public dollars from the forest to the bureaucracy

Congress passed the Knutson-Vandenberg (K-V) Act in 1930 to provide a mechanism for reforesting cut-over national forest lands. The act authorizes the U.S. Forest Service to charge purchasers of timber a premium, over and above the price of the trees, to cover the cost of replanting, removing unwanted brush, and, as authorized by 1976 amendments, protecting and improving the productivity of fish, wildlife, recreation, and other renewable resources within the particular timber sale area from which the funds are collected. Funds in excess of the cost of doing the work are to be returned to the U.S. Treasury as a miscellaneous receipt.

Early Forest Service reforestation policy encouraged natural seeding and discouraged artificial planting. The agency’s main concern with planting was its relative high cost compared to natural regeneration. Early silvicultural practice emphasized individual tree selection, shelterwood, and other systems designed to encourage natural seeding. Clearcutting was disfavored; in fact, in some regions like the Pacific Northwest, it was banned by regional foresters. Given these policies, the Forest Service had little need to use the K-V Act’s authority, and the statute received scant attention until after the second World War.

In 1947, the Forest Service sought the U.S. Comptroller General’s permission to allocate a modest portion of K-V funds to cover the cost of hiring bookkeepers to account for the funds. The Comptroller General denied the agency’s initial request on the basis that the Act did not specify overhead as one of its authorized activities. The opinion concluded that such use of the fund amounted to unlawful augmentation of funds already appropriated for overhead purposes.

The Forest Service reiterated its request on the grounds that the phrase “cost to the United States” for planting and other on-the-ground activities includes overhead costs associated with these activities. The Comptroller General relented and allowed the Forest Service to charge modest clerical costs against the K-V fund. At that time, deposits to the K-V fund were about $1 million per year and the Forest Service expected to expend 6 to 10 percent of these funds on clerical functions.

In 1957, the Forest Service made a subtle but significant change to the administration of the K-V Act. Instead of charging timber purchasers a K-V premium over and above the price of the timber to cover reforestation costs, the agency absorbed the K-V costs into the timber sale price. Prior to 1957, timber sale contracts separately itemized the price of the timber and the additional deposit for reforestation and other K-V activities. After 1957, the agency did not specify K-V costs in bid documents or contracts and simply accepted a lump sum payment (or bid) from timber purchasers.

As a result of the 1957 change, the Forest Service now treats all but $0.50 per thousand board feet (mbf) of timber sale receipts as available for K-V expenditure.[1] For example, in 1993 the Forest Service decided to sell the Indian Boundary timber sale on the Cherokee National Forest (Figure 1). The appraisal predicted the sale would sell for $14,868, which, after deducting $0.50/mbf for the Treasury, left $14,712 “available” for K-V expenses. The agency prepared a K-V plan for the sale that called for spending $14,500 on trail improvements and removing slash from previous logging, with over one-third of this money going to overhead.

The Forest Service sold the timber at competitive auction for more than it had anticipated — $26,935 (the difference between the advertised price and the high bid is called the “overbid,” amounting to $12,067). Immediately thereafter, the Forest Service revised the K-V plan (Figure 2) by adding new activities (filling in rootball holes, seeding, and fertilizing) for a total K-V expenditure of $26,500, fully 99% of the $26,778 (bid price of $26,935 less $0.50/mbf) “available” for K-V financing. If not for the revised K-V plan, the U.S. Treasury would have received $12,435; instead the Treasury was left with $156. The sale cost taxpayers about $85 per mbf to prepare and administer ($26,295), leaving the Treasury with a net loss of -$26,139.20.[2]

Over the 3-year period between 1993 and 1996, the Cherokee National Forest revised its K-V plans in this manner to “capture” $650,000 in overbid monies that would otherwise have gone to the Treasury. These funds were not charges made “in addition to the payments for the timber,” as required by the K-V Act; they were monies taken directly out of timber sale receipts. According to the Act, the Forest Service should have charged these costs to the timber sale purchaser over and above the price of the timber.

In addition to withholding from the Treasury receipts due it by law[3] the Forest Service has increased its overhead costs from the nominal amounts (6 to 10 percent) authorized by the U.S. Comptroller General in 1947 to as much as 72 cents of every K-V dollar (Chattahoochee/Oconee National Forests, see table on page 11). Nationwide, the Forest Service spends an average of 36 cents of every K-V dollar on overhead, amounting to some $75 million per year (the exact amount varies from year to year). The Forest Service receives in addition about $300 million from Congress in appropriated funds for general administration. The K-V overhead charges appear to run afoul of governmental rules against augmentation of appropriations.

These overhead charges are skimmed off at every level of the Forest Service hierarchy, from the Washington, D.C., office, to the nine regional offices, the approximately 100 forest supervisor offices, and more than 400 district ranger offices. The overhead funds help pay for clerical, computer, and other support staff, timber, silviculture, wildlife, fisheries, and other program staff, rent, utilities, and the like. For example, in fiscal year 1997 Region 8 (headquartered in Atlanta, Ga., and the home region of the Cherokee National Forest) will collect $1.9 million in K-V monies for overhead expenses in the regional office alone, of which $967,000 is “carry-over” from the preceding fiscal year (Figure 3).[4]

In many instances, the high overhead assessments prevent needed on-the-ground work from being completed. For example, consider the Cherokee’s Basin Creek sale, which sold in 1990 for $132,039 (Figure 4). After deducting $36,231 for purchaser road credits,[5] and $656.50 for the Treasury’s National Forest Fund ($0.50/mbf), the “stumpage available for K-V financing” amounted to $95,151. The Sale Area Improvement and K-V Collection Plan identified $123,082 of activities needed to improve the sale area (prescribed burning, planting, and the like), of which $84,325 consisted of direct project costs and $38,757 of overhead.

Instead of reducing the overhead amounts, the Forest Service dropped 109 acres of reforestation, 69 acres of seedling release from competing shrubs, 278 of the 284 acres of seedling survival exams (to confirm the seedlings had not died), all of the heliseeding and all of the wildlife habitat improvement projects. In the end, K-V deposits will fund $65,188 of direct project costs, consisting of the prescribed burning, planting, some of the seedling release and a few survival checks. In addition, the Forest Service will divert $29,960 in overhead expenses from the sale. Had the Forest Service not diverted these overhead monies it could have funded all of the direct costs of the needed on-the-ground work ($65,188 + $29,960 = $95,148, which is greater than $84,325) and returned 16 times as much revenue to the U.S. Treasury ($10,831 compared to $656).

An audit of Cherokee National Forest timber sales logged between 1994 and 1997 revealed 15 additional timber sales like Basin Creek that had insufficient K-V funds to pay the direct costs of sale area improvement needs. The total K-V deficit amounted to $203,447. However, during the same period the Cherokee diverted $856,005 of K-V funds to overhead. But for the overhead assessments, the Forest Service could have completely funded its sale area improvement needs and returned over half a million more dollars to the Treasury.

Cumulatively across the nation the diversion of K-V funds to overhead has led to a growing reforestation backlog. According to the Forest Service’s Budget Notes to Congress, the 1997 backlog of unaccomplished reforestation and timber stand improvement needs will grow by 92,000 acres to a total of 1,578,000 acres. Though the agency is up-front about the shortfall, nowhere does the Forest Service acknowledge to Congress that the source of the problem is the high overhead rake-off from K-V funds. In fact, the Forest Service’s budget documents do not admit to any overhead charges whatsoever.

What began as a well-intentioned law that requires loggers to pay for reforesting and repairing the public’s cut-over lands has evolved over the decades into a multi-million dollar boondoggle that fuels a bloated Forest Service bureaucracy, robs taxpayers of timber receipts, and creates an incentive to log no matter the environmental or fiscal costs.

In sum, the Forest Service violates the K-V Act in the following ways:

1) Failing to charge purchasers for the full K-V costs, over and above the price of the timber;

2) Skimming off overhead funds from K-V deposits that are ear-marked by law to reforestation, brush disposal and other sale area improvements;

3) Diverting timber sale receipts from the Treasury to the agency’s K-V account; and,

4) Pooling K-V funds across multiple timber sales, violating the mandate that K-V deposits be spent within the sale area from which they are collected.

These violations have led to:

1) An inflated Forest Service bureaucracy that now consumes $75 million a year in overhead (over and above Congressional appropriations of about $300 million for that purpose) — funds that by law are supposed to be, but are not always, spent within timber sale areas for environmental improvement;

2) Losses to the U.S. Treasury amounting to tens of millions annually as the Forest Service fails to charge purchasers the full cost of K-V projects, over and above the price of the timber;

3) An agencywide incentive to sell timber because failing to do so cuts off the overhead slush funds.

The reaction from knowledgeable people, both within and outside the Forest Service, to these abuses shows that these matters are not simply arcane accounting issues. People understand that abuses of the K-V Act have real on-the-ground effects on the public’s forests. Here’s what some of these people have said:

“. . . I think this country should put on high priority the repeal of the (Knutson-Vandenberg Act), passed in 1930, that provided funding for the Forest Service from the sale of timber. Money corrupts. It has changed the Forest Service from a guardian of our national resources to exploitation of them. This is not good for our country and causes many of our problems. There are many wonderful people that work for the Forest Service that do not believe in what they are doing but it is their job.”
— Fred Behm (citizen)
Blue River, OR

“The extraordinarily high overhead assessments, which began in the mid 1950’s, have been a disturbing matter for Forest Service at all levels for a long time. During my 34 year career with the Service, primarily in Oregon, Washington, California and in the Chief’s office, I have observed frustration with these excessively high rates at all levels. As a District Ranger, Forest Supervisor, Regional Forester and as a Staff Director on the Chief’s staff, I personally shared these frustrations. 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.”
— Zane Grey Smith, Jr. (former Forest Service regional forester)
Springfield, OR

“. . . It seems perfectly obvious that (K-V overhead) is a primary cause of the serious overemphasis on timber sales to the detriment of all other considerations. Further it is very unfair to the Forest Service management personnel because, on the one hand they are asked to manage for multi-purpose uses but, on the other hand they are being told, indirectly but unmistakeably, that they must sell timber in order to maintain the funding which pays their salaries. This really puts them between the proverbial rock and a hard place.”
— Karl E. Balliet (citizen)
Bedford, VA

“. . . The formula we used to determine and then distribute the K-V funds was very automatic; we set aside at least three levels of overhead assessment first and then applied the remainder on the ground. Frequently the remainder was not enough to buy and plant the new trees. It was often supplemented by other funds from the Forest Service Budget to complete the job of reforestation. . . . The appetite of the Regional Forester and the Chief’s office required most of our field-generated funds to keep those organizations fully financed.”
— Tom Kovalicky (former Forest Service forest supervisor)
Grangeville, ID

“It is painfully obvious our overhead cost (sic) are extremely to (sic) high.”
— anonymous Forest Service employee, Superior National Forest, as written in the Sheep Ranch timber sale K-V Plan

The solutions to these problems are simple and straightforward. In the words of former Chief Jack Ward Thomas, the Forest Service should simply obey the law. That means charge purchasers the costs of reforestation and other sale area improvement needs over and above the price of the timber. It means stop diverting K-V funds collected from purchasers into the black hole of bureaucratic overhead. It means spend K-V dollars only within the sale area from which those dollars were collected.

Eliminating K-V overhead rake-offs will necessarily reduce the availability of funds to higher levels of the Forest Service bureaucracy. This may prove a good thing in the long run. The Forest Service should reevaluate the need for four layers of administrative hierarchy. Eliminating one of those layers, such as regional offices, and reducing the number of forest supervisor’s offices, would likely cover completely the lost K-V overhead funds. This would further empower field-level managers to meet the Forest Service’s basic mission — serving the public and caring for the land.

1) The $0.50/mbf allowance to the U.S. Treasury is based on the historical average cost to the government to prepare and administer timber sales. At least until 1956, Forest Service policy required that timber prices be no less than the “cost to prepare and administer sales.” Today timber sales cost $60 to $100/mbf to prepare and administer, but the trees are sold for as little as $2 or $3/mbf on some national forests (see Humpback timber sale, Tongass National Forest, which sold in 1997 for $2.58/mbf), and the policy is still to guarantee only $0.50/mbf to the Treasury. For salvage sales, Forest Service policy does not even require this nominal return; instead virtually all of the receipts are diverted to the Forest Service’s Salvage Sale Fund for preparing new salvage sales.

2) Total U.S. Treasury losses are even greater because the State of Tennessee is entitled to 25 percent of the gross timber sale receipts, that is, 0.25 x $26,935, or $6,734. If a timber sale has inadequate sale receipts (because of K-V withdrawals, purchaser road credits, or salvage sale fund removals) to cover the 25% payments, the Treasury picks up the difference. Thus, the total loss to taxpayers from this sale alone amounts to $32,872.

3) "All money received by or on account of the Forest Service for timber . . . shall be covered into the Treasury of the United States as a miscellaneous receipt.” 16 U.S.C. 499 (Act of March 4, 1907).

4) The Forest Service’s Washington Office will collect $457,157 from Region 8’s K-V account to spend on its own D.C.-based overhead. In sum, the Washington Office collected a nationwide total across all nine regions of $3,848,000 from the K-V account for its own overhead in fiscal year 1997.

5) Purchaser road credits are deductions from the price of the timber credited to the timber purchaser in exchange for the purchaser building the logging road to access the timber sale.

Act of June 9, 1930
Sec. 3. The Secretary of Agriculture may, when in his judgement such action will be in the public interest, reacquire any purchaser of National Forest timber to make deposits of money in addition to the payments for the timber, to cover the cost to the United States of (1) planting (including the production or purchase of young trees), (2) sowing with tree seeds (including the collection or purchase of such seeds), (3) cutting, destroying, or otherwise removing undesirable trees or other growth, on the National Forest land cut over by the purchaser, in order to improve the future stand of timber, or (4) protecting and improving the future productivity of the renewable resources of the forest land on such sale area, including sale area improvement operation, maintenance and construction, reforestation and wildlife habitat management. Such deposits shall be covered into the Treasury and shall constitute a special fund, which is hereby appropriated and made available until expended, to cover the cost to the United States of such tree planting, seed sowing, and forest-improvement work, as the Secretary of Agriculture may direct: Provided, That any portion of any deposit found to be in excess of the cost of doing said work shall, upon the determination that it is so in excess, be transferred to miscellaneous receipts, Forest Service Fund, as a National Forest receipt of the fiscal year in which such transfer is made: Provided further, That the Secretary of Agriculture is authorized, upon application of the Secretary of the Interior, to furnish seedlings, and/or young trees for replanting of burned-over areas in any National Park. (16 U.S.C. 576b)

Want to know more? Contact FSEEE at 541-484-2692 or email Andy Stahl at andy@fseee.org