Original Notice.

Preproposal statement of inquiry was filed as WSR [01-18-009 on] August 22, 2001.

Title of Rule: Forest riparian easement program.

Purpose: The purpose of the rule is to implement legislative changes in chapter 280, Laws of 2001 (SHB 2105).

Other Identifying Information: The Department of Natural Resources administers the forest riparian easement program.

Statutory Authority for Adoption: RCW 76.09.040, chapters 76.13 and 34.05 RCW.

Statute Being Implemented: Chapter 280, Laws of 2001.

Summary: The changes make a previously exempt group of small forest landowners eligible for a new state program that pays landowners to protect streamside trees. Landowners can also choose whether the assessed value of their streamside timber is based upon market prices on the date they submit their forest practices application or the date they begin timber harvesting. The assessment determines how much compensation a landowner receives. The changes also allow the landowner to be reimbursed for the cost of preparing and recording of the easement and all business, occupation, and real estate excise taxes.

Reasons Supporting Proposal: These changes are being made to make the forestry riparian easement program consistent with SHB 2105.

Name of Agency Personnel Responsible for Drafting: Debora Brown-Munguia, 1111 Washington Street S.E., Olympia, (360) 902-1448; Implementation and Enforcement: Lenny Young, 1111 Washington Street S.W., Olympia, (360) 902-1744.

Name of Proponent: Forest Practices Board, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: The changes make a previously exempt group of small forest landowners eligible for a new state program that pays landowners to protect streamside trees. Landowners can also choose whether the assessed value of their streamside timber is based upon market prices on the date they submit their forest practices application or the date they begin timber harvesting. The assessment determines how much compensation a landowner receives. The changes also allow the landowner to be reimbursed for the cost of preparing and recording of the easement and all business, occupation, and real estate excise taxes.

The purpose and anticipated effect of this rule change is to allow more small forest landowners the ability to participate in the forestry riparian easement program.

Section by section description: WAC 222-21-010, a definition of compliance cost is added and the definitions of qualifying timber and small forest landowner are modified to match legislative changes.

WAC 222-21-020, amended to incorporate legislative recognition of disapproved applications.

WAC 222-21-045, amended to recognize legislative direction to have a choice of valuation dates and to provide a method of valuation for disapproved applications.

WAC 222-21-050, amended to recognize payment of compensation costs and to address compensation for disapproved applications.

WAC 222-21-061, new section to establish criteria when a commercially reasonable harvest is not possible.

Proposal Changes the Following Existing Rules: See Explanation of Rule above.

No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposed rules are designed to allow more small forest landowners to participate in the forestry riparian easement program, which provides compensation to landowners for certain timber. These rules will not impose more than minor costs on businesses within an industry and therefore a small business economic impact statement is not required.

RCW 34.05.328 does not apply to this rule adoption. The content of these rules is explicitly and specifically dictated by statute, and therefore exempt from RCW 34.05.328 analysis.

Hearing Location: Natural Resource Building, 1111 Washington Street S.E., First Floor Room 172, Olympia, WA 98504, on January 15, 2002, at 3:00 p.m.; and at the Hampton Inn Spokane, 2010 South Assembly Road, Spokane, WA 99224, on January 17, 2002, at 3:00 p.m.

Assistance for Persons with Disabilities: Contact rules coordinator at (360) 902-1413, by January 5, 2002, TDD (360) 902-1125.

Submit Written Comments to: Patricia Anderson, Department of Natural Resources, Forest Practices Division, 1111 Washington Street S.E., P.O. Box 47012, Olympia, WA 98504-7012, fax (360) 902-1428, by January 17, 2001 [2002], 5:00 p.m.

Date of Intended Adoption: February 13, 2002.

November 20, 2001

L. S. Young

for Pat McElroy

Chair

OTS-5352.2

AMENDATORY SECTION(Amending WSR 01-12-042, filed 5/30/01, effective 7/1/01)

WAC 222-21-010   Definitions.   The following definitions apply to this chapter:

(1) "Commercially reasonable harvest unit" means a harvest area that meets the requirements of WAC 222-21-060.

(2) "Completion of harvest" means that the trees have been harvested from an area under an approved forest practices application and that further entry into that area by any type of logging or slash treating equipment or method is not expected.

(3) "Compliance costs" includes the cost of preparing and recording the easement, and any business and occupation tax and real estate excise tax imposed because of entering into the easement.

(4) "Danger tree" means any qualifying timber reasonably perceived to pose an imminent danger to life or improved property.

(((4))) (5) "Easement premises" means the geographic area designated in a forestry riparian easement, including the areas in which qualifying timber is located. Easement premises may be categorized as follows:

(a) Riparian area easement premises means riparian areas and areas upon which qualifying timber associated with riparian areas are located.

(b) Other easement premises means areas of land required to be left unharvested under rules adopted under RCW 76.09.055 or 76.09.370 including areas upon which other qualifying timber outside riparian areas is located and areas of land upon which uneconomic qualifying timber is located.

(((5))) (6) "Forestry riparian easement" means an easement covering qualifying timber granted voluntarily to the state by a small forest landowner.

(((6))) (7) "Hazardous substances" means hazardous substances as defined in RCW 70.102.010(5), and 70.105D.020(7), and solid waste as defined in RCW 70.95.030(22).

(((7))) (8) "High impact regulatory threshold" means the threshold where the value of qualifying timber is greater than 19.1% (for timber in Western Washington) or 12.2% (for timber in Eastern Washington) of the value of the harvested timber and qualifying timber under the approved forest practices application covering the qualifying timber.

(((8))) (9) "Qualifying timber" means those trees covered by a forest practices application that the small forest landowner is required to leave unharvested under rules adopted under RCW 76.09.055 or 76.09.370 or that are made uneconomic to harvest by those rules, and for which the small forest landowner is willing to grant the state a forestry riparian easement. Qualifying timber is timber within or bordering a commercially reasonable harvest unit, or timber for which an approved forest practices application for timber harvest cannot be obtained because of restrictions under these rules. Qualifying timber is categorized as follows:

(a) Permanent qualifying timber includes trees that shall not be harvested or damaged or removed from the easement premises during the term of the easement.

(i) Where permanent qualifying timber is in areas in which no harvest may take place, the easement shall describe the boundaries of the areas. No harvest of any tree within this area shall take place during the term of the easement.

(ii) Where permanent qualifying timber is located in areas in which selective harvest may take place, the permanent qualifying timber must be tagged for the duration of the easement.

(b) Reserve qualifying timber includes trees that may be harvested and removed but only in compliance with the terms of the easement. Reserve qualifying timber shall be identified separately from the permanent qualifying timber.

(c) Replacement qualifying timber includes trees which, in the future, will be substituted for the reserve qualifying timber before the reserve qualifying timber may be harvested or removed from the property. Replacement qualifying timber will be selected from time to time pursuant to the provisions of the easement and will be subject to the terms and protections of the easement.

(d) Uneconomic qualifying timber includes trees made uneconomical to harvest. The trees are considered permanent qualifying timber and may not be harvested or otherwise damaged during the term of the easement.

(e) Other qualifying timber outside riparian areas includes trees that may not be harvested under forest practices rules adopted under RCW 76.09.055 or 76.09.370 for reasons other than protection of riparian functions. It includes without limitation trees that are unharvestable because of public safety concerns. The trees are considered permanent qualifying timber and may not be harvested or otherwise damaged during the term of the easement.

(((9))) (10) "Riparian areas" include the areas designated in a forestry riparian easement. Riparian areas include without limitation all riparian and other special management zones required by the forest practices rules for protection of aquatic resources and includes associated qualifying timber.

(((10))) (11) "Riparian function" includes bank stability, recruitment of woody debris, leaf litter fall, nutrients, sediment filtering, shade, and other riparian features that are important to both riparian forest and aquatic systems conditions.

(((11))) (12) "Small forest landowner" means:

(a) A forest landowner meeting all of the following characteristics ((in (a) of this subsection unless any of the exceptions in (b) of this subsection are met.

(a))) as of the date a forest practices application is received (see WAC 222-20-010(8)), or the date the landowner provides written notification to the small forest landowner office that the harvest is to begin, for which the forestry riparian easement is associated((, the forest landowner)):

(i) Is an individual, partnership, corporate, or other nongovernmental legal entity. If a landowner grants timber rights to another entity for less than five years, the landowner may still qualify as a small forest landowner under this section;

(ii) Has a fee interest in the land and timber or has rights to harvest the timber to be included in the forestry riparian easement that extend at least fifty years from the date the forest practices application associated with the easement is received;

(iii) Has harvested from its own lands in this state during the three years prior to the year of application an average timber volume that would qualify the forest landowner as a small timber harvester under RCW 84.33.073(1); and

(iv) Certifies at the time the forest practices application is received that it does not expect to harvest from its own lands more than the volume allowed by RCW 84.33.073(1) during the ten years following receipt of the application.

(b) ((At the time the forest practices application is received,)) A forest landowner whose prior three-year average harvest exceeds the limit of RCW 84.33.073(1), or who expects to exceed this limit during the ten years following receipt of the forest practices application, may still qualify as a small forest landowner if that landowner establishes to the small forest landowner office reasonable satisfaction that the harvest limits were or will be exceeded to raise funds to pay estate taxes or equally compelling and unexpected obligations such as court-ordered judgments or extraordinary medical expenses. (Note: The small forest landowner office will establish a board manual governing these exceptions.)

(((12))) (c) A landowner may still qualify as a small forest landowner if the landowner is unable to obtain an approved forest practices application for timber harvest for any of his or her land because of restrictions under the forest practices rules adopted under RCW 76.09.055 or 76.09.370.

(13) "Small forest landowner office" is an office within the department described in RCW 76.13.110, and it shall be a resource and focal point for small landowner concerns and policies and shall have significant expertise regarding the management of small forest holdings and government programs applicable to such holdings, and the forestry riparian easement program.

(((13))) (14) "Uneconomic to harvest" means that a harvest area meets the requirements of WAC 222-21-065.

[Statutory Authority: Chapter 34.05 RCW, RCW 76.09.040, [76.09.]050, [76.09.]370, 76.13.120(9). 01-12-042, 222-21-010, filed 5/30/01, effective 7/1/01.]

(a) The easements must include qualifying timber within riparian areas and may include other qualifying timber;

(b) The small forest landowner must be willing to sell or donate such easements to the state;

(c) The small forest landowner has a final((, approved)) forest practices application including qualifying timber on the easement premises that has been approved or has been disapproved because of restrictions under the forest practices rules adopted under RCW 76.09.055 or 76.09.370;

(d) The small forest landowner has provided a litigation guarantee or similar report from a title company for the property;

(e) Acceptable documents necessary for creation of the easement have been prepared; and

(f) The easement is not subject to unacceptable liabilities in subsection (3) of this section.

(2) Where more than one person has an interest in property to be covered by a forestry riparian easement, all persons holding rights to control or affect the easement premises, qualifying timber, and the riparian functions provided by the qualifying timber during the term of the easement must execute the easement documents or otherwise subordinate their interest to the easement interest being acquired by the state. This includes tenants in common, joint tenants, holder of reversionary interests, lien holders, and mortgages.

(3) Unacceptable liabilities for the state include, but are not limited to, the following:

(a) Potential liability exposure due to the presence of hazardous substances;

(b) Existing uses of the property that may jeopardize the protection of the easement premises, qualifying timber, and riparian functions;

(c) Any other liability where the liability may jeopardize the protection of the easement premises, qualifying timber, and its riparian functions.

[Statutory Authority: Chapter 34.05 RCW, RCW 76.09.040, [76.09.]050, [76.09.]370, 76.13.120(9). 01-12-042, 222-21-020, filed 5/30/01, effective 7/1/01.]

(2) The small forest landowner office will calculate the fair market value of the forestry riparian easement as of the date of receipt of the forest practices application associated with the qualifying timber, or the date the landowner provides written notification to the small forest landowner office that the harvest is to begin. Data obtained or maintained by the department of revenue under RCW 84.33.074 and 84.33.091 will be used and adjusted to the applicable date ((of receipt of the forest practices application associated with the qualifying timber)). For easements with an approved forest practices application, the small forest landowner must indicate whether valuation will be calculated using method (a) or (b) of this subsection. Only method (a) of this subsection is available for qualifying timber for which an approved application for timber harvest cannot be obtained because of restrictions under the forest practices rules under WAC 222-21-061. In either method (a) or (b) of this subsection, the time adjustment index will be based on log price changes. The small forest landowner office will determine the specific log species and/or sorts and the log price reporting service to use after consultation with the small forest landowner advisory committee established under RCW 76.13.110(4) and the department of revenue. The small forest landowner office will generate an index that reflects the time adjustments using information and data obtained from a log price reporting service determined by the department in consultation with the small forest landowner committee.

(a) Stumpage value determination. The small forest landowner office will create and maintain value tables to determine stumpage value of the qualifying timber. These tables will be created using a method coordinated with the department of revenue. The values will closely approximate the stumpage value for logs that would be sold in the ordinary course of business for the date of receipt of the forest practices application. The landowner must provide the small forest landowner office with:

(i) The reference for the stumpage value table and any other needed information for use of the table (see the board manual section 17 for details); and

(ii) Any information the small forest landowner would like the department to consider in its cruise and valuation of the qualifying timber.

(b) Small harvester tax return. The landowner must provide mill or buyer information to the department on the sale breakdown. This includes:

(i) The volume and scaling bureau log grades of each species harvested;

(ii) The amount received for each species; and

(iii) The actual harvesting and marketing costs as defined in the department of revenue small harvester instructions.

The price received for the timber is adjusted to the applicable date ((of receipt of the forest practices application)) using the time adjustment index and then the average logging and hauling cost per MBF is subtracted to arrive at the stumpage value. The value of the qualifying timber is determined by multiplying the time adjusted stumpage value of each species in the harvest unit by the net volume for each corresponding species in the inventory of qualifying timber. A residual value approach is used to determine the value of species in the easement, which are not present in the harvest area. The prices for species not present in the harvest unit are based on the delivered log price report approved by the small forest landowner office that corresponds closest to the date of the forest practices application, minus the average logging and hauling costs.

(3) Reduced valuation.

(a) For an easement that allows one or more harvests of qualifying timber during the term of the easement, a reduced valuation rate will be applied to the values obtained using either method in subsection (2) of this section. The reduced rate adjusts the values for reserve and replacement qualifying timber. The rate is based on the proportionate economic value lost to the small forest landowner from the regulatory requirements and adjusted for future harvest options during the term of the easement.

(b) The value of the qualifying timber that may be harvested during the term of the easement will be reduced based on the following formula. Variables will include:

(i) The 29 or more trees in the inner zone;

(ii) The outer zone leave trees;

(iii) Other regulatory requirements.

Place illustration here.

Where:
l	--	Is the rate of return on 30 year treasury bills, as reported by the Federal Reserve Statistical Release H15 less the rate of increase in the Consumer Price Index for all urban consumers as published by the U.S. Department of Labor Bureau of Labor Statistics for the previous 12 months less the anticipated rate of growth expected on the portion of the easement subject to reentry, but not less than zero or greater than 6 percent.
N	--	The single time limit established by the small forest landowner office.

(c) The reduced rate will not be applied to the department of revenue tax data values if the landowner does not intend to reenter the easement area during the length of the 50 year easement. The harvest at the time of the reentry is not required to meet the requirements in WAC 222-21-060 (5) and (6).

[Statutory Authority: Chapter 34.05 RCW, RCW 76.09.040, [76.09.]050, [76.09.]370, 76.13.120(9). 01-12-042, 222-21-045, filed 5/30/01, effective 7/1/01.]

(a) If the high impact regulatory threshold is exceeded for an area covered by an approved forest practices application, then the compensation offered will be increased to 100% for the value of the qualifying timber where the high impact regulatory threshold is exceeded. Use the following calculation:

Where:

Vq = value of qualifying timber;

Vh = value of harvested timber;

t = high impact of regulatory threshold (19.1% for Western Washington, 12.2% for Eastern Washington);

TV = total value of all timber covered under FPA = Vq +Vh; and

HIO - high impact override = (Vq/TV)-t;

Place illustration here.

(((2))) (b) All compensation is subject to available funding.

(((3))) (2) If funding is not available, the small forest landowner office will maintain a priority list for compensation. Priority will be based on (a) date of receipt of forest practice application and (b) date of receipt of completed ((postharvest)) harvest status questionnaire.

(((4))) (3) The small forest landowner office will send the small forest landowner a notice of compensation decision within 60 days of completion of the timber cruise.

(((5))) (4) Compensation for a forestry riparian easement associated with an approved forest practices application will not be paid until:

(a) The department has documented completion of harvest;

(b) The department has verified that there has been compliance with the rules requiring leave trees in the easement area;

(c) Any dispute over the amount of compensation or eligibility or other matter involving the forestry riparian easement has been resolved; and

(d) The forestry riparian easement has been executed and delivered to the department.

(5) Compensation for a forestry riparian easement for which an approved forest practices application for timber harvest cannot be obtained because of restrictions under these rules adopted under RCW 76.09.055 or 76.09.370 will not be paid until:

(a) The department has verified that there has been compliance with the rules requiring leave trees in the easement area; and

(b) Any dispute over the amount of compensation or eligibility or other matter involving the forestry riparian easement has been resolved; and

(c) The forestry riparian easement has been executed and delivered to the department.

[Statutory Authority: Chapter 34.05 RCW, RCW 76.09.040, [76.09.]050, [76.09.]370, 76.13.120(9). 01-12-042, 222-21-050, filed 5/30/01, effective 7/1/01.]

(1) The application has been disapproved based on rules adopted under RCW 76.09.055 or 76.09.370 that require the area covered by the application to be left unharvested; and

(2) The application is for a Class III or Class IV Special forest practice; and

(3) The harvest is not a Class IV General conversion or covered by a conversion option harvest plan; and

(4) The landowner is not eligible for the 20 acre exemption under WAC 222-30-023; and

(5) The value of the qualifying timber is equal to, or exceeds, the minimum required by the department of revenue for taxing purposes ($1,000).

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Washington State Code Reviser's Office