March 30th 2008

Doug Wheeler
Special to The Sacramento Bee
March 30, 2008

On April 11, in a Texas courtroom, a federal bankruptcy judge will make a momentous decision concerning the fate of California's Headwaters Forest and its surrounding watershed.

At issue will be three competing plans for resolving creditors' claims against two affiliates of Maxxam Inc., Pacific Lumber Co. and Scotia Pacific Co., which own 200,000 acres of commercial timberland, the town of Scotia and a sawmill there. Each of the plans is intended to partially meet the demands of various creditor companies, which, together, have lent more than $850 million to the now-insolvent Scotia Pacific Co.

The bankruptcy proceeding is but the latest unfortunate chapter in a tumultuous saga, which began in 1863. I was among those, like the political leadership of both parties in Sacramento and Washington, who believed in 1999 that the Headwaters Forest Agreement struck an appropriate balance between conservation of extraordinary natural values and the continuing viability of a 136-year-old timber company.

Maxxam agreed to the sale of its most venerable old-growth redwood stand, the Headwaters Forest, and to the stringent terms of a 50-year habitat conservation plan, intended to protect endangered species and their habitat on 200,000 acres that were to remain in Maxxam ownership.

The Legislature followed suit, enacting a bill that authorized acquisition of additional old-growth acreage and requiring that terms of the habitat plan be made binding on subsequent owners. In return, state and federal taxpayers contributed $480 million.

After the unanticipated review of timber harvest plans by the State Water Resources Control Board and Maxxam's affiliates' inability to make interest payments, the affiliates sought reorganization under the bankruptcy laws in January 2007. Each of the plan proponents, including Maxxam and the secured creditors, now argues its plan best protects creditors' interests.

Appropriately, Gov. Arnold Schwarzenegger has reminded the bankruptcy court that California taxpayers also have a stake in the outcome of its deliberations. In a well-reasoned statement of position, the governor observes that "(t)he United States and the people of California have a strong interest in a successful reorganization of the Pacific Lumber Company that will result in sound management practices for the future of these lands."

To that end, Schwarzenegger offers five principles against which the reorganization plans should be measured:

• Continued adherence to the Headwaters Forest Agreement and related environmental restrictions.

• Compliance with applicable state and federal rules for forest management.

• Management of affected lands for sustained timber yield and optimal watershed protection.

• Retention of local employment opportunities.

• Reduction in emissions of greenhouse gases.

Both Sen. Dianne Feinstein, who was intimately involved in negotiation of the Headwaters Forest Agreement, and Rep. Mike Thompson, D-St. Helena, have filed similar statements for the court's consideration. Thompson makes two additional arguments which are deserving of emphasis: that all Pacific Lumber Co. and Scotia Pacific Co. lands should remain in a single ownership, so as to facilitate compliance with the habitat conservation plan and to maximize habitat values that would be lost to fragmentation, and that use of additional public funds for conservation purposes should be limited or restricted.

The public has already paid handsomely for the environmental benefits it now derives from perpetual protection of the Headwaters Forest and the 50-year habitat conservation plan, he suggests. At a time of very constrained public resources, it would be difficult to justify an additional expenditure for minimal environmental benefit.

Two of the pending reorganization plans would appear to meet the governor's criteria: the Indenture Trustee (Creditors) Plan, and the Marathon/MRC Plan. The third plan, from Maxxam, contemplates sale and partial development of the marbled murrelet conservation areas to generate estimated revenue of $550 million. Although there may be disagreement whether the sale of these protected lands would yield so much revenue, even if permissible under the habitat conservation plan, there can be no question that fragmentation of these high-quality redwood groves would diminish their habitat value.

The bankruptcy court is called upon to weigh the same competing values which were before us in 1999: how best to produce permanent timber jobs while preserving the conservation values of the timberlands. The court must choose from among the reorganization options that one which best offers the prospect of a careful balance between environmental protection and economic viability, while respecting the creditors' claims. The long history of this controversy suggests that we haven't yet gotten it exactly right, but in the Indenture Trustee and the Marathon/MRC plans, the court has two qualified proposals to restart that effort.

In making yet another attempt, however, the court should follow the guidance provided in the preamble of the Headwaters agreement and the sound judgment of Gov. Schwarzenegger, Sen. Feinstein and Rep. Thompson.