Is $10-Million Stimulus Enough to Sustain State Timber Industry?

By Beacon Staff

The grab for federal stimulus dollars is fully underway in Helena, with advocates for everything from children’s shelters to affordable housing programs making their case before legislators for a small slice of the $626-million pie. Though much of the funds will be allocated to highway improvements, water projects and education, Gov. Brian Schweitzer has inserted an unusual provision into the stimulus spending bill which sets up a $10-million revolving loan fund to sustain the state’s wood products industry.

While the recession has hit every sector of Montana’s economy hard, the timber industry has, arguably, taken the biggest blow, due partially to the fact that those working in wood products have been grappling with declining new home construction for years.

“This would allow mills and manufacturers in the state to borrow from this account to ease the financial pain that we’ve now been under for about three years,” Ellen Simpson, executive vice president of the Montana Wood Products Association, told a legislative panel last week as she urged them to support the loan fund for her embattled industry. “This is about a third of what is actually needed in the long term to keep all of these mills and manufacturers surviving until the markets turn around and until the cash flow situation improves, but it’s a very good start.”

So far, the proposed timber loan fund has drawn strong support from U.S. Sens. Max Baucus and Jon Tester, who helped procure federal dollars for it. Some of Montana’s leading conservation organizations have also backed it. At the March 12 hearing where Simpson spoke, Montana Wilderness Association Executive Director Tim Baker testified in support of the loan fund on behalf of his organization, along with the National Wildlife Federation and Montana Trout Unlimited.

But while backing for the loan fund is widespread, the question persists, even among its supporters, will it be enough?

Under the plan, $7.5 million would be allocated in the stimulus spending legislation, House Bill 645, to set up a revolving loan fund operated by the state Department of Commerce. Additional investments from the U.S. Economic Development Administration, U.S. Department of Agriculture Rural Development and other state programs could grow the fund to $10 million or higher. Montana timber companies would then be able to borrow from this fund to buy logs, pay down other debt, keep employees in place and facilities running until the markets pick up.

As in other industries, the current recession has exacerbated problems in Montana’s wood products industry that already exist: supply issues from decreased harvests on federal land, depressed commodity prices that no longer cover the cost of production, increased fuel costs and less demand for lumber. For many businesses, the credit freeze has only made a tough situation worse.

But while the timber industry has weathered downturns before, this recession’s severity has the potential to shutter many of Montana’s sawmills permanently, effectively eradicating one fifth of the state’s manufacturing sector along with its ability to maintain the health of its forests. Because Montana’s timber industry is so integrated, if the sawmills were to go down, it would set off a chain reaction where loggers, foresters and truckers go down, along with pulp and particle board mills.

“The primary issue for us was if, by losing the industry infrastructure, your workers dissipate, there’s a good chance you lose the industry altogether,” Evan Barrett, chief business development officer for the governor, said. “We didn’t want us to go the way of Colorado and Utah.”

The concept of a revolving loan fund has been in the works for some time, according to Simpson, and Barrett said he has been involved with the idea as far back as last summer. But as the economy nosedived and it grew apparent an economic stimulus would be forthcoming from the federal government, the idea gained traction. The state Department of Commerce, along with the Missoula Area Economic Development Corporation commissioned a report on the effectiveness of a loan fund from Todd Morgan, an economist who directs forest industry research at the University of Montana’s Bureau of Business and Economic Research.

Released in January, Morgan’s report makes the case that a revolving loan fund could “directly benefit one-third to one-half of Montana’s wood products and paper manufacturing industry, with an estimated 1,100 to 1,500 jobs retained and another 500 to 700 jobs restored.” Those jobs represent anywhere from $73 million to $101 million in earnings, according to Morgan’s report, and the corollary effects on the other segments of the timber industry would be even bigger.

But while few question the loan fund’s good intentions, at issue is whether it is large enough to do any good. Morgan based his findings on businesses representing roughly half of the Montana sawmills that would be eligible to borrow from the loan fund. Of those, he determined the funding they needed was $32.4 million. Doubling that to account for the rest of the state’s mills led Morgan to conclude that the loan fund program should be no less than $64.8 million.

In a later interview, Morgan affirmed that a $10-million loan fund is unlikely to help all the mills that need it.

“I think the $10 million is smaller than what would be ideal,” Morgan said. “The loan fund will probably be exhausted before many mills are able to get aid.”

That concern is shared by some in the timber industry planning to apply for loans from the new revolving fund. Loren Rose, controller for Pyramid Mountain Lumber, Inc. in Seeley Lake, said his firm would use the majority of the funds to pay down capital costs on logs and labor. But he estimated that even if Pyramid received a $700,000 loan, which would be a sizable portion of the fund as it stands now, it wouldn’t be enough to cover a month’s worth of logs.

A loan would certainly help and Rose said Pyramid would be grateful for it, but added, “Would it help enough that I could sit here and tell you that I’ll be here next year? No.”

In addition to the size of the loan fund, Rose is also unsure of the timing. The House has yet to pass the bill, and it remains unclear how the state Commerce Department would determine who receives what from the loan fund. The whole idea rests on the assumption, backed up by industry analysts, that the market will bottom out in 2009, and housing starts, along with lumber demand, will pick up again in 2010.

With that in mind, Rose hopes the state can begin to get some of this aid out to mills as soon as the summer, should the legislation pass.

“Any help is going to help us stay in production that much longer,” Rose said. “Every day we run is a day closer to when things get better.”

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